Strict construction of exemption notifications limits customs liability, while interest, confiscation and penalty require clear legal basis and deliberate misuse.

An exemption notification under the Customs Act was treated as the governing instrument and construed strictly, so a public notice under the export policy did not alter the notification's export-obligation period or defeat the customs demand. Interest was not recoverable because neither the notification nor the Act provided an express basis, and the statutory provisions on interest did not apply on the facts. Confiscation and penalty were also unwarranted where the show cause notice did not allege wilful misuse of the exemption or deliberate intent to evade the export obligation; mere shortfall in fulfilment was insufficient. The duty liability under the notification was therefore sustained, but interest, confiscation and penalty were disallowed.

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Issues: (i) Whether the public notice under the export policy amended the exemption notification so as to extend the time for fulfilment of export obligation and affect the customs demand; (ii) Whether interest could be recovered on the duty payable in the absence of an express provision in the notification or the Customs Act; (iii) Whether confiscation of the goods and imposition of penalty were justified in the absence of any allegation of wilful intent to evade the export obligation.

Issue (i): Whether the public notice under the export policy amended the exemption notification so as to extend the time for fulfilment of export obligation and affect the customs demand.

Analysis: The exemption notification issued under Section 25 of the Customs Act, 1962 was treated as the governing instrument for customs purposes and was construed strictly. The public notice issued by the licensing authority was not held to amend the policy in a manner that altered the terms of the customs notification. The notification itself prescribed the period of four or five years for fulfilment of export obligation, and it did not incorporate any extended period contemplated elsewhere in the policy machinery. The customs demand was therefore examined with reference to the notification as issued.

Conclusion: The customs demand was not vitiated on the ground that the public notice amended the exemption notification, and the notification continued to govern the liability.

Issue (ii): Whether interest could be recovered on the duty payable in the absence of an express provision in the notification or the Customs Act.

Analysis: The notification required payment of duty leviable but for the exemption, and did not provide for interest. The undertaking given under the export promotion scheme referred to payment of duty and interest, but the Tribunal held that where there was a divergence between the undertaking and the notification, the notification controlled the customs liability. Section 28AA of the Customs Act, 1962 was found inapplicable because the duty was not one confirmed under Section 28 and remaining unpaid within the statutory period. Section 28AB of the Customs Act, 1962 was also held inapplicable on the facts.

Conclusion: No interest was recoverable under the notification or the Customs Act.

Issue (iii): Whether confiscation of the goods and imposition of penalty were justified in the absence of any allegation of wilful intent to evade the export obligation.

Analysis: The show cause notice did not allege that the importer had wilfully sought to avail itself of the exemption without any intention to comply with the export obligation. The Tribunal held that confiscation and penalty should not follow merely because the export obligation was not fully achieved, particularly where the scheme was incentive-based and the failure was not shown to be deliberate. In the absence of material showing an intent to misuse the exemption, the penal consequences were not warranted under Section 111(o) and Section 112 of the Customs Act, 1962.

Conclusion: Confiscation and penalty were set aside.

Final Conclusion: The appeal succeeded to the extent that the demand for interest, confiscation and penalty were disallowed, while the duty liability under the exemption notification was sustained.

Ratio Decidendi: An exemption notification issued under the Customs Act must be construed strictly and governs customs liability over inconsistent undertakings or policy instructions; interest, confiscation and penalty cannot be imposed without an express statutory or notification basis and without proof of deliberate misuse.

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