Foreign Trade Policy defect-return rules: wrong paragraph applied, supporting waiver of pre-deposit and interim protection.

A dispute under the Foreign Trade Policy concerned indigenous goods procured by an EOU under CT-3 that were found defective and returned to the supplier. The note distinguishes Paragraph 6.15, which addresses sale or disposal of unutilised material, from Paragraph 6.17(c), which specifically governs imported or indigenously procured goods that are defective, unfit for use, damaged, or subsequently defective and permits return, replacement, or destruction. On the facts described, the duty demand was based on the wrong policy provision, and the applicants established a strong prima facie case for waiver of pre-deposit and interim protection from coercive recovery.

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Issues: Whether duty demand could be sustained by applying Paragraph 6.15 of the Foreign Trade Policy instead of Paragraph 6.17(c), and whether the applicants were entitled to waiver of pre-deposit and stay.

Analysis: The dispute concerned indigenous goods procured by an EOU under CT-3, some of which were found defective and returned to the supplier under the prescribed procedure. Paragraph 6.15 deals with sale or disposal of unutilised material, whereas Paragraph 6.17(c) specifically governs imported or indigenously procured goods that are found defective, unfit for use, damaged, or subsequently defective and permits return, replacement, or destruction. On the facts presented, the demand was founded on the wrong policy provision, and the applicants showed a strong prima facie case on merits.

Conclusion: The duty demand was not justified on the basis adopted by Revenue, and the applicants were entitled to full waiver of pre-deposit and protection against coercive recovery pending disposal of the appeal.

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