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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Indirect Tax Laws

Case: Sundaram Pharma Ltd imports raw materials under a notification granting a concessional duty rate, conditional on the goods being used in manufacturing specified drugs. The company diverts part of the goods for another use. Which statement best reflects the customs position?

The concession is lost for the diverted quantity because the exemption condition of specified end use is breached, so the differential duty is recoverable with interest, and a penalty may also apply. There is no tolerance threshold such as 50% for diversion.

  1. AThe exemption benefit is lost for the diverted goods because the condition is not fulfilled, and duty is recoverableCorrect
  2. BThe exemption continues since goods were imported for a notified purpose
  3. COnly a penalty applies and no duty is recoverable
  4. DDuty is recoverable only if the diversion exceeds 50%

Explanation

A conditional exemption is available only if the stated conditions are met. Where goods are diverted, the condition is breached, so the differential duty becomes recoverable along with applicable interest, and penalty may arise. No 50% threshold exists.

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