Duty demand on exported texturised yarn failed absent domestic diversion despite duty-free input procurement.

Texturised yarn exported under the DEEC arrangement was not liable to duty merely because the input POY had been received duty free and the goods were said to fall outside Notification No. 178/83. The record showed the appellants acted as supporting manufacturers for a merchant exporter, with export from the factory under sealing and no finding of diversion into the domestic market. In the absence of domestic clearance or diversion, the duty demand was unsustainable, and the penalty also lacked foundation.

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Issues: Whether duty could be demanded on texturised yarn exported under the DEEC arrangement merely because the input POY had been received duty free and the goods were said to be outside Notification No. 178/83, and whether penalty was sustainable.

Analysis: The appellants acted as supporting manufacturers for the merchant exporter and undertook texturising of the imported POY, with the export effected from the factory under sealing. The record showed no finding that the texturised goods were diverted to the domestic market. In the absence of such diversion, a duty demand on the exported goods was not warranted merely because the exemption notification was not otherwise available. Since the goods were exported and no domestic clearance was established, penalty also had no foundation.

Conclusion: Duty demand and penalty were not sustainable and the appeal was allowed.

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