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Challenge to imposition of penalty under Section 112(a) of the Customs Act based on violation of conditions of Exemption Notification 3/89-Cus. Analysis: The appeal was filed against an order imposing a penalty on the appellants under Section 112(a) of the Customs Act for allegedly violating the conditions of Exemption Notification 3/89-Cus. The appellants contended that Section 112(a) was not applicable to them, as the Department's stance was contradictory. The Department alleged that the exemption under the Notification was not available to the appellants, yet no duty demand was confirmed against them. The appellants argued that without confirmation of duty demand, no penalty could be imposed under Section 112(a). The Commissioner's order was challenged as being legally flawed. Both sides presented their arguments, with the Department asserting that the penalty was rightly imposed as the appellants allowed commercial use of imported goods to the Department of Telecommunication, violating the exemption Notification. The appellants, engaged in manufacturing telecommunication equipment, imported switching systems for testing by the DOT under complete duty exemption, with the condition of re-export within six months. The appellants re-exported the goods as per the Bombay High Court's direction after a dispute over the re-export timeline. The show cause notice was issued after a significant delay from the re-export date, raising questions of reasonableness and timeliness. The Department's stand was deemed contradictory as no duty demand was confirmed despite alleging ineligibility for the exemption. The alleged violation of the Notification's condition regarding commercial use was disputed by the appellants, as they argued that the goods were only used for testing and validation purposes, not for commercial gain. The Tribunal found that the Department's arguments were unfounded as no duty demand was confirmed, and the alleged violation of the Notification's conditions was not proven. The Notification did not prohibit commercial use, only loaning or hire for reward. Since no penalty clause was present in the Notification, and duty demand was not confirmed, the imposition of penalty under Section 112(a) was deemed unjustified. The Tribunal referred to relevant case law to support its decision and set aside the Commissioner's order, allowing the appeal of the appellants.
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