SION-based duty demand on export inputs fails absent evidence of diversion or clandestine removal.

Excess consumption of vinegar beyond Standard Input Output Norms does not, by itself, justify duty demand, interest, fine or penalty where the inputs are used in export production and there is no evidence of diversion, clandestine removal or non-use. The note states that actual consumption may vary with vinegar concentration and customer requirements, and that the demand failed because the department did not establish that the alleged excess was diverted from the export process. The stated result is that the demand and consequential confiscatory consequences were held unsustainable and set aside.

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Issues: Whether demand of duty, interest, fine and penalty on alleged excess consumption of vinegar beyond Standard Input Output Norms was sustainable when the entire goods were exported and there was no evidence of diversion or non-use in the export process.

Analysis: The controversy turned on whether the actual consumption of vinegar, said to vary with its concentration and customer requirements, could be treated as excess merely because it exceeded the norm of 0.40 litres per kilogram under the SION. The record showed that the goods were exported, there was no evidence of clandestine removal or sale in the domestic tariff area, and the department had not investigated the concentration of the vinegar actually used or established that the alleged excess quantity was diverted away from export production. The basis of the demand was therefore not supported by evidence showing misuse or diversion of inputs.

Conclusion: The demand of duty and interest, and the consequential fine and penalties, were held unsustainable and were set aside in favour of the assessee.

Final Conclusion: The appeals succeeded and the impugned orders were annulled, with consequential relief as permissible under law.

Ratio Decidendi: Where inputs are used in the manufacture of export goods and there is no evidence of diversion or non-use, excess consumption beyond SION norms by itself does not justify duty demand, confiscatory fine, or penalty.

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