Strict compliance with conditional customs exemption requirements supports duty demand, confiscation and penalty, while vague section 112 notice fails.

An importer claiming exemption under a conditional customs notification must strictly prove compliance with the actual-user and non-transferability requirements. Here, the record showed inadequate proof of job work, physical movement, stock, transport and processing, along with indications that goods were routed through third parties and not utilised as claimed; the duty-free benefit was therefore unavailable. Once breach of the notification conditions and misstatement were established, duty demand, confiscation and penalty were sustainable. However, the penalty under section 112 was set aside because the notice and order did not clearly specify the precise statutory contravention alleged.

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Issues: (i) Whether the appellants complied with the conditions of Notification No. 32/2005-Cus. under the Target Plus Scheme, particularly the actual-user and non-transferability requirements, in relation to the imported goods. (ii) Whether the demand of duty, confiscation and penalty, including the penalty under section 112 of the Customs Act, 1962, were sustainable.

Issue (i): Whether the appellants complied with the conditions of Notification No. 32/2005-Cus. under the Target Plus Scheme, particularly the actual-user and non-transferability requirements, in relation to the imported goods.

Analysis: The exemption under the Target Plus Scheme was conditional and the burden lay on the importer to establish compliance. The record showed that the Haldia imports were not supported by credible evidence of job work or physical movement of goods, while the purported job worker denied receipt of goods and the delivery documents did not satisfactorily establish utilisation. The Chennai imports also showed a coordinated routing of goods through third parties, with job workers stating that they acted on instructions of a third party and that the processed goods were delivered elsewhere. The absence of endorsed supporting manufacturers, lack of reliable stock, transport and processing records, false address details, and the overall pattern of diversion led to the conclusion that the goods were not utilised in terms of the notification.

Conclusion: The appellants failed to prove compliance with the notification conditions, and the duty-free benefit was not available.

Issue (ii): Whether the demand of duty, confiscation and penalty, including the penalty under section 112 of the Customs Act, 1962, were sustainable.

Analysis: Once breach of the exemption conditions and misstatement were established, invocation of duty demand, confiscation and penalty provisions was sustainable. The challenge to reliance on statements without cross-examination did not succeed because the findings rested on corroborative documentary and circumstantial material, and no prejudice was shown. However, the penalty under section 112 could not be sustained because the notice and order did not clearly specify the exact clause and manner of the alleged contravention, and that defect warranted interference to that limited extent.

Conclusion: The demand, confiscation and penalty under section 114A were sustained, but the penalty under section 112 was set aside.

Final Conclusion: The impugned order was substantially upheld, with only the penalties imposed under section 112 being deleted, and the appeals succeeded only to that limited extent.

Ratio Decidendi: An importer claiming exemption under a conditional notification must strictly prove compliance with the notification's substantive requirements; where the record establishes diversion or non-utilisation in the prescribed manner, duty demand and connected penal action are maintainable, though a penalty cannot stand if the notice fails to clearly disclose the specific statutory contravention alleged.

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