2004 (11) TMI 259 - AT - Customs

Summary

Issues Involved:
1. Whether rejects should be deemed to have been used in the manufacture of watches.
2. Diversion of imported material for supplies as spare parts.
3. Validity of end-use certificates and the issue of procedural lapses.

Detailed Analysis:

1. Use of Rejects in Manufacture:
The first issue concerns whether rejects should be deemed to have been used in the manufacture of watches, especially when the bonds executed before the Assistant Commissioner of Customs have been canceled even before using them. The appellants argued that the quality control in the watch industry is rigorous, with extensive testing infrastructure at Hosur. Rejected parts are re-worked and used in the manufacture of watches. The adjudicating authority granted the concessional rate of duty for rejects used before bond cancellation but denied it for those used after. The tribunal found that denying substantial benefits due to procedural lapses is incorrect. Hence, rejects used in manufacturing, whether before or after bond cancellation, are entitled to concessional duty, except those diverted as spares.

2. Diversion of Imported Material as Spare Parts:
The second issue is the diversion of imported material for supplies as spare parts. The appellants claimed they imported large quantities of items at full duty rates and only used such items as spares. The adjudicating authority did not carefully examine the information provided. The tribunal held that if imported items were diverted as spares, no concessional duty applies due to notification violations. However, if the quantity sent as spares is less than the quantity imported at full duty, the department has no case. This issue requires re-examination by the original adjudicating authority, and thus, the matter is remanded to the commissioner.

3. Validity of End-Use Certificates:
The third issue involves the end-use certificate and whether the appellant suppressed the fact of diverting components to Dehradun. The appellant argued that the department knew about the Dehradun assembly unit. Evidence showed that the department was aware of the assembly unit and parts diversion. The tribunal found that the assembly unit at Dehradun lacked infrastructure for inspection or processing, relying on Hosur for assembly requirements. The tribunal concluded that the allegation of suppression is unsustainable, and the longer period cannot be invoked. The exemption notifications do not stipulate that imported components should not be used in other units owned by the importer. Non-production of a certificate from the jurisdictional Assistant Commissioner Dehradun is considered a procedural lapse, not justifying denial of exemption. The matter is remanded to the original authority for re-examination, with any demand after re-quantification limited to the normal period.

Conclusion:
The tribunal remanded the case to the original adjudicating authority for re-examination of the issues concerning the diversion of imported materials as spares and the procedural lapses related to end-use certificates. The tribunal emphasized that substantial benefits should not be denied due to procedural lapses and that any demand should be limited to the normal period.