Supreme Court upholds Penalty for Violating EOU Scheme by Removing Duty-Free Capital Goods without Authorization [Read Judgement]

In a recent ruling, the Supreme Court of India upheld the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) order imposing a Rs. 50 lakh penalty for violating the Export Oriented Unit (EOU) exemption scheme. The appeal was rejected on the grounds of a 122-day delay and lack of merit.

The case originated after the department alleged that Elentec India, a 100% EOU engaged in manufacturing parts of mobile phones under the Electronics Hardware Technology Park scheme, had removed duty-free imported and indigenous capital goods from its bonded premises to a Domestic Tariff Area (DTA) unit without authorization.

The goods were allegedly shifted to D&Y Technologies Pvt. Ltd., a job worker, without payment of customs or excise duties and without following prescribed procedures.

The Adjudicating Authority confiscated the goods valued at approximately Rs. 3 crore under Section 111(j) of the Customs Act, 1962, and Rule 25 of the Central Excise Rules, 2002. A customs duty demand of Rs. 71.89 lakh and an excise duty demand of Rs. 5,600 were confirmed, along with penalties of equal amounts and a redemption fine of Rs. 75.10 lakh. The Commissioner (Appeals) later upheld the order.

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The two-member CESTAT bench comprising Mr. P.K. Choudhary (Judicial Member) and Mr. Sanjiv Srivastava (Technical Member) observed that the removal of machinery to a non-EOU unit without permission breached the mandatory conditions of the exemption notifications.

The tribunal explained that job work permissions applied only to inputs and not capital goods, and denied the benefit of depreciation claimed by the company. The CESTAT upheld the confiscation, duty demand, and penalties but reduced the redemption fine to Rs. 50 lakh, observing that ignorance of law could not be a defense.

The Supreme Court bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan observed that the delay in filing the appeal was not satisfactorily explained and pointed out that no valid reason existed to interfere with the CESTAT’s order.

The Supreme Court dismissed the appeal on the grounds of delay and merit and ordered that all pending applications, including those for condonation of delay and stay, stood disposed of.

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