Customs penalty on directors fails where duty-free goods were supplied within bond terms and valid licence entitlements.

Duty-free imported goods supplied by a 100% EOU trading unit to another EOU or against valid advance licence entitlements were treated as falling within the governing bond and the applicable CBEC circular. On that basis, no customs duty liability arose on the company, and the prerequisite contravention for fastening personal liability on the directors was absent. Penalty under Sections 112 and 117 of the Customs Act, 1962 was therefore not sustainable on the stated facts.

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Issues: Whether penalty under Sections 112 and 117 of the Customs Act, 1962 could be imposed on the Directors of a 100% EOU trading unit when the imported duty-free goods were supplied to another EOU against valid advance licence entitlements.

Analysis: The bond executed at the time of import permitted disposal of the goods to another EOU/SEZ unit or against advance licence or specific duty-free entitlements, subject to fulfilment of the stated conditions. The relevant CBEC circular clarified that trading units under Paragraph 9.21 of the Export Import Policy could supply goods to other EOU/EPZ/EHTP/STP units or against valid advance licences or specific duty-free import entitlements. Since the goods were supplied in a manner covered by the bond and the circular, there was no duty liability on the company, and the foundation for imposing personal penalty on the Directors did not survive.

Conclusion: Penalty under Sections 112 and 117 of the Customs Act, 1962 was not sustainable against the appellants and the appeals were allowed.

Ratio Decidendi: Where the governing bond and applicable circular permit supply of duty-free imported goods against valid advance licence or other specified entitlements, no customs duty liability arises and personal penalty on directors cannot be imposed absent an underlying contravention.

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