EOU wastage norms and customs exemption: excess consumption did not defeat Notification No. 52/2003-Cus. benefit.

Waste and scrap arising in an EOU's manufacturing process remained eligible for exemption under Notification No. 52/2003-Cus. even where consumption of imported raw material exceeded the prescribed wastage norm, because the applicable final wastage norms reduced the alleged excess to a marginal quantity and there was no finding of unauthorised removal. The Tribunal followed the settled legal position that exemption is not lost merely due to excess wastage, so long as the imported goods are used for manufacture and the resulting waste is dealt with under the export-import regime. Customs duty, penalty, redemption fine and confiscation were not sustainable, and the assessee succeeded.

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Issues: Whether excess consumption of imported raw material in an EOU, after applying the final wastage norms fixed by the competent authority, could be treated as non-compliance with Notification No. 52/2003-Cus. so as to justify customs duty, penalty, redemption fine and confiscation.

Analysis: The final wastage norms fixed by the competent authority were applicable to the dispute and, on that basis, the alleged excess consumption stood reduced to a marginal quantity. The controlling legal principle was the interpretation of clause (3) of Notification No. 52/2003-Cus., which exempts goods imported for manufacture, together with by-products, rejects, waste and scrap arising in the course of production or manufacture, when they are otherwise dealt with in accordance with the export-import regime and duty is paid on domestic clearance. The legal position had already been settled by the Gujarat High Court and followed by the Tribunal, holding that waste and scrap arising during manufacture do not lose the benefit of exemption merely because the quantity exceeds the stipulated norm, so long as the goods are used for manufacture and the waste is not shown to have been illicitly removed.

Conclusion: The demand of customs duty, penalty and redemption fine could not be sustained, and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal succeeded.

Ratio Decidendi: Waste and scrap arising in the course of manufacture within an EOU continue to enjoy the benefit of Notification No. 52/2003-Cus. even if the quantity exceeds the prescribed wastage norm, provided the imported goods are used for manufacture and the waste is not shown to have been removed without authorization.

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