Excess wastage beyond SION norms does not by itself justify customs duty demand absent diversion or misuse of imported materials.

Excess wastage beyond SION norms, by itself, did not justify demand of customs duty under the warehouse and EOU provisions where the imported raw materials were used for manufacture of export goods, export obligation was fulfilled, and ad hoc wastage norms had been approved pending regular norms. In the absence of any allegation of diversion of goods outside the EOU, the higher wastage could not be treated as improper accounting of raw material consumption under Sections 65(2)(b) and 72(1)(d) of the Customs Act. The duty and interest demands were therefore not sustainable, and the appeals succeeded.

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Issues: Whether customs duty could be demanded under Section 65(2)(b) and Section 72(1)(d) of the Customs Act, 1962 on the ground that wastage generated in manufacture by a 100% EOU exceeded the SION norms, despite ad hoc wastage norms having been approved and the imported materials being used in manufacture for export.

Analysis: The unit had imported raw materials for manufacture and export and had fulfilled the export obligation. When actual wastage exceeded the original SION norm, the matter was taken up with the Development Commissioner, who approved ad hoc wastage norms, later continued by the Board of Approvals till regular norms were fixed. On these facts, excess wastage by itself did not establish that the imported goods were not used for manufacture of export goods. There was no allegation of diversion of goods, and the waste remained within the EOU. Mere non-fulfilment of the original wastage percentage could not be treated as improper accounting of raw material consumption so as to invoke Sections 65(2)(b) and 72(1)(d).

Conclusion: The demand of customs duty and interest was not sustainable and the issue was decided in favour of the assessee.

Final Conclusion: The appeals succeeded and the duty and interest confirmations in the impugned orders were set aside.

Ratio Decidendi: Excess wastage beyond SION norms, without diversion of goods or failure to use the imported material for export manufacture, does not by itself justify a customs duty demand for improper accounting under the warehouse and EOU provisions.

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