Testing and calibration claims do not establish manufacture where records show imported goods were cleared as such and penalty follows.

Imported goods were held not to have undergone a manufacturing process merely because testing and calibration were asserted, where stock records, computer entries and statements showed the items were booked as trading goods and were not taken to the shop floor for production. On those facts, the clearance was treated as clearance of the imported goods as such, and the differential customs duty demand was sustained. The rejection of the testing-and-calibration defence, being contrary to contemporaneous records, also supported the finding of lack of bona fides, so the penalty was upheld.

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Issues: (i) Whether the imported goods, after alleged testing and calibration, were subjected to a manufacturing process so as to defeat the demand of differential customs duty. (ii) Whether penalty was sustainable for clearance of the goods as such and for the manner in which the defence was put forward.

Issue (i): Whether the imported goods, after alleged testing and calibration, were subjected to a manufacturing process so as to defeat the demand of differential customs duty.

Analysis: The goods were imported under exemption and later cleared in the domestic market. The factual record, including stock and computer-account entries and the statements of senior functionaries, showed that the imported items were recorded under a trading code and were not taken to the shop floor for any production activity. The defence that the goods had undergone testing and calibration was found to be unsupported by the evidence. On those facts, the clearance was treated as clearance of the imported goods as such and not as a manufacturing activity attracting the claimed benefit under the policy.

Conclusion: The demand of differential customs duty was sustained against the assessee.

Issue (ii): Whether penalty was sustainable for clearance of the goods as such and for the manner in which the defence was put forward.

Analysis: The explanation that the goods had undergone testing and calibration was rejected as contrary to the contemporaneous records and statements. The conduct was treated as lacking bona fides, and the assessee was found not entitled to leniency in view of the misleading defence raised on facts.

Conclusion: The penalty was upheld against the assessee.

Final Conclusion: The appeal failed in full, and the order confirming the duty demand, appropriation, interest, and penalty was sustained.

Ratio Decidendi: Unsupported assertions of testing or calibration do not amount to manufacture, and where contemporaneous records show that imported goods were cleared as such, customs demand and penalty may be upheld.

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