Deemed export clearances count toward FOB entitlement, while authorised waste and rejects escape customs duty and penalty.

Deemed export clearances are included when computing the 50% FOB value limit for Domestic Tariff Area clearances, and that inclusion keeps the waste and rejects cleared domestically within the permissible export-linked entitlement. Where bonded raw materials are used for authorised manufacture and there is no unauthorised removal or diversion, Section 72 of the Customs Act, 1962 does not justify a demand for customs duty, interest, or penalty on the raw materials or the resulting waste and rejects cleared in the domestic market. The departmental challenge therefore fails, and the demand and penal consequences are unsustainable.

---

---

Issues: (i) Whether deemed export clearances could be taken into account for determining the 50% FOB value limit for Domestic Tariff Area clearances; (ii) whether customs duty on raw materials, excise duty on inputs, interest, and penalty were exigible in respect of waste and rejects cleared in the domestic market.

Issue (i): Whether deemed export clearances could be taken into account for determining the 50% FOB value limit for Domestic Tariff Area clearances.

Analysis: The permissible DTA entitlement depended on the value of exports. The relevant value was to include deemed export clearances for computing the 50% FOB limit, and the earlier Tribunal view in the analogous matter supported this approach. On that basis, the clearances of rejects and waste remained within the permissible limit.

Conclusion: The issue was answered in favour of the assessee; deemed export clearances were to be included for computing the eligible FOB value limit.

Issue (ii): Whether customs duty on raw materials, excise duty on inputs, interest, and penalty were exigible in respect of waste and rejects cleared in the domestic market.

Analysis: Section 72 of the Customs Act, 1962 applies to improperly removed bonded goods. The raw materials were not shown to have been unauthorisedly removed from the warehouse or diverted from the intended manufacturing purpose. The waste and rejects were cleared as permitted by the Development Commissioner, and there was no basis for invoking the proposed duty, interest, or penal consequences.

Conclusion: The issue was decided in favour of the assessee; no customs duty, interest, or penalty was payable on the raw materials or the waste and rejects cleared in the domestic market.

Final Conclusion: The departmental challenge failed, and the respondent's cross-objection succeeded, leaving the duty demand and related penal action unsustainable.

Ratio Decidendi: Where bonded raw materials are used for authorised manufacture and the resulting waste or rejects are cleared within the permissible export-linked entitlement, Section 72 of the Customs Act, 1962 cannot be invoked to demand customs duty or consequential penalty absent unauthorised removal or diversion.

---