Legal principle

Goods issued from a bonded warehouse for manufacture under Section 65 are subsumed in the manufacturing process, so their retention in the warehouse beyond one year without extension does not breach Section 61(2)(ii) and cannot attract a duty demand under Section 72(1)(b) as improperly removed goods.

Court decision

The High Court allowed all the petitions and quashed and set aside the impugned Orders-in-Original, holding that where goods have been issued from the warehouse for manufacture under Section 65, there is no breach of Section 61(2)(ii) and Section 72(1)(b) does not come into play, so the duty demand was without authority of law and jurisdiction — decided in favour of Larsen & Toubro.

Facts

Larsen & Toubro Ltd, which manufactures oil exploration platforms and ships at its Hazira (Surat) complex, held a private bonded warehouse licence under Section 58 (granted 31.03.1986 and renewed) and Section 65 permission (dated 07.06.2006) under which imported goods were deposited in the warehouse and issued for manufacturing operations in bond. The department issued a demand notice dated 18.04.2013 for customs duty of Rs. 330,92,81,470 under Section 72(1) read with Section 61(2), treating goods whose resultant manufactured products were not cleared for home consumption or export within one year as improperly removed, along with interest under Section 61(2). An ex-parte Order-in-Original No. SRT-II/Div-II/04/ADJ./15-16 dated 18.02.2016 confirmed the demand. The writ petitions against these were heard together by the Gujarat High Court.

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 61, Customs Act, 1962 — Period for which goods may remain warehoused
• Section 72, Customs Act, 1962 — Goods improperly removed from warehouse, etc
• Section 47, Customs Act, 1962 — Clearance of goods for home consumption
• Section 59, Customs Act, 1962 — Warehousing bond
• Section 2(44), Customs Act, 1962 — Definitions
• Section 67, Customs Act, 1962 — Removal of goods from one warehouse to another
• Section 3(1), Customs Tariff Act, 1975 — Levy of additional duty equal to excise duty, sales tax, local taxes and other charges
• Section 25(1), Customs Act, 1962 — Power to grant exemption from duty
• Section 46, Customs Act, 1962 — Entry of goods on importation
• Section 15(1), Customs Act, 1962 — Date for determination of rate of duty and tariff valuation of imported goods