DEEC import duty and penalty issues turn on proof of export obligation and Departmental waiver of procedure.

Duty on diverted or non-exported clearances remained payable under the DEEC scheme, but secondary evidence of discharge of export obligation for yarn made from fibre imported under one licence could justify a verification-based deduction from the confirmed demand. The Tribunal accepted that a Customs Assistant Collector's letter could not be ignored and directed verification of whether the yarn was received at the factory and ultimately exported as fabrics. Penalty was not sustainable because the Department had itself dispensed with the prescribed Rule 191B procedure, the assessee had acted on that understanding, and the same omission could not attract penal liability in those circumstances.

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Issues: (i) whether the duty demand could be reduced on the basis of secondary evidence showing fulfilment of export obligation in respect of yarn manufactured from fibre imported under one DEEC licence; and (ii) whether penalty was sustainable where the Department had dispensed with the prescribed procedure and the assessee had acted on the basis of the Department's own understanding.

Issue (i): whether the duty demand could be reduced on the basis of secondary evidence showing fulfilment of export obligation in respect of yarn manufactured from fibre imported under one DEEC licence;

Analysis: The demand was generally upheld because the appellants conceded duty liability for the quantity diverted to local consumption and the non-exported clearances remained chargeable. However, a letter from the Assistant Collector of Customs discharging the export obligation under one licence was produced as secondary evidence. The Tribunal held that this evidence could not be ignored and directed verification of whether the yarn manufactured from the fibre imported under that licence had been received at the Vikroli factory and ultimately exported as fabrics. Subject to such verification and acceptance of the evidence, a deduction from the confirmed demand was permissible.

Conclusion: The duty demand was sustained in principle, but the appellants were entitled to a possible deduction, on verification, for the quantity covered by the licence for which export obligation stood discharged.

Issue (ii): whether penalty was sustainable where the Department had dispensed with the prescribed procedure and the assessee had acted on the basis of the Department's own understanding.

Analysis: The appellants had informed the excise authorities of the DEEC imports and had requested permission under Rule 191B, but the local officers treated the goods as being under customs bond and returned the classification lists. The Tribunal found that the procedural safeguards under Rule 191B had been waived by the Department itself and that the assessee had been misled by the Department's own approach. In that background, even if non-export and suppression were alleged, the Department could not fasten penal liability on the appellants for the same omission, particularly when the procedural regime contemplated only a limited penalty for breach.

Conclusion: The penalty was not sustainable and was remitted.

Final Conclusion: The duty demand remained largely intact, but the appellants were allowed to seek verification-based deduction for the licence-linked exports and were relieved of the penalty.

Ratio Decidendi: Where the Department itself has waived or wrongly dispensed with the prescribed procedure and the assessee has acted on that footing, penalty cannot be sustained for the same omission, though duty remains payable unless export is duly proved.

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