Legal principle

Manufacture in a customs bonded warehouse under Sections 58 and 65 is a duty-deferment scheme: import duty on raw materials consumed in the final product is payable only on clearance of the final product under Section 68 by the proper officer, and absent any incorrect or false declaration, the goods cannot be confiscated under Section 111(m) or penalised under Section 112.

Court decision

The Tribunal set aside the Order-in-Original confirming the duty demand with interest, the Section 114A penalty, the confiscation and the redemption fine, and allowed the appeals. It held that imported raw materials/inputs consumed in final products manufactured in a private bonded warehouse licensed under Sections 58 and 65 are not liable for payment of import duties at the time of clearance of such final products as demanded, and that, since the Commissioner himself found no evidence of any incorrect or false declaration, there was no violation of Section 111(m), no confiscation, and no consequential Section 112 penalty.

Facts

SHM Shipcare Pvt. Ltd. held a private bonded warehouse licence under Section 58 and a licence for manufacture of 'High-Speed FRP Boats' under Section 65 of the Customs Act, 1962, importing raw materials without payment of duty. Instead of filing ex-bond Bills of Entry for the warehoused raw materials at the port of import (ACC, Sahar), it filed manual ex-bond Bills of Entry at New Custom House, Mumbai for clearance of the Boats, claiming a 'Nil' duty exemption entry of Notification No. 50/2017-Customs (quoting S.No. 558 instead of the applicable 559). On information from the New Custom House, the Department issued SCN dated 14.01.2022 proposing demand of Rs. 4,51,52,580 as customs duty with interest on the raw materials under Section 28(4), confiscation under Section 111(m), and penalties under Sections 112(a)/(b), 114A and 114AA. The Commissioner confirmed the demand with interest, imposed 100% mandatory penalty under Section 114A, confiscated raw materials valued at Rs. 23,09,22,239 and offered release on a redemption fine of Rs. 2,30,00,000 under Section 125(1).

Key provisions

• Section 65, Customs Act, 1962 — Manufacture and other operations in relation to goods in a warehouse
• Section 58, Customs Act, 1962 — Licensing of private warehouses
• Section 68, Customs Act, 1962 — Clearance of warehoused goods for home consumption
• Section 46, Customs Act, 1962 — Entry of goods on importation
• Section 111(m), Customs Act, 1962 — Confiscation of improperly imported goods etc
• Section 67, Customs Act, 1962 — Removal of goods from one warehouse to another
• Section 59, Customs Act, 1962 — Warehousing bond
• Section 114AA, Customs Act, 1962 — Penalty for use of false and incorrect material
• Section 60, Customs Act, 1962 — Permission for removal of goods for deposit in warehouse
• Section 15, Customs Act, 1962 — Date for determination of rate of duty and tariff valuation of imported goods
• Section 12, Customs Act, 1962 — Dutiable goods
• Section 7, Customs Tariff Act, 1975 — Duration of protective duties and power of Central Government to alter them