Manufacture in free trade zone sustains customs exemption; confiscation and penalty fail when notice and port notification are ignored.
Processing in a free trade zone through filling, testing, labelling, cellophaning, repacking and segregation was treated as manufacture because it produced a commercially distinct, marketable product rather than mere routine packing, so exemption under Notification No. 133/94-Cus. could not be denied on the premise that the imports were finished goods. Confiscation and penalty for routing consignments through Kandla Port were also unsustainable because the adjudication went beyond the show cause notice, ignored the notification appointing Kandla as a customs port, and lacked support for the penal consequences invoked. The result was that the exemption claim, confiscation, redemption fine and penalty were all set aside.
Issues: (i) Whether the processes of filling, testing, labelling, cellophaning, repacking and segregation undertaken in the free trade zone amounted to manufacture so as to sustain the claim for exemption under Notification No. 133/94-Cus.; (ii) whether the goods were liable to confiscation and penalty on the ground that some consignments were imported through Kandla Port in alleged violation of the customs and drugs control regime.
Issue (i): Whether the processes of filling, testing, labelling, cellophaning, repacking and segregation undertaken in the free trade zone amounted to manufacture so as to sustain the claim for exemption under Notification No. 133/94-Cus.
Analysis: The operative test applied was whether the activity resulted in a commercially distinct and marketable product and whether the processing undertaken was more than a mere act of putting labels or carrying out routine packing. The order noted the broader treatment of manufacture in the relevant export-zone context and accepted that the processes in question were covered by manufacture, especially in the absence of a finding that the goods were already complete consumer goods in the relevant sense. The denial of exemption on the footing that the imports were finished goods was therefore not sustained.
Conclusion: The process undertaken was treated as manufacture and the exemption claim could not be rejected on that basis.
Issue (ii): Whether the goods were liable to confiscation and penalty on the ground that some consignments were imported through Kandla Port in alleged violation of the customs and drugs control regime.
Analysis: The confiscation and penalty were held unsustainable because the order proceeded beyond the scope of the notice, overlooked the notification making Kandla an appointed port for customs purposes, and did not support the penal consequences under the provisions invoked. Since the proposed and final grounds did not validly sustain the confiscation, the redemption fine and penalty also could not stand.
Conclusion: The confiscation and penalty were set aside.
Final Conclusion: The demand, confiscation and penal consequences were not upheld, and the appellant obtained complete relief.
Ratio Decidendi: Where processing in a free trade zone results in a marketable export product and the adjudication travels beyond the show cause notice or ignores the controlling customs notification, denial of exemption, confiscation and penalty cannot be sustained.
TaxTMI 
AI Drafter ✕
TaxTMI 
