Customs duty on manufacturing wastage cannot be imposed by bank guarantee terms when the exemption notification excludes such levy.

Customs duty cannot be levied on wastage arising from imported raw material processed outside the export zone with permission when the governing exemption notification excludes duty on the waste component and the export obligation has been fulfilled. A bank guarantee condition prohibiting wastage cannot itself create customs liability or override the absence of statutory authority for the demand. Where the wastage is claimed to fall within permissible norms and is brought back into the zone, the levy is unsustainable and the demand is liable to be quashed.

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Issues: Whether customs duty could be levied on wastage arising from imported raw material processed outside the export zone with permission, merely because the bank guarantee contained a condition prohibiting wastage.

Analysis: The imported goods were taken out with permission for processing and fabrication, the export obligation was fulfilled, and the wastage was claimed to be within the permissible norms and brought back into the zone. The governing notification itself exempted waste component arising in the course of manufacture from customs duty under the relevant clauses. A contractual condition in a bank guarantee cannot create a liability to customs duty where the notification does not authorise such levy, nor can it override the absence of statutory authority for the demand.

Conclusion: Customs duty was not leviable on the wastage, and the demand raised on that basis was unsustainable and liable to be quashed.

Ratio Decidendi: A condition in a bank guarantee cannot authorise levy of customs duty where the applicable exemption notification itself excludes duty on the waste component and no statutory authority for the demand exists.

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