Strict compliance with exemption conditions: diversion of imported machinery for non-road use justified confiscation, duty recovery, and penalties.

An exemption notification for concessional import of machinery for road construction required strict post-import compliance with the undertaking to use the goods exclusively for that purpose and not to sell, dispose of, or divert them for five years. Use of the machine at non-road sites and its rental to another entity was treated as a prohibited disposal, breaching the exemption condition and exposing the goods to confiscation, duty recovery, and redemption fine under the confiscation framework. The same breach also supported separate penalties on the importing company and its managing director, whose involvement in the non-permitted use and renting arrangement was treated as sufficient for penal liability.

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Issues: (i) Whether importing the machine under the road-construction exemption and thereafter renting it out or using it for non-road projects violated condition 40(b) of the notification and attracted confiscation, duty recovery, and redemption fine. (ii) Whether penalty on the importing company and its managing director was justified for breach of the exemption conditions.

Issue (i): Whether importing the machine under the road-construction exemption and thereafter renting it out or using it for non-road projects violated condition 40(b) of the notification and attracted confiscation, duty recovery, and redemption fine.

Analysis: The exemption was held to require strict compliance. The undertaking obliged the importer to use the goods exclusively for road construction and not to sell or otherwise dispose of them in any manner for five years from import. The machine was found to have been deployed at non-road sites and rented out to another entity, which was treated as disposal contrary to the condition. On that construction, the exemption stood breached and the goods became liable to confiscation, with duty recoverable in terms of the statutory scheme governing confiscation and redemption.

Conclusion: The condition of exemption was violated, and the confiscation, duty demand, and redemption fine were upheld.

Issue (ii): Whether penalty on the importing company and its managing director was justified for breach of the exemption conditions.

Analysis: Once the post-import restriction was found breached, the company's conduct attracted penal consequences. The managing director was also held responsible for the decision to deploy the goods for non-road use and for permitting the renting arrangement. Separate penalties on the company and the individual were therefore sustained.

Conclusion: Penalties on both the company and the managing director were justified and sustained.

Final Conclusion: The appeals failed on the merits, and the adverse adjudication against the importers was maintained in full.

Ratio Decidendi: An exemption notification granting concessional import for a specified use must be strictly complied with, and post-import diversion, leasing, or non-permitted use amounts to breach of the undertaking, justifying confiscation, duty recovery, and penalty.

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