2025 (9) TMI 1224 - AT - Customs

Export duty on raw sugar not leviable; partial confiscation set aside; redemption fine cut to Rs15,00,000; penalties altered secs.72,73A(3),114A

M/s Parry Sugars Refinery India Pvt Ltd and M/s Dr. Amin Controllers Pvt Ltd Versus Commissioner of Customs (Preventive) Vijayawada

CESTAT HYDERABAD held that export duty on 14,000 MT of raw sugar is not leviable; demand for import duty is unsustainable though confiscation and ... Diversion of duty-free imported sugar by the appellant = non-payment of export duty payable on export of 14000 MT - existence of scope for confiscation of offending goods or imposition of penalty or otherwise in the facts of the case or not. Demand for export duty - HELD THAT:- There is no denial that appellants are themselves the exporter in respect of 14000 MT of sugar and that they are a SEZ unit. The trading is a permissible activity in terms of LOA. Therefore, even if there are procedural irregularities, as long as it is relatable to the SEZ unit and their activities, the provisions of SEZ would prevail over Customs Act. If there is any unaccountal of either non-duty paid imported or domestic goods by the SEZ unit or resulting export thereof, the action can be taken by the SEZ authorities in terms of provisions under SEZ Act and Rules made thereunder. There is a bond executed by the appellant SEZ unit for meeting all the conditions in relation to their import and export and in case the SEZ authorities feel that the duty free imported raw sugar was not duly accounted for, they can charge duty thereon or they can charge even export duty in case they feel that the exports claimed by them are not their exports. The whole process of clearance till final loading on vessel, in the case of bulk quantity, could be a continuous process under the cover of one single BoE or shipping bill assessed/authorized by SEZ Authority and there cannot be a static determination to come to the conclusion that the said consignments were not cleared under the cover of impugned shipping bills in view of dates on said BE or Shipping Bills. Therefore, in the facts of the case, there cannot be any demand of export duty in respect of 14000 MT of raw sugar. Demand for import duty - HELD THAT:- There was no intentional diversion to evade import duty and this was more in the nature of procedural irregularity for which the substantive right cannot be taken away. Accordingly, while the import duty demand is not sustainable, the confiscation and redemption fine in lieu thereof is sustainable. However, it is found that the redemption fine of Rs.39,49,202/- is not proportionate to the procedural irregularity committed by them and accordingly, reduced the redemption fine to Rs.15,00,000/- which has already been appropriated by way of execution of Bank Guarantee and therefore, no further redemption fine is required to be paid in this regard. Insofar as demand on 1026.7 MT of raw sugar is concerned, it is found that admittedly, these goods have been bagged and standardized and they were cleared for export and in fact, exported also. Therefore, once the goods have been exported, invoking section 72 and 73A(3) for demanding duty would not be tenable - Even if it is presumed that they have not been exported, they would still be either lying in the ATR warehouse or in the SEZ unit and therefore, since department is not alleging that it was lying in the ATR since it has already been cleared from there without cover of any ExBond BoE, it would lead to a conclusion that it had come to SEZ and thereafter, it has been exported. Thus, no duty is leviable in terms of section 28(4) of Customs Act read with section 72 & 73A(3) of the Customs Act on said quantity. Confiscation of 7000 MT of sugar - HELD THAT:- Since they have not demanded any import duty in respect of the same and also the fact that there is evidence that the said consignment has been sent by Into-Bond under proper document, the confiscation is not tenable. Moreover, confiscation is also not tenable in view of settled legal position that unless the goods are physically available, the same cannot be confiscated and hence, no redemption fine can be imposed thereon. Accordingly, confiscation of 7000 MT and redemption fine thereon is not tenable - the department has proposed confiscation under section 111(j), where the provisions requires that any good on which import duty has not been paid and which are entered for exportation under claim for drawback is liable for confiscation, whereas, in the present case, the appellants have not claimed any drawback in respect of said export. Therefore, the said provision itself is also not invokable in view of the admitted facts of the case. Confiscation of vehicles under section 115 and imposition of redemption fine - HELD THAT:- In this case as the goods itself have not been found liable for confiscation, therefore, conveyance cannot be said to have been used for smuggling. Therefore, since we find that we have already ruled out liability for confiscation in respect of goods, except for 1073 MT and therefore, on this count itself, the vehicles cannot be confiscated. Further, in respect of even this quantity, which has been held liable for confiscation, the owner of the vehicles were not having the knowledge that they were carrying any offending goods or that there is any connivance between owner of the vehicles and the appellant and therefore, vehicles are not liable for confiscation on this count also. Imposition of penalty - HELD THAT:- Once the demand of duty itself is not found sustainable, the question of levy of penalty also does not arise. In this case, reliance placed by the appellant on the case of Collector of CE Vs HMM Ltd [1995 (1) TMI 70 - SUPREME COURT], wherein, the Hon’ble Supreme Court, inter alia, held that question of penalty would arise only if department is able to sustain the demand. Similar views were also expressed by the Hon’ble Supreme Court in the case of CCE, Aurangabad Vs Balakrishna Industries [2006 (8) TMI 182 - SUPREME COURT]. There are other catena of judgments in this regard and therefore, penalty under section 114A is not tenable. Imposition of penalty of Rs.5,00,000/- each under section 72 and 73A(3) read with Regulation 12 of Warehouse (Custody and Handling of goods) Regulations, 2016 on the appellant - HELD THAT:- The penalty under section 72 & 73A is imposable only when there is clearance in violation of section 71 and since it has been held that in this case, the warehoused goods have been cleared for export, however, since the Act provides for clearance of goods from the bonded warehouse only under the cover of either BoE or Shipping Bill and the same has admittedly been not followed by them in respect of at least 7000 MT, where evidence has not been clearly brought forward, as also in respect of 1026.7 MT. Therefore, even if these goods have been exported, as discussed, supra, the fact remains that the goods were cleared without cover of Ex-Bond BoE. Therefore, they will be liable for penalty. Since in this case, it is held that this consignment is also not liable to any export duty, therefore, only penalty is imposable for the procedural breach under section 72 & 73A(3). However, in view of the facts and discussions, as the duty itself is not demandable, this is essentially a procedural breach without any intentional evasion of payment of export duty or import duty. Accordingly, penalty under section 72 & 73A(3) is reduced to Rs.2,50,000/- each. The impugned order of the Commissioner is modified - Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether exported raw sugar (14000 MT) constituted SEZ cargo such that export duty was not leviable, despite apparent movements and assessments showing clearance from a private bonded warehouse rather than physical export from the SEZ unit. 2. Whether import duty was leviable and offending quantity liable to confiscation where certain consignments (notably 1073.300 MT) were admitted into a private bonded warehouse without proper Into-Bond Bills of Entry or SEZ transshipment permission. 3. Whether confiscation of other consignments (1026.7 MT and 7000 MT) and of vehicles used in transport was tenable where procedural irregularities in warehousing and Ex-Bond clearances are alleged but the goods were ultimately exported by the SEZ unit. 4. Whether penalties under various provisions of the Customs Act and Warehousing Regulations (including sections 112(a), 114A, 114(ii), 72 & 73A(3), and 115) are sustainable given the facts of SEZ authorization, procedural irregularities, and the presence or absence of mala fide intent. 5. Whether private bonded-warehouse operations (mixing/blending/bagging) without prior express permission violated warehousing provisions warranting substantive duties, confiscation or penalties, or whether such acts fell within allowed warehouse maintenance remedial activities. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Export duty on 14000 MT: entitlement of SEZ exemption Legal framework: SEZ Act and Rules provide substantive exemptions (section 7; section 26(1)(e); section 53; section 46; Rule 22) and deem SEZ operations outside customs territory; SEZ Rules regulate bonds, temporary removal and documentary procedures for SEZ cargo. Precedent treatment: Reliance placed on authority recognizing SEZ Act as complete code and prevalency of SEZ regime; High Court/Supreme Court authority (noted in judgment) supports this proposition. Decision distinguishes cases relied upon by department as factually different and not addressing SEZ authorized movements. Interpretation and reasoning: The Court accepted that the appellant was the exporter and a SEZ unit entitled to trade in duty-free imported sugar. Shipping bills were filed and assessed by the SEZ authorized officer and foreign exchange received. Physical logistics for bulk cargo involve staggered movements and multi-day operations; an endorsement by the SEZ inspector admitting goods into SEZ weighs against an inference of absence of SEZ nexus. Procedural dates of BoE assessment do not conclusively show exports occurred outside SEZ. No evidence established diversion to DTA or non-export. Ratio vs. Obiter: Ratio - where an SEZ unit, under LOA and bond, exports goods and SEZ authority has assessed/endorsed shipping bills, export duty cannot be imposed merely on procedural irregularities about timing/sequence of documents absent proof of diversion to DTA or lack of export. Obiter - observations on logistical realities of bulk movement and timing. Conclusion: Demand of export duty on 14000 MT is unsustainable and set aside. Issue 2 - Import duty and confiscation of 1073.300 MT Legal framework: Customs Act provisions on warehousing, Into-Bond/Ex-Bond BoEs, and confiscation (section 111(j)); SEZ rules govern duty-free transshipment and enforcement by SEZ authorities; warehouse Regulations and sections 64-65 as applicable. Precedent treatment: The Court applied established principles that diversion without proper BoE renders goods offending; also noted law that confiscation must be of physically available offending goods. Cited applicable case law supporting proportionality in penalties/confiscation in procedural breaches. Interpretation and reasoning: The 1073.300 MT was admitted into ATR without Into-Bond BoE - an admitted transshipment contravention. Although a large portion was later received, blended and exported, lack of BoE and absence of SEZ permission made the quantity offending. There was no finding of mala fide intent to evade duty; diversion was treated as procedural breach. Confiscation of physically available offending goods was permissible, but redemption fine must be proportionate. Ratio vs. Obiter: Ratio - diversion into warehouse without Into-Bond BoE permits confiscation of physically available offending goods even if ultimately exported, but import duty may not be sustainable where export by SEZ unit is established and mala fide evasion is not proven; redemption fine must be proportionate. Obiter - commentary on SEZ authority role in recovery. Conclusion: Confiscation of 1073.300 MT upheld, but import duty demand unsustainable; redemption fine reduced from an excessive amount to a proportionate sum (modified to Rs.15,00,000 and treated as satisfied by BG). Issue 3 - Confiscation of 7000 MT and 1026.7 MT and of vehicles Legal framework: Confiscation rules (sections 111(j), 113(i), 115), and requirement that goods must be physically present to be confiscable; SEZ regulatory supremacy for export/import activities. Precedent treatment: Court relied on authority that confiscation cannot be sustained when goods are not physically available, and distinguished other cases relied upon by Department as factually different (SEZ context). Interpretation and reasoning: 7000 MT had Into-Bond BoE and SEZ authorization for diversion to ATR; no demand for import duty was made by Department; confiscation not tenable. 1026.7 MT was bagged/standardized and exported by SEZ unit; invoking sections for demand after export (section 72/73A/28(4)) is not tenable once export by SEZ is established. Vehicles cannot be said used for smuggling where goods themselves not confiscable and drivers/owners lacked knowledge of wrongdoing. Ratio vs. Obiter: Ratio - confiscation must be grounded in proof of illegality and physical availability; where SEZ authority endorsement and export evidence exist, confiscation/vehicle forfeiture are unsustainable. Obiter - notes on sequence of BoEs and practical bulk logistics. Conclusion: Confiscation orders for 7000 MT, 1026.7 MT and of 24 vehicles are set aside. Issue 4 - Penalties under Customs Act and Warehouse Regulations Legal framework: Sections 112(a), 114A, 114(ii), 72 & 73A(3); principles that penalty follows sustainable demand and requires proof of mala fide or statutory preconditions; warehousing regulations governing operations and penalties for clearance in violation of section 71. Precedent treatment: Followed principle that penalty requires a sustainable duty demand (authority cited) and that absence of mala fide negates some penalties; applied proportionality and distinct treatment of different contraventions and actors. Interpretation and reasoning: Where duty demands are not sustained, related penalties (e.g., section 114A) cannot survive. Procedural breaches (non-filing of Ex-Bond BoE) justify reduced penalties under warehousing provisions but not penalties premised on evasion. As to third-party surveyor/transport operator, active supervision of movement without requisite documentation attracts penalty under section 112(a) (uplifted), but penalty under section 114(ii) (linked to evaded duty) was set aside because duty demand was not sustainable. Ratio vs. Obiter: Ratio - penalties predicated on an unsustainable duty demand or absent mala fide are not tenable; active participation in transport of undocumented consignments can attract section 112(a) liability. Obiter - discussion on proportionality and remedial reduction of penalties. Conclusion: Penalty under section 112(a) on the surveyor/agent is upheld; penalties under section 114A and 114(ii) are set aside; penalties under sections 72 & 73A(3) reduced to modest amounts on account of procedural breach and lack of intent. Issue 5 - Warehousing operations (mixing/blending/bagging) without prior permission Legal framework: Warehousing Regulations, sections 64-65 (activities allowable to prevent loss/deterioration), and later amendments removing prior sanction requirement for limited activities. Precedent treatment: Treated in light of statutory scope permitting limited remedial operations in warehouses; distinguished manufacturing/major processing requiring prior sanction. Interpretation and reasoning: Blending/mixing/bagging was a limited remedial operation to prevent deterioration and to meet export contracts, not substantial manufacture; relevant rules permitted such activity (post amendment) without prior express permission. No substantive manufacturing found; therefore, warehousing procedural breaches do not attract substantive duty or heavy penalties where no evasion shown. Ratio vs. Obiter: Ratio - remedial activities (mixing/blending/bagging) to preserve/standardize warehoused goods do not amount to unauthorized manufacture requiring prior permission; only procedural penalties (and reduced fines) are appropriate absent mala fide. Obiter - observations on regulatory changes and operational realities. Conclusion: No substantive penalty or duty for warehousing operations; limited procedural penalties reduced.