Import of ethylene ripener held insecticide u/s 3(e); permit breach justifies confiscation and penalties under Customs Act

The Tribunal held that the imported "ethylene ripener" containing ethephon falls within the definition of "insecticide" under Section 3(e) of the Insecticide Act, 1968 and, even if imported for non-insecticidal use, was mandatorily subject to the DGFT Notification dated 01.01.2015 requiring an import permit from the Registration Committee. As the appellants imported the goods without the requisite permit, contrary to both the Notification and their undertaking before the HC, the goods were held liable to confiscation under Section 111(d), (f) and (m) of the Customs Act, 1962. Confiscation with option of re-export on payment of redemption fine, failing which absolute confiscation and destruction, was upheld. Penalties under Sections 112(a) and 114AA on all appellants, including the customs broker, were confirmed. The appeals were dismissed.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the imported product described as "ethylene ripener" containing ethephon is an "insecticide" under the Insecticides Act, 1968, requiring prior registration and/or import permit, and whether DGFT Notification No. 106 (RE-2013)/2009-2014 dated 01.01.2015 is ultra vires or in derogation of Section 38(1)(b) of the Insecticides Act.

1.2 Whether reliance on FSSAI directions permitting use of ethephon-based ethylene generators for fruit ripening, and the claimed exemption under Section 38(1)(b) of the Insecticides Act, dispenses with the requirement of registration/import permit for imports.

1.3 Whether non-supply of test reports of the seized/imported goods vitiated the adjudication, and whether the finding that the goods contained ethephon was sustainable.

1.4 Whether the imported goods, imported without registration/import permit prescribed by DGFT Notification under Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 and without declaration as ethephon, were "prohibited goods" liable to confiscation under Sections 111(d), 111(f) and 111(m) of the Customs Act, 1962, with only limited option of re-export.

1.5 Whether penalties imposed under Section 112(a)(i) and Section 114AA of the Customs Act, 1962 on the importing company, its directors and the customs broker were legally sustainable, including the contention that Section 114AA applies only to exports and not to imports.

1.6 Whether the order-in-original was vitiated for having been passed beyond the time indicated by the High Court, and whether such time-bound directions render belated adjudication orders without jurisdiction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2 - Requirement of registration/import permit under Insecticides Act and validity of DGFT Notification No. 106 (RE-2013)/2009-2014

Legal framework discussed

2.1 The Tribunal referred to:

(a) Sections 3(e), 9(1), 17(1)(c), 38(1)(a)-(b) of the Insecticides Act, 1968; Schedule entry 223 listing "Ethephon (Ethrel)" as an insecticide.

(b) Section 2(33) and Section 111 of the Customs Act, 1962.

(c) Section 3 of the Foreign Trade (Development and Regulation) Act, 1992.

(d) DGFT Notification No. 106 (RE-2013)/2009-2014 dated 01.01.2015 inserting policy condition that all chemicals intended to be used as insecticides etc. require mandatory registration; and where imported for non-insecticidal purpose, an import permit is necessary from the Registration Committee (CIB&RC).

(e) Prior judgments of High Courts and Supreme Court, including the detailed judgment of the High Court which had already examined the same commodity (ethephon) and the same importer, and decisions in M.M. Traders, Synergies Castings, Shree Pharma, Maliakkal line of cases, All India Ceramic Glaze, Agricas LLP and Raj Grow Impex LLP.

Interpretation and reasoning

2.2 It was undisputed on record, including from earlier test reports and the appellants' own pleadings, that the imported "ethylene ripener" contained ethephon in significant concentration (about 20%; appellants themselves admitted 5-8% and then 20%). Ethephon is specifically listed in the Schedule to the Insecticides Act and thus squarely falls within the statutory definition of "insecticide" under Section 3(e)(i).

2.3 The High Court, in the appellants' own earlier writ petition, had already held that:

(a) Being a scheduled insecticide, import of ethephon is prohibited unless the importer holds a valid registration under Section 9 of the Insecticides Act, read with Section 17(1)(c); the requirement is not a mere regulatory formality but a condition precedent to lawful import.

(b) In the absence of such registration, ethephon remains "prohibited goods" under Section 2(33) of the Customs Act read with Section 3 of the Insecticides Act and Section 11 of the Customs Act, and Customs authorities have jurisdiction to proceed under Sections 110 and 111.

(c) Section 38(1)(b) operates as an exemption only where it is established, as a matter of fact, that the substance or preparation causes none of the specified harmful effects on plant/animal life; the burden to prove such exemption lies on the claimant. No such factual exemption had been proved before any competent authority.

(d) FSSAI directions and guidance permitting ethephon-based ethylene generators are extraneous for deciding exemption under Section 38(1)(b); permission for use as ripening agent for human food does not amount to a declaration that the substance is harmless to all plant/animal life and cannot override the Insecticides Act.

2.4 The Tribunal noted that CIB&RC, by letters dated 08.07.2021 and 16.07.2021, categorically informed the investigating agency that:

(a) No registration had ever been applied for or issued to the appellants for any ethephon product.

(b) There is "no threshold limit" below which import of a scheduled pesticide would be exempt; any substance containing ethephon requires registration/import permit.

2.5 The appellants did not contest CIB&RC's opinion before any forum and in fact accepted that their goods contained ethephon. Thus, there was no surviving controversy on whether the product was an "insecticide" attracting the registration/permit regime.

2.6 As to the argument that Notification No. 106/2015 is ultra vires Section 38(1)(b) of the Insecticides Act, the Tribunal applied the line of authority from Shree Pharma, Maliakkal (Division Bench and review), All India Ceramic Glaze, Agricas LLP and FTDR Act jurisprudence to hold:

(a) DGFT notification is an order under Section 3(2) of the FTDR Act; by virtue of Section 3(3), goods imported contrary to such order are deemed "prohibited" under Section 11 of the Customs Act.

(b) Section 18A of the FTDR Act and Section 2 of the Insecticides Act make both enactments cumulative and not mutually derogatory; import control measures under FTDR Act can validly superimpose registration/permit conditions, even for non-insecticidal uses.

(c) The High Courts in Shree Pharma and All India Ceramic Glaze have upheld the validity of DGFT import-permit conditions for chemicals covered by the Insecticides Act, even when claimed for non-insecticidal uses, holding such measures to be a legitimate trade policy tool and not ultra vires or arbitrary.

(d) The Supreme Court in Agricas LLP and Raj Grow Impex LLP has reaffirmed the amplitude of Section 3 FTDR Act power to impose prohibitions/restrictions by notification; once such notification exists, violation renders the goods "prohibited goods" for Customs purposes.

2.7 The Tribunal further held that the appellants themselves had, before the Bombay High Court in earlier litigation regarding similar consignments at another port, undertaken to apply to CIB&RC for import permit, and interim clearance orders were expressly ad-interim and conditional on such application. No such application was in fact made for the present consignments, and the High Court's orders could not be construed as a permanent waiver of the import-permit condition.

2.8 The reliance on decisions such as Synergies Castings was distinguished on the ground that they pre-dated or did not consider the later DGFT notification framework and subsequent binding authorities upholding such import-permit conditions.

Conclusions

2.9 The imported "ethylene ripener" is a preparation containing ethephon, a scheduled insecticide, and therefore an "insecticide" under Section 3(e) of the Insecticides Act.

2.10 In the absence of registration under Section 9 of the Insecticides Act and in the absence of any import permit from CIB&RC as mandated by DGFT Notification No. 106/2015, the import was contrary to law and the goods were "prohibited goods" under Section 2(33) of the Customs Act read with Section 3(2)-(3) of the FTDR Act.

2.11 FSSAI's directions permitting use of ethephon in sachets for fruit-ripening and the claimed exemption under Section 38(1)(b) of the Insecticides Act do not dispense with the statutory requirement of registration/import permit; no exemption under Section 38(1)(b) was either proved or recognized by competent authority.

2.12 The challenge to DGFT Notification No. 106/2015 as ultra vires or in derogation of the Insecticides Act was rejected; the notification is a valid exercise of power under Section 3 FTDR Act and binding for Customs purposes.

Issue 3 - Non-supply of test reports and proof that goods contained ethephon

Interpretation and reasoning

3.1 The appellants alleged that the show cause notice relied on chemical test reports not supplied to them and therefore the proceedings were vitiated.

3.2 The Tribunal adopted the reasoning in the appellate order that:

(a) The show cause notice recorded that samples were drawn from the factory premises and the consignment under the relevant Bill of Entry and that tests showed presence of ethephon.

(b) In their reply and grounds of appeal, the appellants never contested the fact that the goods contained ethephon; they themselves admitted 5-8% and later 20% ethephon content and did not dispute earlier test reports on previous Bills of Entry for the same product at another port.

(c) During appeal before the Commissioner (Appeals), the test reports were in fact called for and obtained from the investigating agency; they confirmed approximately 20% ethephon content.

3.3 As the only substantive finding in the test reports - presence and approximate percentage of ethephon - stood admitted and uncontroverted on merits, the Tribunal held that any procedural lapse in not annexing the reports to the show cause notice did not cause any prejudice or affect the core adjudication.

Conclusions

3.4 The fact that the imported/seized goods contained significant ethephon content is undisputed on record.

3.5 Non-supply of the test reports with the show cause notice did not vitiate the proceedings, as no substantive lis existed on that point and no prejudice was demonstrated.

Issue 4 - Liability of goods to confiscation as "prohibited goods" under Sections 111(d), (f), (m) of the Customs Act; scope of re-export/absolute confiscation

Legal framework discussed

4.1 The Tribunal examined:

(a) Section 2(33), Sections 11, 111(d), 111(f), 111(m) and 125 of the Customs Act.

(b) Section 3(2)-(4) of the FTDR Act.

(c) Supreme Court decisions in Agricas LLP and Raj Grow Impex LLP interpreting Section 3 FTDR Act, "prohibited goods", and the scope of confiscation and redemption.

(d) High Court and Tribunal decisions emphasizing that import contrary to policy notifications under FTDR Act renders goods "prohibited" and squarely attracts Section 111(d).

Interpretation and reasoning

4.2 Having found that:

(a) The goods are insecticide-category goods (containing ethephon) imported without mandatory registration/import permit under the Insecticides Act/DGFT notification; and

(b) The description/classification was deliberately given as "ethylene ripener" under a non-insecticide heading to bypass restrictions,

the Tribunal held that import was "contrary to any prohibition" imposed under the FTDR Act/Insecticides Act read with Customs Act and squarely attracted Section 111(d).

4.3 Misdeclaration of description and classification, in the face of the importer's knowledge of the composition (including past litigation and notices from CIB&RC), was held to amount to violation of Sections 111(f) and 111(m).

4.4 Applying Agricas LLP and Raj Grow Impex LLP, the Tribunal reiterated that:

(a) Orders under Section 3(2) FTDR Act are subordinate legislation; goods imported in breach thereof are treated as "prohibited goods" by virtue of Section 3(3) FTDR Act and Section 2(33) Customs Act.

(b) In cases of prohibited goods, Section 125(1) leaves it to the adjudicating authority's discretion whether to allow redemption; absolute confiscation is a permissible outcome depending on facts.

4.5 The adjudicating authority had:

(a) Ordered confiscation under Sections 111(d), (f), (m).

(b) Allowed redemption on payment of fine with a strict condition of re-export within a fixed period, failing which destruction at importer's cost.

4.6 The Tribunal found this approach consistent with the principles laid down in Raj Grow Impex LLP regarding treatment of prohibited imports and the larger public interest underpinning such restrictions.

Conclusions

4.7 The imported consignments and seized stock were correctly held liable to confiscation under Sections 111(d), 111(f) and 111(m) as prohibited goods imported in contravention of policy/permit conditions and with misdeclaration.

4.8 The conditional option of redemption strictly limited to re-export, with destruction upon failure, is legally valid; if the option is not exercised, absolute confiscation with destruction is proper.

Issue 5 - Validity and scope of penalties under Sections 112(a)(i) and 114AA of the Customs Act on importer, directors and customs broker

Legal framework discussed

5.1 The Tribunal referred to:

(a) Section 112(a)(i) and Section 114AA of the Customs Act.

(b) Judicial exposition of Section 112(a) and 114AA, including Hughes Network Systems India Ltd., Prestige Polymers, and other Tribunal decisions.

(c) Customs Broker Licensing Regulations, 2018 (CBLR 2018), particularly Rule 10(d) regarding the duty of a customs broker to advise clients and to inform Customs in case of non-compliance.

Importing company (Appellant 1) and its directors (Appellants 2-4)

5.2 The Tribunal noted that:

(a) The company imported, stored and dealt with the goods knowing they contained ethephon and attracted registration/permit requirements; prior notices from CIB&RC, earlier test reports and High Court proceedings in their own case established full knowledge.

(b) The misdescription as "ethylene ripener" under a non-insecticide heading was deliberate to avoid scrutiny and permit requirements; no market enquiry was needed given admitted composition and prior history.

(c) The show cause notice and order-in-original set out specific roles of the directors in ordering, importing and processing the goods.

5.3 Applying Section 112(a)(i), the Tribunal held that the acts and omissions of the company and its directors had rendered the goods liable to confiscation and thus attracted penalty, irrespective of mens rea (strict liability), as clarified in Hughes Network Systems and similar decisions.

5.4 Regarding Section 114AA, the appellants argued it applied only to exports. The Tribunal, following Prestige Polymers and textual reading, held:

(a) Section 114AA is worded neutrally - "in the transaction of any business for the purposes of this Act" - without limiting its application to exports.

(b) It covers any person who knowingly or intentionally makes, signs or uses, or causes to be made or used, any false or incorrect declaration/document in any material particular.

(c) On facts, the directors were fully aware of the true nature of the goods and nevertheless caused false description/classification and non-disclosure of required permits; this satisfied the elements of Section 114AA.

Customs broker (Appellant 5)

5.5 The customs broker contended that he:

(a) Merely filed Bills of Entry based on documents; and

(b) Had no duty to verify the nature of the goods or restrictions; and

(c) Could not be penalised under Sections 112 and 114AA; relied on prior CHA-friendly precedents.

5.6 The Tribunal affirmed the factual findings that:

(a) The broker knew the composition of the goods and knew they were "restricted" requiring import permit; his statement recorded during investigation confirmed he had also advised the importer that import was not permissible without permit and was aware of CIB&RC's notice dated 21.06.2021.

(b) Despite such knowledge, he proceeded to file Bills of Entry with misdescription "ethylene ripener" and without raising the issue before Customs; this breached Rule 10(d) of CBLR 2018, which obliged him to advise compliance and to inform Customs in case of non-compliance.

5.7 The Tribunal distinguished the decisions relied on by the broker (including cases where CHA had no knowledge beyond documents, or proceedings related only to licence revocation) as factually different; here the broker had specific actual knowledge of restriction and participated in misdeclaration.

5.8 On Section 114AA, the Tribunal held, consistently with its reasoning for the directors and decisions such as Bhalinder Singh Mann, that knowingly filing documentation misdescribing the goods and concealing their restricted nature satisfied the ingredients of making/using false or incorrect declarations in a material particular.

Conclusions

5.9 Penalties under Section 112(a)(i) on the importing company and its directors were upheld as their acts/omissions rendered the goods liable to confiscation; Section 112(a) operates on a strict liability basis and was properly invoked.

5.10 Penalties under Section 114AA on the main director and the customs broker were upheld; Section 114AA applies to both imports and exports, and the record established knowing and intentional use of false/incorrect declarations and documents.

5.11 Penalties under Section 112(a)(i) and Section 114AA on the customs broker were justified given his actual knowledge of the restricted nature of the goods and his active role in misdeclaration, in breach of his statutory duties under CBLR 2018.

Issue 6 - Effect of High Court's time-limit directions and alleged delay in adjudication

Interpretation and reasoning

6.1 The appellants argued that the order-in-original was passed beyond the time-frame indicated by the High Court while disposing of their writ petition, and thus was bad in law.

6.2 The Tribunal, relying on the Constitution Bench decision in High Court Bar Association Allahabad v. State of Uttar Pradesh & Ors., held:

(a) Directions by constitutional courts to decide matters within specified time-frames or to fix outer limits for disposal are generally directory and cannot be treated as jurisdictional bars.

(b) Judicial directions prescribing timelines, if construed as causing automatic lapsing of proceedings or orders, would amount to impermissible judicial legislation; such outer limits must emanate from statute, not from case-specific directions.

(c) The High Court's direction in the appellants' earlier writ was to ensure expeditious adjudication; it did not create a statutory limitation period or bar adjudication beyond the indicated time.

Conclusions

6.3 The fact that adjudication concluded beyond the time indicated by the High Court did not render the order-in-original without jurisdiction or illegal.

6.4 The preliminary objection on limitation based on the High Court's time-bound directions was rejected.

Overall conclusion

6.5 The confiscation of the goods under Sections 111(d), (f), (m) with limited option of re-export, and the penalties imposed under Sections 112(a)(i) and 114AA on the importing entity, its directors and the customs broker, were upheld. All appeals were dismissed.

---