Clandestine removal and EOU duty demands fail where evidence is uncorroborated and clearances fall within exemption framework

Allegations of clandestine manufacture and removal failed because contemporaneous correspondence, installation verification and the installation certificate contradicted the claim that the unit lacked machinery or production , and the stock and production quantification was found to rest on uncorroborated assumptions rather than a verified manufacturing chain. Clearances from the EOU to the domestic tariff area were held to fall within the applicable charging and exemption framework under the notifications and Board circular, so the duty basis, and consequently interest and penalties, could not be sustained. The demands and penalties were set aside.

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Issues: (i) Whether the allegations of clandestine manufacture and removal, based on stock, production and statement evidence, were sustainable; (ii) whether duty, interest and penalties could be upheld on clearances from the EOU to the domestic tariff area in light of the applicable statutory scheme and exemption notifications.

Issue (i): Whether the allegations of clandestine manufacture and removal, based on stock, production and statement evidence, were sustainable.

Analysis: The record showed contemporaneous correspondence, installation verification and an installation certificate issued by the jurisdictional Assistant Commissioner, which contradicted the allegation that the unit had no machinery or was incapable of production. The reasoning rejected reliance on unverified statements and held that the production and stock-based quantification rested on assumptions, without adequate correlation to process stock, raw material consumption, or the full chain of manufacturing verification.

Conclusion: The allegations of clandestine manufacture and removal were not proved and could not be sustained.

Issue (ii): Whether duty, interest and penalties could be upheld on clearances from the EOU to the domestic tariff area in light of the applicable statutory scheme and exemption notifications.

Analysis: The statutory treatment of EOU clearances to the domestic tariff area was read with the Board circular and the relevant notifications to hold that duty liability, where applicable, was governed by the main charging provision and that the cited exemptions applied to the clearances in question. Once the clearances were held to be nil-rated or exempt, the foundation for demand, interest and penalties disappeared.

Conclusion: The duty demand, interest and penalties were not sustainable.

Final Conclusion: The impugned demands and penalties were set aside and the appeals were allowed.

Ratio Decidendi: A duty demand and penalty cannot survive where the alleged clandestine removals are not established on reliable evidence and the relevant clearances are covered by the applicable charging and exemption framework.

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