Pre-Deposit u/s 129E Customs Act is Mandatory, Waiver Allowed Only in Rare Cases: Karnataka HC Rejects Financial Hardship Plea [Read Order]

In a recent judgment, the Karnataka High Court held that the mandatory pre-deposit requirement under Section 129E of the Customs Act, 1962 cannot be waived without rare and special circumstances. The court rejected the financial hardship plea.

Parisons Foods Private Limited, the petitioner approached the High Court seeking waiver of mandatory pre-deposit of 7.5% of the duty demand under Section 129E(ii) of the Customs Act.

The petitioner company does business of refining edible oils and regularly imports crude palm oil and related products from ASEAN countries like Indonesia and Malaysia. It claimed that under the India-ASEAN Free Trade Agreement, it is entitled to exemption from basic customs duty on imports of crude palm oil, but has to pay Agriculture Infrastructure and Development Cess.

After Indonesia banned export of crude palm oil in June 2022, the petitioner started importing crude palmolein, which it claimed as a fraction or by-product of crude palm oil.

The Directorate of Revenue Intelligence conducted a search and issued a show cause notice, alleging that crude palmolein is not covered by the exemption notification for crude palm oil. The Commissioner of Customs passed an order-in-original, confirming differential duty demand of over ₹416 crore with interest and penalty.

Not happy with the order, the petitioner filed an appeal before CESTAT. Section 129E says that pre-deposit of 7.5% of the duty demand is mandatory, up to a maximum of ₹10 crore, so the petitioner approached the High Court for waiver.

The petitioner’s senior counsel argued that insistence on pre-deposit makes the appeal remedy useless, causes huge financial hardship, and violates Articles 19(1)(g) and 21 of the Constitution. They also argued that the exemption notification was wrongly interpreted and crude palmolein should get the same benefit as crude palm oil.

The counsel for the customs authorities argued that pre-deposit under Section 129E is mandatory and CESTAT has no discretion. They pointed out that the 2014 amendment was meant to remove discretionary waivers and High Court interference would dilute the mandate of law.

The respondents also argued that the petitioner is financially sound and an established importer, and cannot claim extreme hardship.

Justice M. Nagaprasanna observed that Section 129E clearly stops CESTAT from taking an appeal unless pre-deposit is made. The court said that High Courts have limited powers under Article 226 to interfere in special cases, but such power should be used sparingly and only where grave injustice or extreme hardship is clearly shown.

The court observed that the petitioner is an established commercial entity since 1997 and has been doing imports of high value over the years. It said such a petitioner cannot be compared with daily wage workers or people facing real financial problems. Granting waiver in such cases would give unfair advantage to strong assessees.

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