Export Oriented Undertaking clearances treated as exports, defeating duty demands, confiscation and penalties on the goods cleared

Clearances by a 100% Export Oriented Undertaking to a domestic unit were treated as removals for export, not domestic sale, because the goods were actually exported out of India. On that basis, the duty demands under the Customs Act and Central Excise Act were not sustainable, and the procedure for such removals was held to fall under Chapter VA, making penalties and confiscation under Rule 173Q inapplicable. The goods manufactured in the undertaking were also covered by Notification No. 125/84-C.E., so no central excise duty could be levied on the clearances. Reliance on DEEC exports did not justify the demands against the manufacturer.

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Issues: Whether the duty demands, confiscation and penalties arising from clearances by a 100% Export Oriented Undertaking to a domestic unit, and from duty-free imports and procurement of indigenous goods linked to export obligation, were sustainable.

Analysis: The clearance of goods from the Export Oriented Undertaking was held to be for export and not a domestic sale, and the goods were in fact exported out of India. On that basis, the duty demands raised under the Customs Act and the Central Excise Act were not sustainable. The applicable procedure for removals from an Export Oriented Undertaking fell within Chapter VA, and penalties and confiscation invoked under Rule 173Q were held inapplicable. The Tribunal also held that the exemption under Notification No. 125/84-C.E. covered the goods manufactured in the Export Oriented Undertaking, and no central excise duty could be levied on the clearances in question. The allegation that the Department could proceed on the basis of the DEEC exports did not justify the impugned demands against the manufacturer.

Conclusion: The duty demands, confiscation and penalties were set aside and relief was granted to the assessee.

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