The buses were built by a job worker, but the imported parts never left the factory that imported them

Dr Rachna Gupta and Hemambika R. Priya set aside a demand of ₹1.06 crore, holding that IGCR obligations are procedural where substantive entitlement to the exemption is not in doubt.

The Principal Bench has set aside a differential duty demand of ₹1,06,69,156 on components imported for electric buses under Notification 50/2017-Cus, holding that where the imported goods never left the importer's factory premises and were demonstrably used for the purpose of import, describing the job-work arrangement as a sale is a procedural lapse and not a breach of the end-use condition.

The transaction

PMI Electro Mobility Solution Private Limited operates from Plots 39 and 26 of the industrial area at Dharuhera, Rewari. It imported components for electric buses at the concessional rate available under Notification 50/2017-Cus, availing the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017.

The procedural chain the IGCR Rules impose was followed. Intimations were filed before the jurisdictional Assistant and Deputy Commissioner on 18 March 2020 and 28 April 2020. A bond with surety and security was furnished. Returns were filed regularly. Those facts were admitted.

What broke the pattern was capacity. The appellant held an order for twenty electric buses from the Himachal Road Transport Corporation and was unable to complete it on its own. It entered into a memorandum of understanding with PMI Coaches for the fabrication and manufacture of the twenty buses — carried out at the appellant's own premises, from the imported components. In the books, the imported goods were shown as sold to the job worker.

The show cause and the order in original

The Principal Commissioner of Customs (Preventive), New Delhi, confirmed differential duty of ₹1,06,69,156 under Section 28(4) of the Customs Act, 1962 read with Rule 8 of the IGCR Rules, 2017, by Order-in-Original dated 26 September 2022. He ordered recovery of interest under Section 28AA, appropriated ₹25,00,000 already deposited, and imposed penalty under Section 114A.

The invocation of Section 28(4) and Section 114A matters. Both are premised on suppression or wilful misstatement, which is a materially different charge from a failure to follow a procedure, and both carry consequences — extended limitation and mandatory penalty — that an ordinary short-levy demand does not.

The department's case

The department's position was not merely that a form had been filled in wrongly. Its case was that ownership had actually passed.

The imported materials were sold to PMI Coaches on the strength of tax invoices at cost value, a tax invoice of 18 October 2019 being relied on. Payment was received. GST was paid on the transaction. On the authorised representative's submission, that transferred ownership of the imported goods to PMI Coaches, so the manufacturing activity was undertaken not by the importer but by a different person — a clear violation of the condition of the notification. The two companies are independent legal entities with separate names, separate permanent account numbers, separate income tax returns and separate importer-exporter codes.

The department also relied on statements recorded during the investigation. One recorded on 13 August 2020 admitted that the imported materials had been sold to PMI Coaches on tax invoices at cost value. The Executive Director, in a statement of 8 September 2020, said no permission had been taken from the jurisdictional Assistant or Deputy Commissioner for the premises where the imported goods would be put to use. Rule 7(2) of the IGCR Rules, 2017 was invoked, which permits unutilised or defective goods to be cleared into the domestic market on payment of the duty foregone.

The legal question

The Bench began from what the IGCR Rules do. Functionally, they turn a conditional exemption into a tracked regime: the concession is available if the procedural chain of intimation, bond, records, returns and end use is maintained. The question is what follows when the chain is maintained but one link is described wrongly.

On the facts, the Bench found, the appellant followed the procedure the Rules lay down. The imported components were used in the manufacture of electric buses, which were supplied to the Himachal Road Transport Corporation. The only procedural lapse identified is that the appellant entered into a business arrangement with PMI Coaches for fabrication and that the imported goods were shown as sold to the job worker. That was a business arrangement, and there is no allegation anywhere in the proceedings that the imported goods were not used for the purpose for which they were imported.

The geography settled it. The components sat in Plot 26, which is where the electric buses were manufactured and from where they were sold to the Corporation. Although the buses were manufactured on job work, the imported components never left the appellant's factory premises. On that footing there was substantial compliance with Notification 50/2017-Cus and with condition 9, and duty cannot be demanded.

The Bench placed the conclusion within a settled line rather than treating it as novel. The Tribunal has repeatedly treated IGCR obligations as procedural or facilitative, particularly where the importer's substantive entitlement is not in doubt, and four decisions were drawn on.

In Tamil Trading Corporation v. Commissioner of Central Excise, Tuticorin, the Tribunal confronted the same literalism. The lower authorities had read the words "his factory" in the registration rule as meaning the importer must own a factory and use the imported material only there, so that use in a factory belonging to another person forfeited the concession. The Tribunal rejected that reading as out of keeping with the liberalisation of customs, excise and foreign trade policy, noting that under the Exim Policy an actual user includes a person who uses imported goods in another unit, a jobbing unit among them.

In Godrej Consumer Products Limited v. Commissioner of Customs (Air), Chennai, the Tribunal held on a plain reading of the comparable condition that it places no embargo on a manufacturer-importer using the services of a job worker to make the products from the imported goods, a view corroborated by the relevant public notice. It also approved Silver Line Plastpack, where a coordinate bench held that "own use" includes use by utilising the facilities of a job worker.

And in Intas Pharmaceuticals Limited v. Commissioner of Customs, Ahmedabad, following FDC Limited v. CCE, Belapur, the question was put in the narrowest terms — whether goods imported under an exemption carrying an end-use condition may be used only in the importer's own factory or also in the job worker's — and answered in favour of the loan licensee arrangement, the goods having been used on the importer's behalf and the ownership remaining with it.

Nothing in the order under appeal established that the goods had been diverted, and the department did not allege that they had.

Outcome

The impugned order was set aside and the appeal allowed in full. The differential duty of ₹1,06,69,156, the interest under Section 28AA and the penalty under Section 114A all fall with it, and the ₹25,00,000 appropriated from the appellant's deposit is no longer supported by any demand. The order was pronounced in open court on 12 October 2026, the matter having been heard on 1 September 2026.