Binding court undertaking upheld for customs duty recovery, but penalty failed absent import involvement and confiscation basis.

A binding undertaking given before the High Court to pay any adjudicated customs duty from the sale proceeds of auctioned machinery justified recovery of the confirmed duty from the appellant, even though the High Court had not determined the loanee's liability itself. Penalty under Section 112 of the Customs Act, 1962 was unsustainable because the appellant had not imported the goods and the machinery was not liable to confiscation under Section 111. CESTAT therefore upheld duty recovery but set aside the penalty, granting only partial relief.

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Issues: (i) whether the appellant was bound by its undertaking given before the High Court to discharge the customs duty determined against the loanee from the sale proceeds of the auctioned machinery; (ii) whether penalty under Section 112 of the Customs Act, 1962 was sustainable against the appellant.

Issue (i): Whether the appellant was bound by its undertaking given before the High Court to discharge the customs duty determined against the loanee from the sale proceeds of the auctioned machinery.

Analysis: The High Court had permitted the auction purchaser to take possession of the machinery and, while not deciding the loanee's liability question, recorded the appellant's commitment to pay any amount determined in adjudication against the loanee out of the sale proceeds. The duty demand was confirmed against the loanee, and the appellant's undertaking was treated as binding for recovery purposes.

Conclusion: The demand recovery from the appellant was upheld.

Issue (ii): Whether penalty under Section 112 of the Customs Act, 1962 was sustainable against the appellant.

Analysis: Penalty under Section 112 requires involvement in import of goods liable to confiscation under Section 111 of the Customs Act, 1962. The appellant had not imported the goods, and the machinery was not confiscated. On those facts, the statutory basis for penalty was absent.

Conclusion: The penalty was unsustainable and was set aside.

Final Conclusion: The appeal succeeded only on the penalty issue and failed on the duty recovery issue, resulting in partial relief to the appellant and confirmation of the duty liability recovery.

Ratio Decidendi: A binding undertaking given before a court may justify recovery of adjudicated duty from sale proceeds, but penalty under Section 112 of the Customs Act, 1962 cannot be imposed absent import involvement and liability to confiscation under Section 111.

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