Strict compliance with customs exemption conditions: failure to meet real value addition defeats duty relief and attracts confiscation and penalty.

Customs duty exemption under the EXIM Policy and linked notification was available only on strict proof of genuine processing or manufacture meeting the prescribed 33% value addition requirement. The record showed only 5.18% value addition, and the higher FOB value was treated as paper value arising from the rupee-rouble arrangement rather than real enhancement of the goods, so the exemption failed. Because the licence declarations did not reflect the actual position and the import conditions were not fulfilled, the goods were liable to confiscation and penalty for breach of licence and notification conditions.

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Issues: (i) Whether the respondents satisfied the conditions for exemption from customs duty under the EXIM Policy and the connected exemption notification, including the minimum value addition requirement; (ii) Whether the imported goods and the respondents' conduct attracted confiscation and penalty for breach of licence conditions and misrepresentation.

Issue (i): Whether the respondents satisfied the conditions for exemption from customs duty under the EXIM Policy and the connected exemption notification, including the minimum value addition requirement.

Analysis: The exemption was available only if the imported materials were subjected to genuine processing or manufacture resulting in at least 33% value addition and an increase in the intrinsic value of the exported product. On the record, the actual value addition was only 5.18%, and the increase in FOB value was found to be paper value driven by the rupee-rouble arrangement rather than any real enhancement of the product. The conditions of the exemption were therefore not met.

Conclusion: The issue is answered against the respondents. They were not entitled to exemption from customs duty.

Issue (ii): Whether the imported goods and the respondents' conduct attracted confiscation and penalty for breach of licence conditions and misrepresentation.

Analysis: The respondents had obtained the advance licence on declarations that did not reflect the actual position, and the goods imported were found to have been cleared and exported without satisfying the declared manufacturing and value-addition requirements. In fiscal exemption matters, the beneficiary must strictly comply with every condition, and failure to do so renders the benefit unavailable. The non-compliance also brought the goods within the confiscatory provisions and justified the levy of penalty.

Conclusion: The issue is answered in favour of the Revenue. Confiscation and penalty were sustainable.

Final Conclusion: The Tribunal's order granting relief to the respondents could not be sustained, and the customs adjudication based on breach of exemption conditions and misrepresentation stood restored in substance.

Ratio Decidendi: A party claiming exemption from customs duty must strictly prove fulfilment of every prescribed condition, and where the stipulated value addition is not achieved in substance, the exemption fails and the goods become liable to confiscation and penalty for breach of the licence and notification conditions.

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