Duty-free defective imports surrendered to Customs cannot attract duty or consequential penalty after title is relinquished.

Duty liability was not sustainable on defective duty-free imports placed back in a customs bonded warehouse after the importer relinquished title. The circular permitted such goods, where the supplier did not insist on re-export, to be destroyed with Customs' permission or otherwise dealt with by Customs. On that basis, once the goods were surrendered and title was given up, Customs could dispose of them as fit and duty could not be fastened on the importer. Penalty was also unsustainable because it was consequential to the unsupported duty demand.

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Issues: Whether duty liability and penalty could be fastened on duty-free imported defective goods that were surrendered to Customs and deposited in the customs bonded warehouse.

Analysis: The goods, though imported for use in a 100% export oriented undertaking, were found defective and were deposited back in the customs bonded warehouse. The importer had relinquished title to the goods. The Tribunal relied on Circular No. 60/99 dated 10-9-1999, particularly the clause permitting such goods to be destroyed with permission or otherwise dealt with by Customs, where the supplier does not insist on re-export. On that basis, once the goods were surrendered and title was relinquished, Customs could dispose of them as deemed fit and the importer could not be fastened with duty liability. The penalty was also consequentially unsustainable.

Conclusion: The duty demand and penalty were not sustainable against the assessee.

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