Loss of Sugar Due to Natural Calamity Entitles Remission, Duty Demand and Penalties Unsustainable: CESTAT [Read Order]

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a duty demand of ₹1.34 crore along with multiple penalties and redemption fines and remanded the matter to the adjudicating authority for fresh determination after properly reconciling warehouse stock, SEZ clearances and loss of sugar due to Cyclone Roanu.

Parry Sugars is an SEZ unit engaged in the import and processing of bulk raw sugar. Due to storage constraints, the company also operated three private bonded warehouses under Section 58 of theCustoms Act, 1962. The department alleged that 1145.52 MT of imported sugar stored in the Gowthami Godown was unaccounted for, resulting in a duty liability under Section 72(1)(d). Various penalties under Sections 72(1)(d), 112(a), 117 and 114AA were imposed, in addition to redemption fine under Section 125.

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The demand was based on certain stock calculations, including alleged discrepancies in opening balance, non-filing of Ex-Bond Bills of Entry for a portion of the goods, and differences between stock and insurance claim quantities. The appellant, however, explained that part of the stock constituted rejected export goods, while a substantial portion was lost during the Cyclone Roanu floods of May 2016. Insurance claims had been filed and partially paid for the damage. They also contended that all remaining goods were duly cleared to the SEZ unit or exported.

The Tribunal, comprising Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) noted that the appellant had provided detailed explanations supported by documents, including SEZ endorsements and insurance records. It held that losses due to natural calamity, if substantiated, are eligible for remission under Section 23 of the Customs Act. It further held that any quantity cleared to the SEZ unit with proper endorsement must be treated as duly accounted for, and no additional corroboration is required.

Section 23 of the Customs Act establishes:

“Remission of duty on lost, destroyed or abandoned goods.

(1) Without prejudice to the provisions of section 13, where it is shown to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs that any imported goods have been lost otherwise than as a result of pilferage or destroyed, at any time before clearance for home consumption, the Assistant Commissioner of Customs or Deputy Commissioner of Customs shall remit the duty on such goods.

(2) The owner of any imported goods may, at any time before an order for clearance of goods for home consumption under section 47 or an order for permitting the deposit of goods in a warehouse under section 60 has been made, relinquish his title to the goods and thereupon he shall not be liable to pay the duty thereon;

Provided that the owner of any such imported goods shall not be allowed to relinquish his title to such goods regarding which an offence appears to have been committed under this Act or any other law for the time being in force.”

The Bench observed that the adjudicating authority failed to properly reconcile the quantities lost due to cyclone, the quantities exported, and those cleared to the SEZ unit. It also noted that there was no evidence of diversion of goods into the domestic tariff area. Since the reconciliation exercise was flawed, the duty demand of ₹1.34 crore was set aside and remanded for re-determination after examining all records afresh.

On penalties, the Tribunal held that Section 72(1)(d) cannot be invoked mechanically when the goods are otherwise accounted for, cleared to the SEZ unit, or exported. It set aside penalties under Sections 72(1)(d), 117 and 114AA, observing that the company had not indulged in any fraudulent export or misuse of export benefits. The penalties under Section 112(a) were also set aside since the goods were not available for confiscation, and confiscation itself was unsustainable.

The Tribunal also ruled that redemption fines could not be imposed when the goods were not physically available. Goods that had already been exported or cleared to SEZ could not be confiscated, and therefore the fine of ₹1 crore on 10,673.82 MT and ₹2.5 crore on 26,250 MT of sugar was struck down.

The Bench emphasised that the operations of an SEZ unit are primarily governed by the SEZ Act and Rules, which constitute a complete code. Customs provisions apply only to the extent of accounting for warehoused goods, and any final reconciliation of duty-free imports rests with SEZ authorities.

In conclusion, the Tribunal allowed the appeal partly by way of remand, directing the adjudicating authority to recalculate the duty, if any, after proper stock reconciliation and consideration of cyclone-related loss, SEZ clearances and exports.

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