No Excise Duty Payable on Export Goods Damaged in Transit Before Shipment: CESTAT

The Bangalore Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has ruled that central excise duty cannot be demanded on goods cleared for export but damaged in transit and returned to the factory before shipment, holding that in export cases, the “place of removal” is the port of export and not the factory gate. The bench of Dr. D.M. Misra (Judicial Member) and Pullela Nageswara Rao (Technical Member) has set aside a duty demand of ₹34.70 lakh raised against Toyota Kirloskar Auto Parts Pvt. Ltd., along with interest and penalties The appellate/assessee, Toyota Kirloskar Auto Parts Pvt. Ltd., an Export Oriented Unit (EOU), is engaged in the manufacture of gear boxes and transmission assemblies falling under Chapter 87 of the Central Excise Tariff. The dispute arose from two export consignments—February 2008 and January 2012—which met with road accidents while being transported to Chennai Port for export. In both instances, 288 gear boxes were damaged during transit and were brought back to the factory after filing Form D-3 under Rule 16 of the Central Excise Rules, 2002, followed by physical verification by departmental officers. The company contended that the damaged goods were irreparable and sought permission to destroy them, offering to pay duty on the scrap value generated. While the Department had permitted destruction and accepted duty on scrap for the 2008 consignment, it issued a show cause notice in 2013 demanding duty on the full value of goods for both periods, invoking the extended period of limitation. The original adjudicating authority dropped the demand, accepting that the company had followed the prescribed procedure and was eligible for the benefit of Notification No. 22/2003-CE. However, the Commissioner (Appeals) overturned this order, holding that ownership of goods passed to the merchant exporter at the factory gate, goods were not ultimately exported and duty was payable under Section 3(1) of the Central Excise Act, 1944 This prompted Toyota Kirloskar Auto Parts to approach the CESTAT. The central question before the Tribunal was whether excise duty can be demanded on export goods damaged in transit and returned to the factory before shipment, on the ground that the factory gate is the place of removal. The CESTAT held that in export transactions, the “place of removal” is the port of export, not the factory gate. Goods cleared under bond for export remain under the ownership of the manufacturer until export is completed. Since the goods were damaged before reaching the port, they must be treated as destroyed before removal, making them eligible for remission under Rule 21 of the Central Excise Rules, 2002. The Department’s attempt to treat the transaction as a domestic clearance was based on an incorrect legal premise. For the 2008 consignment, the Department had already permitted destruction and accepted duty on scrap, and reopening the issue by invoking the extended limitation period was held to be unsustainable. The Tribunal also rejected the invocation of the extended period, noting that all facts were disclosed to the Department. Destruction was carried out under departmental supervision. No suppression, misstatement, or fraud was alleged in the show cause notice The Tribunal allowed the appeal and granted consequential relief, holding that no excise duty is payable on goods cleared for export but damaged in transit and returned to the factory prior to export. Case Details Case Title: M/s. Toyota Kirloskar Auto Parts Private Limited Versus The Commissioner (LTU) Case No.: Central Excise Appeal No. 20372 of 2017 Date: 28.01.2026 Counsel For Appellant: N. Anand, Advocate Counsel For Respondent: Maneesh Akhoury, Asst. Commissioner (AR) Click Here To Read Order Read More: Excise Dept. To Pay 12% Interest On Rebate Claims Withheld For More Than 12 Years Without Fault On Part Of Exporter: CESTAT

No Excise Duty Payable on Export Goods Damaged in Transit Before Shipment: CESTAT

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