Waste cleared from export manufacturing units cannot attract duty demand merely for lack of strict input-output correlation.

Duty demand on waste cleared from a unit manufacturing export and domestic goods was held unsustainable where export compliance was established, exports exceeded the prescribed norm, and the waste had been cleared through GP1s. The technical objection that a strict one-to-one correlation could not be made between duty-free inputs for export production and the waste cleared was rejected, because simultaneous production made segregation impracticable and the waste was treated as exempt from duty. The demand was therefore set aside with consequential relief.

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Issues: Whether duty demand on waste arising during manufacture of export goods was sustainable when one-to-one correlation between duty-free inputs and waste cleared could not be established.

Analysis: The appellants' factory carried on export and domestic production simultaneously, making segregation of export production from other production impracticable. The evidence showed that the export obligation had been fulfilled, exports exceeded the prescribed norm, and waste had in fact been cleared from the factory through GP1s. The demand was raised only on the technical objection that the waste could not be directly correlated with the duty-free inputs received for export production. The waste was also treated as exempt from duty. In these circumstances, strict one-to-one correlation was not considered practicable or necessary.

Conclusion: The duty demand was unsustainable and the appellants' contention was accepted.

Final Conclusion: The appeal succeeded and the demand order was set aside with consequential relief.

Ratio Decidendi: Where export production and other production are carried on simultaneously and the assessee has otherwise established export compliance and emergence of exempt waste, duty demand cannot be sustained merely for want of strict direct correlation between duty-free inputs and the waste cleared.

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