100% EOU Treated as Customs Bonded Premises: Kerala HC Allows Cashew Kernels to Be Re-Processed at Factory [Read Order]

The Kerala High Court has ruled that a 100% Export Oriented Unit (EOU) can be treated as a customs bonded warehouse under the Customs Act, allowing re-processing of imported cashew kernels within its factory premises without violating customs regulations.

Tasty Nut Industries (petitioner), engaged in cashew kernel processing, approached the Court seeking permission to re-process imported cashew kernels at its factory, arguing that the factory premises were already treated as a bonded warehouse under applicable customs notifications.

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The Customs Department initially objected, contending that re-processing without express permission constituted a breach of customs conditions. The department insisted that any alteration or additional processing of imported goods must occur only with prior authorization.

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The petitioner industry is designated as a 100% Export oriented unit (EOU). The petitioner submitted that under the prevailing Export-Import (EXIM) policy and relevant notifications issued under Section 58 and Section 65 of the Customs Act, 1962, a 100% EOU’s factory is deemed to be a bonded warehouse. Hence, they argued that re-processing operations were permissible without separate approvals.

The Bench comprising Justice Bechu Kurian Thomas observed that the essence of a 100% EOU scheme is to promote exports by offering operational flexibility to units while ensuring customs control through bonding procedures. 

The Court noted that bonded warehouse regulations under the Customs Act allow not just storage but also manufacturing and remanufacturing activities, provided the goods are meant for eventual export.

The court further observed that imposing overly restrictive conditions defeats the object of the EOU scheme, which is aimed at promoting exports and value addition within India.

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The Court held that the petitioner's factory, being a customs bonded premises, was entitled to carry out re-processing of imported cashew kernels by relying on statutory provisions and CBIC circulars.

The court directed the Customs Department to allow the petitioner to undertake re-processing without insisting on redundant approvals, subject to maintenance of proper records and compliance with bond conditions.

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The Court clarified that the petitioner must maintain detailed accounts of raw materials, processed products, and waste generated, to satisfy customs inspections and audits.

The writ petition was allowed.

To Read the full text of the Order CLICK HERE

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