Book write-off of duty-free imported goods is not disposal absent diversion, sale or transfer, the Karnataka HC held.

Writing off duty-free imported goods in the books of account, while the goods remain in the importer's custody, does not amount to "disposal" under Notification No. 30/97-Cus where the export obligation has been fulfilled and there is no diversion, sale or transfer of the materials. The Karnataka HC held that the notification's condition was not breached merely because obsolete unutilised components were written off after closure of the relevant division. On that basis, confiscation under Section 111(o) and penalty under Section 112(a) of the Customs Act were not sustainable.

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Issues: Whether writing off duty-free imported materials in the books of accounts amounts to disposal within the meaning of Notification No. 30/97-Cus dated 01.04.1997 and attracts confiscation and penalty under the Customs Act, 1962.

Analysis: The respondent had fulfilled the export obligation and was permitted to import 2% in excess of actual requirement to account for wastage. The unutilised components became obsolete after closure of the messaging products division and were written off in the accounts. The Court held that clause (vii) of the notification, read in context, does not treat a mere book write-off of goods retained in the importer's custody as disposal in any manner. Since there was no diversion or sale of the imported materials, the condition in the notification was not violated. The Court also held that the write-off was permissible in law and therefore confiscation under Section 111(o) and penalty under Section 112(a) were not sustainable.

Conclusion: The issue was answered in favour of the assessee and against the revenue.

Ratio Decidendi: A mere write-off in the books of accounts of duty-free imported goods that remain in the importer's custody does not amount to disposal under an exemption notification where the export obligation has been fulfilled and there is no diversion, sale, or transfer of the goods.

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