High seas sale of Urea through State Trading Enterprises does not, by itself, justify customs penalty.

Urea imported through a State Trading Enterprise on a high seas sale basis was held not to be an impermissible import merely because the Indian buyer was the importer of record. The Tribunal applied earlier orders and treated the issue as no longer res integra, finding that such imports were in accordance with the prevailing import policy. As the transaction was not unlawful on that basis, the ingredients for penalty under the Customs Act were not established. The penalty under Section 112(a)(i) was therefore set aside.

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Issues: Whether Urea imported through State Trading Enterprises on high seas sale basis could be treated as an impermissible import by the appellants so as to justify penalty under the Customs Act, 1962.

Analysis: The import of Urea was effected through State Trading Enterprises, and the goods were purchased by the appellants on high seas sale basis. The Tribunal noted that the issue had already been decided in earlier orders holding that where the import is channelled through the State Trading Enterprises under the prevailing policy, the purchase by the Indian buyer on high seas does not, by itself, render the transaction illegal. The Tribunal followed the earlier view that such imports were in accordance with the policy and that the issue was no longer res integra. In that view, the basis for imposing penalty under the customs law was not made out.

Conclusion: The penalty under Section 112(a)(i) of the Customs Act, 1962 was not sustainable and was set aside.

Ratio Decidendi: Where Urea is imported through a State Trading Enterprise in accordance with the import policy, its high seas sale to an Indian buyer does not attract penalty merely because the buyer is the importer of record.

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