Advance authorisation imports retain exemption when job-work processing and export obligation are proved, despite endorsement lapses and no diversion.

Duty-free imports under advance authorisation were held to retain exemption where the goods were sent to job workers for processing, ownership was not shown to have passed, export obligations were fulfilled, and foreign exchange was realised. The failure to endorse every processing unit was treated as a curable procedural lapse, not a substantive breach. In the absence of proof of sale, diversion, or clandestine disposal in the domestic market, demand, confiscation, redemption fine, and penalty against the importer were set aside. As the co-noticees' penalties depended on the same alleged diversion, those penalties also failed.

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Issues: (i) Whether the importers had diverted or sold duty-free raw cashew nuts imported under advance authorisations so as to deny the exemption and attract demand, confiscation and penalty; (ii) Whether the penalties imposed on the co-noticees could survive once the demand and confiscation against the importer failed.

Issue (i): Whether the importers had diverted or sold duty-free raw cashew nuts imported under advance authorisations so as to deny the exemption and attract demand, confiscation and penalty.

Analysis: The imported goods were cleared under advance authorisations and the dispute turned on whether sending them to processing units not endorsed in the authorisations amounted to impermissible transfer or sale. The record did not establish sale, transfer of ownership, or clandestine disposal in the domestic market. The evidence instead showed movement of goods to job workers for processing, receipt back of processed cashew kernels, completion of export obligation, and realization of foreign exchange. The procedural omission in not endorsing all job workers was held to be a curable irregularity and not a substantive breach defeating the exemption.

Conclusion: The demand of customs duty, confiscation, redemption fine and penalty on the importer were not sustainable and were set aside.

Issue (ii): Whether the penalties imposed on the co-noticees could survive once the demand and confiscation against the importer failed.

Analysis: The penalties on the co-noticees were wholly dependent on the alleged misuse and diversion attributed to the importer. Once the foundational finding of diversion or sale was not accepted, the basis for penal action against the remaining noticees also disappeared.

Conclusion: The penalties imposed on the co-noticees were also set aside.

Final Conclusion: The proceedings failed on merits because the exemption conditions were treated as substantially complied with through job-work processing and fulfillment of export obligation, with no proved diversion or sale of the imported goods.

Ratio Decidendi: Where duty-free imports under advance authorisation are shown to have been sent for processing through job workers, with ownership retained and export obligation fulfilled, a mere procedural lapse in endorsement of all processing units does not by itself justify denial of exemption, confiscation or penalty in the absence of proof of sale or diversion.

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