Destroyed export unit inputs and bond enforcement cannot sustain customs demand without valid statutory basis.

Under an export promotion exemption scheme, imported inputs and packing materials that were admittedly destroyed in the factory before home clearance could not be treated as dutiable goods, because the framework contemplated non-levy or remission where destruction occurred before clearance and the input-output norm could not be used mechanically to infer clandestine removal. Recovery also could not be shifted to bond enforcement without a validly sustained demand under the Customs Act and a proper jurisdictional basis; in the absence of such foundation, invoking the bond as an independent recovery route was beyond authority. The result was that the demand and recovery approach described in the order were unsustainable.

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Issues: (i) Whether duty could be demanded on imported inputs and packing materials that were admittedly destroyed in the factory of an export oriented unit. (ii) Whether the bond executed under the exemption scheme could be enforced in the absence of a confirmed demand under the Customs Act, 1962 and without proper jurisdictional basis.

Issue (i): Whether duty could be demanded on imported inputs and packing materials that were admittedly destroyed in the factory of an export oriented unit.

Analysis: The exemption scheme for export oriented units, implemented through the relevant customs notifications, had to be read with the Customs Act, 1962 and the Foreign Trade Policy. The goods in question were not cleared for home consumption, and their destruction was not disputed. The governing framework contemplated remission or non-levy in respect of goods that were destroyed before clearance, and the tolerance norm or input-output control mechanism could not be mechanically used to treat such destroyed goods as clandestinely removed or otherwise dutiable. In the admitted factual setting, destruction of the inputs and packing materials negatived the basis for treating them as goods on which duty had crystallised.

Conclusion: No duty liability survived on the destroyed inputs and packing materials; the demand on that score was unsustainable and was against the Revenue.

Issue (ii): Whether the bond executed under the exemption scheme could be enforced in the absence of a confirmed demand under the Customs Act, 1962 and without proper jurisdictional basis.

Analysis: Recovery under the bond could not be substituted for the statutory recovery mechanism without a validly confirmed demand. The show cause notice had proceeded under section 28 of the Customs Act, 1962, but the adjudication did not sustain that route and instead sought to fasten liability through bond enforcement without clearly demonstrating the legal basis for doing so. The order also failed to establish a proper jurisdictional foundation for invoking the bond as an independent mode of recovery, and the manner of adjudication was therefore held to be beyond authority.

Conclusion: The bond could not be invoked in the manner adopted in the impugned order, and the recovery on that basis was against the assessee.

Final Conclusion: The order of demand was unsustainable in law, the appeal succeeded, and the impugned order was set aside.

Ratio Decidendi: Where goods covered by an export promotion exemption scheme are admittedly destroyed before home clearance, and no valid demand is sustained under the Customs Act, recovery cannot be fastened by mechanically invoking the bond or by presuming clandestine removal.

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