Crude Shea Butter with High FFA Not Edible Grade: CESTAT Denies Customs Duty Exemption under Notification [Read Order]

Foods, Fats & Fertilisers Ltd., presently known as 3F Industries Ltd., the appellant, imported 187 metric tons of crude shea butter intended for manufacturing shea stearin, which would later be used in making food products and exported. The appellant initially classified the imports under the correct tariff heading and claimed customs duty exemption under Serial No. 33B of Notification No. 21/2002. Later, it argued that the exemption under Serial No. 33A should apply since the goods were of edible grade.

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The appellant’s counsel argued that the shea butter imported was of edible grade, supported by a Public Analyst report under the Prevention of Food Adulteration (PFA) Act, which confirmed it as an edible fat meeting general PFA standards. The counsel argued that high free fatty acid (FFA) content should not disqualify the product from being considered edible, relying on prior judgments and a CBIC circular stating that goods meant for processing for human consumption should be treated as edible for exemption purposes.

The counsel also argued that the customs department at other ports allowed similar imports under the edible category and that standards under the Food Safety andStandards Authority of India (FSSAI) were notified only in 2021, so the exemption should not be denied based on the absence of specific standards during the period of import.

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The revenue counsel argued that the Customs House Laboratory reported the imported shea butter as unrefined and not of edible grade since it had an FFA content above 8%, exceeding the limits generally accepted for edible fats.

The revenue argued that there were no specific PFA standards for shea butter, and the Plant Health Officer clarified that shea butter was not a food article under the PFA Act. The counsel further argued that a significant portion of the imported shea butter was not used in making shea stearin for food but was instead diverted for other uses, including in the cosmetics industry, which shows that the product was not entirely intended for edible purposes.

The two-member bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) observed that there were conflicting laboratory reports, but there were no specific PFA standards for shea butter at the time of import, and the Customs House Laboratory report indicating high FFA content could not be ignored.

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The tribunal observed that even if the shea butter could be processed into an edible product later, the exemption eligibility must be examined in the form in which the product was imported, not based on its end use after processing. The tribunal also observed that part of the imported quantity was used for non-food purposes, indicating that the entire import could not be treated as edible grade.

The tribunal explained that Notification No. 21/2002 provides exemption only for crude edible grade products, and the intention of the legislature was clear in requiring the goods to be of edible grade at the time of import. The tribunal held that the shea butter imported in crude form with high FFA content did not qualify as edible grade and was therefore not eligible for the exemption. The appellant’s appeal was dismissed, and the demand for customs duty was upheld.

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