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Issues: (i) Whether clearances made by 100% Export Oriented Units to DFRC/ARO holders were covered by Notification No. 125/84-C.E. and outside the expression "allowed to be sold in India"; (ii) Whether supplies made by a 100% Export Oriented Unit in Domestic Tariff Area against payment in foreign exchange under para 9.10(b) of the EXIM Policy were entitled to exemption under Notification No. 125/84-C.E.
Issue (i): Whether clearances made by 100% Export Oriented Units to DFRC/ARO holders were covered by Notification No. 125/84-C.E. and outside the expression "allowed to be sold in India".
Analysis: Notification No. 125/84-C.E. exempts goods manufactured in a 100% EOU from excise duty, subject to the proviso that the exemption does not apply if the goods are allowed to be sold in India. The expression "allowed to be sold in India" was applied in a restricted sense, limited to sales permitted by the Development Commissioner for DTA sale. Clearances to DFRC/ARO holders were not treated as such permitted DTA sales.
Conclusion: The clearances to DFRC/ARO holders were held to be covered by the exemption and not hit by the proviso; the finding was in favour of the assessee.
Issue (ii): Whether supplies made by a 100% Export Oriented Unit in Domestic Tariff Area against payment in foreign exchange under para 9.10(b) of the EXIM Policy were entitled to exemption under Notification No. 125/84-C.E.
Analysis: Supplies made against foreign exchange under para 9.10(b) were treated as counted towards export performance and were not equated with ordinary DTA sales allowed by the Development Commissioner. The supplies were also regarded as deemed exports, and the decision noted that the duty burden would be revenue neutral because terminal excise duty refund would be available.
Conclusion: The supplies against foreign exchange were held to fall within the exemption under Notification No. 125/84-C.E.; the finding was in favour of the assessee.
Final Conclusion: The demands of excise duty and the connected penalties could not survive, and the appeals were allowed with consequential relief.
Ratio Decidendi: Clearances by a 100% Export Oriented Unit are exempt under Notification No. 125/84-C.E. unless they are sales expressly permitted as DTA sales in India; supplies treated as deemed exports or made against foreign exchange do not amount to goods "allowed to be sold in India" for the purpose of denying the exemption.
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