Intended use of warehoused capital goods, not actual use, determines whether interest applies on home-consumption clearance.

Capital goods intended for use in a warehouse licensed for manufacture or other operations may remain warehoused under Section 61(1)(a) of the Customs Act, 1962 without requiring actual installation or use. Where imported capital goods were brought into the licensed warehouse for manufacturing operations, subsequent clearance for home consumption due to operational reasons did not negate their original intended use. Clearance after satisfying this intended-use condition attracts customs duty but not interest under Section 61(2). A later clarification on interest could not alter this statutory interpretation where it conflicted with an earlier circular.

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Issues: Whether interest under Section 61(2) of the Customs Act, 1962 is payable when capital goods imported into a warehouse licensed for manufacture or other operations under Section 65 are cleared for home consumption without having been actually used in the warehouse.

Analysis: Section 61(1)(a) permits capital goods intended for use in a Section 65 warehouse to remain warehoused until clearance. The statutory expression "intended for use" does not require actual installation or use of the capital goods. The imported cooler gearbox was admittedly capital goods brought into the licensed warehouse for use in the manufacturing operations; its subsequent clearance owing to operational reasons did not negate that original intended use. The departmental demand proceeded solely on non-use, rather than absence of intention to use. The later clarification concerning interest conflicted with the earlier circular and did not govern the statutory interpretation. The applicable principle is that clearance of such capital goods after fulfilment of the intended-use condition attracts duty but not interest.

Conclusion: Interest under Section 61(2) of the Customs Act, 1962 was not payable on clearance of the capital goods for home consumption; the interest demand was unsustainable.

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