Export-bond interest applies when goods are diverted to home consumption, even if they are later re-exported.

Interest under the export-bond notification was attracted where goods cleared for export were not delivered to the merchant exporter, remained in transport custody, and were treated as diverted for home consumption on payment of duty. The unchallenged treatment of the goods as diverted triggered the condition in para 2(v)(b), so interest ran from the date of removal until duty payment. A later return of the goods to the factory and subsequent re-export did not nullify the earlier liability. The refund of interest was therefore not justified and the assessment demanding duty and interest was restored.

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Issues: Whether interest under para 2(v)(b) of Notification No. 42/2001-C.E. (N.T.) was payable when excisable goods cleared for export under bond were not delivered to the merchant exporter, were treated as diverted for home consumption, duty was paid, and the goods were later re-exported after being taken back into the factory.

Analysis: The goods were initially cleared for export without payment of duty under ARE-I, but the intended exporter did not take delivery and the goods remained in the transporter's custody. They were seized, confiscated, and thereafter released on payment of duty by treating the matter as one of diversion for home consumption. Once the goods cleared for export were not exported and the competent authority's treatment of the matter as diversion for home consumption stood unchallenged, the condition in para 2(v)(b) stood attracted. The subsequent return of the goods to the factory and their later export did not displace the prior consequence that duty had been demanded on goods treated as diverted for home consumption, along with interest from the date of removal till payment of duty.

Conclusion: Interest was payable and the refund of interest was not justified.

Final Conclusion: The Revenue's challenge succeeded and the order allowing refund of interest was set aside, restoring the assessment demanding duty and interest.

Ratio Decidendi: Where goods cleared for export under bond are not exported and are treated as diverted for home consumption with duty paid, interest prescribed by the export-bond notification becomes payable from the date of removal till payment of duty, irrespective of a later re-export.

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