Exemption notifications without an exclusive-use can defeat penalty where imported machinery is used for non-export processing.

Penalty on a 100% export oriented unit for using imported machinery and bonded warehousing premises to pre-cool grapes not meant for export was held unsustainable because the exemption notifications contained no express condition that the imported goods be used solely for export manufacture. The Tribunal followed its earlier view that, without such a restrictive clause, the foundation for penalty failed. The separate concurrence also noted that no confiscation of the seized goods had been ordered and no duty demand had been confirmed, which further supported setting aside the penalty in favour of the assessee.

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Issues: Whether penalty imposed on a 100% export oriented unit for use of imported machinery and bonded warehousing premises for pre-cooling of grapes not meant for export was sustainable under the exemption notifications.

Analysis: The imported machinery had been placed under Notification No. 13/81-Cus dated 09.02.1981 and Notification No. 123/81-Cus dated 02.06.1981. The relevant notifications were read as not containing any express restriction that the imported goods must be used solely or exclusively for manufacture of export goods. The Tribunal followed its earlier decision holding that absence of such a restrictive clause defeated the basis for penalty. The separate concurrence also noted that no confiscation of the seized goods had been ordered and no duty demand had been confirmed, making penalty unsustainable.

Conclusion: The penalty was not justified and was set aside in favour of the assessee.

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