Procedural lapse in SEZ clearances supported limited penalty under Rule 27; notice objection to penalty invocation was rejected.

Clearances to SEZ supported by ARE-1 endorsements and departmental permission were treated as substantially compliant, with the only lapse being non-furnishing of the prescribed letter of undertaking. That omission was characterised as a procedural breach rather than a failure of the substantive export requirement, and a limited penalty under Rule 27 of the Central Excise Rules, 2002 was held sustainable. The objection that the show cause notice did not specifically propose Rule 27 penalty was rejected because the proceedings centred on the admitted procedural violation, so the penalty was not set aside. Revenue's appeals and the cross-objections both failed.

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Issues: (i) whether penalty under Rule 27 of the Central Excise Rules, 2002 was sustainable for non-furnishing of letter of undertaking and related procedural lapses in clearance of goods to SEZ; (ii) whether the penalty was liable to be set aside on the ground that the show cause notice did not specifically propose penalty under Rule 27.

Issue (i): whether penalty under Rule 27 of the Central Excise Rules, 2002 was sustainable for non-furnishing of letter of undertaking and related procedural lapses in clearance of goods to SEZ.

Analysis: The goods had been cleared under ARE-1 to SEZ units with departmental permission and the ARE-1s stood endorsed by the customs authorities, showing admission of the goods into the SEZ. The only lapse found was non-furnishing of the letter of undertaking required for clearance without payment of duty. The finding below treated this as a procedural infringement, while recognizing that the substantive export requirement was not disputed. In that setting, a limited penalty was considered appropriate and penalty under Rule 27, instead of the harsher consequences pressed by the Revenue, was held to be justified.

Conclusion: Penalty under Rule 27 was held sustainable and no enhancement was warranted.

Issue (ii): whether the penalty was liable to be set aside on the ground that the show cause notice did not specifically propose penalty under Rule 27.

Analysis: The objection that the adjudicating authority had travelled beyond the show cause notice was not accepted. The proceedings were based on the admitted procedural violation in clearing the goods without the prescribed undertaking, and the imposition of penalty under Rule 27 was treated as within the scope of the dispute. The challenge to the invocability of Rule 27 was also rejected.

Conclusion: The penalty was not set aside on the ground of absence of a specific proposal under Rule 27 in the show cause notice.

Final Conclusion: The Revenue's appeals failed and the assessee's cross-objections also failed, leaving the order imposing a limited penalty undisturbed.

Ratio Decidendi: Where clearances to SEZ are otherwise proved and the breach is confined to non-furnishing of the prescribed undertaking, the lapse is procedural and may be visited with a limited penalty under the applicable excise rules rather than enhanced penal consequences.

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