Procedural breach cannot defeat customs exemption where imported inputs were used for intended manufacture and transfer was disclosed to authorities.

Customs exemption under the IGCRDMEG framework was treated as unavailable only for breach of a procedural condition, not where the imported inputs were actually used for the intended manufacture in another unit of the same importer. Transfer of the goods was made with intimation to the Department, and no objection was raised; that acquiescence supported the view that the exemption could not be denied merely because consumption occurred outside the initially registered factory. On that basis, the demand of differential duty and penalty was held unsustainable, and the appellate relief was sustained.

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Issues: Whether customs duty exemption under the relevant notifications could be denied merely because the imported inputs were used in another factory of the importer, where the transfer was made under intimation to the Department and no objection was raised.

Analysis: The exemption was sought to be withdrawn only on the basis that the imported inputs were not consumed in the factory registered with the jurisdictional Assistant Commissioner as contemplated by Rules 3 and 4 of the Customs (IGCRDMEG) Rules, 1996. The goods, however, were admittedly put to the intended manufacturing use in another factory of the same importer, and the transfer was made with intimation to the Department. In these circumstances, the deviation was treated as a procedural lapse rather than a failure going to the substance of the exemption claim. The Department's lack of objection to the transfer was also relevant to the conclusion that the benefit could not be denied.

Conclusion: The exemption could not be denied on this ground, and the demand of differential duty and penalty was not sustainable.

Final Conclusion: The appeals failed, and the relief granted by the appellate authority was sustained.

Ratio Decidendi: A substantive customs exemption cannot be withdrawn for breach of a procedural condition where the imported goods were used for the intended purpose and the Department had acquiesced in the transfer between the importer's units.

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