Edible Crude Palm Kernel Oil Qualifies For Duty Exemption, End-Use Condition Inapplicable: Gujarat High Court

The Gujarat High Court in a writ petition has quashed a show cause notice creating duty demand of about Rs. 464 crores on import of Crude Palm Kernel Oil (Edible Grade). The Division Bench, comprising Justice Bhargav D. Karia and Justice Pranav Trivedi ruled on whether Oil even if of edible grade but required refining before human consumption qualified for customs duty exemption under Notification No. 12/2022-Customs r/w Notification No. 21/2002-Customs (Exemption Notification). The High Court rejected the interpretation that crude palm kernel oil imported of edible grade is not eligible for exemption on account of the 'end-use condition' specified in the Exemption Notification. The High Court referred to the Circular No.29/97-CUS dated July 31, 1997 which defined the expression “edible grade” while illustrating how import of “rice bran oil”, “vegetable oil of edible grade” whether fit for human consumption at the time of import or not would also qualify for exemption. “In view of above analysis, it cannot be said that only because crude palm kernel oil edible grade imported by the petitioners requires further processing for making it edible for human consumption, it would be excluded from Entry 33A/57 of the Exempt Notifications which refers to all oils, crude or edible grade attracting Nil/reduced rate of duty by classifying the product as palm kernel oil under Chapter 15132110 attracting 100% custom duty and respondents could not have assumed jurisdiction to read condition of further processing for end use of the crude palm kernel oil edible grade to make it edible oil for human consumption.” Petitioner, V.V.F. India was engaged in the manufacture of various personal care products, such as soap products, fatty acids, fatty alcohol etc. for which it imported “crude palm kernel oil edible grade”. Crude Palm Kernel Oil (Edible Grade) imported by the Petitioner under CTH 15132110.Petitioners challenged legality and validity of the show cause notice issued by Additional Director General, Directorate of Revenue Intelligence, Ahmedabad (Revenue) which sought to deny NIL rate of duty claimed on import of Crude Palm Kernel Oil edible grade in terms of Serial No.57 of the Customs Notification No.12/2012 dated March 17, 2012 which is equivalent to Serial No.33A of the erstwhile Customs Notification No.21/2002 dated March 01, 2002. Revenue was of the view that exemption had been wrongly availed by Petitioner and imports should be assessed at 100% tariff rate plus additional duties. On the contrary, Petitioner submitted that show cause notice was issued solely on the basis of Circular No.40/2001-CUS dated July 13, 2001 which was struck down by the High Court in case of Intercontinental. It was held therein that condition of end-use sought to be introduced through the circular of CBEC would amount to re-writing the Exemption Notification No. 17/2001-Cus., dated March 1, 2001. The Supreme Court too had dismissed the appeal filed by the Revenue against the judgment. The Petitioners highlighted that samples of the imported oil were drawn and examined by the Customs Chemical Examiner, Food Analyst, and the Port Health Officer at Kandla. All test reports confirmed that the consignments met the prescribed standards for palm kernel oil under the Food Adulteration Rules and subsequent Regulations. On this basis, the Petitioners asserted that the crude palm kernel oil import qualified as “edible grade” and rightly fell under Entry 33A of Notification No. 21/2002 or Entry 57 of Notification No. 12/2012. They argued that such classification attracted a NIL rate of duty, rather than the 100% tariff under Chapter XV heading 15132110. As for whether crude palm kernel oil imported by Petitioners was of edible grade or not and whether it was immaterial if the import required further processing for making it fit for human consumption, the High Court relied on rationale laid down by the Calcutta High Court in case of Supreme Oil Industries, as upheld by Supreme Court. “West incentive Bengal Industrial Promotion (Assistance to Industrial Units) Scheme, 1994….came to be enacted in view of the fact that 16 Units manufacturing Rice Brand Oil of Raw Grade-I in the State of West Bengal were facing acute financial problems and in order to alleviate those…. the State decided to give financial assistance for the very existence of the Units set up prior to 1994…., we are concerned with the incentive Scheme, we have to give weightage to the object behind enactment of 1994 Scheme. The object appears to be to give incentive to those Units set up prior of 1994 which were in the manufacture of Rice Brand Oil of Raw Grade-I alone….” As for end‑use restrictions, the High Court on a plain reading of Exemption Notification found no such restriction which had been expressly stated in the Notification itself. Accordingly, the High Court set aside the Show...

Edible Crude Palm Kernel Oil Qualifies For Duty Exemption, End-Use Condition Inapplicable: Gujarat High Court

Parul Bose

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