Bona fide manufacturing waste not dutiable absent an express wastage norm in the exemption notification.

Customs duty could not be demanded on manufacturing waste generated from imported inputs where the governing exemption notification did not prescribe any SION or wastage norm. The tribunal held that an administrative circular setting out a 25% wastage figure could not override the notification's terms, particularly when the raw materials were used in manufacture, the resultant goods were exported as required, and the waste arose bona fide. Excise duty had been paid on clearance of the waste, and there was no evidence of mala fide conduct, pilferage, diversion, or clandestine removal. On that basis, the duty demand on the waste was rejected.

---

---

Issues: Whether customs duty could be demanded on waste generated during manufacture of imported inputs when the governing notification did not prescribe any SION or wastage norm and the waste was generated in the course of bona fide manufacture.

Analysis: The imported raw materials were used in manufacture and the resultant goods were exported in compliance with the notification conditions. The governing notification contained no stipulation fixing a wastage percentage or SION norm, and the departmental reliance on the circular prescribing 25% wastage could not justify a duty demand in the absence of such a condition in the applicable exemption regime. It was also found that the waste was not deliberate, excise duty had been paid on clearance of the waste, and there was no material to show mala fide conduct, pilferage, diversion, or clandestine removal.

Conclusion: Customs duty could not be levied on the waste, and the appeal was allowed.

Ratio Decidendi: In the absence of an express wastage norm in the governing exemption notification, duty cannot be demanded on bona fide manufacturing waste merely by relying on an administrative circular, especially where no mala fides, diversion, or clandestine removal is shown.

---