Exemption for EOU clearances to DFRC holders upheld where supplies were not permitted for sale in India.

Clearances by a hundred per cent export-oriented undertaking to DFRC holders against advance release orders were treated as eligible for exemption under Notification No. 125/84-C.E., because the goods were not covered by permission of the Development Commissioner to be sold in India. The notification denies exemption only where such goods are allowed to be sold in India, and supplies to DFRC holders were regarded as deemed exports under the policy. On that basis, the duty demand was held unsustainable.

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Issues: Whether clearances made by a hundred per cent export-oriented undertaking to DFRC holders against advance release orders were eligible for exemption under Notification No. 125/84-C.E., and consequently whether the demand of duty could be sustained.

Analysis: Notification No. 125/84-C.E. exempts excisable goods produced or manufactured in a hundred per cent export-oriented undertaking from duty under Section 3 of the Central Excises and Salt Act, 1944, but denies the exemption where the goods are allowed to be sold in India. The clearances in question were made to DFRC holders and were not covered by the permission of the Development Commissioner. Such clearances were therefore treated as goods not allowed to be sold in India. The Tribunal also noted that the same view had already been taken in the earlier decision on identical clearances and that supplies to DFRC holders are regarded as deemed exports under the policy.

Conclusion: The clearances were eligible for exemption under Notification No. 125/84-C.E., and the duty demand was not sustainable. The assessee's appeal succeeded and the revenue's appeal failed.

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