Exemption for SEZ-to-EOU clearances fails when goods are diverted, consignee is fictitious, and re-warehousing certificates are forged.

Exemption for duty-free clearances from a SEZ to a 100% EOU depended on actual delivery to a genuine recipient and compliance with re-warehousing requirements. Where evidence showed that the consignee was a paper entity, the goods were diverted into the local market, and the re-warehousing certificates were forged, the exemption under Notification No. 137/2000-Cus. was unavailable and duty liability remained with the consignor. Directors who actively arranged the sham recipient entity and false documentation were also liable to penalty because their participation connected them to the diversion scheme and the supporting paperwork.

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Issues: (i) Whether duty-free goods cleared from a SEZ unit to a 100% EOU could be exempted when the purported re-warehousing certificates were forged and the goods were never received by the consignee; (ii) Whether penalties on the directors of the assessee were justified for their active role in the diversion and documentation of the transactions.

Issue (i): Whether duty-free goods cleared from a SEZ unit to a 100% EOU could be exempted when the purported re-warehousing certificates were forged and the goods were never received by the consignee.

Analysis: The evidence from the statements of the directors, transporter personnel, brokers, and the consignee's proprietor established that the goods were not transported to the stated 100% EOU and were instead diverted in the local market. The supposed consignee was found to be a paper entity, and the re-warehousing certificates produced to support the claimed clearances were forged. The exemption under Notification No. 137/2000-Cus. was conditional on actual clearance to a genuine 100% EOU and fulfillment of the prescribed re-warehousing requirements. Since those conditions were not satisfied, the consignor could not shift the duty liability to the consignee.

Conclusion: Duty was correctly confirmed against the assessee, and the exemption claim failed.

Issue (ii): Whether penalties on the directors of the assessee were justified for their active role in the diversion and documentation of the transactions.

Analysis: The record showed that both directors were actively involved in the day-to-day functioning of the trading unit and in arranging the sham recipient entity and related documentation. Their participation in the diversion scheme and in procuring the false paperwork brought them within the scope of penalty liability.

Conclusion: The penalties on the directors were justified and were upheld.

Final Conclusion: The impugned order confirming duty and penalties was sustained in full, and all connected appeals failed.

Ratio Decidendi: Exemption dependent on actual delivery to a genuine recipient unit and proper re-warehousing is unavailable where the consignee is fictitious, the goods are diverted, and the supporting certificates are forged; in such circumstances, duty and consequential penalties can be sustained against the consignor and responsible officers.

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