Confiscation and penalty cannot stand without a show-cause notice where inter-unit transfers were permitted under the Foreign Trade Policy.

Confiscation and penalty could not be sustained where goods were transferred on an inter-unit transfer basis under the Foreign Trade Policy, duty and interest had already been paid in response to the departmental query, and no show-cause notice had proposed confiscation or penalty. The absence of a formal notice depriving the party of proposed penal consequences made those actions unsupportable, especially when the transfer was consistent with the permitted export-oriented scheme and recovery of duty itself was doubtful. The departmental challenge on confiscation and penalty therefore failed.

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Issues: Whether confiscation of goods and imposition of penalty could be sustained when no show-cause notice proposed such action and the goods were transferred on inter-unit transfer basis under the Foreign Trade Policy.

Analysis: The goods were transferred under inter-unit transfer as permitted by the Foreign Trade Policy, and the duty and interest had already been paid in response to departmental query. No formal show-cause notice was issued proposing confiscation or penalty. In these circumstances, confiscation and penalty could not be upheld, particularly when the transfer was in accordance with the permitted export-oriented scheme and the recovery of duty itself was in doubt.

Conclusion: Confiscation and penalty were not sustainable, and the departmental appeal on those counts failed.

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