Customs exemption amendment and CVD liability: voluntary payment and bona fide mistake led to penalties and confiscation being set aside

Imported goods cleared and sold as fertilizers were not used in manufacture as required by the amended exemption entry, and appellants admitted non compliance but voluntarily paid differential CVD and interest before showcause notice; accordingly the tribunal found non payment was a bona fide mistake and there was no suppression, so penal provisions could not be invoked, and penalty under the penal provision was set aside. The tribunal further held that the Finance (No.2) Act amendment is not retrospective and does not apply to the disputed 2011 period, so interest and penalty confirmations were quashed and confiscation and related penalties were set aside in favour of the appellants.

---

---

Issues: Whether the appellants were eligible for exemption under Notification No. 4/2006-C.E. (as amended) in respect of imported fertilizers and whether the confirmation of confiscation, interest and penalty under Section 114A of the Customs Act, 1962 in respect of differential CVD demands is sustainable.

Analysis: The Tribunal examined the text of Sr. No. 63 of Notification No. 4/2006-C.E. before and after the amendment by Notification No.4/2011-C.E. dated 01.03.2011 and found that post-amendment the nil rate applied only to goods used in the manufacture of other fertilizers and not to goods sold directly as fertilizers in the open market. The facts showed that the imported goods were sold in the open market and therefore did not meet the post-amendment exemption scope. However, the appellants had furnished end-use declarations at import, paid the differential CVD and interest during the DRI investigation (voluntary compliance), and there was no evidence of collusion or wilful suppression. The Tribunal also reviewed the legal position on the levy of interest and penalty on CVD demands and relied on the principle that prior to the 2024 amendment to Section 3 of the Customs Tariff Act, 1975 the machinery provisions of the Customs Act, 1962 (including provisions for interest and penalty) did not automatically apply to CVD unless specifically borrowed; consequently, interest and penalty could not be sustained for the disputed period (24.03.2011 to 02.12.2011). The subsequent amendment via Finance (No. 2) Act, 2024 (w.e.f. 16.08.2024) making Customs Act machinery applicable is not retrospective and does not affect the disputed period.

Conclusion: The Tribunal concluded that (i) the imported goods did not qualify for nil CVD rate under the amended notification for goods sold as fertilizers in the open market, (ii) the appellants' payment of differential CVD and interest during investigation demonstrated absence of collusion or wilful suppression, and (iii) confirmation of confiscation, interest and penalty under Section 114A for the disputed period is not sustainable. Accordingly, the impugned order is set aside to the extent it upheld confiscation, interest and penalty, and the appeal is allowed to that extent in favour of the appellants.

---