Marble import diversion demands and penalties fail without admissible proof, statutory suppression, or a knowing false declaration.

Duty demand on imported marble blocks failed because the alleged diversion was not proved by admissible evidence: goods found in stock at the 100% EOU were shown to remain within the unit, while the remaining inference of diversion rested on internet material and third-party statements that could not be relied on without section 138B compliance. Penalty under section 114A was also unsustainable because the case involved, at most, an alleged post-import breach of exemption conditions, not collusion, wilful misstatement, or suppression at the time of import. Penalties under section 114AA likewise failed because no knowing or intentional false declaration or document was established. The impugned order was set aside in full.

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Issues: (i) Whether customs duty and interest could be demanded under section 28(4) of the Customs Act, 1962 on the imported marble blocks, (ii) Whether penalty under section 114A of the Customs Act, 1962 could be imposed on the importer, and (iii) Whether penalties under section 114AA of the Customs Act, 1962 could be sustained against the other appellants.

Issue (i): Whether customs duty and interest could be demanded under section 28(4) of the Customs Act, 1962 on the imported marble blocks.

Analysis: The demand could not be sustained on the quantities admittedly found in stock at the unit, since the goods were shown to be lying within the 100% EOU and were not diverted. As to the remaining quantity, the demand rested on an inference that imported marble had been diverted and that slabs exported through third parties were of Indian-origin material. The inference was drawn largely from internet material and statements of third parties. The Court held that internet material by itself could not establish exclusive availability of the relevant marble in India, and that the statements could not be relied upon without compliance with section 138B of the Customs Act, 1962. In the absence of admissible evidence proving diversion, the duty demand failed.

Conclusion: The demand of customs duty and interest under section 28(4) of the Customs Act, 1962 was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether penalty under section 114A of the Customs Act, 1962 could be imposed on the importer.

Analysis: Penalty under section 114A requires non-levy or short-levy of duty by reason of collusion, wilful misstatement, or suppression of facts. The import was made under a valid exemption regime applicable to a 100% EOU, with the necessary bond and permission in place. The case, at its highest, alleged failure to satisfy a post-import condition, not a false declaration or suppression at the time of import. That did not meet the statutory threshold for invoking section 114A.

Conclusion: Penalty under section 114A of the Customs Act, 1962 was unsustainable and was set aside in favour of the assessee.

Issue (iii): Whether penalties under section 114AA of the Customs Act, 1962 could be sustained against the other appellants.

Analysis: Section 114AA applies only where a person knowingly or intentionally makes or uses a false or incorrect declaration, statement, or document in the transaction of business under the Act. Since the imports were made under an exemption notification and there was no proved false declaration at the time of import, the subsequent allegation of non-compliance with post-import conditions did not establish the requisite mens rea or falsity for section 114AA. Accordingly, the personal penalties could not stand.

Conclusion: The penalties under section 114AA of the Customs Act, 1962 were not sustainable and were set aside in favour of the appellants.

Final Conclusion: The impugned order was set aside in its entirety, and all appeals succeeded.

Ratio Decidendi: A duty demand based on alleged diversion of imported goods cannot be sustained on uncorroborated inference or inadmissible statements, and penalties under sections 114A and 114AA require the specific statutory ingredients of suppression, wilful misstatement, or knowing use of false material to be independently proved.

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