EOU duty exemption breached by diversion of capital goods, triggering full duty, confiscation, interest and reduced penalties.
Duty-free capital goods imported by a 100% EOU lost exemption protection when the hydraulic drive system was removed without permission and used outside the EOU. The record did not establish actual use in the EOU, so assessment on depreciated value was rejected and customs duty was held payable in full. The unauthorised removal and diversion constituted breach of the notification conditions, justifying confiscation and redemption fine, with penalties maintainable though reduced or deleted in part for some noticees. Interest and penalty provisions were also held applicable from the date of contravention, not the date of import, and the principal penalty was moderated.
Issues: (i) Whether customs duty on the imported hydraulic drive system was payable on depreciated value. (ii) Whether the hydraulic drive system was liable to confiscation and whether redemption fine and penalties were sustainable. (iii) Whether interest and penalty under the relevant Customs Act provisions were attracted, and whether the penalties required modification.
Issue (i): Whether customs duty on the imported hydraulic drive system was payable on depreciated value.
Analysis: The exemption under Notification No. 13/81-Cus. was available only for goods imported for manufacture of export goods by a 100% EOU. The record did not establish that the system had been used in the EOU manufacturing process. The evidence showed that the machine had been shifted out and installed in another unit, and no reliable transport record or proof of actual use in the EOU was produced. In these circumstances, the plea for assessment on depreciated value was not accepted.
Conclusion: Duty was payable, and no depreciation in value was allowed.
Issue (ii): Whether the hydraulic drive system was liable to confiscation and whether redemption fine and penalties were sustainable.
Analysis: The system was removed without permission and used in premises other than the 100% EOU, resulting in breach of the notification conditions. Such contravention attracted confiscation under the Customs Act. Considering the value of the goods and the duty involved, the redemption fine was upheld. Penalties were also maintainable against the persons and entities concerned, but the quantum of penalty on the main appellant was found excessive and was reduced. The separate penalty on the EOU was set aside, while the penalties on the managing director and the sister concern were reduced and the penalties on two other individuals were set aside for want of knowledge.
Conclusion: Confiscation and redemption fine were upheld, penalties were partly upheld, partly reduced, and partly set aside.
Issue (iii): Whether interest and penalty under the relevant Customs Act provisions were attracted, and whether the penalties required modification.
Analysis: The operative contravention occurred when the machine was withdrawn from the EOU after the statutory provisions had come into force. Therefore, interest and penalty provisions were held applicable notwithstanding that the import had taken place earlier. However, the original penalty was considered excessive and was scaled down in the interests of justice.
Conclusion: Interest and penalty were attracted, but the main penalty was reduced.
Final Conclusion: The duty demand, confiscation, and substantial penal consequences were sustained, but the overall penalty burden was moderated by reducing some penalties and deleting others.
Ratio Decidendi: Where duty-free capital goods imported by a 100% EOU are removed or diverted in breach of the exemption conditions, duty becomes payable without depreciation, confiscation follows, and the relevant penalty and interest provisions apply from the time of contravention rather than from the date of import.
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