High Court rules in favor of Small Scale Industrial unit in Customs duty case

The High Court ruled in favor of the petitioner, a Small Scale Industrial unit, in a case challenging Customs Authorities' denial of duty free clearance for imported die steel under a duty free advance licence. The Court held that once an advance licence is granted, Customs cannot refuse duty free clearance for materials approved by the Licensing Authority for manufacturing export products. The impugned orders were quashed, and the petitioner was directed to provide evidence of fulfilling export obligations to claim a refund. The Respondents were ordered to adjudicate the refund application promptly.

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Issues involved: Challenge to Customs Authorities' denial of duty free clearance of imported goods under duty free advance licence.

Summary:
The petitioner, a Small Scale Industrial unit, applied for an advance licence to import die steel for manufacturing Autohead lamps and Tail lamps. Customs Authorities denied duty free clearance under Notification No. 116/1988, stating die steel was for manufacturing moulds, not export goods. The Collector of Customs (Appeals) upheld this decision. The High Court granted interim relief allowing clearance on a bank guarantee and deposit. The petitioner argued that once an advance licence is granted, Customs cannot deny duty free clearance. They cited Oblum Electrical Industries Pvt. Ltd. v. Collector of Customs, Bombay to support their claim that materials for resultant products are covered under Notification No. 116/1988.

The Respondents contended that die steel was used for making moulds, not directly in manufacturing export goods, thus not eligible for duty free clearance under the Notification. The High Court held that Customs Authorities were unjustified in denying duty free clearance based on the nature of the imported goods. The Court emphasized that if the Licensing Authority approved die steel as a material for manufacturing export products, Customs cannot refuse duty free clearance. Referring to Titan Medical Systems Pvt. Ltd. v. Collector of Customs, the Court stated that as long as the licence is valid, Customs cannot deny duty free clearance based on alleged misrepresentations by the licensing authorities.

The Court quashed the impugned orders, ruling in favor of the petitioner. The petitioner was directed to provide evidence of fulfilling export obligations to claim a refund of the amount paid. The Respondents were instructed to adjudicate the refund application within 12 weeks. The bank guarantee was to be returned within 8 weeks if the export obligations were met. The petition was disposed of with no costs awarded.

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