SUNITA COMMERCIALS P LTD VERSUS C.C.-MUNDRA

Customs Appeal No.10704 of 2020

(Arising out of OIA-MUN-CUSTM-000-APP-66-20-21 dated 31/07/2020 passed by

Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax

AHMEDABAD)

 

SUNITA COMMERCIALS P LTD

VERSUS

C.C.-MUNDRA

 

WITH

Customs Appeal No. 10710 of 2020 (BALAJI ACTION

WOODDECOR P LTD)

Customs Appeal No. 10736 of 2020 (POOJA CHEMICALS)

Customs Appeal No. 10737 of 2020 (AH CHEMICALS P LTD)

 

(Arising out of OIA-MUN-CUSTM-000-APP-67-20-21 dated 31/07/2020 passed by

Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax

AHMEDABAD)

(Arising out of OIA-MUN-CUSTM-000-APP-61-20-21 dated 31/07/2020 passed by

Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax

AHMEDABAD)

(Arising out of OIA-MUN-CUSTM-000-APP-63-20-21 dated 31/07/2020 passed by

Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax

AHMEDABAD)

 

APPEARANCE:

Shri J.C. Patel & Shri Rahul Gajera, (Advocates) for the Appellant

Shri G. Kirupanandan, Superintendent (AR) for the Respondent

CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR

HON’BLE MEMBER (TECHNICAL), MR. RAJU

Final Order No. A/ 10059-10062 /2023

DATE OF HEARING: 17.10.2022

DATE OF DECISION: 16.01.2023

RAMESH NAIR

The present appeals are preferred against these five Orders-In-Appeal

(“OIA”) involving common issue viz. whether the import of “Urea” purchased

by the appellants on High Seas Sale from State Trading Enterprises (“STEs”)

is in accordance with the ITC (HS) Policy. Since the facts are identical in all

the above appeals, facts of M/s. Pooja Chemicals are considered for ease of

convenience.

2. Briefly, the facts are that Prior to 28-4-2015, under Heading No. 3102

1000 of the ITC (HS) Policy, import of Urea was allowed through STEs viz.

STC, MMTC and Indian Potash Limited. In that view, it appears that by letter

dated 15th May 2013, the Government of India, Ministry of Chemical and

Fertilizers had permitted the Appellant to import Technical Grade Urea

through any STEs (i.e. MMTC, IPL, STC). The Appellant, accordingly, in the

year 2013 purchased on High Seas, consignments of Urea imported by the

STE viz. MMTC and sought clearance thereof with customs by filing Bills of

Entry and proper officer of customs granted clearance to the said goods.

2.1 In April 2018, the customs department initiated investigations into the

question of validity of the said imports. The Additional Commissioner of

Customs (SIIB) Mundra thereafter issued to the Appellant a Show Cause

Notice dated 30-5-2018 proposing imposition of penalty on the ground that

prior to 28-4-2015, “Urea whether or not in aqueous solution” was allowed

to be imported only by STEs under Heading No. 3102 1000 of the ITC (HS)

Policy 2009 – 2015 and that since the Bills of Entry were filed by the

Appellant after purchasing Urea on High Seas from STE, such an import

cannot be said to be by the STE but by the High Seas Buyer who files the Bill

of Entry, and further that permission dated 15-5-2013 granted by

Government of India was only for domestic purchase of Urea from STE and

hence Urea so imported is in contravention of the provisions of Foreign Trade 

Policy and is therefore liable to confiscation under Section 111(d) of the

Customs Act 1962.

2.2 The Appellant replied to and contested the said Notice by its letter

dated 14-7-2018 denying the contentions of the show cause notice and

interalia submitted that the word used in Heading 3102 1000 of the ITC (HS)

Policy is “through” and not “by”STC, MMTC and Indian Potash, it clearly

means that purchase from the foreign supplier has to be by STE and that

Appellant in turn can purchase from the STE and file the Bill of Entry. The

Additional Commissioner of Customs, Mundra, however, by his Order-In

Original dated 25-04-2019 held that the goods are to be held liable for

confiscation under Section 111(d) of the Customs Act 1962 and imposed

penalty of Rs. 30,00,000/- on the appellant under Section 112(a) of the said

Act. Similar Orders-In-Original were passed in respect of all the appellants

herein. The first appellate authority has upheld the said Orders-In-Original.

Being aggrieved, the appellants are in appeals before this Tribunal.

3. Shri J.C. Patel and Shri Rahul Gajera, learned counsels for the

Appellants assailed the OIAs on the ground that under Heading No.3102

1000 of the ITC (HS) Policy2009 to 2015, does not stipulate that Urea was

allowed to be imported only by STEs; the said Heading allows import of Urea

through STC, MMTC and Indian Potash Ltd; the word used in the said

Heading is “through” and not “by” accordingly, the Government of India,

Ministry of Chemical and Fertilizers had by letters issued to Appellant,

permitted the Appellant to import Technical Grade Urea through any STEs

i.e. MMTC, IPL, STC and therefore it was permissible to purchase from STEs

on High Seas, the Urea imported by STEs. There is no restriction in the IT

(HS) Policy or in the Foreign Trade Policy for effecting High Seas purchase of

Urea imported by STEs and that such imports is to be construed as 

“through” STEs. Further, apart from the submission that section 112(a)(i)

has no application in absence of any prohibition against import of Urea,

imposition of penalty was otherwise also entirely unwarranted in view of the

consistent past practice of such imports as is evident from the following

judgments and the Board Circulars:

(a)

CC v Union Carbide India Ltd-1987 (27) ELT 241: This case

pertains to the period June 1975when import of Manganese Ore

was canalized through MMTC and in this case the Manganese

Ore was sold on High Seas by MMTC to Union Carbide India Ltd,

(b)

Hyderabad Industries Ltd v UOI-2000 (115) ELT 593 (SC):

In this case before the Supreme Court, asbestos was canalized

through MMTC who sold the same on High Seas to Hyderabad

Industries and the Supreme Court held that duty was payable

on the price charged by MMTC to Hyderabad Industries,

(c) CC v Coromondal Fertilizers LTd– 1988 (33) ELT 451: In

this case rock phosphate and sulphur were canalized through

MMTC who sold the same on High Seas to Coromondal

Fertilizers Ltd.

(d)

Godavari Fertilizers & Chemicals Ltd v CC-1986 (81) ELT

535: In this case Phosphoric Acid was canalized through MMTC

who sold the same on High Seas to Godavari Fertilizers &

Chemicals Ltd.

(e)

Indian Farmers Fertilizers Co-op Ltd v PCC-2020 (373) ELT

530: In this case, Urea of Fertilizer grade, which is canalised

through STE, was sold on High Seas first by STE to Government

of India and then again on High Seas by Government of India to

IFFCO

(f) Board’s Circular No.49/89-CX. 8 dated 2-11-1989 in which the

procedure for taking Modvat Credit has been laid down in 

respect of the duty paid by Indian Oil Corporation in respect of

import of Steel Sheets which was canalized through MMTC and

which were purchased on High Seas by IOC from the canalizing

agency, MMTC

(g)

The view taken in the above circular is reiterated in

Circular No. 23/90-CX.8 dated 9-4-1990.

(h)

Public Notice:07/95-Cus-Bombay dated 12-1-1995

Shri G. Kirupanandan, learned Superintendent (AR) appearing for the

department reiterated the findings given in the impugned Orders. He pointed

out that by virtue of purchase of Urea on High Seas from STEs and by filing

Bill of Entry, the appellant became the importer and that under the Import

Policy the STEs who have purchased the Urea from the foreign buyer can sell

the same to the Indian buyer after clearance from Customs and that

condition no. (xiv) of permission letter of Government of India, Ministry of

Chemical and Fertilizers, permission was granted to the Appellant only for

domestic purchase of Urea from STE.

On carefully considered the submissions made by both the sides and

upon perusal of the case records, it emerges that the purchase from the

foreign suppliers was made by STE viz. MMTC and Indian Potash Ltd and the

goods were shipped by the foreign suppliers to MMTC/ Indian Potash Ltd and

the Appellants have purchased the said goods on High Seas from the

MMTC/Indian Potash Ltd. It can be seen that Heading No.3102 1000 of the

ITC (HS) Policy 2009-2015, does not stipulate that Urea was allowed to be

imported only by State Trading Enterprises; the said Heading allows import

of Urea through STC, MMTC and Indian Potash Limited. Clearly, the word

used in the said Heading 3102 1000 is “through” and not “by” STC, MMTC

and Indian Potash. In view of above, when the import is allowed “through” 6 | P a g e C / 1 0 7 0 4 , 1 0 7 1 0 , 1 0 7 3 6 , 1 0 7 3 7 / 2 0 2 0

STC, MMTC and Indian Potash, it means that so long as the purchase of the

Urea from the foreign supplier is effected by STC, MMTC or Indian Potash

and payment to foreign supplier is made by STC, MMTC or Indian Potash,

who in turn sell the same to a party in India whether on High Seas or

otherwise, the import is clearly through STC, MMTC or Indian Potash.

5.1 Learned Commissioner (Appeals) clearly erred in holding that under

the Import Policy although the STEs who have purchased the Urea from the

foreign supplier can sell the same to the Indian buyer after clearance from

customs, such sale cannot be permitted on High Seas before clearance of the

Urea from customs and that by virtue of purchase of the Urea on High Seas

from STE and by filing the Bill of Entry, the Appellants became the importer

is irrelevant because there is no bar against the Appellants being the

importer so long as the import is through STE. There is no restriction in the

Policy against State Trading Enterprise making High Seas Sale of Urea which

during the relevant period was permitted to be imported through State

Trading Enterprise.

5.2 Since the import was made through MMTC/Indian Potash Ltd and was

in accordance with Heading No.3102 1000 of the ITC (HS) Policy and the

letters of the Government of India, Ministry of Chemical and Fertilizers, the

import was in accordance with law and therefore the goods cannot be held to

be liable to confiscation under Section 111(d) of the Customs Act 1962.

Consequently, no penalty is imposable on the Appellants under Section 112

of the said Act

5.3 The Commissioner (Appeals) has erred in not appreciating the

permission granted by the Ministry of Chemical & Fertilizers to the Appellant.

The very opening sentence of the said letters/ Permission of the Ministry of 

chemical and Fertilizers has permitted the Appellant to import the Urea

through any STE. The permission to import is addressed and granted to the

Appellant and such import has to be made by the Appellant through any

STE, which only means that the STE would purchase the Urea from a foreign

supplier and then sell the same to the Appellant on High Seas. This is the

only way in which the permission to the Appellant to import through STE can

be implemented and operated. Learned Commissioner (Appeals) finding that

per condition no. (xiv) of Permissions of the Government of India, Ministry of

Chemical and Fertilizers, permission was granted to the Appellant only for

domestic purchase of Urea from STE is also erroneous. There is absolutely

no such restriction in the said condition no. (xiv). Neither does condition

no.(xiv) contain any restriction that purchase shall be made only

domestically from STE nor does it prohibit purchase on High Seas. All that

condition (xiv) stipulates is that the Department of fertilizers has to be kept

informed through the STE from whom the Urea is purchased, about the

product being produced from such urea, the quantity required, etc. There is

absolutely no stipulation in condition (xiv) that urea has to be purchased

from STE only domestically and not on High Seas. On the contrary, the very

first para of the said letter grants permission to the Appellant to import the

Urea through STE. If as upheld by the Commissioner (Appeals), Appellant

was only permitted to purchase domestically from the STE, the letter would

not have said that the Appellant is permitted to import through STE. The

authorities below have mis-read the Conditions Nos. (v) and (xiv) of the

Permission letter dated 15th May 2013 of the Government of India, Ministry

of Chemical and Fertilizers and in inferring therefrom that High Seas

purchase by Appellant from STE was not permitted as per the said

conditions. The said conditions are not related to the Appellant’s purchase

from STE but are related to the purchases by the end users/ distributors

from the Appellant. The meaning of the word “through” used in Heading 

No.3102 1000 of the ITC (HS) Policy, itself show that when the ITC Policy

talks of import through STE, it means import using the help of STE and not

import by STE.

5.4 Further, as per the regular practice accepted by customs for over

several decades in case of imports which are canalized through STEs, the

STEs place the order on the foreign supplier and thereafter effect High Seas

sale of the same to the Indian Buyers. This is evident from the judgments

and Board Circular supra. As laid down in the following judgments, where

the import is in accordance with a consistent past practice, the question of

confiscation under Section 111(d) and imposition of penalty under Section

112 of the Customs Act 1962 does not arise:

 Gujarat State Export Corporation Ltd v UOI – 1984 (17)

ELT 50

 Memon Associates v CC – 1988 (34) ELT 367

 Trident Agencies v CC – 1989 (45) ELT 116

 Varson Chemicals P. Ltd v CC – 1987 (27) ELT 55

The judgment in the case of Marico Industries Ltd v CC – 2007 (209) ELT

403 relied upon by the Commissioner (Appeals) has no application to the

facts of the present case. In that case the importer had directly established

the Letter of Credit on the foreign supplier as result of which the import

could not even be said to be through STE. Further, the import in that case

was against Advance Release Order which is issued for sourcing inputs

indigenously instead of importing against Advance License. The provisions

relating to procurement of inputs against Advance Release Order which

applied in that case did not provide for import through STE.

6. In view of above, impugned Orders vide which penalty under section

112(a)(i) of the Act on the appellants was upheld cannot be sustained. 

Accordingly, the impugned orders are set aside. The appeals are allowed

with consequential relief.

(Pronounced in the open court on 16.01.2023 )

(RAMESH NAIR)

MEMBER (JUDICIAL)

(RAJU)

MEMBER (TECHNICAL)

Mehul