Granite classification and EOU exemption depend on actual processing and verified compliance, with procedural lapse alone insufficient.

Classification of DTA clearances of granite products turned on the actual extent of processing: roughly cut, trimmed or sawn granite could remain in Chapter 25, while further polishing and proper sizing could support Chapter 68. The record required fresh examination, so the classification question was remanded. On inter-unit clearances between EOUs, denial of notification benefits and duty demand could not rest solely on the absence of prior approval where post facto approval had been obtained and receipt or use of duty-free inputs still had to be verified. The matter was set aside and remanded for fresh adjudication on classification, exemption eligibility, duty liability and consequential penalties.

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Issues: (i) Whether the DTA clearances of granite products were classifiable under Chapter 25 as claimed by the assessee or under Chapter 68 as confirmed in the adjudication order. (ii) Whether the clearances from one 100% EOU to another EOU, and the denial of notification benefits and duty demand on that basis, were sustainable.

Issue (i): Whether the DTA clearances of granite products were classifiable under Chapter 25 as claimed by the assessee or under Chapter 68 as confirmed in the adjudication order.

Analysis: The classification depended on the nature of the processing undertaken on the quarried granite. If the goods were only roughly cut, trimmed or sawn, they could remain within Chapter 25. If, however, they were further processed by polishing and proper sizing, classification under Chapter 68 could arise. The record required examination of the actual manner of clearance and processing before a final classification could be fixed.

Conclusion: The issue was not finally decided and was sent back for fresh determination by the adjudicating authority.

Issue (ii): Whether the clearances from one 100% EOU to another EOU, and the denial of notification benefits and duty demand on that basis, were sustainable.

Analysis: The absence of prior approval for inter-unit transfer was treated as a procedural breach, and post facto approval had been obtained. The demand could not rest only on that procedural lapse if the entire quantity had been received by the sister unit and the duty-free inputs had been used in the appellant's factory. The entitlement to notification benefits and the possible invocation of the bond still required verification of accountal, fulfilment of the conditions, and compliance with the NFE-related requirements.

Conclusion: The issue was remanded for verification of receipt, accountal, and fulfilment of the relevant notification conditions.

Final Conclusion: The impugned order was set aside and the matter was remanded for fresh adjudication on classification, duty liability, notification eligibility, and consequential penalties after giving the assessee an opportunity to place the supporting evidence.

Ratio Decidendi: Classification and exemption claims in EOU cases must be determined on the actual nature of processing and on verified compliance with substantive notification conditions, while a mere procedural breach, without more, is insufficient to sustain duty demand.

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