Penalty without specific notice fails, but duty demand and authorised signatory penalty were sustained on findings of diversion.

Penalty cannot be sustained against a person who was not specifically put to notice in the show cause notice, because the basic requirement of notice and opportunity was not met; that penalty was set aside. Duty demands against the main appellant were upheld because the record showed admitted diversion of duty-free inputs into the domestic market, paper transactions to conceal clearances, and detailed findings of clandestine diversion and suppression; the challenge based on defective invocation of recovery provisions failed. Penalty on the authorised signatory was also upheld, as the findings showed active involvement in diversion and in preparing invoices and records for the unlawful clearances.

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Issues: (i) Whether penalty could be sustained against a person who was not specifically put to notice in the show cause notice. (ii) Whether the duty demands against the main appellant were unsustainable for want of invocation of the statutory recovery provisions. (iii) Whether the penalty on the authorised signatory was justified on the facts found.

Issue (i): Whether penalty could be sustained against a person who was not specifically put to notice in the show cause notice.

Analysis: The show cause notice named various persons for penalty, but did not clearly indicate that the concerned person was separately proceeded against for imposition of penalty. In the absence of a specific notice proposing penalty against him, the basic requirement of notice and opportunity was not satisfied.

Conclusion: The penalty imposed on that person was set aside.

Issue (ii): Whether the duty demands against the main appellant were unsustainable for want of invocation of the statutory recovery provisions.

Analysis: The record showed categorical admissions of diversion of duty-free inputs into the domestic market and preparation of paper transactions to conceal illicit clearances. The authority below relied on the bond conditions and the admitted misuse of the exemption scheme, and recorded detailed findings of clandestine diversion and suppression. On those facts, the challenge to the demand on the ground of defective invocation of recovery provisions did not succeed.

Conclusion: The duty demands against the main appellant were upheld and the appeals on merits were rejected.

Issue (iii): Whether the penalty on the authorised signatory was justified on the facts found.

Analysis: The findings recorded a material role in the evasion scheme, including participation in the diversion and the preparation of invoices and records to support the unlawful clearances. Those findings established active involvement rather than mere formal association.

Conclusion: The penalty on the authorised signatory was upheld.

Final Conclusion: The appeals succeeded only to the limited extent of deleting the penalty imposed without proper notice, while the substantive duty demands and the other penalties were maintained.

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