Export obligation under advance licence upheld as confiscation and penalty sustained, while unsupported interest levy was struck down.

Duty-free import under an advance licence carried a mandatory export obligation, and failure to fulfil that obligation justified confiscation of the re-imported silk fabrics, redemption fine and penalty under the Customs Act. Interest on the confirmed duty was unsustainable because the order identified no valid statutory source, and neither Section 28AA nor Section 28AB applied on the recorded facts; the interest demand was set aside. The Commissioner had jurisdiction to adjudicate the breach arising from non-fulfilment of the export obligation, and the penalty was within the scope of the show cause notice; the jurisdictional challenge failed and the penalty was upheld.

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Issues: (i) Whether confiscation of the re-imported silk fabrics and the penalties imposed under the Customs Act were justified on account of failure to fulfil the export obligation under the advance licence and exemption notification; (ii) whether interest could be levied on the duty confirmed without reference to a supporting provision under the Customs Act; (iii) whether the Commissioner had jurisdiction to adjudicate the breach arising from non-fulfilment of the export obligation and to impose the penalty of Rs. one lakh within the scope of the show cause notice.

Issue (i): Whether confiscation of the re-imported silk fabrics and the penalties imposed under the Customs Act were justified on account of failure to fulfil the export obligation under the advance licence and exemption notification.

Analysis: The import was made duty-free under the exemption notification against a mandatory export obligation. The record showed that the required export obligation was not fulfilled and that the re-imported fabrics formed part of the same transaction of non-fulfilment. The confiscation of the re-imported goods was not contested. In that setting, the penalties and redemption fine were found to be reasonable and within the statutory framework.

Conclusion: The confiscation, redemption fine, and penalty were upheld and this issue was decided against the appellant.

Issue (ii): Whether interest could be levied on the duty confirmed without reference to a supporting provision under the Customs Act.

Analysis: The order did not specify the statutory source for levying interest. The only provisions under which such interest could arise were Section 28AA or Section 28AB of the Customs Act, 1962, and neither was applicable on the facts recorded. In the absence of a proper legal basis, the interest demand could not be sustained.

Conclusion: The levy of interest was set aside and this issue was decided in favour of the appellant.

Issue (iii): Whether the Commissioner had jurisdiction to adjudicate the breach arising from non-fulfilment of the export obligation and to impose the penalty of Rs. one lakh within the scope of the show cause notice.

Analysis: The proceedings arose from the duty-free import under Notification No. 80/95-Cus., which carried a corresponding export obligation. Failure to fulfil that obligation brought the matter within the Customs Act, and the Commissioner of Customs was competent to adjudicate the violation. The show cause notice also covered imposition of penalty, and the adjudication did not travel beyond its scope.

Conclusion: The jurisdictional challenge failed and the penalty of Rs. one lakh was upheld; this issue was decided against the appellant.

Final Conclusion: The appeal succeeded only to the limited extent of deletion of the interest demand, while the confiscation, redemption fine, and penalties were sustained.

Ratio Decidendi: Interest can be sustained only when there is a specific statutory provision authorising its levy, and in the absence of such authority the demand is liable to be struck down.

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