Gujarat HC Quashes Customs SCN in Palm Kernel Oil Duty Exemption Case, End Use Condition Inapplicable [Read Order]

The Gujarat High Court has quashed a show cause notice issued by the Directorate of Revenue Intelligence regarding customs duty exemptions on imported crude palm kernel oil. The court ruled that revenue authorities cannot impose end-use conditions on exemption notifications through circulars, a principle established in previous judgments that was upheld by the Supreme Court.

Justices Bhargav D. Karia and Pranav Trivedi held that the petitioners were entitled to duty exemption under Customs Notification No. 12/2012 for importing "crude palm kernel oil edible grade" despite the oil requiring further processing before being fit for human consumption. The court emphasized that "edible grade" refers to quality standards rather than immediate consumability.

The case centered on whether VVF India Ltd could claim duty exemption for crude palm kernel oil imported for industrial purposes (manufacturing soap and personal care products). The customs authorities had issued a show cause notice demanding 100% customs duty (approximately ₹464 crore) instead of the concessional rate, arguing that the exemption should only apply if the oil was ultimately used for edible purposes.

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The court found that the show cause notice was based on Circular No. 40/2001, which had been previously struck down by the same court in the Intercontinental (India) v. Union of India case and affirmed by the Supreme Court. The court reiterated that revenue authorities cannot add conditions to exemption notifications through circulars when such conditions are not explicitly stated in the notifications themselves.

The court clarified that Notification No. 12/2012 covers "all goods, crude or edible grade" without specifying any end-use requirements. If the government had intended to impose such conditions, it would have explicitly stated so in the notification, as it had done for other entries.

The judgment distinguishes between "edible grade" (referring to quality standards) and "edible oil" (referring to fitness for immediate consumption). The court noted that the imported oil met the technical standards for "edible grade" as defined in the Food Safety and Standards Regulations, regardless of whether it required further processing.

Accordingly, the writ petition was allowed and the show cause notice was quashed. The court's decision was based on the established legal principle that revenue authorities cannot impose conditions not explicitly stated in exemption notifications, and that "edible grade" refers to quality standards rather than end use.

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