Export obligation breach under duty-free exemption schemes can trigger duty recovery, confiscation and penalty despite a limitation defence.

Duty-free imports and indigenous procurements under an export-oriented exemption scheme remained subject to a continuing export obligation, and breach of that condition justified recovery of duty, confiscation and penalty. The limitation plea was rejected because the liability arose from failure to satisfy the exemption conditions, not a mere short-levy situation. Jurisdiction to deal with the customs and central excise demands was upheld on the basis of the administrative scheme and the controlling circular. Duty, redemption fine and penalty were required to be computed on depreciated value, and the AR-4 export claim had to be reconsidered on the basis of collateral evidence after giving the assessee an opportunity to produce material.

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Issues: (i) Whether the adjudicating authority lacked jurisdiction to decide the customs and central excise demands. (ii) Whether the demands were barred by limitation. (iii) Whether breach of export obligation under the exemption notifications rendered the duty-free goods liable to duty, confiscation and penalty, and whether valuation had to be on depreciated value. (iv) Whether the demand relating to goods cleared under AR-4 could be sustained without proof of export.

Issue (i): Whether the adjudicating authority lacked jurisdiction to decide the customs and central excise demands.

Analysis: The exemption scheme and the administrative control over 100% export-oriented units placed the matter within the competence of the Commissioner of Central Excise, Jaipur. The challenge to jurisdiction was not supported in the face of the Central Government circular conferring such authority and the undisputed fact that the proceedings also involved central excise issues.

Conclusion: The jurisdictional objection was rejected and was against the assessee.

Issue (ii): Whether the demands were barred by limitation.

Analysis: The duty-free clearance of imported and indigenous goods was subject to a continuing export obligation. Failure to fulfil that obligation did not amount to a mere short-levy situation attracting the normal limitation plea, but gave rise to recovery in the course of confiscation and consequential proceedings under the exemption regime. On that basis, limitation was not available as a defence to the principal duty demand.

Conclusion: The demand was held not to be time-barred and this issue was decided against the assessee.

Issue (iii): Whether breach of export obligation under the exemption notifications rendered the duty-free goods liable to duty, confiscation and penalty, and whether valuation had to be on depreciated value.

Analysis: The goods were imported and procured duty-free on the condition of exporting the manufactured goods for the stipulated period. As the unit had not discharged that condition and had sought debonding, liability to customs and central excise duty followed. The goods were also liable to confiscation and penalty. However, the quantum of duty, redemption fine and penalty had to be worked out on the depreciated value in accordance with the Board's instructions.

Conclusion: Liability to duty, confiscation and penalty was upheld, but reassessment on depreciated value was directed in favour of the assessee to that limited extent.

Issue (iv): Whether the demand relating to goods cleared under AR-4 could be sustained without proof of export.

Analysis: The claim of export could not be rejected merely for want of the AR-4 proof if collateral evidence could establish actual export. The matter required re-examination and the assessee had to be given an opportunity to produce supporting material.

Conclusion: The issue was remanded for fresh consideration and was partly in favour of the assessee.

Final Conclusion: The adjudication was sustained on the merits of duty liability, confiscation and penalty, but the matter was sent back for recomputation on depreciated value and for re-examination of the AR-4 export claim after giving an opportunity to adduce evidence.

Ratio Decidendi: Where duty-free import or procurement is granted subject to a continuing export obligation, breach of that obligation can justify recovery of duty together with confiscation and penalty, and the demand is not defeated merely by invoking normal limitation applicable to short-levy cases.

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