2026 (4) TMI 60 - AT - Central Excise

EOU DTA clearances and declared valuation upheld where exemption conditions were treated as directory and undervaluation was unproved.

A supervised EOU making DTA clearances was found entitled to basic customs duty exemption under the relevant notification, because the clearances were ... Entitlement to exemption from basic customs duty on DTA clearances under the relevant exemption notification - 100% EOU and is manufacturing ‘polished granite slabs’ and ‘marble slabs’ - Mandatory and directory conditions - Burden of proof - Best judgment valuation - Contemporaneous import price - demand based on alleged undervaluation of granite slabs cleared to DTA - Admissibility of evidence. EOU DTA clearances - Exemption from basic customs duty - Directory procedural condition - HELD THAT: - The Tribunal found that the respondent had not placed any positive or admissible evidence to show that the granite slabs cleared to DTA were manufactured from imported granite blocks. The record maintained by the assessee, including audited accounts and data from its system, was noticed, and the impugned order was found to contain no correlation between imports, exports and DTA clearances. The allegation of use of imported blocks for DTA clearances was therefore held unsupported and contrary to the factual position. The Tribunal further held, applying the ratio of M/s. Mangalore Chemicals and Fertilizer Ltd. [1991 (8) TMI 83 - SUPREME COURT] that the condition requiring the assessee to inform the proper officer was procedural and directory, particularly when DTA clearances of the EOU were under the supervision of the Development Commissioner and Customs authorities. The absence of proceedings by DGFT and the finding that export obligations had been complied with also weighed with the Tribunal in holding that the notification benefit was available. [Paras 21] Exemption under the notification was held admissible and the demand founded on denial of basic customs duty exemption on DTA clearances was unsustainable. Undervaluation - Transaction value - HELD THAT: - The Tribunal noted that, being a 100% EOU, assessments at the time of DTA clearances were made by the Customs officer and duty on granite slab clearances was paid on the basis of the values declared in the commercial invoices. It also noticed that ER-2 returns were regularly filed and acknowledged. On the evidence, the Tribunal found that the buyer concerned sourced most of its requirements from other suppliers, yet no comparison had been made by the department with the value of such procurements. In these circumstances, the charge of undervaluation was held not established. [Paras 22] The finding of undervaluation was set aside. Final Conclusion: The Tribunal set aside the impugned orders and allowed the appeals. It held that denial of exemption on DTA clearances and the allegation of undervaluation were both unsupported on the record. Issues: (i) Whether the appellant, a 100% EOU, was entitled to exemption from basic customs duty on DTA clearances under the relevant exemption notification. (ii) Whether the demand based on alleged undervaluation of granite slabs cleared to DTA was sustainable.Issue (i): Whether the appellant, a 100% EOU, was entitled to exemption from basic customs duty on DTA clearances under the relevant exemption notification.Analysis: The appellant established that the DTA clearances were made under the EOU regime, that marble clearances were supported by the directions of the Supreme Court and the Development Commissioner, and that the Department produced no admissible evidence to show that the granite slabs cleared to DTA were manufactured from imported granite blocks. The condition requiring intimation to the proper officer was treated as directory in the context of supervised DTA clearances by the EOU authorities. The appellant was also found to have complied with export obligation, and the benefit of the exemption notification was held available.Conclusion: The appellant was entitled to the exemption, and the demand of basic customs duty was unsustainable.Issue (ii): Whether the demand based on alleged undervaluation of granite slabs cleared to DTA was sustainable.Analysis: The clearances were assessed by the proper customs officer, duty was paid on the declared invoice value, and ER-2 returns were regularly filed. The Department relied on contemporaneous import data and residual valuation, but did not establish a reliable comparison between the appellant's DTA clearances and the alleged comparable imports. The record also showed that the related unit's purchases from the appellant formed only a small part of its turnover, and the evidence was insufficient to reject the declared value.Conclusion: The allegation of undervaluation was not proved and the valuation-based demand failed.Final Conclusion: The impugned orders were set aside and the appeals succeeded with consequential relief under law.Ratio Decidendi: In a supervised EOU DTA-clearance regime, a procedural intimation condition in a beneficial exemption cannot be treated as mandatory in the absence of contrary evidence, and a demand based on undervaluation cannot stand without admissible evidence establishing rejection of the declared value and a proper comparative basis.