Legal principle

Where duty-free import benefits under a notification are availed by assessment to nil rate of duty and its conditions are violated, the resultant short levy must be demanded under Section 28(1) of the Customs Act, and the Revenue's failure to alternatively invoke Section 72 does not vitiate the demand or the penalties under Sections 112(a) and 114A.

Court decision

The Tribunal rejected all the appellants' contentions, held the impugned Order-in-Original legal and correct requiring no interference, and dismissed both appeals, upholding the duty demand of Rs.49,88,529 under the proviso to Section 28(1), interest under Section 28AB, and the penalties under Sections 114A and on the Managing Director.

Facts

M/s Eastern Silk Industries Ltd (formerly Stella Silks), a 100% EOU manufacturing mulberry silk fabrics, was permitted to import capital goods and raw silk yarn duty free under Notification No.13/81 and began imports in September 1994. On information that the appellant had diverted duty-free imported raw material into the local market in violation of the EOU scheme, authorities searched factory, office and residential premises and found a shortage of 15,543.40 kgs of raw silk yarn. A show-cause notice was issued for recovery of duty foregone and penalties; the Commissioner confirmed a demand of Rs.49,88,529 under the proviso to Section 28(1), appropriated Rs.18 lakhs already paid, charged interest under Section 28AB, imposed an equal penalty under Section 114A on the company and Rs.10 lakhs on the Managing Director. The Tribunal earlier dismissed the appeal, but the Karnataka High Court set aside that order and remanded the matter for consideration of 19 contentions on the merits of the show-cause notice.

Key provisions

• Section 72, Customs Act, 1962 — Goods improperly removed from warehouse, etc
• Section 28, Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 114A, Customs Act, 1962 — Penalty for short-levy or non-levy of duty in certain cases
• Section 112, Customs Act, 1962 — Penalty for improper importation of goods
• Section 65, Customs Act, 1962 — Manufacture and other operations in relation to goods in a warehouse
• Section 117, Customs Act, 1962 — Penalties for contravention etc not expressly mentioned
• Section 59, Customs Act, 1962 — Warehousing bond
• Section 46, Customs Act, 1962 — Entry of goods on importation
• Section 71, Customs Act, 1962 — Goods not to be taken out of warehouse except as provided by this Act
• Section 17, Customs Act, 1962 — Assessment of duty
• Section 61, Customs Act, 1962 — Period for which goods may remain warehoused
• Section 68, Customs Act, 1962 — Clearance of warehoused goods for home consumption