Bonded inputs and diverted export goods: liability follows the bonded recipient, while domestic valuation turns on normal price under Section 4.

Duty on base fabrics received under Chapter X bond remained attached to the party that received and warehoused the goods, and it could not be shifted to the merchant exporter merely because the export process involved that exporter. For export goods diverted to the domestic market, assessable value had to be determined under Section 4 by reference to the normal price at the time and place of removal; the actual sale price of the damaged goods at the approved godown was treated as relevant where not shown to be unreal. On that basis, the discussion states that the duty differential and related penalties could not survive.

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Issues: (i) Whether duty on base fabrics sent under bond for manufacture of export goods could be demanded from the merchant exporter instead of the job worker who received the goods under Chapter X procedure. (ii) Whether the assessable value of damaged export goods diverted to the domestic market had to be taken from the AR4 declaration or from the actual sale price of the damaged goods, and whether penalties were sustainable.

Issue (i): Whether duty on base fabrics sent under bond for manufacture of export goods could be demanded from the merchant exporter instead of the job worker who received the goods under Chapter X procedure.

Analysis: Goods received under Chapter X procedure remained subject to the duty liability of the recipient who obtained them under bond. The existence of joint bonds did not shift the liability for duty on inputs to the merchant exporter merely because the export process involved that exporter. The duty consequence for non-fulfilment of the bonded condition attached to the party that received and warehoused the fabrics for manufacture.

Conclusion: The demand for duty on the base fabrics against the merchant exporter was unsustainable and was set aside.

Issue (ii): Whether the assessable value of damaged export goods diverted to the domestic market had to be taken from the AR4 declaration or from the actual sale price of the damaged goods, and whether penalties were sustainable.

Analysis: For diverted export goods, valuation had to be made under Section 4 on the basis of the normal price at the time and place of removal. The Department's circular required assessment under Section 4 and did not mandate adoption of AR4 value. The actual sale price of the damaged goods at the approved godown represented the relevant normal price, and the Department did not dispute that price as unreal. Since duty had been paid on diversion and the valuation adopted by the assessee was acceptable, the charge of improper diversion and the consequential penalties could not survive.

Conclusion: The differential duty demand on the made-ups and the penalties imposed on all appellants were unsustainable and were set aside.

Final Conclusion: The appeals succeeded in full, the impugned orders were set aside, and no penalty survived.

Ratio Decidendi: Where export goods are diverted to the domestic market from an approved place with departmental knowledge, duty and assessable value must be determined under Section 4 on the basis of the actual normal price of the diverted goods, and duty on bonded inputs cannot be transposed from the bonded recipient to the merchant exporter without statutory basis.

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