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Impugned demand raised by respondents for customs duty on wastage of imported raw materials used for manufacturing goods within an Export Processing Zone. Analysis: 1. Impugned Demand: The petitioner challenged the demand for customs duty amounting to Rs. 2,65,047/- raised by the respondents for the wastage of Angora woollen blended yarn and vellore fabrics. The demand was stayed subject to furnishing a bank guarantee, which was provided by the petitioner. The petitioner, a 100% export unit, imported raw materials for manufacturing goods within the Export Processing Zone without paying customs duty under specific Notifications. 2. Compliance with Notification Conditions: The petitioner fulfilled the conditions of the Notification for duty exemption, including establishing a manufacturing unit in the Export Zone, using imported goods for production of exported goods, and executing bonds for export obligations. The Notification also allowed temporary removal of goods for processing, subject to certain conditions, including no duty on scrap or waste material within specified limits. 3. Permission for Manufacturing Outside Zone: Due to factory closure, the petitioner sought and obtained permission to take unused raw materials outside the Zone for processing to fulfill export obligations. The permission included conditions, one of which was no wastage allowed, leading to the demand for customs duty on the wastage component. 4. Legal Arguments: The petitioner contended that the wastage was within prescribed norms, brought back to the Zone, and used for manufacturing goods for export. Referring to a similar case, the petitioner argued that duty on wastage during manufacturing process was not contemplated by the Customs Notification. The respondents justified the duty based on conditions for manufacturing outside the Zone. 5. Judicial Decision: The Court found the demand for customs duty on wastage component unreasonable and arbitrary, as the petitioner had complied with all conditions for duty exemption. The condition in the bank guarantee regarding duty on wastage was deemed illegal and discharged. The Court quashed the demand letter dated 20th September, 1991, and allowed the writ petition in favor of the petitioner. 6. Conclusion: The judgment highlighted the importance of fulfilling Notification conditions for duty exemption and emphasized that arbitrary demands for customs duty, especially on wastage components, without legal authority, are not permissible. The Court's decision favored the petitioner, discharging the bank guarantee and quashing the demand for customs duty on wastage, ultimately providing relief to the petitioner.
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