Imported Marble Diversion Into Domestic Market Not Supported By Evidence: CESTAT Quashes 10.80 Crore Customs Duty Demand On EOU

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has set aside a customs duty demand of over ₹10.80 crore raised against M/s United Natural Stone, a 100% Export Oriented Unit (EOU), holding that the allegations of diversion of imported marble into the domestic market were not supported by credible evidence. The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), also quashed penalties imposed on the company and its partners, delivering a major relief to the appellants. The dispute arose from an order passed by the Commissioner of Customs (Preventive), Jodhpur, confirming a demand of ₹10.80 crore under Section 28(4) of the Customs Act, 1962 for the period between June 2016 and January 2020. The department alleged that the appellant, despite availing duty exemption under Notification No. 52/2003-Cus as a 100% EOU, violated the “actual user condition” by diverting imported marble blocks into the domestic market instead of using them for export production. Additionally, equal penalty under Section 114A and multiple personal penalties under Section 114AA were imposed on partners and associated persons. During a search conducted in January 2020, authorities reported significant shortages in stock, including thousands of metric tonnes of imported marble blocks and processed goods. Based on stock discrepancies and analysis of imports (over 15,104 MT of marble), the department concluded that around 8,351.58 MT had been diverted into the domestic market, while export obligations were allegedly fulfilled using domestically sourced marble. The case largely relied on the statements of third-party exporters, export invoices indicating “Harmony Brown” marble (allegedly Indian origin) and financial transactions suggesting diversion Out of the total quantity, 6,752.56 MT of marble was admittedly found in stock at the unit. The Tribunal held that no duty could be demanded on goods physically available and not diverted. For the remaining 8,351.58 MT, the Tribunal held that the department failed to produce any concrete evidence of clandestine removal such as: Identification of buyers; Transport details; Seizure of goods in transit; and Money trail The conclusion of diversion was based on assumptions rather than proof. A crucial aspect of the case was the department’s claim that “Harmony Brown” marble is exclusively available in India, and therefore exports must have used domestic marble. The Tribunal strongly disapproved this reasoning, stating that the reliance on Wikipedia or internet sources cannot form the sole basis for fastening duty liability. No expert opinion from competent authorities (like Geological agencies) was obtained Thus, the inference drawn by the department was held to be legally unsustainable. The Tribunal further held that statements recorded during investigation cannot be relied upon unless the procedure under Section 138B of the Customs Act is followed. Since witnesses were not examined properly, cross-examination was deniedand statements were not formally admitted as evidence, the Tribunal ruled that such statements had no evidentiary value. The Tribunal clarified that there was no evidence of fraud, suppression, or wilful misstatement at the time of import. The appellant was a valid EOU entitled to exemption At best, any alleged violation would be a post-import condition breach, which does not attract penalty under Section 114A. The equal penalty imposed on the company was set aside. Penalties imposed on partners and other individuals under Section 114AA were also struck down. The Tribunal noted no false declaration or document was established. Mere alleged non-compliance with post-import conditions does not amount to intentional misstatement Thus, all personal penalties were held to be unsustainable. Allowing all seven appeals, the Tribunal set aside the entire duty demand, quashed penalties on the company and individuals and held that the department failed to establish diversion or misuse of exemption. Case Details Case Title: M/s United Natural Stone (100% EOU) Versus Customs Commissioner Citation: JURISHOUR-967-CES-2026(DEL) Case No.: CUSTOMS APPEAL NO. 50089 OF 2024 Date: 27.04.2026 Counsel For Appellant: A.K. Prasad Counsel For Respondent: Bhagwat Dayal Click Here To Read Order Read More: Karnataka High Court Upholds GST Cross-Empowerment: State Tax Officers Can Act as ‘Proper Officers’ Under IGST Without Separate Notification

Imported Marble Diversion Into Domestic Market Not Supported By Evidence: CESTAT Quashes 10.80 Crore Customs Duty Demand On EOU

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