Conditional end-use exemption for naphtha cannot trigger supplier liability where buyer breaches post-clearance use requirements.

Conditional exemption for naphtha supplied against international competitive bidding remained available where the supplier satisfied the prescribed pre-clearance concessional-duty requirements at removal. The supplier was not liable for differential duty merely because the buyer later used part of the goods otherwise than for manufacture of fertilizers, as end-use compliance was a post-clearance obligation of the user manufacturer. On that footing, no duty demand could be fastened on the supplier, and the penalty also could not survive once the duty demand failed.

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Issues: Whether duty on naphtha cleared against international competitive bidding exemption could be demanded from the supplier when the buyer used part of the goods otherwise than for manufacture of fertilizers, and whether penalty could survive once the duty demand failed.

Analysis: The exemption for goods supplied against international competitive bidding was linked to the corresponding customs exemption for naphtha meant for manufacture of fertilizers. The customs exemption was conditional and required compliance with the prescribed concessional-duty procedure, which was mandatory in nature. On the facts, the supplier had satisfied the pre-clearance conditions at the time of removal, while the actual end-use of the goods was a post-clearance matter to be ensured by the buyer and user manufacturer. The supplier could not be fastened with liability for the buyer's failure to use the goods for the intended purpose, and the emphasis on the word "supplied" did not alter that position.

Conclusion: Duty could not be demanded from the supplier, and penalty also could not be sustained.

Ratio Decidendi: Where exemption is conditional upon end use, the liability for differential duty on breach of the end-use condition rests on the user manufacturer who fails to comply, not on the supplier who has fulfilled the pre-clearance requirements.

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