EOU debonding and duty liability: closing stock is taxed under the main charging provision, not the special proviso.
The proviso to Section 3(1) of the Central Excises and Salt Act, 1944 applies only where goods are specifically allowed to be sold in India under the relevant export policy. Permission to debond a 100% export-oriented unit is distinct from permission to sell goods in the Domestic Tariff Area, and debonding by itself does not convert closing stock into goods covered by the proviso. Finished goods lying in stock on debonding of an EOU were therefore outside the special proviso and were chargeable under the main charging provision of Section 3(1).
Issues: Whether finished goods lying in stock of a 100% Export Oriented Unit on debonding were chargeable to duty under the proviso to Section 3(1) of the Central Excises and Salt Act, 1944, or under the main charging provision in Section 3(1).
Analysis: The proviso to Section 3(1) applies to goods produced or manufactured in a free trade zone or by a 100% export-oriented undertaking when such goods are allowed to be sold in India under the export-import policy. Permission to debond an EOU and permission to sell goods in the Domestic Tariff Area are distinct concepts, granted by different authorities for different purposes. Debonding does not itself amount to permission to sell the closing stock in India under the policy framework governing DTA sales by EOUs. The special proviso, therefore, could not be extended to finished goods of an undertaking that had ceased to be under the EOU scheme and was only clearing its stock on debonding.
Conclusion: The proviso to Section 3(1) was inapplicable to the finished stock on debonding, and duty was payable under the main charging provision, not under the proviso.
Ratio Decidendi: The proviso to Section 3(1) of the Central Excises and Salt Act, 1944 applies only where goods are specifically allowed to be sold in India under the relevant export policy, and debonding of a 100% EOU does not by itself amount to such permission.
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