Customs exemption conditions for EOU capital goods: unauthorised transfer upheld liability, but fines and penalties were reduced.

Duty-free capital goods imported for use in an export-oriented unit remained subject to the exemption conditions, including prior customs permission for transfer to another unit. Because that permission had not been obtained, the demand and adverse findings were sustained. At the same time, the record did not prove non-utilisation of the goods beyond reasonable doubt, so the monetary consequences were moderated. The impugned order was upheld, but the redemption fine and penalties were reduced.

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Issues: Whether the capital goods imported and procured duty-free for use in the export-oriented unit violated the exemption conditions so as to justify confiscation, duty demand, and penalties, and whether the redemption fine and penalties required reduction.

Analysis: The record did not establish non-utilisation of the capital goods beyond reasonable doubt. The relevant export-import policy permitted inter-unit transfer of goods of an EOU/EPZ unit, subject to accounting and the conditions of the exemption scheme. Under the exemption notification governing the imported goods, transfer to another unit required permission of the Assistant Commissioner of Customs. Since such permission had not been obtained, the demand and adverse findings could not be disturbed. At the same time, the evidentiary deficiency on full non-utilisation justified some moderation in the monetary consequences.

Conclusion: The impugned order was sustained, but the redemption fine and penalties were reduced.

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