Concessional duty survives actual manufacture, while procedural certificate defects and unproved suppression cannot extend limitation.
Imported components re-worked and actually used in watch manufacture were held entitled to concessional duty, and the cancellation of the bond before such use did not defeat exemption where substance prevailed over form. Alleged diversion of duty-free materials as spare parts, however, would disentitle the importer to exemption if established, so that issue required fresh factual examination and remand. The requirement of an end-use certificate for goods moved to another unit was treated as procedural because the Department already knew of the Dehradun assembly unit and the goods were used in manufacture; suppression was not proved, so extended limitation could not be invoked.
Issues: (i) Whether rejected components re-worked and used in watch manufacture were entitled to concessional duty even if used after cancellation of the bond; (ii) Whether alleged diversion of imported materials as spare parts disentitled the importer to exemption; (iii) Whether production of the end-use certificate from the Hosur customs/excise authority for goods sent to the Dehradun unit was only a procedural lapse and whether suppression of facts could justify extended limitation.
Issue (i): Whether rejected components re-worked and used in watch manufacture were entitled to concessional duty even if used after cancellation of the bond.
Analysis: The imported parts were subjected to rigorous quality control, and rejects were re-worked and ultimately used in the manufacture of watches. Denial of exemption merely because the bond had been cancelled before such use would elevate form over substance, where the goods were in fact used in manufacture.
Conclusion: The rejects used in the manufacture of watches were entitled to concessional duty, whether used before or after cancellation of the bond.
Issue (ii): Whether alleged diversion of imported materials as spare parts disentitled the importer to exemption.
Analysis: The exemption could not be retained for goods actually diverted as spare parts or otherwise written off. At the same time, the record suggested that the quantity imported on full duty might bear on whether the alleged diversion was established, and this aspect required fresh examination.
Conclusion: No concessional duty is admissible for goods diverted as spares, and this question required remand for factual re-examination.
Issue (iii): Whether production of the end-use certificate from the Hosur customs/excise authority for goods sent to the Dehradun unit was only a procedural lapse and whether suppression of facts could justify extended limitation.
Analysis: The Dehradun assembly unit and the movement of components to that unit were within the Department's knowledge. The imported goods were in fact used in the manufacturing process, and the requirement of obtaining the certificate from the jurisdictional authority at Dehradun was treated as procedural. On these facts, suppression was not established and extended limitation was not justified.
Conclusion: The end-use certificate objection was only a procedural lapse, suppression was not made out, and the longer limitation period could not be invoked.
Final Conclusion: The exemption was sustained for rejects actually used in manufacture and the limitation objection failed, but the alleged diversion of goods as spares had to be re-examined by the original authority, leading to a remand for requantification and limited determination on the surviving demand.
Ratio Decidendi: Where imported goods are in fact used in manufacture, exemption cannot be denied for a mere procedural lapse in certification or bond cancellation; however, actual diversion of duty-free goods to non-eligible use defeats the exemption and requires factual verification.
TaxTMI 
AI Drafter ✕
TaxTMI 
