Actual user condition under customs exemption licences required full consideration of chronology, replies and circulars before finding diversion

Duty demand and penalties under Notification No. 203/92-Cus. depended on whether imported raw materials were diverted to the domestic market or otherwise used in breach of the actual user condition. The record indicated that the Commissioner had not considered the appellants' detailed reply, the import-export-disposal chronology, or departmental circulars stating that physical incorporation of the imported inputs in the exported goods was not required. The chronology also suggested that disposal of the inputs often occurred after export obligations had been fulfilled, and that substantial export performance had preceded imports. The impugned order could not stand and the matter was remanded for fresh adjudication on all relevant materials.

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Issues: Whether the demand, duty liability and penalties were sustainable on the allegation that the imported raw materials covered by the duty exemption licence were diverted to home consumption instead of being used for the export product, and whether the matter required fresh adjudication.

Analysis: The imported material was alleged to have been sold in the domestic market in breach of Notification No. 203/92-Cus. The record showed that the Commissioner had not considered the appellants' detailed reply, the date chart showing import, export and disposal, or the departmental circulars clarifying that the actual user condition did not require physical incorporation of the imported inputs in the exported goods. The chronology also indicated that in most cases the disposal of the imported raw material was after fulfilment of the export obligation, and a substantial part of the export obligation had even been completed before the imports. These aspects were material to determining whether there was any contravention of the notification.

Conclusion: The impugned order could not stand and the matter had to be sent back for fresh adjudication after consideration of all relevant materials.

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