Bonded warehouse manufacture of a barge attracted customs duty only, not central excise duty on clearance.

Manufacture of a barge in a customs bonded warehouse under the warehousing and in-bond manufacture regime did not make the finished vessel liable to central excise duty on clearance for home consumption. The Tribunal treated the imported and indigenous materials, as well as the finished goods, as governed by the Customs Act framework for warehousing, and rejected the view that manufacture in bond caused the final product to cease being warehoused goods. It held that goods manufactured in such a bonded warehouse were to be treated, for duty purposes, as manufactured outside India, so customs duty alone applied. Central excise duty, interest and penalty were therefore not leviable.

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Issues: Whether a barge manufactured in a customs bonded warehouse from imported and indigenous materials was liable to central excise duty on clearance for home consumption, or only to customs duty.

Analysis: The barge was manufactured under the Customs Act framework for warehousing and in-bond manufacture. The relevant provisions governing warehousing and manufacture in bond treated the goods and the components as warehoused goods, and the fact of manufacture in a customs bonded warehouse did not convert the final product into excisable goods for central excise purposes. The earlier reasoning that the final product ceased to be warehoused goods was rejected. The Tribunal relied on the legal position that goods manufactured under customs warehousing bond are to be treated as having been manufactured outside India for duty purposes, so that customs duty, and not central excise duty, would govern their clearance.

Conclusion: Central excise duty was not leviable on the barge, and the demand, interest and penalty were set aside. The appeal was allowed.

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