Customs exemption for manufacturing waste and scrap extends to excess wastage cleared in the Domestic Tariff Area with permission.

Notification No. 52/2003-Cus. was read as extending exemption to imported goods used in manufacture, including by-products, rejects, waste and scrap arising during production, even where such items are cleared in the Domestic Tariff Area with Development Commissioner approval and on payment of applicable duty. Excess wastage generated in manufacture, without any allegation of diversion of the imported material, did not justify demanding customs duty on the proportionate imported inputs contained in that wastage. The clearance of the physical waste on duty with permission supported the view that the notification covered the situation, and the demand was not sustainable.

---

---

Issues: Whether customs duty could be demanded on imported mixed scrap/input consumed in the course of manufacture merely because the wastage exceeded the SION norms, where the resultant waste and scrap were cleared in the Domestic Tariff Area on payment of applicable duty with the permission of the Development Commissioner under Notification No. 52/2003-Cus.

Analysis: Clause 3 of Notification No. 52/2003-Cus. contains a non obstante provision and extends the exemption to imported goods used for manufacture of finished goods, including by-products, rejects, waste and scrap arising in production, even when such items are sold in the Domestic Tariff Area subject to the conditions imposed by the Development Commissioner and on payment of appropriate duty. The disputed excess wastage arose during manufacture, there was no allegation of diversion of the imported material, and the waste physically available had been cleared on duty with due permission. The reasoning adopted in the cited precedents was accepted as correctly reflecting the scope of the notification, and the contrary departmental authorities were treated as not governing the issue.

Conclusion: Customs duty on the proportionate imported inputs contained in the excess wastage was not sustainable, and the demand failed.

---