Advance licence imports and job-work use defeat confiscation where diversion or prohibited sale is not proved.

Imported mulberry raw silk cleared under advance licences and the DEEC scheme was examined against allegations of diversion, sale and breach of export-import conditions. The record showed that the seized bales had been passed into a job-work chain for conversion, and the allegation of unlawful diversion was not proved to the level required for confiscation. The explanation that the remaining yarn was supplied to weavers for conversion into silk fabrics and articles was also not displaced by the evidence. On that basis, confiscation under the Customs Act was not justified and the connected penalties could not be sustained.

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Issues: Whether the imported mulberry raw silk cleared under advance licences and the DEEC scheme was liable to confiscation for alleged diversion and sale, and whether the penalties imposed on the noticees could be sustained.

Analysis: The import and movement of the goods were examined in the context of the advance licensing conditions, the alleged diversion to Varanasi, the statements of the concerned persons, and the evidence regarding job work and subsequent processing. The seized 251 bales were found to have been handed over for conversion through the job-work chain, and the allegation of unlawful diversion was not established to the extent required for confiscation. As to the 46 bales said to have been sold, the record did not displace the appellants' explanation that the yarn had been supplied to weavers for conversion into silk fabrics and articles in the course of the manufacturing arrangement. In these circumstances, the claimed violation of the EXIM policy and the notification conditions was not made out.

Conclusion: The goods were not liable to confiscation under Section 111(o) of the Customs Act, 1962, and the penalties imposed under Section 112 could not be sustained.

Ratio Decidendi: Where duty-free imports under an advance licence are shown to have been used in a job-work manufacturing arrangement and diversion or prohibited sale is not proved, confiscation and consequential penalties under the Customs Act cannot be upheld.

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