Exported job-work goods: duty demand and penalty fail where domestic diversion is not proved despite procedural lapse

Job-work shoe uppers largely exported could not be subjected to duty or penalty where the Revenue failed to prove that any goods entered the domestic market. Procedural non-compliance with the prescribed export procedure did not justify denial of exemption on these facts, because the earlier Tribunal view applied where export was shown and domestic diversion was not established. The record also showed compliance with the registration-related notification, leaving no foundation for penalty. The duty demand was unsustainable and the penalties could not stand.

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Issues: Whether the demand of duty and penalties could be sustained on shoe uppers manufactured on job work basis and largely exported without proof that the goods entered the domestic market; and whether penalties were warranted in the facts of the case.

Analysis: A major portion of the impugned goods was shown to have been used for export shipments, and the record did not establish that the remaining goods had entered the domestic market. The case was held to be covered by the earlier Tribunal decision on similar facts, where non-compliance with the prescribed procedure did not justify denial of the benefit of the exemption when the goods were not shown to have reached domestic consumption. As the Commissioner had not recorded a finding on marketability, no separate finding on that aspect was required. The appellants were also found to have complied with the registration-related notification, and no basis for penalty remained.

Conclusion: The duty demand could not be upheld, and the penalties were not sustainable.

Final Conclusion: The order was set aside and the appeal was allowed on the footing that the Revenue had failed to establish domestic diversion of the goods or any basis for penalty.

Ratio Decidendi: Where goods manufactured under a job-work/export arrangement are shown to have been exported and the Revenue fails to prove their entry into the domestic market, duty demand and consequential penalty cannot be sustained merely for procedural non-compliance.

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