Tribunal Overturns Customs Duty Demand for Excess Wastage in Manufacturing

The Tribunal set aside the impugned order demanding customs duty, confiscation of goods, and penalty on an appellant for excess wastage during manufacturing. The appellant, a 100% EOU, argued that excess wastage occurred only in knitted fabrics, not yarn, and that the applicable Notification did not specify wastage norms. As the appellant cleared all wastage on payment of duty and there were no specific norms in the Notification, the Tribunal deemed the demands unjustified. Relying on precedent, the Tribunal held that customs duty cannot be imposed on inputs in excess wastage beyond prescribed norms, ultimately ruling in favor of the appellant on 29-4-2008.

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Issues:
Dispute regarding excess production of wastage during manufacturing process leading to demand of customs duty, confiscation of goods, and imposition of penalty.

Analysis:
The appellant, a 100% EOU engaged in manufacturing various yarn and fabrics, procured duty-free raw material under Notification No. 53/97-Cus. The dispute arose due to the excess production of wastage during manufacturing. The adjudicating authority demanded customs duty amounting to Rs. 34,35,845 on the raw material utilized in excess wastage, confiscated goods, and imposed a penalty of Rs. 1 lakh on the appellant.

Upon review, it was found that the wastage percentage prescribed by the EXIM policy was 2% for yarn and 5% for knitted fabric. However, the wastage generated by the appellant exceeded these norms, with 5.19% for yarn and 8.59% for knitted fabric.

The appellant argued that the wastage percentage should have been calculated based on imported raw material, not production. They contended that excess wastage only occurred in knitted fabrics, up to 6.7%, and that Notification No. 53/97-Cus. did not specify any norms for wastage generation. The notification allowed clearing of excisable wastage on payment of full duty, which the appellant complied with.

The impugned order demanded customs duty based on excess wastage exceeding prescribed norms marginally. However, since there were no specific norms in Notification No. 53/97-Cus. regarding wastage, and the appellant cleared all wastage on payment of duty, the demand for duty, confiscation, and penalty were deemed unjustified. Referring to a previous case, the Tribunal held that customs duty cannot be levied on inputs contained in excess wastage beyond norms.

Consequently, the Tribunal set aside the impugned order, allowing the appeal and providing consequential relief to the appellants. The decision was pronounced in court on 29-4-2008.

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