Customs exemption for imported raw materials upheld where compulsory quality control testing formed part of manufacturing use.

Imported raw materials used to manufacture insulin injection remained eligible for customs exemption where sample drawal and quality control testing were an integral and compulsory part of the manufacturing process under the Drugs and Cosmetics regime. The exemption could not be denied merely because a small quantity of the materials was consumed at the initial testing stage, since the goods were brought in for intended manufacturing use. Customs duty demand was therefore unsustainable, and the exemption benefit continued to apply.

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Issues: Whether the imported raw materials, to the extent samples were drawn for quality control testing in the course of manufacturing insulin injection, were eligible for exemption under the customs notification.

Analysis: The imported materials were used as raw materials for manufacture of a life-saving medicine. The testing of samples was to comply with the Drugs and Cosmetics regime governing manufacture of medicines, and the manufacturing process could not lawfully proceed without such drawal and testing. The testing stage was therefore part of the manufacturing process and the goods were imported for the intended manufacturing use. The exemption could not be denied merely because a small quantity was consumed for quality control purposes at the initial stage.

Conclusion: The demand of customs duty was unsustainable and the assessee remained entitled to the benefit of the exemption notification.

Final Conclusion: The impugned orders were set aside and the appeals succeeded with consequential relief.

Ratio Decidendi: Where imported raw materials are brought for manufacture of the specified product and sample drawal and testing are an integral and compulsory part of that manufacturing process, the import is treated as for intended use and exemption cannot be denied on the ground that a portion was consumed for quality control testing.

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