Domestic market diversion of export goods attracts duty and confiscation, while fine and penalty may be reduced for limited non-compliance.

Goods cleared into the domestic market without duty remained liable to central excise even though most production was exported, because the export-based exemption did not cover the diverted quantity and the admitted domestic clearances displaced the limitation plea. Confiscation was justified for failure to account for the diverted goods under the excise regime, but the monetary consequences were moderated in light of the limited extent of non-compliance and the substantial exports. The redemption fine and penalty were therefore reduced, while duty liability and confiscation were sustained on the domestically cleared goods.

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Issues: (i) whether duty was payable on terry towelling fabrics and terry towels diverted to the domestic market and whether the plea of limitation could be sustained; (ii) whether confiscation of the goods, redemption fine and penalty were justified and, if so, to what extent.

Issue (i): whether duty was payable on terry towelling fabrics and terry towels diverted to the domestic market and whether the plea of limitation could be sustained.

Analysis: The production records and documents such as shipping bills, lorry receipts and invoices established that most of the production was exported, but the appellant also admitted clearance of a small quantity into the domestic market. Since the domestically cleared goods were not covered by export-based exemption, duty liability arose on that quantity. The filing of declarations and later registration did not absolve the assessee where diversion to the domestic market was admitted and proved, so the bar of limitation was not accepted.

Conclusion: Duty was upheld only on the quantity diverted for domestic sale, and the plea of limitation was rejected.

Issue (ii): whether confiscation of the goods, redemption fine and penalty were justified and, if so, to what extent.

Analysis: As the appellant was required to account for the goods under the Central Excise regime and failed to do so in respect of the diverted quantity, confiscation was warranted. However, considering that the substantial bulk of production had in fact been exported and the circumstances indicated that the non-compliance was limited in extent, the monetary consequences required moderation. The redemption fine and penalty were therefore reduced to more proportionate amounts.

Conclusion: Confiscation was upheld, the redemption fine was reduced to Rs. 1,00,000, and the penalty was reduced to Rs. 5,000.

Final Conclusion: The appeal succeeded only in part, with duty sustained on the domestically cleared goods while the confiscation remained but the fine and penalty were reduced.

Ratio Decidendi: Goods cleared in the domestic market without payment of duty remain liable to duty and confiscation notwithstanding export of the bulk of production, while penal consequences may be moderated in light of partial compliance and the extent of export.

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