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Issues: Duty demand on excess fabric consumption by an Export Oriented Unit (EOU) for manufacturing trousers, imposition of penalty under Section 112 of the Customs Act, 1962.
Analysis: 1. Excess Fabric Consumption: The appellant, a 100% EOU, imported fabrics duty-free for manufacturing trousers but consumed 32185.06 Sq. Mtrs. more than the allowed quantity under Input-Output norms. The appellant argued that the excess fabric was used as wastage, supported by a letter from the Joint Development Commissioner allowing 15% extra fabric duty-free. However, the tribunal found that the prescribed norm of 1.687 sq. mtrs. per trouser did not permit additional wastage beyond the set limit. The adjudicating Commissioner rightly demanded duty on the excess fabric, as it exceeded the permissible quantity under the law. 2. Penalty Imposition: Along with the duty demand, a penalty of Rs. 35,00,000/- was imposed on the appellant under Section 112 of the Customs Act, 1962. The tribunal noted that the penalty amount was significantly higher than the confirmed duty amount of Rs. 17,44,818.23/-. Considering the circumstances, the tribunal deemed the penalty excessive and reduced it to Rs. 8,00,000/-. The decision to reduce the penalty was based on the totality of facts and the excessive nature of the original penalty amount in relation to the duty confirmed. 3. Conclusion: The tribunal partially allowed the appeal by reducing the penalty imposed on the appellant. The decision was based on the lack of provision for additional wastage beyond the prescribed norm under Input-Output norms, leading to the justified demand for duty on excess fabric consumption. The reduction in the penalty amount was deemed appropriate given the circumstances of the case and the proportionality of the original penalty to the duty amount confirmed.
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