SFIS scrips remained valid for customs duty payment on restricted imports, and related penalties could not survive.

Served From India Scheme scrips remained usable for payment of customs duty on imported radar and allied equipment after the 01.04.2006 amendment because the added phrase "otherwise freely importable under ITC (HS) EXIM Code" did not extend to restricted goods. The imported goods were treated as restricted, but the amendment did not take away the validity of the scrips as instruments issued against export earnings. Once denial of the scrip benefit was found unsustainable, the foundation for the penalties and redemption fine also fell away, and both could not survive.

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Issues: Whether the Served From India Scheme scrips could be used to discharge customs duty on the imported radar and allied equipment after the 01.04.2006 amendment, and whether the penalties and redemption fine could survive if the duty demand failed.

Analysis: The imported goods were found to be restricted items and not freely importable goods. The amendment adding the words "otherwise freely importable under ITC (HS) EXIM Code" did not alter the position of such restricted goods. The scrips remained valid instruments issued against export earnings and could still be used as a mode of payment towards customs duty. Once the denial of the scrip benefit was unsustainable, the basis for the penalties also disappeared.

Conclusion: The denial of SFIS scrip benefit was set aside and the assessee was held entitled to use the scrips for customs duty payment. The penalties and redemption fine also could not stand.

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