An EOU’s indigenous-input DTA clearances qualify under Sl. No. 3 despite an initially incorrect claim.

Goodricke Group operated a 100% EOU manufacturing Instant Tea. It used imported Chinese Oolong Tea for export production, while Instant Tea cleared to the Domestic Tariff Area (DTA) was manufactured wholly from indigenous raw materials, with separate accounts maintained for those inputs.

The appellant claimed concessional treatment under Serial No. 4 of Notification No. 23/2003-C.E. The Department considered that entry unavailable and assessed the clearances under Serial No. 2, issuing four notices that proposed differential duty, including a 2015 supplementary notice that substantially revised the computation and overlapped earlier periods.

The Commissioner confirmed duty of ₹1,13,79,425, interest and an equivalent penalty under Section 11AC, invoking the extended limitation period. The appellant appealed, contending, among other things, that Serial No. 3 applied and that the extended period and penalty were not justified.

1. Whether the DTA clearances, though not eligible under Serial No. 4, were eligible for the benefit under Serial No. 3 of Notification No. 23/2003-C.E., rather than being assessed under Serial No. 2.

2. Whether the extended period of limitation could be invoked where the Department had previously examined the relevant manufacturing facts and the dispute concerned the applicable notification entry and duty computation.

3. Whether the penalty under Section 11AC was sustainable in the absence of evidence of fraud, wilful misstatement or suppression with intent to evade duty.

Serial No. 3 of Notification No. 23/2003-C.E., as amended, applies to qualifying EOU goods manufactured wholly from indigenous raw materials and cleared to the DTA in accordance with the specified Foreign Trade Policy provisions, where like goods manufactured outside an EOU are not wholly exempt or chargeable to a nil rate of duty.

The correct exemption entry must be determined by applying its own conditions; rejection of a claim under one entry does not, by itself, establish that another entry governs.

Under Share Medical Care v. Union of India, an assessee is not barred from claiming a different exemption category where it fulfils that category’s conditions.

Under Nizam Sugar Factory v. Collector of Central Excise, prior departmental knowledge of the material facts weighs against invoking the extended period on the basis of suppression in later notices concerning those facts.

Section 11AC requires the statutory basis for penalty, including the requisite culpable conduct; an incorrect exemption-entry claim alone does not establish wilful suppression with intent to evade duty.

The Tribunal found that the DTA Instant Tea was made wholly from indigenous inputs, relying on the earlier departmental verification and the absence of contrary material in the present proceedings.

It also found that the clearances complied with the relevant Foreign Trade Policy provisions and that like domestic Instant Tea was dutiable, satisfying the remaining conditions of Serial No. 3.

The Department therefore could not move directly from rejecting Serial No. 4 to applying Serial No. 2 without considering Serial No. 3; the duty had to be assessed under the latter entry, with credit for duty already paid.

On limitation, the Tribunal relied on the earlier departmental examination and the sequence of notices to conclude that the Department had knowledge of the material facts and could not invoke the extended period on these facts.

It further held that the dispute arose from the selection of the exemption entry and that the record did not establish deliberate concealment or the other required grounds for Section 11AC penalty.

The equivalent penalty under Section 11AC was set aside, and the appeal and Revenue’s cross-objection were disposed of accordingly.