Customs jurisdiction over diverted exempt imports upheld, with post-import enquiry allowed for breach of licence conditions.

Customs authorities retained jurisdiction to investigate alleged diversion or non-utilisation of raw materials imported under an advance licence and exemption notification. The Court treated the Customs Act, 1962 and the Imports and Exports (Control) Act, 1979 as a coordinated import-control scheme, and held that breach of exemption conditions could attract Customs action. Because section 111(o) renders goods liable to confiscation where the conditions of exemption are not observed, the Customs Department could conduct a post-import enquiry to examine possible duty evasion and misuse of the exempt materials. The claim that only the licensing authority had exclusive jurisdiction was rejected.

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Issues: Whether the Customs authorities had jurisdiction to investigate, search and call for particulars regarding the utilisation and diversion of raw materials imported under an advance licence and exemption notification, or whether such action lay exclusively with the licensing authority under the import control regime.

Analysis: The imported goods were covered by an advance licence and Notification No. 116/88 issued under Section 25(1) of the Customs Act, 1962, which imposed conditions on utilisation of the exempt materials. The Court read the Customs Act, 1962 and the Imports and Exports (Control) Act, 1979 as operating as a coordinated scheme governing import control and duty exemption. It held that contravention of licence conditions, including diversion or non-utilisation of imported materials, could attract Customs action because Section 111(o) of the Customs Act, 1962 specifically renders goods liable to confiscation where exemption conditions are not observed. The Court distinguished authorities cited for the petitioners and accepted that the Customs Department could make a post-import enquiry to ascertain possible evasion of duty and breach of the conditions attached to the exemption.

Conclusion: The Customs authorities had jurisdiction to investigate and take proceedings for alleged misuse or diversion of the imported raw materials, and the plea of exclusive jurisdiction of the licensing authority was rejected.

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