Forged CT-3 certificates: duty stays with the recipient EOU, while penalties on unaware suppliers were set aside and matter remanded.

Duty on indigenous raw materials procured for a 100% EOU against forged CT-3 and re-warehousing certificates remained recoverable from the recipient EOU where the goods were not received for intended export manufacture or properly accounted for, so the duty demand was upheld in principle. Penalties on the supplying units and a connected officer were not sustained because the record did not show knowledge of the forgery or independent participation in the fraud, and the officer's penalty rested mainly on an unsupported co-accused statement. The demand and related penalties against the recipient EOU were remanded for de novo consideration and re-quantification under the correct legal provisions.

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Issues: (i) Whether duty on indigenous raw materials procured against forged CT-3 certificates and not received or used in the 100% EOU was recoverable from the recipient EOU; (ii) whether penalties on the supplying units and one connected officer were sustainable in the absence of evidence of their knowledge of the fraud; and (iii) whether the demand and penalties required re-quantification and fresh adjudication on the correct legal provisions.

Issue (i): Whether duty on indigenous raw materials procured against forged CT-3 certificates and not received or used in the 100% EOU was recoverable from the recipient EOU.

Analysis: The exemption under Notification No. 1/95-C.E. operated only when the goods were brought into the 100% EOU for the intended manufacture and were properly accounted for and utilised. The goods were procured on forged CT-3 certificates, the re-warehousing certificates were also forged, and the materials were not used for export production. In such circumstances, the consignee 100% EOU could not shift the duty burden to the manufacturers who had cleared the goods against the certificates produced to them.

Conclusion: The duty demand against the recipient 100% EOU was upheld in principle.

Issue (ii): Whether penalties on the supplying units and one connected officer were sustainable in the absence of evidence of their knowledge of the fraud.

Analysis: The record did not show that the suppliers knew of the forged nature of the CT-3 certificates or the re-warehousing certificates, and there was no independent material showing their participation in the deception. The penalty on the connected officer was based substantially on a co-accused statement and unsupported in material particulars. On that footing, the penalties could not be sustained.

Conclusion: The penalties on the supplying units and the connected officer were set aside.

Issue (iii): Whether the demand and penalties required re-quantification and fresh adjudication on the correct legal provisions.

Analysis: The order indicated duplication in confirmation of the duty demand and the penalty quantification was linked to the amount of demand confirmed. The matter therefore required verification of the correct demand figures and fresh determination of penal liability under the proper provision of law.

Conclusion: The demand and related penalties for the recipient EOU and the concerned individuals were remanded for de novo consideration and re-quantification.

Final Conclusion: The recipient EOU and its connected individuals were sent back for fresh adjudication on duty and penalty quantification, while the penalties on the supplying units and the connected officer were annulled.

Ratio Decidendi: In a scheme involving a 100% EOU, forged procurement documents, and non-use of the goods for export production, duty liability remains on the recipient consignee, but penalty on third parties cannot be sustained without independent evidence of their knowledge or participation in the fraud.

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