Customs exemption condition breached: duty-free DEEC imports became liable to duty despite transfer to a supporting manufacturer.

Duty-free replenishment imports under the DEEC scheme remained subject to the condition that the goods would not be sold and would be used for further manufacture. Breach of that exemption condition made the customs duty recoverable from the importer, and liability could not be shifted to a supporting manufacturer by transfer of the goods or by a private indemnity arrangement. The tribunal rejected reliance on Form-C sales tax precedent because the customs exemption operated under a different statutory setting, and it also refused to restrict recovery to Modvat credit since the amnesty scheme for such relief had expired. The duty demand was therefore confirmed as legally valid.

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Issues: Whether customs duty demanded on duty-free replenishment imports under the DEEC scheme was valid when the imported goods were transferred to a supporting manufacturer and subsequently sold in breach of the scheme conditions.

Analysis: Duty-free clearance of replenishment materials was allowed only on the condition that the imported goods would not be sold and would be used for further manufacture. The importer had accepted this condition and had also taken an indemnity bond from the supporting manufacturer. Liability under the scheme remained with the importer and could not be shifted to the supporting manufacturer by transfer of the goods. Once the exemption condition was breached, duty became recoverable on the imported goods. The reliance on sales tax precedent concerning Form-C transactions was held to be inapplicable because the DEEC scheme and customs exemption conditions operate in a different statutory setting. The request to limit recovery only to Modvat credit was also rejected as the amnesty scheme enabling such relief had expired.

Conclusion: The duty demand was held to be legally valid and was confirmed against the appellant.

Ratio Decidendi: Where duty-free import under an exemption scheme is subject to a condition against sale or diversion of the imported goods, breach of that condition makes the importer liable to pay customs duty notwithstanding transfer to a supporting manufacturer or any private indemnity arrangement.

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