Import exemption conditions apply to imported inputs, while policy permitting disposal after export obligation bars duty demand on leftover processed goods.

An import exemption condition applies to the imported materials covered by the notification, not to finished products manufactured from those materials. Where the Foreign Trade Policy permits disposal of products made from duty-free inputs after fulfilment of the export obligation, customs duty, interest and penalty cannot be demanded on leftover processed goods by relying on a provision meant to regularise bona fide default. The notification breach alleged by Revenue was not established on the stated facts.

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Issues: Whether customs duty, interest and penalty were sustainable on the leftover concrete coated pipes sold after completion of the export obligation, and whether Condition X of Notification No. 21/2015-Cus could be applied to the processed goods manufactured from the imported seamless pipes.

Analysis: Condition X in Notification No. 21/2015-Cus governed the imported materials themselves and not the concrete coated pipes manufactured out of those imported seamless pipes. The dispute concerned leftover processed goods after completion of the export obligation, and Para 4.16 of the Foreign Trade Policy 2015-20 specifically permitted disposal of products manufactured out of duty-free inputs once the export obligation was completed. Para 4.28(v) of the Handbook of Procedure, 2004-09 dealt with regularisation of bona fide default and could not be invoked to demand duty in a case where export obligations had already been fulfilled. The notification breach alleged by Revenue was not established.

Conclusion: The demand of customs duty, interest and penalty was not sustainable and the appeal succeeded.

Ratio Decidendi: A condition in an import exemption notification applies to the imported goods covered by the exemption, and where the policy expressly permits disposal of products manufactured from duty-free inputs after fulfilment of export obligation, duty cannot be demanded on the processed leftover goods by invoking a provision meant for bona fide default.

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