Customs duty cannot be levied on indigenously procured export goods under an import-linked notification; jurisdiction lay with Central Excise.

Customs duty could not be demanded under an import-linked notification on goods procured indigenously against an advance licence for export production, so the demand was unsustainable. Because the transaction involved local procurement and the relevant exemption procedure operated on the Central Excise side, jurisdiction lay with the Central Excise authority, not Customs, and the jurisdictional error was treated as apparent from the record and capable of rectification. Penalties were also held unsustainable in the absence of mala fides. The rectification application succeeded, the earlier order was recalled, and the matter was remanded for fresh duty quantification with credit for exports already made.

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Issues: (i) Whether customs duty could be demanded on goods procured indigenously for fulfilment of export obligation under the customs notification relied upon by the department; (ii) whether, in the facts, the matter fell within the jurisdiction of the Central Excise authority instead of the Customs authority; and (iii) whether penalties were sustainable.

Issue (i): Whether customs duty could be demanded on goods procured indigenously for fulfilment of export obligation under the customs notification relied upon by the department.

Analysis: The record showed that the goods were not imported but were procured from an indigenous supplier against an advance licence for export production. The customs notification invoked for the demand applied to imported goods and could not, on its terms, be used to levy customs duty on indigenously procured material. The Tribunal held that the earlier final order had proceeded on an erroneous appreciation of the factual and legal position.

Conclusion: The demand of customs duty under the notification was not sustainable against the assessee.

Issue (ii): Whether, in the facts, the matter fell within the jurisdiction of the Central Excise authority instead of the Customs authority.

Analysis: The relevant exemption framework for indigenous procurement linked the transaction to the Central Excise side, including the procedure under Chapter X of the Central Excise Rules, 1944. Since the goods were procured locally and not imported, the Customs authority lacked jurisdiction to quantify and enforce duty in the manner adopted. The Tribunal treated this as a jurisdictional error that could be raised at any stage and as a mistake apparent from the record.

Conclusion: Jurisdiction lay with the Central Excise authority, not the Customs authority.

Issue (iii): Whether penalties were sustainable.

Analysis: As the procurement was for export manufacture and the non-fulfilment of export obligation was not found to involve mala fides, the Tribunal held that penalty was not warranted.

Conclusion: The penalties were not sustainable.

Final Conclusion: The rectification application succeeded, the earlier final order was recalled, and the matter was sent back to the jurisdictional Central Excise Commissioner for fresh quantification of duty with credit for exports already made.

Ratio Decidendi: Customs duty cannot be demanded on indigenously procured goods under a notification applicable to imports, and a jurisdictional mistake apparent from the record is rectifiable under Section 129B(2) of the Customs Act, 1962.

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