Customs penalty under Section 112 cannot survive when confiscation and duty demand are dropped, despite licence-related suppression.

Quantity-Based Advance Licences under Notification No. 204/92-Cus. were subject to export and transferability conditions, and the credit-related restriction under Rules 56A and 57A of the Central Excise Rules was relevant only where the licence-holder had exported goods and also taken input-stage credit. Alleged suppression before the licensing authority in securing transferability endorsements was treated as a foreign trade law matter, not a basis for Customs penalty under Section 112. Because penalty under Section 112 depends on the imported goods being liable to confiscation under Section 111, the dropping of the duty demand and confiscation proposal meant the penalty proposal could not be sustained.

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Issues: Whether the respondents were liable to penalty under Section 112 of the Customs Act for allegedly obtaining transferability endorsements on Quantity-Based Advance Licences by suppressing the fact that Modvat credit had been availed on inputs used in the exported goods, and whether such penalty could survive when the proposed customs duty demand and confiscation proceedings against the importer stood dropped.

Analysis: Notification No. 204/92-Cus. granted exemption subject to conditions governing export obligation and transferability of the licence. The condition concerning availing of credit under Rule 56A or Rule 57A of the Central Excise Rules, 1944 was held to operate only against the transferability of the licence where the licence-holder had already exported goods under the licence and had availed such input-stage credit. The alleged suppression before the licensing authority in obtaining transferability endorsements was held to be a matter for action under the foreign trade law, not a basis for Customs authorities to impose penalty under Section 112 of the Customs Act. Penalty under Section 112 was also held to depend on the imported goods being liable to confiscation under Section 111 of the Customs Act, and since the demand and confiscation proposal against the importer had been dropped, the penalty proposal against the respondents could not be sustained.

Conclusion: The respondents were not liable to penalty under Section 112 of the Customs Act.

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