Diversion of permitted export-zone removals to the domestic tariff area sustains duty liability, but personal penalty needs direct involvement.

Diversion of goods removed from an export processing zone for permitted purposes into the domestic tariff area justified duty confirmation, because the record and admissions showed that scanners and other duty-free or imported goods were not returned after demonstration, repair, sub-contracting or testing. The company remained liable for the duty demand and penal consequences, but the penalty was reduced on the facts and circumstances. Personal penalty on the director was not sustainable because the evidence did not establish direct involvement in the offending clearances, and day-to-day operations were handled by another official.

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Issues: (i) Whether the duty confirmed against the company on goods removed for demonstration, repair, testing and other permitted purposes and diverted to the domestic tariff area was sustainable; (ii) whether the penalty imposed on the company required reduction; (iii) whether the penalty imposed on the director was sustainable.

Issue (i): Whether the duty confirmed against the company on goods removed for demonstration, repair, testing and other permitted purposes and diverted to the domestic tariff area was sustainable.

Analysis: The company had obtained approval for functioning in the export processing zone and had been permitted under the relevant export policy and exemption notifications to remove goods for display, repair, sub-contracting and testing. The record showed that scanners removed for demonstration were not returned and were instead disposed of in the domestic tariff area. The same position applied to imported or duty-free procured goods sent out for permitted purposes and later diverted. The admissions recorded from the company representative supported the findings, and there was no reliable evidence to show that the disputed domestic clearances were from indigenous material.

Conclusion: The duty confirmation against the company was upheld.

Issue (ii): Whether the penalty imposed on the company required reduction.

Analysis: Although the company was liable for the duty demand and penal consequences because of the diversion of goods in breach of the export policy and exemption notifications, the overall facts and circumstances justified some reduction in the quantum of penalty.

Conclusion: The penalty imposed on the company was reduced.

Issue (iii): Whether the penalty imposed on the director was sustainable.

Analysis: The record did not establish that the director had direct involvement in the removal and diversion of goods from the factory. The evidence showed that day-to-day affairs were handled by another company official, whose admissions connected the company with the improper clearances. On that material, personal penalty on the director was not supported.

Conclusion: The penalty imposed on the director was set aside.

Final Conclusion: The company remained liable for the duty demand, its penalty was reduced, and the director escaped penal liability.

Ratio Decidendi: Liability for duty and corporate penalty can be sustained on admitted diversion of permitted removals to the domestic tariff area, but personal penalty requires evidence of direct involvement in the offending removal.

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