Exemption for imported raw cotton upheld where shortage was explained by moisture-related weight variation and no diversion was proved.

Customs duty, interest and penalty on an alleged shortage of imported raw cotton were held unsustainable where the shortage was explained by permissible weight variation due to moisture gain or loss. The goods had been imported under bond for manufacture of export goods and were covered by exemption notifications. In the absence of evidence that the raw cotton was diverted, not used in manufacture, or clandestinely cleared, exemption could not be denied merely because a shortage was recorded. The demand was set aside.

---

---

Issues: Whether customs duty, interest and penalty could be confirmed on the alleged shortage of imported raw cotton when the discrepancy was explained as weight variation attributable to moisture content and no diversion or clandestine clearance was proved.

Analysis: The imported raw cotton was covered by exemption notifications and was brought into the factory under bond for use in manufacture of export goods. The alleged shortage was explained by the governing rules relating to weighment of raw cotton, which recognised permissible variation in weight on account of moisture gain or loss during transit and subsequent inspection at mill site. No evidence was produced to show that the goods were diverted, not used in manufacture, or cleared clandestinely. In the absence of proof of diversion or misuse, the exemption could not be denied merely on the basis of the recorded shortage.

Conclusion: The demand of customs duty, together with interest and penalty, was not sustainable and was set aside. The appeal was rejected.

---