Fire Loss No Ground for Exemption: CESTAT Orders Ajanta Soya to Pay Duty on All Lost and Short Crude Palm Oil [Read Order]
The Tribunal, while sustaining the duty and interest on the destroyed and short Crude Palm Oil, set aside all penalties for lack of evidence of suppression or misconduct.
The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal, New Delhi, held that the destruction of Crude Palm Oil in a fire accident does not entitle an importer to retain the benefit of concessional customs duty, and directed that customs duty must be paid on the entire quantity of Crude Palm Oil lost in the fire or found short.
M/s Ajanta Soya Limited, the appellant, is engaged in the manufacture of refined oil, vanaspati and bakery shortening. For these operations, the appellant imported Crude Palm Oil at a concessional rate of Basic Customs Duty by availing Notification No. 12/2012-CUS dated 17 March 2012. The concessional rate was subject to the condition that the imported material would be used in the manufacture of specified goods and that the importer would comply with the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016.
On 14 May 2017, a major fire broke out at the appellant’s manufacturing facility. The fire was brought under control only by 16 May 2017. A joint physical verification conducted with the insurance surveyor on 16 May 2017 recorded a destruction of 214.069 MT of Crude Palm Oil. Later, the appellant revised the loss to 282.919 MT after discovering an error in a Tally entry relating to 64.050 MT of refined palm oil. The insurance surveyor, in a detailed 146-page report, rejected the revised figure and assessed the actual loss at 230.77 MT.
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The Customs (Preventive), Jodhpur initiated action, alleging improper maintenance of records, wrongful claim of higher loss, and shortages not attributable to the fire. The Commissioner of Customs (Preventive), Jodhpur confirmed customs duty of ₹1,05,18,265 under Section 28(8) of the Customs Act, 1962, interest under Section 28AA, and penalties under Sections 114A, 114AA and 117 of the Customs Act, 1962. Aggrieved, Ajanta Soya filed the present appeal.
Represented by Advocate, Shubhankar Jha, the appellant submitted that the loss on account of the accidental fire should be deemed as usage of the input for the purpose of availing the exemption, relying on judicial precedents under similar concessional duty schemes. The appellant sought complete relief from the duty demand and urged deletion of penalties.
Represented by Ranjan Prakash, and Rajesh Singh, the Revenue argued that since the destroyed quantity was not used in manufacture, the exemption was unavailable. They submitted that the appellant failed to maintain separate registers for Crude Palm Oil, partially processed oil and hydrogenated oil as mandated under Rule 6(2) of the 2016 Rules.
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The bench of P.V. Subba Rao, Technical Member & Justice Dilip Gupta, President, noted that the insurance surveyor’s 146 page report was the most reliable and accepted 230.77 MT as the actual loss. The bench held that the appellant’s plea for deemed usage could not be accepted because the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016 do not contain any deeming provision similar to that found in certain Central Excise Rules considered in earlier case law. Therefore, Crude Palm Oil destroyed in the fire or found short cannot be treated as having been used in manufacture.
Further, the Court ruled that the appellant was liable to pay customs duty on the entire quantity of Crude Palm Oil that was either destroyed in the fire or found short, since the essential condition of the exemption notification being “actual use in manufacture” was not met.
Accordingly, the customs duty of ₹1,05,18,265 along with interest under Section 28AA of the Customs Act, 1962 was upheld.
However, the Tribunal observed that the predominant cause of the loss was an accidental fire. Consequently, all penalties under Sections 114A, 114AA and 117 of the Customs Act, 1962 were set aside.
The appeal was thus partly allowed, duty and interest sustained whereas all penalties were deleted.
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