2026-VIL-1888-CESTAT-AHM-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Recovery of duty foregone on duty free procurement by 100% EOU - Notification Nos. 22/2003-CE and 52/2003-Cus - The Appellant, a 100% EOU, procured raw materials without payment of duty under the Notifications and executed a bond. The bulk drug manufactured from them failed the quality test and was destroyed within the factory without intimation to the department. On CERA audit observation, SCN demanded the duty foregone with interest and penalty, which the adjudicating authority confirmed and the FAA upheld. The Appellant contended that destruction within the unit is permitted and non-intimation is only a procedural lapse, and that duty can be demanded only on goods cleared into DTA. The Respondent contended that the conditions of the Notifications and the bond were not fulfilled - Whether the duty foregone on duty free raw materials is recoverable where the finished goods manufactured from them were destroyed - HELD - The raw materials were procured duty free on the condition that they are used for manufacture of finished goods for export. The Appellant had bound itself by the bond to pay duty with interest if the raw materials were not used for the intended purpose. There is no dispute that the raw materials were used for manufacture of the finished goods. The intended purpose of allowing duty free procurement was, however, to export the manufactured goods and earn foreign exchange, which was not satisfied. The Foreign Trade Policy provides that no duties are payable on goods destroyed with permission of Customs authorities, but the Appellant did not intimate the department regarding destruction. An exemption notification is to be construed strictly. The conditions of the Notifications not being satisfied, the Appellant is not entitled to the exemption and is liable to pay the duty foregone as per the bond - The duty demand along with interest is upheld - Limitation and demand based on audit observations - Bond executed under Notification Nos. 22/2003-CE and 52/2003-Cus - The SCN for duty foregone on procurements of 2013-14 and 2014-15 was issued in 2018 on the basis of CERA observations. The Appellant contended that the SCN was time barred, that the extended period was wrongly invoked and that the notice was issued without independent investigation - Whether the demand is barred by limitation and is sustainable on the basis of audit observations - HELD - Where a bond is executed undertaking to pay duty if the goods are not used as specified, the normal period of limitation does not apply and the demand is not hit by limitation. The conditions of the bond and the Notifications having been violated, the grounds challenging the extended period or the issue of the SCN without investigation are not sustainable - The demand is not barred by limitation - Penalty - Section 11AC of the Central Excise Act, 1944 - Penalty equal to the duty was imposed on the Appellant. The Appellant had reversed the CENVAT credit on duty paid raw materials with interest on being pointed out by the audit team. The Appellant contended that no fraud, collusion, wilful mis-statement or suppression was involved - Whether penalty under Section 11AC is imposable on the Appellant - HELD - There is no element to suggest that the Appellant had any intention to evade payment of duty, as is clear from its reversal of the CENVAT credit with interest on being pointed out by the audit team. The Notifications require the 100% EOU to pay duty and interest on the goods not used for the intended purpose but do not mandate imposition of penalty - The penalty under Section 11AC is set aside and the appeal is partly allowed.
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