Duty Demand on 100% EOU for Failure to Achieve Positive NFE Under EXIM Policy Must Be Recomputed as Per Exemption Notifications: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench, has held that while a 100% Export Oriented Unit (EOU) is liable to pay customs and excise duty for failure to achieve positive Net Foreign Exchange (NFE) under the EXIM Policy, the duty demand must be strictly recomputed in accordance with the mechanism prescribed under the EOU exemption notifications. The bench of A.K. Jyotishi (Technical Member) Member and Angad Prasad (Judicial Member) set aside confiscation of goods, redemption fine, and penalties, and remanded the matter for fresh calculation of duty. The case arose from demands confirmed by the department against a 100% EOU for the period 2009-10 to 2011-12, alleging violation of export obligations and non-achievement of positive NFE as mandated under the Foreign Trade Policy (EXIM Policy). On this basis, the department invoked Notification No. 52/2003-Cus and Notification No. 22/2003-CE, demanding customs and excise duty on duty-free imports and domestic procurements, along with confiscation and penalties. The adjudicating authority also ordered confiscation of imported and indigenous capital goods, raw materials, and consumables, and imposed penalties on both the company and its director. CESTAT examined the regulatory framework under the EXIM Policy and noted that the unit was granted a valid Letter of Permission (LOP) and continued to function as a 100% EOU. Although the unit sought in-principle permission to exit the EOU scheme due to business difficulties, the Tribunal emphasised that final exit was granted only in March 2016, with retrospective effect from 1 November 2014. Till that date, the unit legally retained its EOU status under the EXIM Policy, and its Domestic Tariff Area (DTA) clearances were either permitted or subsequently regularised by the Development Commissioner. Therefore, the Tribunal rejected the department’s approach of treating the unit as having exited the EOU scheme at an earlier stage. While agreeing that duty liability can arise due to non-achievement of positive NFE, CESTAT found that the department failed to follow the statutory computation method laid down in the exemption notifications issued under the EXIM framework. The Tribunal noted that duty is recoverable only in proportion to the unachieved portion of NFE, and not on the entire duty foregone. In respect of capital goods, duty must be calculated after allowing prescribed depreciation at the time of debonding. Exports, deemed exports, and permissible DTA clearances made during the EOU period must be factored into NFE calculation. Since these mandatory provisions were ignored, the duty demand was held to be legally unsustainable in its present form. The appellant demonstrated that substantial duty had already been paid on DTA clearances of finished goods, and imports and domestic procurements made after cessation of EOU benefits. CESTAT held that such payments require adjustment against the recomputed duty liability, in line with settled judicial precedents, and directed the adjudicating authority to examine this aspect afresh. A crucial relief granted by the Tribunal was the setting aside of confiscation, redemption fine, and penalties. CESTAT observed that there was no allegation of diversion, clandestine removal, or misuse of duty-free goods. Capital goods were admittedly installed and used for manufacture. Violations under the EXIM Policy had already been addressed separately by the Development Commissioner through penalties under the FTDR Act. The Tribunal held that confiscation under the Customs Act and penalties on both the company and its director were not justified. CESTAT remanded the matter to the adjudicating authority solely for fresh computation of duty in accordance with Notification No. 52/2003-Cus and Notification No. 22/2003-CE read with the EXIM Policy. Directed due consideration of exports, deemed exports, depreciation on capital goods, and duty already paid. Quashed confiscation, redemption fine, and all penalties, including the personal penalty on the director. Case Details Case Title: M/s Diehard Dies Pvt Ltd Versus Customs Commissioner Case No.: Customs Appeal No. 21317 of 2015 Date: 18.12.2025 Counsel For Appellant: R. Nageswara Rao Counsel For Respondent: Ch. Venkat Reddy Click Here To Read Order Read More: GST Penalty on Expired E-Way Bill Quashed Citing Technical Auto-Population Error: Allahabad High Court

Duty Demand on 100% EOU for Failure to Achieve Positive NFE Under EXIM Policy Must Be Recomputed as Per Exemption Notifications: CESTAT

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