SEZ warehoused goods require proper stock reconciliation before duty, penalty, or confiscation can be sustained

Warehoused raw sugar imported by an SEZ unit could not be treated as unaccounted merely on an assumption of shortage, where warehouse records, ex-bond clearances, SEZ endorsements, and a credible claim of cyclone or flood loss required proper reconciliation. Goods supported by statutory documents or shown as received in the SEZ had to be treated as accounted for, and any natural loss could be examined for remission. On the facts, diversion to DTA or fraudulent non-accountal was not established, so the duty demand was set aside with remand for fresh quantification, if any. Penalties under sections 117 and 114AA, together with confiscation and redemption fine, were also set aside.

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Issues: (i) whether the duty demand raised on alleged non-accountal of warehoused raw sugar could stand without proper reconciliation of quantities shown as lost, exported, or received in the SEZ unit; and (ii) whether penalties, confiscation, and redemption fine were sustainable in the facts of the case.

Issue (i): whether the duty demand raised on alleged non-accountal of warehoused raw sugar could stand without proper reconciliation of quantities shown as lost, exported, or received in the SEZ unit

Analysis: The goods were imported by an SEZ unit and kept in private bonded warehouses, so accountal of the stock had to be examined against the warehouse records, ex-bond clearances, SEZ endorsements, and the claimed loss due to cyclone and flooding. The explanations offered for part of the shortage required verification, and goods shown as received by the SEZ authority could not be treated as unexplained merely for want of further corroboration. To the extent loss was attributable to natural causes, remission could be considered, and to the extent goods were supported by statutory documents and SEZ endorsement, they had to be treated as accounted for. The record did not establish diversion to DTA or that the goods were never exported or received in SEZ.

Conclusion: The duty demand was not finally sustained and was set aside with remand for fresh redetermination of any recoverable duty, if any.

Issue (ii): whether penalties, confiscation, and redemption fine were sustainable in the facts of the case

Analysis: Penalty for alleged warehouse irregularities could not rest on a supposed requirement of prior permission for bagging when no such specific requirement was shown. Penalty under section 114AA was not attracted where the goods were exported by an SEZ unit and no export benefit was shown to have been wrongly claimed. Confiscation and redemption fine could not survive where the goods were not physically available for confiscation. Penalty under section 117 also did not survive on the facts found. The unresolved portion, if any, remained confined to fresh quantification after reconciliation of the stock position.

Conclusion: The penalties under sections 117 and 114AA, the confiscation, and the redemption fine were set aside, while the penalty and duty-related consequences under section 72(1)(d) were left open for fresh determination on remand.

Final Conclusion: The matter was allowed in part with remand for recalculation of the duty, if any, on properly reconciled quantities, while the penal and confiscatory consequences were substantially annulled.

Ratio Decidendi: Where warehoused goods imported by an SEZ unit are supported by statutory documentation, SEZ endorsement, or a credible claim of natural loss, duty and penalties cannot be sustained on an unverified assumption of non-accountal; confiscation and redemption fine also cannot survive if the goods are not available for confiscation.

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