JUDGMENT :

A.K. Sikri, J.

1. The Respondent No. 1 (hereinafter referred to as the 'Assessee') had imported hot rolled non-alloy steel wide coils against an advance licence issued under the Duty Exemption Entitlement Certificate (DEEC) Scheme. The quantity of the said import was 2018.6 MTs. The imports were made on 03.03.1999 and 12.04.1999. At the time of imports, the Assessee did not pay the import duty on the aforesaid materials taking umbrage under Notification No. 30/1997, as amended on 01.04.1997. This Notification allows actual users to import the raw material duty-free with the condition that the said material would be used by the importer itself and converted into specified finished goods and thereafter those goods would be exported as per the export obligations given in the advance licences. As per this obligation, the Assessee was supposed to effect export of 1000 MTs cold rolled non-alloy steel (hard) coils and 1500 MTs of CRCA skin based steel strips/coils totalling 2500 MTs. The value pertaining to these exports was also specified in the licences. The exports were to be effected within the time limits mentioned therein, which was 02.09.2001, but was extended up to 02.09.2004.

2. It is an admitted case that the raw material was used by the Assessee itself for manufacturing the specified products. However, no exports were effected by exporting those goods so manufactured from the raw material that was imported duty-free. As per the Assessee, after manufacturing of the goods from the raw material, it was found that quality of those goods was not good enough for the purposes of exports. Therefore, instead of exporting this material, the Assessee disposed of the said manufactured gods in the domestic market. At the same time, in order to meet the export obligation under the said licences, it arranged the export through one M/s. Steel Company, Gujarat as its supporting manufacturer. M/s. Steel Company, Gujarat arranged the export performance through their agents M/s. Shirdi Industries Ltd., Mumbai. M/s. Shirdi Industries Limited in turn arranged for third party exports of cold rolled non-alloy steel coils through M/s. Essar Steel Ltd., Hazira, Surat, a merchant manufacturer. A quantity of 58.865 MTs and 176.5 MTs were exported vide Shipping Bill Nos. 1000051316 dated 17.05.2000 and 1000048872 dated 10.05.2000. These exports were made to Bangladesh via Mumbai Port. Further a quantity of 510.515 MTs was exported to Nepal by M/s. Steel Company, Gujarat vide Shipping Bill No. 68/DEEC/2000 dated 23.02.2000. On that basis, the Assessee claimed that it had fulfilled its obligation.

3. The Appellant/Revenue was not amused with the aforesaid manner of fulfilling the export obligation by the Assessee. According to the Appellant, conditions contained in Notification No. 30/1997 had not been complied with, by the aforesaid third party export, as the Notification in question mandated the export of that very product which was to be manufactured out of the imported raw material and, therefore, the exemption claimed under the aforesaid Notification was unjustified. The Revenue, thus, issued show-cause notice dated 30.03.2002 demanding the duty in the sum of Rs. 1,65,07,454 along with interest @ 24% from the date of clearance. The Assessee submitted its reply bringing to the notice of the Revenue authorities the facts which have already been noted above. It was pleaded that the export through third party was as per Export-Import (EXIM) Policy and third party exports had not availed any of the export incentives. The aforesaid reply did not convince the Adjudicating Authority, namely, the Commissioner of Customs, who passed orders dated 31.03.2004 confirming the demand made in the show-cause notice. He also imposed a penalty of Rs. 10 lakhs.

4. Aggrieved by the aforesaid order of the Commissioner, the Assessee filed appeal before the Customs Excise & Service Tax Appellate Tribunal (for short, 'CESTAT'). The CESTAT has, vide order dated 11.03.2