Legal principle

Where a 100% EOU has fulfilled its export obligation and the excess waste remains available in the unit with no allegation of diversion, mere generation of wastage in excess of SION norms cannot be treated as improper accounting of raw material consumption to justify a duty demand under Sections 65(2)(b) and 72(1)(d) of the Customs Act, 1962.

Court decision

The Tribunal allowed all four appeals and set aside the recovery of duty and interest confirmed in the impugned orders, holding the 100% EOU not liable to duty merely because wastage exceeded SION norms.

Facts

M/s J.J. Glastronics Pvt. Ltd., a 100% EOU, imported 'Milled Glass Powder' for manufacture and export of multi-form 'Bead glass' used in making 'Electron Guns', under SION norms permitting only 4.76% wastage. Actual waste generated exceeded this percentage during August 2004 to March 2006. The appellant sought amendment of norms, and the Development Commissioner, CSEZ fixed ad hoc wastage norms of 20.34% for six months (letter dated 15.12.2004), which the Board of Approval decided (14.06.2005, communicated 05.07.2005) would continue till regular norms were approved. The Adjudicating authority nonetheless confirmed duty and interest under Section 72(1) of the Customs Act, 1962 in four orders (totaling about Rs. 81.89 lakh) treating the excess wastage as improper accounting of raw material consumption, though no penalty was imposed, and the Commissioner (Appeals) confirmed these orders.

Key provisions

• Section 72(1)(d), Customs Act, 1962 — Goods improperly removed from warehouse, etc
• Section 65(2)(b), Customs Act, 1962 — Manufacture and other operations in relation to goods in a warehouse