Appeal Allowed: Exemption Granted under Notification No. 80/95 for Imported Inputs

The appeal was allowed, setting aside the impugned order. The appellants were entitled to the exemption under Notification No. 80/95 for the inputs imported under the DEEC license No. 405040 dated 16-3-1995, and hence not liable to pay the duty or penalty.

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Issues Involved:

1. Violation of Notification No. 80/95-Cus.
2. Fulfillment of Export Obligation.
3. Use of Imported Materials.
4. Imposition of Penalty u/s 114A of the Customs Act.
5. Alleged Diversion of Imported Materials.

Summary:

1. Violation of Notification No. 80/95-Cus.:
The Commissioner confirmed the demand of Rs. 69,78,348.87 u/s 28(1) of the Customs Act, 1962, for the 32nd advance licence No. 405040 dated 16-3-1995, where the appellant imported goods prior to fulfilling any export obligation. The Commissioner found that the imported materials were not used for manufacturing the goods exported, violating the notification.

2. Fulfillment of Export Obligation:
The appellants argued that they had fulfilled the export obligation even for the 32nd advance licence. They contended that the imported goods were used in manufacturing products that were ultimately exported, and hence they were entitled to the exemption. The Commissioner, however, found that the export obligation was completed after the import of raw materials, which did not meet the notification's conditions.

3. Use of Imported Materials:
The investigation revealed that the imported coated paper board was not used for manufacturing match inners and outers. Instead, uncoated paper board was used for match inners, and domestic coated paper board of higher GSM was used for match outers. The imported materials were allegedly used for manufacturing other packing materials like cigarette and liquor packaging, not for the intended export products.

4. Imposition of Penalty u/s 114A of the Customs Act:
The penalty of Rs. 69,78,348.87 imposed u/s 114A was set aside because the provisions of Section 114A were incorporated with effect from 28-8-1996, whereas the disputed imports occurred between 20-3-1995 and 5-5-1995. This was in line with the Supreme Court's decision in Elgi Equipments v. CC.

5. Alleged Diversion of Imported Materials:
The Commissioner found that the imported materials were diverted for purposes other than manufacturing the goods to be exported. However, the appellants contended that the materials were used in their factory, and there was no violation of the notification. The Third Member noted that the show cause notice did not allege diversion to the local market, and the finding of such diversion was unwarranted.

Majority Decision:
The appeal was allowed, setting aside the impugned order. The appellants were entitled to the exemption under Notification No. 80/95 for the inputs imported under the DEEC license No. 405040 dated 16-3-1995, and hence not liable to pay the duty or penalty.

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