Input-Output Norms for exported gherkins: excess vinegar consumption alone could not sustain duty, interest, or penalty.

Excess vinegar consumption in gherkin manufacture cannot, by itself, justify customs and central excise duty, interest, or penalty where the applicable SION does not distinguish between gherkins in vinegar and gherkins in brine. The tribunal accepted that the relevant quantities were declared in ER-2 returns and found no evidence of diversion, clandestine removal, misuse of inputs, or any other factual basis to deny the duty-free benefit. On that footing, a demand resting only on an alleged breach of input-output norms for exported goods was held unsustainable, and the connected duty, interest, and penalty were set aside.

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Issues: Whether the excess consumption of vinegar in the manufacture of gherkins could be treated as a breach of the applicable Standard Input-Output Norms so as to justify customs and central excise duty, interest and penalty.

Analysis: The dispute turned on whether the quantity of gherkins exported had to be assessed only on the basis of gherkins in vinegar or on the total exported gherkins, including gherkins in brine. The Court accepted that the SION entry for gherkins did not distinguish between the two product forms and that the appellant had declared the relevant quantities in ER-2 returns. It also found no material showing diversion, clandestine removal, misuse of inputs, or any other factual basis to deny the duty-free benefit. In the absence of findings contradicting the appellant's explanation that vinegar was used in the manufacture and reprocessing of exported goods, the demand founded solely on alleged excess over SION was unsustainable.

Conclusion: The demand of customs duty and central excise duty on excess vinegar consumption, along with the connected interest and penalty, was set aside.

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