Export-oriented unit supplies treated as exports under the EXIM Policy, defeating excise duty demand and penalty.

Supplies made by an Export Oriented Unit under paragraph 9.10 of the EXIM Policy 1997-2002 were treated as export-performance supplies, not domestic tariff area sales, so central excise duty could not be demanded on them. The distinction between paragraph 9.9 domestic sales and paragraph 9.10 supplies was decisive, and Notification No. 2/95 did not apply because it governed goods sold to the Domestic Tariff Area. Acceptance of the supplies by the Development Commissioner as fulfilling export obligations meant a contrary excise view would undermine the export promotion scheme, and the penalty also could not survive.

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Issues: Whether supplies made by an Export Oriented Unit under paragraph 9.10 of the EXIM Policy 1997-2002 were liable to central excise duty and consequential penalty.

Analysis: The distinction between sales to the Domestic Tariff Area under paragraph 9.9 and supplies under paragraph 9.10 was material. Supplies under paragraph 9.10 are counted towards export performance and are treated as exports in the policy framework. Notification No. 2/95 was held inapplicable because it dealt with goods sold to the Domestic Tariff Area and did not govern supplies under paragraph 9.10. Once the Development Commissioner had accepted the supplies as fulfilling export obligations, a contrary view by the excise authorities would defeat the export promotion scheme.

Conclusion: Duty demand on the paragraph 9.10 supplies was unsustainable and the penalty also could not survive.

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