2025 (12) TMI 133 - AT - Customs

Exemption for crude rice bran oil under Notification 21/2002 upheld; extended limitation and duty demand struck down

The CESTAT Kolkata allowed the assessee's claim to exemption under Notification 21/2002 (as amended) for imported crude rice bran oil, holding that in ... Denial of benefit of exemption as provided under notification 21/2002 as amended - prayer for imposition of penalty under the provision of 114A of the Customs Act, 1962 - import of crude Rice Bran oil by classifying the same under the CTH 15159091 - Extended period of limitation - Interest and penalties - HELD THAT:- As per the clarifications issued by the Board vide Circular 40/2001, the crude oil imported by the Respondent would be eligible for the benefit of the exemption notification 21/2022 as amended, if it is used for edible purpose after refining. Since there is no dispute in this case that after refining the goods imported by the Respondent were used for edible purposes, the Respondent is eligible for the benefit of the exemption as provided under Serial No.33A of the Notification 21/2002 as amended. Accordingly, it is held that the denial of exemption to the Respondent in the impugned order is legally not sustainable and hence the demand of customs duty confirmed in the impugned order is also not sustainable. Thus, the goods imported by the Respondent are eligible for the benefit of Serial number 33A of the N/N. 21/2002 as amended. Accordingly, the demand of differential customs duty confirmed in the impugned order is legally not sustainable and hence we set aside the same. Extended period of limitation - HELD THAT:- The assessing officer has rightly extended the benefit of N/N. 21/ 2002 as amended by Notification Number 48/2008 and Notification Number 12/2012, after analysing the Test Reports received from CRCL. Thus, it is observed that the Respondents have not suppressed any information from the department and hence we hold that the demands confirmed in the impugned order by invoking extended period of limitation is not sustainable and hence we hold that the demand is liable to be set aside on the ground of limitation also. Interest and penalties - HELD THAT:- Since the demand of customs duty is not sustained, the question of demanding interest or imposing penalties does not arise. The appeal filed by the Revenue is dismissed. 1. ISSUES PRESENTED AND CONSIDERED (a) Whether crude rice bran oil imported under Heading 1515 9091, with acid values above 16 in most consignments, qualified as 'crude and edible grade' so as to be eligible for exemption under Serial No. 33A of Notification No. 21/2002-Cus. (and its successor/related notifications), when the oil was admittedly refined and used for edible purposes after import. (b) Whether denial of exemption on the ground that the crude oil was not of 'edible grade' at the time of import, and on the basis of acid value/absence of test report for one bill of entry, was legally sustainable. (c) Whether the extended period of limitation under Section 28 of the Customs Act, 1962 was invocable on the allegation of misdeclaration, suppression and wilful intent to evade duty in relation to classification, description and exemption claim. (d) Consequentially, whether the demand of differential customs duty (including the portion not specifically dealt with in the Order-in-Original), interest and penalty under Section 114A/114AA of the Customs Act, 1962 were sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a) & (b): Eligibility of exemption for crude rice bran oil and meaning of 'crude and edible grade' Legal framework (as discussed): (i) Tariff Heading 1515 90 91 covers 'edible grade' fixed vegetable oils, including rice bran oil. (ii) Notification No. 21/2002-Cus. as amended by Notification No. 42/2008-Cus. (Serial No. 33A), and Notification No. 12/2012-Cus. (Serial No. 57), exempt 'all goods, crude and edible grade' under specified headings including 1515 at Nil rate of duty. (iii) Supplementary Note 1 to Chapter 15 of the Customs Tariff Act, 1975 defines 'edible grade' for edible oils by reference to standards under the Prevention of Food Adulteration Rules, 1955. (iv) Regulation 2.2 of the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011 provides that oil imported into India, whether obtained by solvent extraction or otherwise, shall be supplied for human consumption only after refining and shall conform to the prescribed standards after such refining. (v) CBEC Circular No. 29/97-Cus. dated 31.07.1997 clarifies that 'vegetable oils of edible grade' covers oils fit for human consumption at the time of import as well as oils which become fit for human consumption after further processing; exemption is admissible so long as the oil is used for edible purposes, even after refining. (vi) CBEC Circular No. 40/2001-Cus. further clarifies that the benefit of concessional/exemption rate for edible oils is governed by end use; if crude oil, not fit for human consumption as imported, is used after refining for edible purposes, it qualifies as edible; separate concessional rate exists for oils used for industrial (non-edible) purposes. (vii) Tribunal precedent: decision in 3F Industries Ltd. v. Commissioner of Customs holding, following High Court decisions, that even where acid value exceeds limits at import stage, crude oil intended to be refined and used as edible oil is entitled to exemption under the successor of Notification No. 21/2002-Cus. Interpretation and reasoning: (i) The Tribunal noted that all consignments were declared and assessed under Heading 1515 9091 as crude rice bran oil and that there was no dispute that, post-import, the crude oil was refined and the refined product was used for edible purposes only. (ii) The adjudicating authority had denied exemption for seven bills of entry on the ground that acid value exceeded 16, thereby treating the oil as non-edible grade, and for one bill of entry on the ground that no test report was available to establish 'edibility' at import. (iii) The Tribunal held that neither Notification No. 21/2002-Cus. nor its amendments stipulate that the crude oil must already conform to edible grade standards at the time of import to qualify for exemption. The description 'all goods, crude and edible grade' was interpreted to cover crude oils that are intended to be refined into edible oil. (iv) Relying on Supplementary Note 1 to Chapter 15, the Food Safety Regulations, and Board Circulars 29/97-Cus. and 40/2001-Cus., the Tribunal emphasised that: - 'Edible grade' is to be assessed with reference to standards applicable after refining for human consumption, not necessarily at the crude stage; - Board has consistently clarified that crude vegetable oils which are not fit for human consumption as imported, but which become fit for human consumption after refining, fall within the scope of 'vegetable oils of edible grade' so long as they are actually used for edible purposes after refining; - The end use (edible vs. industrial) is determinative for extending exemption; oils used for industrial purposes fall under a different concessional regime. (v) The Tribunal held that acid value at the crude stage is not a decisive or statutory criterion under the exemption notification; what matters is that the imported crude oil is refined and the final refined oil meets edible standards and is actually used for edible purposes. (vi) The Tribunal also noted that Revenue had produced no documentary evidence to support its assertion that the CRCL test reports showed acid content above 16 for all seven bills of entry, and in any case such higher acid value at crude stage would not alter the legal position in light of the above Circulars and Food Safety standards. (vii) In respect of the bill of entry where no test report was available, the Tribunal held that, since the legal test is post-refining edible use and it was undisputed that all consignments were refined and used for edible purposes, absence of a test report at import stage could not justify denial of the exemption. (viii) Following its own earlier decision in 3F Industries Ltd., read with the High Court judgments referred to therein, the Tribunal reaffirmed that crude edible oils, even with higher acid values at import, qualify for exemption under the 'crude and edible grade' entries when refined and used for human consumption. Conclusions: (i) Crude rice bran oil imported under Heading 1515 9091 and admittedly refined and used for edible purposes falls within 'all goods, crude and edible grade' under Serial No. 33A of Notification No. 21/2002-Cus. (and its successor entries) irrespective of the higher acid value at import. (ii) Denial of exemption on the basis that the crude oil was not of edible grade at the time of import, or due to high acid value/absence of test report, is contrary to the text of the notification, Board Circulars, and Food Safety Regulations, and is legally unsustainable. (iii) The respondent is entitled to exemption under Serial No. 33A of Notification No. 21/2002-Cus. (as amended) and the corresponding entry in Notification No. 12/2012-Cus. for all eight consignments. (iv) Consequently, the differential customs duty demand confirmed in the impugned order, founded on denial of exemption, is not sustainable and is set aside. Issue (c): Invocation of extended period of limitation Legal framework (as discussed): (i) Section 28 of the Customs Act, 1962 permitting extended period for recovery of duty not levied/short-levied on account of collusion, wilful misstatement or suppression of facts with intent to evade duty. Interpretation and reasoning: (i) The respondent had filed bills of entry classifying the goods under Heading 1515 9091 and claimed the exemption; samples were drawn, provisional assessment was ordered by the proper officer under Section 18(1)(b), and final assessment was made after receipt and analysis of test reports. (ii) The Tribunal noted that the assessing officer, after examining the CRCL reports and satisfying himself that the oil was for edible use post-refining, extended the benefit of Notification No. 21/2002-Cus. at the time of assessment. (iii) The Tribunal recorded that Revenue's assertion regarding CRCL test results (acid content above 16) was unsupported by documentary evidence on record. (iv) On the core allegation of suppression/misdeclaration, the Tribunal held that acid content in crude oil is not a relevant or governing factor for claiming exemption under Notification No. 21/2002-Cus. as amended; therefore, non-mention or non-disclosure of such data could not constitute suppression of a material fact required for assessment or for deciding exemption. (v) Since the assessments were made by the proper officer after testing and full awareness of the nature of the goods and the exemption claim, and there was no independent evidence of any collusion, wilful misstatement, or intent to evade duty, the preconditions for invoking extended period were not met. Conclusions: (i) The respondent cannot be charged with suppression of material facts or wilful misstatement merely because the acid value of crude oil was not specifically highlighted, as such parameter is not legally relevant to the availability of exemption once end-use and refining are accepted. (ii) The extended period of limitation under Section 28 was wrongly invoked; even on the ground of limitation, the impugned duty demand is liable to be set aside. Issue (d): Sustainability of duty demand (including unaddressed portion), interest and penalty Interpretation and reasoning: (i) Once it was held that crude rice bran oil was eligible for exemption under Serial No. 33A of Notification No. 21/2002-Cus. and corresponding entries, the very foundation of the duty demand under the show cause notice and the impugned order ceased to exist. (ii) The Tribunal noted that the adjudicating authority had confirmed only part of the proposed demand and remained silent on the balance amount of Rs. 2,39,24,826/-, and also did not impose penalty under Section 114A; Revenue sought orders for the remaining amount and imposition of penalty. (iii) The Tribunal held that, since the exemption was available and no duty was legally payable, there was no question of sustaining any part of the demand, including the portion not specifically dealt with in the Order-in-Original. (iv) It further held that where the duty demand itself is unsustainable, no question of interest or imposition of penalty under Section 114A/114AA arises. Conclusions: (i) The entire differential customs duty demand, including the amount of Rs. 4,07,65,042/- confirmed and the balance amount of Rs. 2,39,24,826/- mentioned in the show cause notice, is unsustainable and stands set aside. (ii) With the duty demand failing both on merits and on limitation, no interest is recoverable. (iii) No penalty under Section 114A or Section 114AA of the Customs Act, 1962 can be imposed; Revenue's plea for penalty is rejected. (iv) The appeal filed by Revenue is dismissed; the respondent's cross-objection succeeds to the extent of setting aside the confirmed demand and associated liabilities.