Export oriented unit clearances: concessional duty sustained where domestic sales matched policy permissions and no suppression was shown.

Domestic tariff area clearances by a 100% export oriented unit were treated as consistent with the Foreign Trade Policy where the cleared and exported goods fell within the same broad pharmaceutical heading, the unit had achieved export performance and positive net foreign exchange, and the Development Commissioner had granted permission. On that basis, the unit remained entitled to concessional duty under Notification No. 23/2003-C.E. The differential duty demand, penalty, and extended limitation also failed because the clearances were disclosed in returns, subject to audit, and no suppression or concealment was established.

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Issues: (i) whether the domestic tariff area clearances made by the 100% export oriented unit violated Paragraph 6.8(a) or 6.8(k) of the Foreign Trade Policy and were ineligible for concessional duty under Notification No. 23/2003-C.E.; (ii) whether the differential duty demand, penalty and invocation of the extended period of limitation were sustainable.

Issue (i): whether the domestic tariff area clearances made by the 100% export oriented unit violated Paragraph 6.8(a) or 6.8(k) of the Foreign Trade Policy and were ineligible for concessional duty under Notification No. 23/2003-C.E.

Analysis: The goods cleared in the domestic tariff area and the goods exported were held to fall within the same broad pharmaceutical heading, and therefore to be similar goods for purposes of the policy and notification. The entitlement for domestic tariff area sales was read in the context of export performance, positive net foreign exchange, and the permissions granted by the Development Commissioner. The clearance pattern, including advance domestic tariff area sales in the pharmaceutical sector, was found to be within the policy framework and not contrary to Paragraph 6.8(a) or 6.8(k). The interpretation adopted by the revenue was rejected in favour of the broader policy-based understanding of similar goods and entitlement.

Conclusion: The domestic tariff area clearances were held to be in accordance with the Foreign Trade Policy and the assessee was entitled to concessional duty.

Issue (ii): whether the differential duty demand, penalty and invocation of the extended period of limitation were sustainable.

Analysis: The record showed that the clearances had been disclosed through returns and were subject to departmental audit and development commissioner approvals, with no concealment or suppression established. Since the substantive demand itself failed on merits, the penalty and extended limitation also could not survive. The departmental objection was further rejected on the ground that the competent authority under the export policy had already accepted the clearances.

Conclusion: The differential duty demand, penalty and extended limitation were held to be unsustainable.

Final Conclusion: The impugned order could not be sustained in law, and the assessee succeeded on the merits of the dispute concerning domestic tariff area sales by the export oriented unit.

Ratio Decidendi: Where the competent export-policy authority has permitted the domestic tariff area clearances and the goods cleared and exported are commercially and broadly similar, the revenue cannot deny concessional duty or invoke limitation and penalty merely by adopting a narrower classification-based objection contrary to the policy framework.

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