2008 (1) TMI 152 - AT - Customs

Duty demanded on waste & rejects cleared in the DTA & on inputs used in mfg. of those waste - raw materials were admittedly issued for mfg. and a portion of the finished goods which was waste were cleared in DTA as per permission granted by Development Commissioner - no case of use of raw materials for a purpose other than intended purpose - clearance of rejects are within permissible limit of 50% of the exports, if value of deemed exports are into account demand & penalty not sustainable

Summary

Issues:
Department's appeal against the order of the Commissioner (Appeals) regarding excise duty on waste and rejects, duty on inputs, and penalty imposition.

Analysis:
The case involved M/s. Special Projects Finance (I) Pvt. Ltd. importing duty-free raw materials and procuring duty-free materials from domestic sources, bonded in a warehouse for manufacturing. The company cleared goods on deemed export basis to other 100% EOUs, leading to rejects and waste cleared in the domestic market. The department demanded excise duty on waste and rejects as finished products, as well as customs duty on inputs and excise duty on the inputs used in manufacturing the finished goods. The original authority confirmed the duty and imposed penalties, which the Commissioner (Appeals) set aside.

Regarding the determination of DTA entitlement, the Tribunal referred to a previous case and held that the value of deemed export clearances should be considered for calculating the eligibility of 50% of the FOB value of exports. This allowed the appellant to clear goods in the DTA on payment of applicable duties.

On the issue of duty demand on inputs used in manufacturing waste and rejects, it was found that the raw materials were not improperly removed from the warehouse. The raw materials were issued for manufacturing, and the finished goods cleared in the domestic market with permission. As no diversion or unauthorized use of duty-free raw materials was established, the Commissioner (Appeals) decision not to demand duty on raw materials or impose penalties was upheld.

Conclusively, the clearance of rejects and waste fell within the permissible limit of 50% of exports when considering the value of deemed exports. Hence, the demand on finished goods was deemed unjustified, and there was no basis for demanding duty on raw materials or penal action. The Department's appeal was rejected, affirming the Commissioner (Appeals) decision.