Duty-free import diversion defeats exemption protection, with conditional pre-deposit relief and no BIFR immunity from duty liability.

Duty-free imported materials diverted to the domestic market are outside the protection of Notification No. 204/92-Cus. because the exemption was conditional on use only for discharge of export obligation and on payment of duty if the conditions were breached. The Board circular on failure to fulfill export obligation did not assist where the facts showed diversion, and BIFR registration did not create immunity from otherwise payable duty. On the admitted facts, full waiver of pre-deposit was not justified; the first applicant was required to pre-deposit 25% of the duty, with the balance stayed on compliance, while the personal penalties on the other applicants were waived and stayed during the appeal.

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Issues: Whether the applicants were entitled to full waiver of pre-deposit and stay of recovery in proceedings arising from diversion of duty-free imported materials meant for discharge of export obligation.

Analysis: The imported materials were found to have been diverted to the domestic market and not used for the intended export obligation. The conditions of Notification No. 204/92-Cus. required that exempt materials not be disposed of except for discharge of export obligation, and also contemplated payment on demand of duty where the notification conditions were not complied with. The Board circular relating to failure to fulfill export obligation did not assist the applicants in a case of diversion. Registration with BIFR did not confer immunity from duty otherwise payable. On the admitted facts, full waiver was not warranted.

Conclusion: Full waiver was declined. The first applicant was directed to pre-deposit 25% of the duty, with the balance stayed on compliance, and the personal penalties on the other applicants were waived and stayed during pendency of the appeals.

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