CESTAT Delhi Sets Aside Duty and Penalties in EOU Marble Import Dispute

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 30.04.2026

CESTAT Delhi Sets Aside Duty and Penalties in EOU Marble Import Dispute

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) in New Delhi recently delivered a significant judgment involving M/s United Natural Stone, a 100% Export Oriented Unit (EOU) based in Udaipur, Rajasthan, and several associated individuals. The case revolved around customs duty assessments, alleged violations of export regulations, and the imposition of substantial penalties. This article provides a detailed overview of the case, its background, key legal issues, arguments from both sides, and the final outcome.

Background of the Case

United Natural Stone operates as a 100% EOU, importing marble blocks duty-free under the Foreign Trade Policy (FTP) and manufacturing marble products for export. The company, along with its partners and associated firms, faced allegations from the Customs Department of violating the ‘Actual User Condition’ of the exemption notification by diverting imported marble blocks to the domestic market instead of using them for export production.

Key Allegations

• United imported 15,104.1 MT of marble blocks duty-free between 2016 and 2020.
• During a factory search in January 2020, a shortage of 8,351.58 MT of marble blocks was discovered.
• The Customs Department claimed these blocks were sold domestically, and that exported marble slabs were made from indigenous marble, not imported blocks.
• The department demanded customs duty on the entire imported quantity and imposed penalties on United and several individuals under sections 114A and 114AA of the Customs Act.

Legal Proceedings and Arguments

Appellants’ Submissions

• Jurisdiction: The defense argued that only the Directorate General of Foreign Trade (DGFT) should handle FTP violations, not Customs.
• StockVerification: They challenged the method used to calculate shortages, citing measurement inconsistencies and processing losses.
• Evidence: The defense highlighted the lack of concrete evidence for clandestine removal, such as buyer identification, transport records, or a money trail.
• ExportDocumentation: They asserted that all exports through third parties were made from indigenous marble, supported by exporter statements.
• ProceduralIssues: The defense criticized the denial of cross-examination rights and the improper admission of statements as evidence under section 138B of the Customs Act.

Revenue’s Submissions

• ExportRecords: The department presented export invoices and purchase orders showing exports of ‘Fantasy Brown’ marble, allegedly of Indian origin.
• FinancialTransactions: Evidence of payments and e-way bills suggested diversion and sale of imported marble blocks.
• OriginofMarble: The department relied on internet sources to claim ‘Harmony Brown’ marble is exclusive to India, supporting their case that imported marble was diverted.

Tribunal’s Findings and Decision

Key Issues Decided

1. DutyDemand: The tribunal found that 6,752.56 MT of marble blocks were still in stock and not diverted, so no duty could be demanded on this quantity. For the remaining 8,351.58 MT, the tribunal ruled that reliance on internet sources and unverified statements was insufficient to prove diversion. The demand for duty was set aside.
2. Penalties: The tribunal held that penalties under sections 114A and 114AA require evidence of collusion, misstatement, or intentional use of false documents. Since imports were made legitimately and no such evidence was found, all penalties were set aside.
3. ProceduralCompliance: The tribunal emphasized the importance of proper evidentiary procedures, including compliance with section 138B for admitting statements.

Final Outcome

• The impugned order was set aside.
• All seven appeals were allowed, and the penalties and duty demands were annulled.

Implications for Export Oriented Units

This judgment underscores the need for:

1. ProperEvidence: Regulatory authorities must rely on concrete evidence, not internet sources or unverified statements, to establish violations.
2. ProceduralFairness: Compliance with legal procedures for admitting evidence and allowing cross-examination is critical.
3. ClearJurisdiction: FTP violations should be handled by the appropriate authority (DGFT), not Customs, unless clear evidence of customs law violations exists.

Conclusion

The United Natural Stone case is a landmark in customs law, highlighting the importance of due process, evidentiary standards, and jurisdictional clarity. It provides valuable lessons for EOUs, exporters, and regulatory authorities alike.

Source: CESTAT Delhi

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