Importer Not Liable in Situation of High Sea Sales of Technical Grade Urea by State Trading Enterprise

The Hon'ble CESTAT, Ahmedabad, in Malani Enterprise Versus Commissioner of Customs-Mundra - 2026 (4) TMI 1166 - CESTAT AHMEDABAD held that purchasing Technical Grade Urea via High Sea Sales ('HSS') from a State Trading Enterprise ('STE') does not attract confiscation or penalty and satisfies the legal requirement of importation given under ITC (HS) Code 31021000.

Facts:

• M/s. Malani Enterprise ('the appellant') imported 200 MT of Technical Grade Urea ('the subject goods') on a High Sea Sales basis from MMTC (a State Trading Enterprise). Meaning thereby, the MMTC imported the subject goods, the appellant bought the subject goods from MMTC when the goods were in transit on the high seas, i.e. before customs clearance. The Department ('the respondent') issued a Show Cause Notice ('SCN') alleging that the appellant filed the Bill of Entry without a direct license from the DGFT, the goods were liable for confiscation under Section 111(d) and penalty under Section 112(a)(i) of the Customs Act, 1962('the act'). As per the condition specified in ITC (HS) code 31021000, before 28.04.2015, import of Urea was allowed only 'by and through' State Trading Enterprises ('STE').
• The Adjudicating Authority imposed a penalty of Rs. 3,50,000/- under Section 112(a)(i), which was subsequently upheld by the Commissioner (Appeals) ('impugned order'). Aggrieved by the same, the appellant filed an appeal before this hon'ble bench.

Issues:

• Whether the Appellant is liable to be penalised for seeking clearance of Technical Grade Urea procured on High Sea Sales basis and cleared in the domestic territory?

Held:

The Hon'ble CESTAT, Ahmedabad, in Malani Enterprise Versus Commissioner of Customs-Mundra - 2026 (4) TMI 1166 - CESTAT AHMEDABAD held as under:

• Relied on order of CESTAT Ahmedabad of SUNITA COMMERCIALS P LTD, BALAJI ACTION WOODDECOR P LTD), POOJA CHEMICALS and AH CHEMICALS P LTD Versus C.C. -MUNDRA - 2023 (1) TMI 814 - CESTAT AHMEDABAD  in which it was held that merely because the domestic industries filed the Bill of Entry by procuring the goods on High Sea Sales basis, there is no violation of legal provisions of Heading No. 3102 1000 of the ITC (HS) Policy 2009-2015.
• In Sunita Commercial(supra) and Balaji Action(supra), it was held that the word used in the said Heading 3102 1000 is 'through' and not 'by' STC, MMTC and Indian Potash. In view of above, when the import is allowed 'through' STC, MMTC and Indian Potash, it means that so long as the purchase of the Urea from the foreign supplier is effected by STC, MMTC or Indian Potash and payment to foreign supplier is made by STC, MMTC or Indian Potash, who in turn sell the same to a party in India whether on High Seas or otherwise.
• By putting reliance on the above precedents, the Hon'ble bench held that the impugned order passed by the learned Commissioner (Appeals) is not sustainable.

Hence, the impugned order is liable to be set aside, and the appeal is allowed.

Relevant Sections & Policies:

ITC (HS) Code 31021000: Governs the import conditions for Urea.

Import allowed through STC, MMTC and Indian Potash Limited subject to para 2.11 of Foreign Trade Policy.

Para 2.11 of the Foreign Trade Policy 2009-14: Relates to the import of canalized items through STEs.

Any goods, import or export of which is governed through exclusive or special privileges granted to STE(s), may be imported or exported by STE(s) as per conditions specified in ITC (HS). DGFT may, however, grant an Authorisation to any other person to import or export any of these goods.

Such STE(s) shall make any such purchases or sales involving imports or exports solely in accordance with commercial considerations, including price, quality, availability, marketability, transportation and other conditions of purchase or sale in a non discriminatory manner and shall afford enterprises of other countries adequate opportunity, in accordance with customary business practices, to compete for participation in such purchases or sales

Our Comments:

Through the ITC (HS) Policy, 2022, it is provided that the Import of Technical Grade Urea (TGU) meant for non-agricultural purposes/ industrial use/ NPK Manufacturing shall be Free.