Procedural lapse in SEZ export proof did not sustain duty demand or penalty absent diversion, suppression, fraud, or collusion.

Procedural delay in furnishing proof of receipt for goods cleared to an SEZ did not justify duty demand where the goods were initially cleared under ARE-1, were accounted for, returned, and were ultimately cleared again to the SEZ, with no allegation of diversion to domestic consumption. The time-limit requirement was treated as a procedural safeguard against loss of revenue, not a basis for duty where the goods reached the intended SEZ. Penalty under Section 11AC was also unsustainable because the record did not establish suppression, fraud, or collusion; the only lapse was non-compliance with export-proof and extension formalities. The duty demand and penalty were set aside.

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Issues: (i) whether duty demand was sustainable when goods cleared to an SEZ were returned and later cleared again to the SEZ, though proof of receipt was not furnished within the stipulated time; (ii) whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable in the absence of suppression, fraud or collusion.

Issue (i): Whether duty demand was sustainable when goods cleared to an SEZ were returned and later cleared again to the SEZ, though proof of receipt was not furnished within the stipulated time.

Analysis: The goods were initially cleared to the SEZ under ARE-1 and there was no dispute that the department was aware of the clearance. The delay in furnishing proof of receipt and the failure to seek extension under the SEZ procedure were procedural defaults. The object of the time-limit requirement is to prevent diversion of goods or loss of revenue where goods are not received in the SEZ. Here, the goods were accounted for, returned, and ultimately cleared again to the SEZ, with no allegation of diversion for domestic consumption.

Conclusion: Duty demand was not sustainable and was set aside.

Issue (ii): Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable in the absence of suppression, fraud or collusion.

Analysis: The record did not establish suppression of facts, fraud or collusion. The default was confined to non-compliance with procedural requirements relating to proof of export and extension of time. The notice proposed penalty only under Section 11AC, not under any rule-based penal provision, and the ingredients necessary for penalty under Section 11AC were not made out.

Conclusion: Penalty under Section 11AC was not sustainable and was set aside.

Final Conclusion: The impugned order was set aside and the appeal was allowed, with the consequential stay petition disposed of.

Ratio Decidendi: A procedural breach in furnishing export proof does not justify duty demand or penalty where the goods are ultimately accounted for and cleared to the intended SEZ and no diversion, suppression, fraud or collusion is established.

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