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Issues: (i) Whether duty could be demanded under Rule 9(2) of the Central Excise Rules, 1944 on export goods of a 100% EOU that were damaged in an accident, brought back to the factory with permission, and were not exported. (ii) Whether penalty under Rule 173Q of the Central Excise Rules, 1944 was sustainable against an EOU in respect of such clearances.
Issue (i): Whether duty could be demanded under Rule 9(2) of the Central Excise Rules, 1944 on export goods of a 100% EOU that were damaged in an accident, brought back to the factory with permission, and were not exported.
Analysis: Rule 9(2) operates only where there is a violation of Rule 9(1). The goods were removed for export under bond, the accident was promptly intimated, the damaged goods were brought back into the factory with the permission of the proper officer, and the department accepted that the goods were unfit for export. In these circumstances, there was no basis to treat the removal as one attracting duty under Rule 9(2). The duty could arise, if at all, only at the stage and in the manner contemplated for removal from the EOU under the relevant notification, not by a premature demand.
Conclusion: The demand of duty under Rule 9(2) was not sustainable and was set aside in favour of the assessee.
Issue (ii): Whether penalty under Rule 173Q of the Central Excise Rules, 1944 was sustainable against an EOU in respect of such clearances.
Analysis: Rule 173Q was held to be excluded and inapplicable to clearances effected by the EOU in terms of Rule 173A(2). Since the goods had been dealt with in the course of export clearances and the statutory procedure for reporting and returning the damaged goods had been followed, the foundation for penalty was absent.
Conclusion: The penalty under Rule 173Q was not sustainable and was set aside in favour of the assessee.
Final Conclusion: The order confirmed the setting aside of both duty and penalty, with the appeal succeeding in full.
Ratio Decidendi: Duty cannot be demanded under Rule 9(2) where export goods removed under bond are lawfully brought back after accidental damage and no violation of Rule 9(1) is established, and penalty provisions excluded for EOU clearances cannot be applied to such transactions.
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