Advance authorisation imports after export obligation fulfilment cannot attract customs duty under default regularisation rules.

Paragraph 4.28(v) of the Handbook of Procedure applies only to regularisation of bona fide default in export obligation and to duty on unutilized imported material where imported inputs exceed consumption. It cannot be extended to advance authorisation imports where the export obligation has been fulfilled and the inputs were fully consumed in manufacture of goods cleared in the domestic tariff area. The Foreign Trade Policy permits disposal of products made from duty-free inputs after completion of the export obligation, and no breach of the exemption notification was shown. On that basis, the customs duty demand was held unsustainable.

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Issues: Whether customs duty demand could be sustained by applying Paragraph 4.28(v) of the Handbook of Procedure, 2004-09 to a case where export obligation had been fulfilled and the imported inputs were fully consumed in manufacture of goods cleared in the domestic tariff area.

Analysis: Paragraph 4.28 of the Handbook of Procedure deals with regularisation of bonafide default in fulfilment of export obligation. The provision contemplates liability to pay customs duty on unutilized value of imported material where lesser quantity of inputs than imported has been consumed. That mechanism is confined to cases of default and cannot be extended to normal advance authorisation imports where the export obligation stands fulfilled. The Foreign Trade Policy also permits the authorisation holder to dispose of products manufactured out of duty free inputs after completion of export obligation, and therefore the policy did not prohibit clearance of finished goods in the domestic tariff area. No violation of the exemption notification was demonstrated by the Revenue.

Conclusion: The duty demand was unsustainable and the appeal was allowed.

Ratio Decidendi: A provision meant for regularisation of bonafide default under the handbook cannot be invoked to impose customs duty where the advance authorisation holder has fulfilled the export obligation and the foreign trade policy permits disposal of the manufactured product after completion of such obligation.

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