Show cause notice and actual user condition: penalty on past clearances was set aside, but confiscation for misuse was upheld.

Penalty for earlier consignments could not be sustained where no show cause notice covered those clearances and there was no evidence of waiver or hearing on that basis, so the penalty on the past seven consignments was set aside. By contrast, the live consignment was found to have violated the actual user condition because no manufacturing activity was carried on, the machinery was unused, and the imported tubes were only cut and sold; mere cutting was not manufacture. On those facts, confiscation, redemption fine, and penalty on the live consignment were upheld.

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Issues: (i) Whether the penalty imposed for the past seven consignments could be sustained when no show cause notice had been issued for those clearances. (ii) Whether the live consignment was liable to confiscation and penalty for breach of the actual user condition under the import policy.

Issue (i): Whether the penalty imposed for the past seven consignments could be sustained when no show cause notice had been issued for those clearances.

Analysis: The penalty related to earlier clearances which were not the subject matter of the notice waived by the importer. There was no evidence that the importer had waived notice for those past clearances or had been informed that they would be proceeded against in respect of them. A penalty founded on those clearances without notice and opportunity of hearing could not be sustained.

Conclusion: The penalty of Rs. 1 lakh on the past seven consignments was set aside in favour of the assessee.

Issue (ii): Whether the live consignment was liable to confiscation and penalty for breach of the actual user condition under the import policy.

Analysis: The record showed that no manufacturing activity was carried on in the factory, the braiding machine had not been used, and the imported tubes were being merely cut and sold. Mere cutting of tubes did not amount to manufacture, and the goods were not being used for the manufacturing activity for which the importer was licensed. On those facts, the import was held to have violated the actual user condition, and the goods were correctly treated as liable to confiscation with redemption fine and penalty.

Conclusion: The confiscation, redemption fine, and penalty on the live consignment were upheld against the assessee.

Final Conclusion: The order was sustained only to the extent of the live consignment, while the penalty imposed for the past clearances was annulled.

Ratio Decidendi: A penalty cannot be imposed for past clearances without a show cause notice covering those clearances, and where imported goods are not used for the licensed manufacturing activity but are merely cut and sold, the actual user condition is violated and confiscation is warranted.

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