Conditional exemption under DEEC scheme fails when export obligation is not met and duty-free imports are sold domestically.

Benefit under a conditional exemption notification for duty-free imports under the DEEC scheme is lost when the prescribed export obligation is not fulfilled, and admitted diversion of the imported goods to the domestic market attracts duty liability. The text notes that non-utilisation of the goods for export performance, for whatever reason, disentitles the importer from the exemption and supports confirmation of the duty demand. It also records that where duty was paid before issuance of the show-cause notice, the personal penalty may be moderated rather than fully sustained, leading to a reduced penalty in the stated case.

---

---

Issues: (i) Whether duty was leviable on goods imported duty-free under the DEEC scheme when they were not used for fulfilment of export obligation and were sold in the domestic market; (ii) whether the personal penalty required reduction in view of payment of duty before issuance of the show-cause notice.

Issue (i): Whether duty was leviable on goods imported duty-free under the DEEC scheme when they were not used for fulfilment of export obligation and were sold in the domestic market.

Analysis: The imported goods were covered by Notification No. 80/95-Cus., under which duty-free importation was available only subject to fulfilment of the export obligation. The admitted sale of the imported material in the domestic market and the non-utilisation of the same for export performance established failure to satisfy the condition of the exemption. Non-fulfilment of the export obligation, for whatever reason, disentitled the importer from the notification benefit and attracted duty liability.

Conclusion: The duty demand was correctly confirmed against the assessee.

Issue (ii): Whether the personal penalty required reduction in view of payment of duty before issuance of the show-cause notice.

Analysis: While upholding the duty demand, the Tribunal took note that the duty had been deposited before issuance of the show-cause notice. In the circumstances, the penalty was considered excessive and warranted moderation.

Conclusion: The personal penalty was reduced from Rs. 5 lakhs to Rs. 3 lakhs.

Final Conclusion: The duty demand was sustained, but the penalty was reduced, resulting in only partial relief to the assessee.

Ratio Decidendi: Benefit of a conditional exemption notification is lost when the prescribed export obligation is not fulfilled, and admitted diversion of duty-free imported goods to the domestic market justifies confirmation of duty liability.

---