Customs duty on scrap from export unit manufacturing was unsustainable where exemption notifications allowed destruction and no contrary removal was found.

Where exemption notifications for an export oriented unit permit destruction of waste, scrap and remnants arising during production, manufacture, processing or packaging, customs duty cannot be demanded on such material merely because wastage figures are higher than expected. The notifications did not prescribe a wastage norm as a basis for levy, and the record showed that destruction permission had been granted. In the absence of any finding that the scrap was not genuine waste or that it had been otherwise removed contrary to the notification conditions, the duty demand on scrap lying in the factory was unsustainable.

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Issues: Whether customs duty could be demanded on waste and scrap arising from duty-free imported inputs used by an export oriented unit, when the relevant exemption notifications permitted destruction of such waste and scrap with permission.

Analysis: The exemption notifications governing duty-free import by an export oriented unit did not prescribe a wastage norm for levy of duty on scrap generated in manufacture. They contemplated that scrap, waste or remnants arising during production, manufacture, processing or packaging would not attract duty if destroyed inside or outside the unit. The record showed that permission for destruction had been issued, and there was no finding that the material was not genuine waste or scrap or that it had been otherwise removed. In those circumstances, the existence of excess wastage figures by itself did not justify a duty demand on the scrap lying in the factory.

Conclusion: The duty demand was unsustainable and the appeal succeeded.

Ratio Decidendi: Where exemption notifications permit destruction of waste and scrap generated in the course of manufacture by an export oriented unit, customs duty cannot be levied on such material in the absence of a finding that it is not genuine waste or that it has been otherwise cleared contrary to the notification conditions.

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