Fraudulent advance-licence clearances lose duty exemption, trigger extended recovery periods, confiscation exposure, and penalties for involved firms and partners.
Section 28(11) of the Customs Act validates jurisdiction for customs notices issued by empowered officers, while the Commissioner's SEZ jurisdiction may extend to central-excise powers under applicable notifications. Duty-free SEZ clearances based on fraudulent, invalid, unregistered or unsupported advance-licence arrangements fail to satisfy exemption conditions. Earlier assessment of bills of entry does not prevent duty recovery where fraud and diversion of goods are established; extended limitation may then apply under customs and central-excise law. Sorting, stripping, cutting and segregating imported mixed scrap into commercially distinct ferrous and non-ferrous scrap constitutes manufacture. Fraudulent diversion can also sustain confiscation consequences and separate penalties on an involved partnership firm and active partner.
Issues: (i) Whether the show-cause notice issued by DRI and its adjudication by the Commissioner of Customs were jurisdictionally valid; (ii) Whether duty demands on scrap cleared from the SEZ to purported advance-licence holders were sustainable despite assessed bills of entry, subsequent cancellation or suspension of licences, and limitation objections; (iii) Whether segregation and processing of imported mixed scrap amounted to manufacture for central-excise purposes; (iv) Whether penalties on the partnership firm and its active partner were sustainable.
Issue (i): Whether the show-cause notice issued by DRI and its adjudication by the Commissioner of Customs were jurisdictionally valid.
Analysis: Section 28(11) of the Customs Act, 1962 validates the jurisdiction of empowered customs officers in respect of the notice. The Commissioner of Customs had jurisdiction over the SEZ and, under the applicable notifications, also exercised the powers of a Commissioner of Central Excise for that SEZ. The later Supreme Court ruling on Section 28(11) confirmed that the statutory validation cured the jurisdictional objection.
Conclusion: The notice and adjudication were jurisdictionally valid, against the assessee.
Issue (ii): Whether duty demands on scrap cleared from the SEZ to purported advance-licence holders were sustainable despite assessed bills of entry, subsequent cancellation or suspension of licences, and limitation objections.
Analysis: The evidence established that the stated recipient firms did not exist at their declared addresses, the relevant licences or supporting certifications were fraudulent or invalid, the licence relating to one recipient was not registered, and transportation records did not establish delivery to the purported recipients. Cash deposits followed by demand drafts and closure of the recipient accounts supported the finding of a sham arrangement. The exemption conditions were not fulfilled and the assessee, which claimed the exemption, failed to establish bona fide clearance to genuine advance-licence holders for the prescribed use. A demand under Section 28 of the Customs Act, 1962 was not barred merely because bills of entry had earlier been assessed. The fraud and diversion of duty-free goods justified invocation of the extended limitation period under Section 28 of the Customs Act, 1962 and Section 11A of the Central Excise Act, 1944.
Conclusion: The duty demands, confiscation liability, and invocation of the extended limitation period were sustainable, against the assessee.
Issue (iii): Whether segregation and processing of imported mixed scrap amounted to manufacture for central-excise purposes.
Analysis: The processes involved sorting, stripping, cutting, removal of impurities and attachments, and mechanical or manual segregation producing commercially distinct ferrous and non-ferrous scrap. Applying the jurisdictional High Court's ruling, these processes resulted in distinct, marketable commodities and constituted manufacture.
Conclusion: The segregation and processing undertaken by the assessee amounted to manufacture, against the assessee.
Issue (iv): Whether penalties on the partnership firm and its active partner were sustainable.
Analysis: The established fraud and deliberate diversion of goods justified the mandatory penalty consequences arising from the extended-period findings. Separate penalties on a firm and its partner are permissible where the partner is directly involved in the contravention. The active partner's control over operations, involvement in the clearances, and participation in the arrangement supported the separate personal penalties.
Conclusion: The penalties on the firm and its active partner were sustainable, against the assessee.
Final Conclusion: Duty-free SEZ clearances based on fraudulent advance-licence arrangements cannot retain exemption, and the persons responsible for the diversion remain liable to statutory duty and penal consequences.
Ratio Decidendi: Where duty exemption is obtained through fraudulent or non-genuine licence arrangements and the stipulated conditions are not fulfilled, the exemption fails; fraud permits recovery within the extended period and supports corresponding penalties.