End-use condition breach in exempt imports does not by itself justify confiscation, but interest on duty can still survive.

Imported naphtha cleared at nil duty for power generation was not liable to confiscation or penalty merely because the importer later failed to consume the entire quantity after switching to natural gas; the breach was only of the end-use condition, with no clandestine removal, misstatement, or suppression shown, so confiscation, redemption fine, and penalty were set aside. Interest, however, remained payable on the duty attributable to the unutilised and undisclosed quantity of naphtha, including 8,050 MT covered by an earlier unchallenged order, and was upheld from the first day of the succeeding month.

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Issues: (i) Whether confiscation of the imported naphtha and penalty under the Customs Act were justified for alleged non-fulfilment of the end-use condition attached to the exemption notification. (ii) Whether interest was payable on the duty attributable to the unutilized and undisclosed quantity of naphtha, including the quantity covered by the earlier order.

Issue (i): Whether confiscation of the imported naphtha and penalty under the Customs Act were justified for alleged non-fulfilment of the end-use condition attached to the exemption notification.

Analysis: The imported naphtha had been availed at nil duty under the exemption notification for use in generation of electricity. The material on record showed that the importer did not remove the goods clandestinely and that the dispute arose from non-utilisation of the entire quantity after it was found more viable to use natural gas for power generation. The non-observance related to the end-use condition, not to any prohibited import or a case of misstatement or suppression warranting confiscation and penal action.

Conclusion: Confiscation, redemption fine, and penalty were not justified and were set aside, in favour of the assessee.

Issue (ii): Whether interest was payable on the duty attributable to the unutilized and undisclosed quantity of naphtha, including the quantity covered by the earlier order.

Analysis: The duty liability itself was not disputed by the importer, but the balance quantity that had not been correctly disclosed in the end-use certificate remained liable to interest. As to the quantity of 8050 MT, interest was held payable from the first day of the month succeeding the Commissioner (Appeals)' order, since that order had not been challenged. The demand of interest on the undisclosed quantity was therefore sustained.

Conclusion: Interest was upheld on the relevant quantity, against the assessee.

Final Conclusion: The appeal succeeded only to the extent of setting aside confiscation, redemption fine, and penalty, while the liability to pay interest on the duty-related amount was maintained.

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