Conditional customs exemption and court undertaking breached; penalty reduction set aside and penalty linked to duty on depreciated value.

A conditional customs exemption cannot be breached without consequence, and a separate undertaking given to the SC not to dispose of the equipment without prior written notice to customs authority was also violated when the machinery was sold. The Tribunal reduced the penalty only because it considered the amount excessive, without recording any substantive justification. That reduction was held unjustified in view of the nature of the breach, including violation of the court undertaking. The penalty reduction was set aside and the penalty was directed to equal the duty payable on the depreciated value of the machinery, subject to a maximum of Rs. 20 lakhs.

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Issues: Whether the reduction of penalty from Rs. 20 lakhs to Rs. 1 lakh was justified in the circumstances of breach of the exemption notification and the undertaking given to the Court.

Analysis: The exemption under Notification No. 64/88-Cus dated 1.3.1988 was conditional, and the respondent had also undertaken before the Court not to dispose of the equipment without prior written notice to the customs authority. The machinery was nevertheless sold in breach of those obligations. The Tribunal reduced the penalty merely on the view that it appeared excessive, without giving any substantive reason. In view of the nature of the breach, including violation of the undertaking given to the Court, the reduction of penalty was not justified.

Conclusion: The reduction of penalty was set aside and the penalty was directed to be the same as the duty payable on the depreciated value of the machinery, subject to a maximum of Rs. 20 lakhs.

Final Conclusion: The penalty reduction ordered by the Tribunal was overturned and substituted by a fresh penalty direction linked to the duty payable on depreciated value, capped at Rs. 20 lakhs.

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