Gujarat HC Quashes ₹464-Crore SCN under Customs Act for Palm Kernel Oil Imports, Holding Authorities Cannot Superimpose End-Use Test Not Stipulated in Tariff or Notification
The Division Bench concluded that Edible-grade Requirement was a matter of Specification, and Not Usage
The Gujarat High Court set aside a show-cause notice issued under the Customs Act, 1962 concerning the import of crude palm kernel oil, holding that the customs authorities could not deny exemption by reading an end-use condition into an exemption entry that expressly covered goods of edible grade without linking eligibility to actual edible use.
The court also found that reliance on a circular previously quashed by the Court rendered the notice unsustainable.
The petitioner, VVF India Ltd, had imported crude palm kernel oil under Entry 57 of Notification No. 12/2012-CUS, claiming the concessional rate applicable to edible-grade crude oils. The company argued that the authorities lacked jurisdiction to issue the demand because the notification did not prescribe any end-use condition, and that the department sought to artificially introduce such a requirement by invoking Circular No. 40/2001, which the High Court had already invalidated.
The petitioner argued that authorities could not deny exemption on the grounds that the imported oil was intended for industrial use once it met the edible-grade requirements, nor could they rely on any unrelated test that was not covered by the notification. It was further argued that the show-cause notice was fundamentally faulty because, in contrast to the notification's wording, it attempted to read words into the exemption item and impose a burden of establishing real edible consumption.
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The department contended that as the shipment was not meant for consumption, it was not qualified for the edible-grade crude oil exemption. It asserted that the product's final use was important in determining eligibility and claimed that the petitioner imported the items for industrial use while reporting them to be food grade in order to claim exemption.
The authorities further claimed that because they believed the petitioner had misrepresented the type and planned use of the imported material, the show-cause notice was legitimately issued.
The Division Bench of Justice Bhargav D. Kariaand Justice Niral R. Mehta, rejecting the department’s stance, concluded that there was no end-use test specified in the exemption anticipated under Entry 57. The Court noted that the department's circular could not serve as the foundation for a demand because it had already been annulled. It came to the conclusion that the authorities could not import criteria that were not included in the notification and that the edible-grade requirement was a matter of specification rather than usage.
Consequently, the Court quashed the entire impugned show-cause notice, finding it to be unsustainable.
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