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Issues: (i) Whether customs duty was leviable on goods destroyed in an accidental fire in a Special Economic Zone unit, and whether remission was available under the Customs Act, 1962 notwithstanding the SEZ Rules, 2006; (ii) whether demand could validly be raised on the entire stock value at the time of the fire despite the record of actual loss.
Issue (i): Whether customs duty was leviable on goods destroyed in an accidental fire in a Special Economic Zone unit, and whether remission was available under the Customs Act, 1962 notwithstanding the SEZ Rules, 2006.
Analysis: The dispute arose from loss of imported and indigenous goods in a fire accident inside an SEZ unit. The SEZ Rules, 2006 contemplate exemption subject to authorized operations and proper accountal of goods, but the factual event here was accidental destruction rather than misuse, diversion, or deliberate non-accountal. The legal question was therefore whether such accidental loss could be treated as non-utilization for authorized operations so as to deny remission. The decision treats the SEZ as a deemed foreign territory for the relevant purpose and applies the principle that when goods are lost or destroyed before clearance for home consumption, duty remission is available where the loss is established. The reasoning also distinguishes cases involving warehouse-bonded goods and holds that those provisions do not govern the SEZ regime.
Conclusion: Customs duty was not leviable on the goods destroyed in the fire, and remission was available to the assessee.
Issue (ii): Whether demand could validly be raised on the entire stock value at the time of the fire despite the record of actual loss.
Analysis: The record showed that the fire was reported immediately, the SEZ authorities conducted verification, and the insurance assessment reflected only the actual loss. On the material before the Tribunal, there was no basis to treat the entire stock lying in the factory as destroyed. The demand had been computed on the full stock value at the time of the accident without adequate evidentiary support for that quantum. The Tribunal therefore rejected the premise that the whole inventory was liable to duty merely because it was present at the time of the fire.
Conclusion: The duty demand on the entire stock value was unsustainable.
Final Conclusion: The impugned duty demand was set aside and the assessee succeeded on the substantive customs issue arising from accidental destruction of SEZ goods.
Ratio Decidendi: Goods lawfully brought into an SEZ and destroyed accidentally before any clearance for home consumption are not to be treated as having been used for unauthorized operations or as having failed accountal merely because they were lost in fire; in such circumstances, customs duty remission is available and duty cannot be demanded on a notional full-stock basis without proof of actual loss.
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