Confiscation of excess EOU inputs needs breach of exemption conditions; stock discrepancy alone cannot sustain penalty.

Excess inputs found in a 100% EOU did not justify confiscation under Section 111(o) of the Customs Act where no breach of the exemption notification conditions was found. The imported inputs were obtained under Notification No. 13/81-Cus. for manufacture by the EOU, and a mere mismatch between book stock and physical stock was held insufficient to establish the statutory violation required for confiscation. Because confiscation was unsustainable on that basis, the consequential penalty resting on the same foundation could not be sustained.

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Issues: Whether excess inputs found in the factory of a 100% EOU were liable to confiscation under Section 111(o) of the Customs Act, 1962, and whether the penalty imposed consequentially could be sustained.

Analysis: The imported inputs were procured under Notification No. 13/81-Cus. for manufacture by a 100% EOU. Confiscation under Section 111(o) is attracted only where the conditions of the exemption notification, or the relevant legal prohibition governing the import, are violated. No finding had been recorded by the lower authorities that any condition of the notification was breached. The stock discrepancy by itself did not establish the kind of violation required by Section 111(o), and the provision could not be extended merely because there was a mismatch between book stock and physical stock. Once the confiscation was unsustainable, the penalty imposed on the same foundation could not survive.

Conclusion: Confiscation under Section 111(o) was not sustainable, and the penalty imposed on the appellant was also liable to be set aside.

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