Confiscation-linked penalty and advance licence interest demands fail absent operative statutory authority under Customs law.

Penalty under Section 112(a)(ii) of the Customs Act could not stand because the notice did not propose confiscation of any goods under Section 111, and the record did not establish a confiscability foundation. The penalty was therefore set aside. Interest on duty confirmed for misuse of advance licence imports was also unsustainable, because recovery had to rest on an operative statutory power under the Customs Act and the provision relied on was not shown to authorise the demand on these facts. The interest demand was set aside. The duty liability itself remained undisturbed.

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Issues: (i) Whether penalty under Section 112(a)(ii) of the Customs Act, 1962 was sustainable when no goods were proposed as liable to confiscation under Section 111 of the Customs Act, 1962; and (ii) whether interest could be recovered on the duty confirmed in respect of misuse of advance licence imports under the Customs Act, 1962.

Issue (i): Whether penalty under Section 112(a)(ii) of the Customs Act, 1962 was sustainable when no goods were proposed as liable to confiscation under Section 111 of the Customs Act, 1962.

Analysis: Section 112(a)(ii) fastens penalty only where a person, in relation to goods, does or omits to do an act which renders the goods liable to confiscation under Section 111, or abets such act or omission. The notice did not propose confiscation of any goods under Section 111, and the findings recorded in the matter also did not proceed on such a basis. In the absence of a confiscability foundation under Section 111, the penalty provision could not be invoked.

Conclusion: The penalty was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether interest could be recovered on the duty confirmed in respect of misuse of advance licence imports under the Customs Act, 1962.

Analysis: The import policy required payment of customs duty on unutilised imported material together with interest, but recovery by Customs had still to be authorised under the Customs Act, 1962. The relevant recovery provisions referred to in the matter did not support recovery of interest on these facts, and the provision relied upon for advance licence cases was not shown to have been brought into effect for the purpose claimed. The interest demand was therefore not capable of confirmation under the statutory framework invoked.

Conclusion: The interest demand was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded to the extent of deletion of penalty and interest, while the duty liability remained undisturbed.

Ratio Decidendi: Penalty under Section 112(a)(ii) requires a prior basis of goods being liable to confiscation under Section 111, and interest demanded for advance licence misuse must be traceable to an operative statutory power under the Customs Act, 1962.

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