Advance authorisation inputs: customs duty cannot be demanded after export obligation is fulfilled, and extended limitation fails without suppression.

Imported duty-free inputs cleared under advance authorisations could not be subjected to customs duty merely because actual consumption in export goods was said to fall below SION norms once the export obligation was fulfilled. The scheme did not allow reopening of input consumption on a later re-computation, and alleged DTA clearances of off-grade goods and waste did not establish diversion of duty-free inputs. The demand was therefore unsustainable on merits. The extended limitation period was also unavailable because the utilisation of imported materials and manufacture of finished goods were reflected in the books and monthly returns, with no suppression or clandestine diversion shown. Consequential relief followed and the revenue appeals failed.

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Issues: (i) Whether customs duty could be demanded on imported duty-free inputs obtained under advance authorisations merely because the actual consumption in export goods was said to be lower than the SION norms, when the export obligation stood fulfilled; (ii) Whether the demand was barred by limitation.

Issue (i): Whether customs duty could be demanded on imported duty-free inputs obtained under advance authorisations merely because the actual consumption in export goods was said to be lower than the SION norms, when the export obligation stood fulfilled.

Analysis: The advance authorisations were issued under SION norms and the imported inputs were used in the manufacture of export goods. Once the export obligation stood fulfilled, the scheme did not permit re-opening of consumption on the basis of actual use to deny the benefit of the authorisation. The SION norms are intended to avoid disputes over input consumption, and the DTA clearances of off-grade goods and waste cannot be treated as proof of diversion of duty-free inputs. The actual yield for export products cannot be equated with domestic yield, and the policy itself permits disposal of manufactured product after completion of export obligation.

Conclusion: The demand of customs duty was unsustainable and was rightly set aside in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation.

Analysis: The record showed that the utilisation of imported material and manufacture of finished goods were duly reflected in the books and monthly returns. There was no suppression of facts or clandestine diversion established by the revenue. In these circumstances, invocation of the extended period was not justified.

Conclusion: The demand was also time-barred.

Final Conclusion: The appeals by the assessee were allowed with consequential relief and the revenue appeals were dismissed, as no duty demand survived either on merits or on limitation.

Ratio Decidendi: Once imported duty-free inputs are brought under advance authorisation in accordance with SION norms and the export obligation is fulfilled, customs duty cannot be demanded merely on a re-computation of actual consumption; in the absence of suppression, the extended limitation period is also unavailable.

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