Conditional customs exemption can be enforced for breach of licence conditions, with confiscation consequences under the Customs Act.

Conditional customs exemption under Notification No. 116/88-Customs required duty-free materials imported under the advance licence scheme to be used in manufacture of the resultant products and not sold, transferred, or diverted. Non-compliance with those conditions attracted Section 111(o) of the Customs Act, 1962, because goods exempted subject to conditions become liable to confiscation when the condition is breached. The customs and import-control schemes were treated as operating together, so Customs authorities were competent to investigate compliance and proceed against breach of the notification conditions. On that basis, no writ of prohibition could restrain further action.

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Issues: (i) Whether the Customs authorities had jurisdiction to enquire into and act upon breach of the conditions attached to advance licence imports governed by Notification No. 116/88-Customs issued under the Customs Act. (ii) Whether a writ of prohibition could be issued restraining the Customs authorities from proceeding further.

Issue (i): Whether the Customs authorities had jurisdiction to enquire into and act upon breach of the conditions attached to advance licence imports governed by Notification No. 116/88-Customs issued under the Customs Act.

Analysis: The import of duty-free materials under the advance licence scheme was expressly made subject to Notification No. 116/88-Customs issued under Section 25(1) of the Customs Act, 1962. The notification required the exempt materials to be utilised for manufacture of the resultant products and prohibited their sale, transfer, or diversion. The Court held that breach of such a condition attracted Section 111(o) of the Customs Act, 1962, because goods exempted subject to conditions become liable to confiscation when the condition is not observed. The scheme under the Customs Act and the Imports and Exports (Control) Act was treated as operating together, and the Customs authorities were competent to investigate whether the conditions attached to the exemption had been complied with.

Conclusion: The Customs authorities had jurisdiction, and breach of the notification conditions could be proceeded against under the Customs Act. The conclusion was against the assessee.

Issue (ii): Whether a writ of prohibition could be issued restraining the Customs authorities from proceeding further.

Analysis: Since the Customs authorities were held competent to examine compliance with the conditions of exemption and to take action under the Customs Act, there was no basis to restrain them by prohibition. The challenge to their authority failed on the merits of the statutory scheme and the notification conditions.

Conclusion: No writ of prohibition could be issued.

Final Conclusion: The appeal failed because the impugned action fell within the Customs authorities' statutory power to enforce conditional exemption under the Customs Act.

Ratio Decidendi: Where a customs exemption is granted subject to conditions under a notification issued under Section 25(1) of the Customs Act, 1962, non-compliance with those conditions attracts Section 111(o) and the Customs authorities may investigate and act upon the breach.

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