2026-VIL-1238-CESTAT-CHE-CU
  1. Home
  2. 2026-VIL-1238-CESTAT-CHE-CU

CUSTOMS CESTAT Cases

Customs - Duty liability on destruction of duty-free inputs in export oriented units - Appellant, a 100% EOU engaged in pharmaceutical manufacturing, procured raw materials duty-free under Notification No. 52/2003-Customs and Notification No. 22/2003-Central Excise. Certain raw materials became obsolete and unusable and were destroyed within the factory after due intimation to departmental authorities. Revenue initiated proceedings claiming that the notifications prior to 2015 amendments did not permit destruction without payment of duty and that the Foreign Trade Policy could not override statutory provisions - Whether duty is payable on raw materials procured duty-free and subsequently destroyed within the factory under intimation to departmental officials – HELD - The EOU scheme is a composite statutory scheme wherein the Foreign Trade Policy provides the substantive framework and exemption notifications provide the implementation mechanism. These must be read harmoniously, not in isolation. Paragraph 6.15 of the FTP expressly permits destruction of raw materials within the unit after due intimation. Destruction of unusable inputs is a recognized commercial reality expressly permitted under the FTP. In the absence of any allegation of diversion or misuse, and where the appellant complied with all procedural requirements and intimated the department prior to destruction, insisting on duty payment results in artificial liability not contemplated by the scheme. The decisions in Indian Tobacco Association, Mehler Engineered Products, Tyco Electronics and Saint Gobain Crystals support that destruction of obsolete materials under the FTP framework does not attract duty. Conversely, Revenue's reliance on Sandoz, Teva API and Bell Match Company is distinguishable as those cases involved non-compliance with mandatory conditions or violation of notification conditions, whereas here there was admitted compliance – The destruction of raw materials within the factory under due intimation does not attract duty liability. The appellant is not liable to pay Customs or Central Excise duties on duty-free inputs destroyed under intimation as such destruction is in accordance with the Foreign Trade Policy and the EOU scheme - Retrospective application of amendments clarifying destruction of inputs in export oriented units - Prior to 2015, the exemption notifications contained no explicit provision permitting destruction of goods without payment of duty. Vide Notification No. 30/2015-Central Excise and Notification No. 34/2015-Customs dated 25.05.2015, an express provision was inserted permitting destruction of raw materials, consumables, spares and other goods within the unit after intimation to customs authorities - Whether the amendments made in 2015 permitting destruction of inputs are clarificatory and retrospective or only prospective in nature – HELD - A comparative reading of pre-amended and amended notifications shows that while pre-amended notifications were silent, Paragraph 6.15 of the FTP already permitted destruction of raw materials prior to 2015. The amendments merely bring the notifications into line with the policy that already existed. The amendments do not introduce new conditions but merely align the notifications with existing FTP provisions - Accordingly, the amendments introduced vide Notification No. 30/2015-CE and Notification No. 34/2015-Cus are held to be clarificatory and retrospective in nature - Non-sustainability of duty, interest and penalty demands in EOU destruction cases involving bona fide compliance with policy framework - Revenue demanded Customs duty, Central Excise duty, interest and penalties for destruction of duty-free inputs within the factory. The appellant had acted transparently, intimated the department prior to destruction, and followed the policy framework - Whether the demands of duty, interest and penalties are sustainable in law – HELD - Given the findings that destruction of raw materials does not attract duty liability and the amendments permitting such destruction are clarificatory and retrospective, the demand of duty itself is unsustainable. Consequently, the demand for interest also fails. Regarding penalties, established judicial precedents prohibit imposing penalties in cases involving bona fide interpretation of law and absence of mens rea. The record clearly shows the appellant acted transparently, intimated the Department prior to destruction, followed the policy framework, and there is no evidence of suppression, wilful misstatement or intent to evade duty. Revenue has not produced material to rebut this position. Applying settled principles on penalty imposition, the penalties imposed are unsustainable.
Download File
show more Judgements  

Quick Search

/

Advance Search

GST Resources

/

Gst Rate Finder

Tax Vista

Your Weekly Tax Recap

By Kasi Viswanathan V

Weekly Summary

VIL Video

GSTAT Filing Near: Closing Resolutions...
By CA Vivek Jalan

Create Account

Security-Code
New Code?

Log In

New User ? Forgot Password ?

Forgot Password

Security-Code
New Code?
Please Note: This facility is only for Subscribing Members.

Email this page

Security-Code
New Code?

Feedback this page

Schedule a Demo

Schedule a demo to know the features and advantages of VILGST portal. Get to know the tips to find the desired results in faster way.

Security-Code
New Code?

Caselaw Request Form (CRF)

Didn’t find what you are searching for? No worries, please give us the following details and VIL will email you the desired Caselaws at the earliest:

Security-Code
New Code?