Indigenous raw material proof required for EOU exemption; contractual recital alone is insufficient, and duty demand sustained.

Exemption under Notification No. 8/97-C.E. for clearances from a 100% EOU to the Domestic Tariff Area required proof that the finished goods were made exclusively from indigenous raw materials. A contractual recital that no imported raw materials would be used was held insufficient without records showing actual non-use of imported inputs for the relevant period, so the exemption claim failed. Reliance on Notification No. 2/95 was not entertained because it was raised for the first time at the hearing and its factual basis could not be verified. The duty demand and penalty were sustained.

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Issues: Whether the assessee was entitled to exemption under Notification No. 8/97-C.E. for clearances from a 100% EOU to the Domestic Tariff Area, and whether the penalty and duty demand were liable to be interfered with.

Analysis: The exemption claimed under Notification No. 8/97-C.E. depended on proof that the finished goods were manufactured solely from indigenous raw materials. The agreement indicating that no raw materials were to be imported was held insufficient by itself to establish actual non-use of imported materials. In the absence of records for the relevant period showing that the terry towels cleared to the Domestic Tariff Area were made only from indigenous inputs, the claim to exemption remained unsubstantiated. The alternative reliance on Notification No. 2/95 was not entertained because it was raised for the first time at the hearing stage and its factual foundation could not be ascertained at that stage.

Conclusion: The exemption claim failed, and the duty demand and penalty were sustained against the assessee.

Ratio Decidendi: An exemption from duty available only on proof of exclusive use of indigenous raw materials cannot be granted on the basis of a contractual recital alone; the assessee must substantiate the factual foundation with records.

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