Export-oriented exemption for capital goods survives where use in production and compliance are proved, defeating duty and confiscation claims.

A 100% export oriented undertaking could not be subjected to duty, confiscation, or penalty on capital goods where the goods were installed and used for export production and the export-linked conditions of the exemption were satisfied. The adjudicating authority's own findings showed use within the zone, exports far exceeding the value of the capital goods, and the required value addition; the Development Commissioner also recorded compliance with the letter of approval and export obligation. On that factual record, violation of the exemption conditions was not established, and the alternative theory of deemed removal from the zone failed because actual removal was not proved.

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Issues: Whether duty, confiscation, and penalty could be imposed on capital goods imported or procured without duty by a 100% export oriented undertaking on the footing that the goods had fallen into disuse, the letter of approval had expired, and the goods were deemed to have been removed from the zone.

Analysis: The exemption notifications applied to capital goods intended for use in the manufacture of export goods, and the adjudicating authority had itself recorded findings that the goods were installed and used within the zone for export production. The factual position that exports were made to a value far exceeding the capital goods and that the required value addition was achieved was not successfully controverted. The Development Commissioner also recorded compliance with the letter of approval and export obligation and dropped proceedings under the foreign trade regime. On these facts, violation of the exemption conditions was not established, and the legal basis for confiscation or penalty did not survive. The alternative theory of deemed removal from the zone was also rejected, since the goods were not shown to have been removed and the demand was not sustainable on that footing.

Conclusion: Duty demand, confiscation, and penalty on the impugned capital goods were not justified, and the assessee succeeded.

Final Conclusion: The common order was set aside to the extent adverse to the assessee, and the Revenue's challenge failed while the assessee obtained relief on the duty demand relating to the capital goods.

Ratio Decidendi: Where a 100% export oriented undertaking establishes compliance with the export-linked conditions of the exemption and the goods have been used for export production, duty cannot be demanded on capital goods merely on an allegation of disuse, lapse of approval, or deemed removal without proof of actual violation of the notification conditions.

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