Physical removal required for EOU duty liability; mere sale of capital goods does not trigger deemed clearance or penalty

Sale of duty-free imported capital goods by a 100% EOU did not amount to deemed removal or debonding where the goods remained within the unit and were not physically cleared, because the policy and exemption notification required actual physical removal or debonding and contained no express deeming fiction. On that basis, customs duty was not attracted. The extended limitation period was also unavailable because the department was aware of the de-bonding transaction and there was no fraud or suppression; accordingly, confiscation and penalty could not survive once the demand failed. The impugned order was set aside and the appeal succeeded.

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Issues: (i) Whether sale of duty-free imported capital goods by a 100% EOU, without physical removal from the unit, amounted to deemed removal or debonding so as to attract customs duty; (ii) whether the extended period of limitation, confiscation and penalty could be sustained.

Issue (i): Whether sale of duty-free imported capital goods by a 100% EOU, without physical removal from the unit, amounted to deemed removal or debonding so as to attract customs duty.

Analysis: The applicable foreign trade policy permitted an EOU to import capital goods for approved activity and did not make ownership a condition for availing exemption. The notification governing clearance or debonding required goods to be taken outside the unit or debonded in accordance with the policy before duty could be demanded. In the absence of any express deeming provision, mere change of title or invoicing of the goods could not substitute for physical removal from the EOU. Since the capital goods remained within the unit and were not physically cleared, the taxable event for duty did not occur.

Conclusion: The demand on merits was not sustainable and was answered in favour of the assessee.

Issue (ii): Whether the extended period of limitation, confiscation and penalty could be sustained.

Analysis: The assessee had obtained permission to exit the EOU scheme and the department had verified the duty payable at the time of de-bonding, which showed departmental awareness of the transaction. In the absence of fraud or suppression, the extended limitation under customs law was unavailable. Once the demand itself failed, confiscation and penalty could not survive.

Conclusion: The extended period, confiscation and penalty were not sustainable and were decided in favour of the assessee.

Final Conclusion: The impugned order was set aside, the appeal succeeded, and any consequential refund was left to follow in accordance with law.

Ratio Decidendi: Sale of capital goods by an EOU does not amount to clearance, debonding or taxable removal unless the goods are physically removed or the statute expressly creates a deeming fiction; in the absence of suppression, the extended period and consequential penalty provisions cannot be invoked.

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