2021 (1) TMI 627 - HC - Customs

Writing off the imported duty-free materials from the books of accounts of the importer - Whether amounts to disposed of within the meaning of Customs Notification No.30/97-Cus dated 01.04.1997 under which the goods/materials are imported? - 'write off' the duty free imported material from the books of accounts without paying duty - violation of norms of 'Actual User Condition', 'export obligation' or not - utilization in discharge of export obligation or for replenishment' prescribed under Customs Notification No.30/97-Cus dated 1.4.1997 - writing of the duty free imported material without complying with the condition of 'actual user' imposed in the exemption order by the Department - clause (vii) of Notification No.30/1997-Cus dated 01.04.1997 - HELD THAT - The tribunal on the basis of advance licences issued to the respondent and the standard input output norms has recorded a finding that the respondent was allowed to import 2% in excess to provide for the wastage. It is also pertinent to mention here that since, the respondent was allowed to import 2% in excess of their actual requirement, it is the case of the respondent that some of the components remained unutilized due to closure of messaging products division as the components were rendered obsolete. Admittedly, the respondent has fulfilled the entire export obligation and has realized the foreign exchange and has neither diverted the import material nor has sold it and has used all the imported materials. It is pertinent to mention here that the provisions of the Income Tax Act, 1961, permit the respondent to write off the unused assets. Therefore, clause (vii) of the Notification has to be read in the context of the legal provisions and cannot be read in isolation. The word 'any manner' therefore, cannot include within its ambit written off duty free imported material in the books specially when the same was in the custody of the respondent itself as writing off of the same is permissible in law. Therefore, the contention of the revenue that provision or clause (vii) of the Notification. Was violated does not deserve acceptance. Appeal dismissed - the substantial questions of law involved in this appeal are answered against the revenue and in favour of the assessee.

Summary

Issues:
1. Interpretation of Customs Act regarding writing off duty-free materials.
2. Compliance with 'Actual User Condition' and 'export obligation' under Customs Notification.
3. Confiscation of duty-free imported materials under Section 111(o) of the Act.

Issue 1:
The appeal questioned the permissibility of writing off duty-free materials in the importer's books and whether it constitutes disposal within the Customs Notification. The respondent, a pager manufacturer, imported components under a Duty Exemption scheme. Some components became obsolete due to division closure and were written off. The revenue demanded duty and imposed penalties, leading to an appeal. The tribunal found the export obligation fulfilled and allowed the appeal. The revenue argued violation of Notification clause (vii) and strict interpretation of exemption laws. However, the tribunal's failure to consider these principles was highlighted. The court referred to a Supreme Court decision and emphasized the burden of proving exemption applicability on the assessee.

Issue 2:
The second issue revolved around the importer's compliance with 'Actual User Condition' and 'export obligation' under the Customs Notification. The respondent fulfilled the export obligation but faced duty demands and confiscation. The revenue contended that writing off duty-free materials violated the Notification, while the tribunal found in favor of the respondent. The Senior Counsel for the assessee cited various judgments supporting the fulfillment of export obligations and the use of imported materials. The court analyzed Notification clause (vii) and noted that the respondent was allowed to import excess components for wastage. The court emphasized that the word 'any manner' in the Notification should be read in the context of legal provisions, allowing the writing off of unused assets. Consequently, the court ruled against the revenue's contentions.

Issue 3:
The third issue involved the confiscation of duty-free imported materials under Section 111(o) of the Act. The respondent, despite fulfilling export obligations, faced duty demands, confiscation, and penalties. The tribunal's decision favored the respondent, emphasizing the utilization of all imported materials. The court considered the provisions of the Income Tax Act, permitting the writing off of unused assets. It concluded that the writing off of duty-free imported materials, when in the custody of the respondent, was permissible in law. The court rejected the revenue's arguments, ruling in favor of the assessee and dismissing the appeal.

In conclusion, the judgment analyzed the issues of writing off duty-free materials, compliance with Customs Notification conditions, and confiscation under the Act. It highlighted the fulfillment of export obligations by the respondent and the permissibility of writing off unused assets within legal provisions. The court ruled against the revenue's contentions, dismissing the appeal and favoring the assessee.