The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, has upheld the denial of the concessional customs duty rate for 2,304.029 metric tonnes of palm oil after finding that contemporaneous shipping records identified the goods as refined, bleached and deodorised (RBD) palmolein rather than crude palm oil.
The bench of Angad Prasad (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that the removal of acid-value and carotenoid conditions from an exemption notification did not extend the concession for crude palm oil to refined or processed palm oil. However, it directed the adjudicating authority to verify the applicable Basic Customs Duty rate and recompute the differential duty, reduced the redemption fine from ₹2 crore to ₹1 crore, and set aside an additional penalty of ₹35 lakh.
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The company imported a cargo of 4,764.253 metric tonnes and declared the entire consignment as “Crude Palm Oil–Edible Grade in Bulk” under Customs Tariff Item 1511 1000. It filed two warehousing Bills of Entry on August 18, 2021, and subsequently cleared the goods through four ex-bond Bills of Entry dated September 15, 2021.
The importer claimed the concessional Basic Customs Duty rate available under Serial No. 57 of Notification No. 50/2017-Customs dated June 30, 2017.
During investigation, the Customs Department examined the vessel’s loading time log, ullage report, tank calculations, commercial correspondence and statements. It also obtained test reports from government laboratories in Mangalore, Hyderabad and Visakhapatnam.
According to the Department, the shipping documents showed that 2,304.029 metric tonnes of RBD palmolein had been loaded in six specified vessel tanks for discharge at Kakinada. The remaining 2,460.224 metric tonnes had been recorded as crude palm oil and loaded in separate tanks.
The show cause notice initially proposed a differential customs duty demand of ₹6,96,62,944 for the entire cargo. The adjudicating authority, however, accepted the declaration for the crude palm oil portion and confined the demand to the disputed 2,304.029 metric tonnes.
It confirmed differential duty of ₹3,36,89,272, along with interest, and appropriated ₹3,40,01,731 deposited during investigation. It also imposed a redemption fine of ₹2 crore, a penalty equal to the duty under Section 114A, and a separate penalty of ₹35 lakh under Section 114AA of the Customs Act, 1962.
The importer argued that Notification No. 01/2020-Customs dated February 2, 2020, had omitted the explanation prescribing acid-value and total carotenoid parameters from the exemption notification. Consequently, the Department could not reintroduce those conditions while deciding eligibility for the concession.
It also contended that beta-carotene content could deteriorate during transportation, storage and the passage of time. Some samples had allegedly been tested after substantial delay, making the results unreliable for establishing the nature of the goods at importation.
The company relied on the Visakhapatnam laboratory reports identifying the tested samples as crude palm oil and questioned the inconsistent conclusions in other laboratory reports. It further challenged the admissibility of electronic correspondence and third-party records.
The importer also argued that alleged mixing during discharge could not retrospectively alter the classification of the goods. Separately, it maintained that even under Customs Tariff Item 1511 9090, the applicable Basic Customs Duty rate was 32.5%, rather than the 37.5% applied in the adjudication order.
The Tribunal found that the loading time log and ullage report were prepared in the ordinary course of vessel operations and contained specific tank-wise descriptions and quantities.
These records consistently identified the disputed quantity as RBD palmolein. Correspondence recording approximately 2,500 metric tonnes of crude palm oil and 2,300 metric tonnes of RBD palmolein for discharge at Kakinada broadly matched the shipping records.
The bench noted that the importer had not produced contemporaneous records from the supplier, vessel owner, surveyor or port authority showing that the goods in the disputed tanks were crude palm oil.
The laboratory reports were treated as supporting evidence. While some samples displayed characteristics of crude palm oil, others did not, which broadly supported the Department’s case that the vessel carried two different categories of palm oil.
The Tribunal declined to treat the Visakhapatnam reports as conclusive for the entire consignment because they represented only a limited number of tanks. On the cumulative evidence, it held that the Department had established, on the standard of preponderance of probabilities, that the disputed quantity was not crude palm oil.
The Tribunal accepted that eligibility could not be denied solely because goods failed to meet conditions that had been removed from the notification.
However, it held that the deletion did not mean that refined, bleached, deodorised or fractionated palmolein must thereafter be treated as crude palm oil. The amendment had not changed the relevant customs tariff entries or the rules governing classification.
An importer claiming a concession for crude palm oil must first establish that the imported goods answer that description. Since the contemporaneous documents identified the disputed quantity as RBD palmolein, with supporting laboratory evidence, the company had not established eligibility for the concession.
The bench also explained that food safety standards do not independently determine customs classification. Such standards may address fitness for consumption and provide supporting technical material, but classification must follow the Customs Tariff Act, the applicable interpretative rules, relevant notes and, where appropriate, the HSN explanatory notes.
Although the Tribunal upheld classification under Customs Tariff Item 1511 9090, it clarified the basis for doing so.
The adjudicating authority had referred to alleged mixing or dilution with crude palm oil during discharge. The Tribunal instead sustained classification because the evidence established that the disputed goods were RBD palmolein at the time of importation.
The decision therefore rested on the identity of the goods when imported, rather than any alleged subsequent loss of identity through mixing.
The Tribunal rejected the request to exclude the electronic correspondence and third-party records altogether.
It observed that the email was supported by loading records, tank calculations, statements and laboratory reports. The recipient had acknowledged its receipt and contents during investigation, and no material had been produced to show that it was fabricated, altered or connected with another voyage.
The bench emphasised that evidence in customs adjudication must be reliable, relevant and disclosed to the noticee. On the facts before it, the correspondence formed part of a consistent body of corroborating evidence.
The Tribunal found that the competing duty rates had not been fully examined against the applicable notifications.
It directed the adjudicating authority to verify the precise Basic Customs Duty rate applicable to Customs Tariff Item 1511 9090 on the relevant date and recompute the differential duty.
If the applicable rate was 32.5%, the demand would have to be reduced accordingly. If 37.5% was supported by the operative notification, the original computation would stand.
The remand was expressly limited to this verification and recomputation. The authority cannot reopen the findings concerning the nature of the goods, their classification or their ineligibility for the crude palm oil concession.
The Tribunal upheld invocation of Section 28(4), finding that the discrepancy involved a material misdescription of the imported goods rather than merely a technical disagreement between competing tariff entries.
It also sustained confiscation under Sections 111(m) and 111(o). Interest under Section 28AA will remain payable on the differential duty finally recomputed.
However, the bench considered the ₹2 crore redemption fine excessive. Taking account of the nature of the goods, the quantity involved and the circumstances, it reduced the fine to ₹1 crore.
The penalty under Section 114A was upheld but will be restricted to the differential duty finally determined. The importer will remain entitled to any statutory reduced-penalty option, subject to the prescribed conditions and time limits.
The separate ₹35 lakh penalty under Section 114AA was set aside. The Tribunal explained that an incorrect declaration attracting a duty demand and penalty under Section 114A does not automatically justify an additional penalty under Section 114AA.
In this case, the adjudication order did not identify any separately fabricated or forged document beyond the import declaration forming the basis of the demand. The additional penalty was therefore considered disproportionate and duplicative.
The appeal was partly allowed, partly dismissed and partly remanded. The adjudicating authority must give the importer an opportunity of hearing before completing the limited duty recomputation.
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