Bonded warehouse operations: assembly and installation in bond do not by themselves trigger ex-bond clearance or customs liability.

Cancellation of the private bonded warehouse licence was unsustainable because Regulation 7 had been rescinded and the alleged breach rested on a non-existent condition; prior departmental permission for assembly and installation also defeated reliance on absence of an EPCG licence. Customs duty, interest, penalty and confiscation could not be sustained merely because warehoused capital goods were unpacked, assembled or installed in bond, since that did not amount to ex-bond clearance or clearance for home consumption. The demand was further vitiated by jurisdictional defect and denial of natural justice, and the pending ex-bond bills of entry were required to be assessed according to law.

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Issues: (i) Whether cancellation of the private bonded warehouse licence was sustainable on the alleged breach of Regulation 7 of the Manufacture and Other Operations in Warehouse Regulations, 1966 and want of EPCG licence. (ii) Whether customs duty, interest, penalty and confiscation could be sustained on the footing that assembling and installing warehoused capital goods amounted to ex-bond clearance or clearance for home consumption without filing ex-bond bills of entry.

Issue (i): Whether cancellation of the private bonded warehouse licence was sustainable on the alleged breach of Regulation 7 of the Manufacture and Other Operations in Warehouse Regulations, 1966 and want of EPCG licence.

Analysis: Regulation 7 stood rescinded by Notification No. 44/98-Cus. with effect from 2-7-1998, and the alleged contravention was therefore based on a non-existent condition. The record also showed that permission for assembly and installation had been granted by the jurisdictional officers. Failure, if any, to obtain an EPCG licence was not a legal basis to cancel the warehouse licence where the imports were lawfully warehoused and the department had permitted the operations.

Conclusion: The cancellation of the warehouse licence was unsustainable and was set aside.

Issue (ii): Whether customs duty, interest, penalty and confiscation could be sustained on the footing that assembling and installing warehoused capital goods amounted to ex-bond clearance or clearance for home consumption without filing ex-bond bills of entry.

Analysis: The legal charge of removal from a bonded warehouse had to be tested under the Customs Act, 1962, especially the provisions governing warehousing and clearance. Mere unpacking, assembly, installation or use of the imported machinery in bond did not by itself amount to clearance for home consumption. The demand also suffered from a jurisdictional defect because the notices were answerable to a different adjudicating authority, giving rise to denial of natural justice. In addition, the ex-bond bills of entry had been filed and were pending assessment, and no valid basis was shown for treating the goods as illicitly removed or for fastening duty, interest or penalty.

Conclusion: The duty demand, interest, penalty and confiscation were not sustainable and were set aside.

Final Conclusion: The common order granted complete relief to the assessee by invalidating the cancellation of the bonded warehouse licence and by disallowing the customs demands and allied consequences, with a direction that the pending ex-bond bills of entry be assessed according to law without delay.

Ratio Decidendi: Warehoused capital goods do not become liable to customs duty merely because they are unpacked, assembled or installed in bond, and a demand cannot be sustained on a condition that had already been rescinded or on a proceeding vitiated by lack of jurisdiction and breach of natural justice.

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