Retrospective use condition cannot apply to earlier inter-unit transfers; warehoused goods and time-barred demand defeat duty and fine.

A later amendment to an exemption notification requiring the recipient unit to use transferred capital goods was held inapplicable to an earlier inter-unit transfer, because the original notification did not contain that condition and the transfer predated the amendment. Duty, confiscation and redemption fine were also found unsustainable where the capital goods remained in bonded warehousing, had not been cleared for home consumption or removed in breach of warehousing provisions, and the recipient unit was not the importer under the notification. The demand was further held time-barred because the show-cause notice was issued long after departmental inspection.

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Issues: (i) Whether the condition requiring use of capital goods by the recipient unit, introduced by amendment to the exemption notification, applied retrospectively to goods transferred under inter-unit transfer. (ii) Whether duty, confiscation and redemption fine could be sustained in respect of capital goods still lying in bonded warehousing, and whether the appellant was liable as recipient unit. (iii) Whether the demand was barred by limitation.

Issue (i): Whether the condition requiring use of capital goods by the recipient unit, introduced by amendment to the exemption notification, applied retrospectively to goods transferred under inter-unit transfer.

Analysis: The relevant notification did not originally contain a condition that the recipient unit must put the goods to use. That requirement was introduced only by the later amendment. The transfer of the goods had already taken place before the amendment, and the amended condition could not be applied to an earlier transaction. The goods were also shown to have been depreciated on the basis that they had been used prior to transfer.

Conclusion: The amended use condition did not apply retrospectively, and no violation could be fastened on that basis.

Issue (ii): Whether duty, confiscation and redemption fine could be sustained in respect of capital goods still lying in bonded warehousing, and whether the appellant was liable as recipient unit.

Analysis: The goods remained in the bonded warehouse and had not been cleared for home consumption or removed in contravention of the warehousing provisions. The importer under the notification was the original importing entity, not the appellant as recipient under inter-unit transfer. In that situation, the demand, confiscation and redemption fine were not legally sustainable.

Conclusion: The duty demand, confiscation and redemption fine could not be sustained against the appellant.

Issue (iii): Whether the demand was barred by limitation.

Analysis: The officers visited the unit in June 2005, but the show-cause notice was issued only in May 2008. On the facts recorded, the notice was beyond the permissible period.

Conclusion: The demand was barred by limitation.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: A subsequently introduced use condition in an exemption notification cannot be applied retrospectively to an earlier inter-unit transfer, and duty consequences cannot be sustained against the recipient unit where the goods remain warehoused and the demand is time-barred.

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