Exemption benefit survives irretrievable loss of imported goods during permitted use, so duty and penalty do not arise.

Imported drill ship accessories covered by an exemption notification were used for the permitted petroleum operations and then lost irretrievably at sea, making re-export impossible. Because the goods were not diverted to any other use and the subsequent non-re-export resulted from legal impossibility, the exemption was not defeated and no duty liability arose merely from the loss. On that basis, the duty demand and penalty were held unsustainable.

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Issues: Whether duty demand and penalty were sustainable when the imported drill ship accessories, though subject to re-export condition, were lost at sea during petroleum operations and could not be re-exported.

Analysis: The imported goods were put to the intended petroleum operations and were not diverted for any other use. The loss occurred after use in the high seas and was irretrievable, making re-export impossible. The exemption benefit under the notification was therefore not defeated by the subsequent loss. The treatment of the loss as a legal shortage was consistent with the departmental instructions relied upon, and the principle that the law does not require a party to perform an impossible act supported the conclusion that no duty liability arose merely because the goods could not be re-exported after being lost in operation.

Conclusion: The duty demand and penalty were not sustainable, and the Revenue's challenge failed.

Ratio Decidendi: Where imported goods covered by an exemption notification are actually used for the permitted purpose and are lost irretrievably in the course of such use, subsequent non-re-export due to legal impossibility does not by itself attract duty liability or penalty.

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