Customs exemption for manufacturing inputs continues despite excess wastage when waste clearance is authorised and applicable duty is paid.

Customs exemption for an export-oriented unit's imported raw materials extends to goods used in manufacturing finished products, including waste and scrap generated during production, even where wastage exceeds prescribed norms. The note explains that exemption conditions remain satisfied where the imported material is not diverted or removed without authorisation and segregated waste or scrap is cleared with the Development Commissioner's permission on payment of applicable duty. Excess consumption or wastage alone does not trigger customs duty when these conditions are met.

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Issues: Whether an export-oriented unit is liable to customs duty on imported raw material treated as excess consumption or wastage beyond prescribed norms, where the material was used in manufacture and the resulting waste and scrap were cleared with permission on payment of applicable duty.

Analysis: Clause (3) of Notification No. 52/2003-Customs extends the exemption to imported goods used for manufacturing finished goods, including waste and scrap arising during production or manufacture, notwithstanding the prescribed norms. The imported brass scrap was used in manufacture, there was no diversion or unauthorised removal of the alleged excess quantity, and the segregated waste was cleared with the Development Commissioner's permission on payment of applicable duty. The conditions for exemption were therefore fulfilled notwithstanding wastage in excess of the norms.

Conclusion: No customs duty was payable merely because the wastage exceeded the prescribed norms; the issue is decided in favour of the assessee.

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