Case Law Details
Sterling Agro Products Vs Commissioner of Customs (CESTAT Hyderabad)
CESTAT directs authority to give an option to appellant to redeem goods on payment of fine in lieu of confiscation & Reduces Penalty
In a notable decision, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Hyderabad has given Sterling Agro Products an option to redeem their confiscated goods by paying a fine. Additionally, the penalty initially levied has been reduced. This comes as a result of the case Sterling Agro Products Vs Commissioner of Customs, with the judgment delivered on July 27, 2023.
Analysis: The main issue revolved around the nature of the imported goods by Sterling Agro Products – whether they were “prohibited goods”, thus making them liable for confiscation. The Adjudicating Authority asserted that the imported goods did fall under the prohibited category due to non-compliance with the Minimum Import Price (MIP) criteria.
However, the CESTAT took into account several mitigating factors in the case. One, the imports were intended for re-export, not domestic use. Two, Sterling Agro Products held a bona fide belief that the MIP conditions were not applicable to them, given their status as a 100% Export Oriented Unit (EOU). Further, there was no customs duty involved due to EOU’s exemption.
The tribunal drew from the power conferred by Section 125 of the Customs Act to provide the importer the choice to redeem their goods by paying a fine instead of confiscation. The Adjudicating Authority was considered to have erred in not exercising this discretionary power in favor of Sterling Agro Products. The penalty initially imposed was also deemed excessive and was consequently reduced.
Conclusion: The ruling in the case of Sterling Agro Products Vs Commissioner of Customs emphasizes the importance of discretion and consideration of mitigating circumstances in decisions of import and export penalties. The case underlines the need for fair and equitable treatment, even when procedural lapses are evident. The judgment has set a precedent for giving importers the option to redeem goods on payment of a fine in lieu of confiscation, which could have significant implications for future customs cases.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
1. The issue, in brief, is that the appellant has imported Arecanut with declared assessable value of Rs. 1,28,19,384/- vide Bill of Entry No. 9761044 dated 28.07.2022 and claimed exemption under Notification No. 52/2003(EOU) dated 30.06.2003. They also imported another consignment under Bill of Entry No. 9760994 dated 28.07.2022 with declared assessable value of Rs. 1,28,19,384/-.
2. The Department relying on the DGFT Notification No. 20/2015-20 and 21/2012-20, both dated 25.07.2018 felt that where the declared CIF value, in all these cases USD 1.45 equal to Rs. 116/-per kg, was below the prescribed “Minimum Import Price” (MIP), Arecanut and Pepper were to be treated as “prohibited” items. However, in the case of Pepper imported by an EOU, the MIP criteria was not applicable, as per Notification No. 21/2015-20 dated 25.07.2018, but no such relaxation was available for Arecanut, even when imported by EOU.
3. Admittedly, appellants are EOU and since no said exemptions were available in the case of Arecanut and the imports were below the MIP, same were considered as “prohibited goods” and liable for confiscation in terms of Section 111(d) of Customs Act.. Subsequently, the Original Adjudicating Authority, after due consideration of the submissions made by the appellant, ordered for absolute confiscation of 216MT of Arecanut covered under the Bill of Entry 9760994 and 9761044, both dated 28.07.2022. In addition, he also imposed a penalty of Rs. 10 lakhs. It is against the said impugned order the appellants are before this Tribunal.
4. The appellants have primarily relied on Ministry of Commerce and Industry office Memorandum No. ADMN/71/2022-EOU dated 31.08.2022 with reference to the representation of the firm and also on Notification No. 57/2015-2020 dated 14.02.2023, which according to them has got retrospective application. On the other hand, the Department has mainly contested that there was no exemption to EOU from the applicability of MIP in respect of Arecanut during material time and subsequent notification exempting them from MIP cannot have retrospective effect. Therefore, during the material time, the goods imported were clearly prohibited in nature and therefore rightly confiscated by the Adjudicating Authority.
5. The Learned Advocate for the appellant submitted that they are 100% EOU, which is engaged in job work contracts along with buy back agreement with one M/s Reliance Products Pte Ltd., Singapore for manufacturing and supply of Arecanut powder. As per contract, the buyer was to purchase and supply Arecanut to them without any consideration and they were to return the finished product back to RPPL. They were only getting job work charges. Their submission is that their being 100% EOU, with no intention to sale in DTA, MIP under Trade policy, were not applicable to the imported goods imported by them. He further submitted that the issue has now been settled as the Notification No. 57/2015-2020 dated 14.02.2023 has been issued wherein it has been clarified that MIP condition would not apply to Arecanut imported for 100% EOU and is not meant for DTA sales.
6. It was further submitted by him that since the clarification was given by Ministry of Commerce, based on representation made by them, the DGFT notification will be also applicable to them for the imports made earlier. They have gone into detailed reasoning behind introduction of MIP scheme in respect of their contention that the intention was all through not to apply MIP Scheme to the 100% EOU. Main thrust is on the arguement that Notification No. 57/2015-2020 dated 14.02.2023 is in no manner an amendment in the policy for the imports carried out by the 100% EOU but is mainly a clarification with regard to applicability of MIP condition on imports of Arecanut imported by the EOUs.
7. Apart from different grounds taken in appeal, the appellants have also taken the ground that the order of the absolute confiscation and imposition penalty is not sustainable in the facts of the case as the authority has discretion to release such prohibited goods on payment of fine, as the said authority may deem fit under Section 125 of Customs Act 1962. They have indicated that they were having bonafide belief that their being 100% EOU, MIP condition was not applicable and that the resulting goods were to be reexported after manufacturing, to the overseas buyer.
8. On the other hand, the Learned DR invites the attention to Notification No. 20/2015-20 and 21/2012-20, both dated 25.07.2018, whereby the import policy of Arecanut was amended in supersession of the earlier Notification No. 35/2015-2020 dated 17.01.2017. Due to this amendment, the Arecanut became “prohibited” item under the Trade Policy. There was however a revised policy condition also which mandated that if the CIF value was Rs. 251 and above per kg, Arecanut will continue to be “free”. He has also invited attention to another amending Notification No. 21/2015-2020 dated 25.07.2018 whereby, the policy condition in respect of pepper was revised in as much as the MIP condition was not to be applicable for imports under Advance Authorisation Scheme, imports by 100% export unit and units in SEZ. Learned DR submitted that there being no similar policy relaxation in respect of Arecanut, as was done in the case of pepper, the MIP condition was applicable to the imports by appellant despite them being an EOU. Since the imports were made below the MIP, the goods were in the nature of prohibited goods and liable for confiscation.
9. He has also invited attention to Foreign Trade Policy, 2023, wherein in para 1.05 i.e. transitional agreements, it was clearly indicated that whenever Government brings out a policy change of a particular item, the change will be applicable prospectively (from the date of notification) unless otherwise provided for. He has also relied in amendment to para 1.05b of Foreign Trade Policy 2015-2020, vide Notification No. 5/2015-2020, dated 25.04.2018 wherein, interalia, it has been indicted that whenever Government brings out a policy change of a particular item, the change will be applicable prospectively (from the date of notification) unless otherwise provided for.
10. Learned DR has also relied on many judgments. The Hon’ble Supreme Court’s judgment in the case of Commr. of Cus. (Import), Mumbai Vs Dilip Kumar and Company [2018 (361) ELT 577 (SC)] in support of his submission that where the words in the statute is clear, plain and unambiguous and only one meaning can be inferred, Courts are bound to give same meaning irrespective of conclusions. He has also relied on Director General of Foreign Trade Vs Kanak Exports [2015 (326) ELT 26 (SC)] in respect of his contention that the goods were rightly liable for He has also relied on the judgment of Sheikh Mohd Omer Vs Collector of Customs, Calcutta and Others [1983 (13) ELT 1439 (SC)].
11. The core issue to be decided is whether in the facts of the case the goods imported by the appellant were “prohibited goods” and therefore liable for confiscation or otherwise. Admittedly, in terms of extant Trade Policy and related notifications referred in the show cause notice and Order-in-Original, the goods covered by both the bill of entries were not meeting the criteria of MIP and therefore were in the nature of prohibited goods. However, there were certain exemptions available from the applicability of the policy restrictions in the case of imports by, interalia, 100% EOU. The appellants are EOU is not disputed. It is also not disputed that good was not meant for sale in DTA. It is, however, obvious that while there was a clear revised policy notification for pepper, the Government, however, had not issued any such notification in respect of Arecanut. The notification issued in 2023 has now exempted the applicability of MIP for Arecanut also, if the imports are for EOU. However, there is no indication contained in notification that the said policy change would be having any retrospective
12. Thus, the Adjudicating Authority has rightly held that on the date on which the imports were made, the goods were clearly in the “prohibited” category for having not met the MIP criteria and hence liable for confiscation. It is well settled law that the goods can be confiscated under Section 111(d) of the Customs Act if it is prohibited under Customs Act or any other law for the time being in force. Despite arguments by the appellant to the effect that this notification was clarificatory notification and therefore having retrospective effect, in view Ministry of Commerce having written a letter to DGFT for considering the exclusion from MIP criteria in this case, as was applicable to other goods like pepper, cashew nuts etc, the fact remains that the said notification did not have any provision for giving it retrospective application. Further, in view of clear position stated in the EXIM policy, as pointed out by the Learned DR, any policy change has to be given prospective effect only and therefore the exemption from MIP criteria for 100% EOU in respect of Arecanut cannot be extended till the time the revised notification was issued on 14.02.2023. There is no ambiguity in the wordings of notification and therefore there is no need to look for intent or interpreted the notification.
13. Coming to another aspect of appeal, wherein the appellants have contested the absolute confiscation of their goods, it is noted that they had been pursuing the matter relating to their being not covered by MIP criteria with the Ministry of Commerce and were also having a bonafide belief that the policy changes or clarification etc would take place as per letter from the Ministry of Commerce. Their intention does not appear to deliberately import a prohibited item as they had a bonafide belief that the EOU are exempted. It is also an admitted fact that the goods were imported for re-export only and were not to be cleared to DTA and that there was no customs duty involved at the time of import in view of the exemption available to the EOU.
14. The power of Adjudicating Authority to confiscate the goods liable for confiscation is governed by Section 125 of Customs Act. It also gives a discretionary power to give importer an option to redeem the goods on payment of fine in lieu of confiscation. While this option is mandatory for “other goods”, there is a discretion for giving this option in the case of goods deemed to be prohibited under this Act or under any other law for the time being in force. Therefore, though the authority has a right to refuse this option, it has to be exercised having regard to facts and circumstances and is not an absolute power for not giving the option. There are catena of judgments in support that even in respect of prohibited goods, the options to pay fine in lieu of confiscation, can be given by the Adjudicating Authority.
15. The issue relating to power for giving option to importers to pay fine in lieu of confiscation or otherwise came up before Hon’ble Supreme Court in the case of UOI Vs Raj Grow Impex LLP,[2021 (377) ELT 145 (SC)]. The relevant paras are quoted below:
“69.1 A bare reading of the provision aforesaid makes it evident that a clear distinction is made between ‘prohibited goods’ and ‘other goods’. As has rightly been pointed out, the latter part of Section 125 obligates the release of confiscated goods (i.e., other than prohibited goods) against redemption fine but, the earlier part of this provision makes no such compulsion as regards the prohibited goods; and it is left to the discretion of the Adjudicating Authority that it may give an option for payment of fine in lieu of confiscation. It is innate in this provision that if the Adjudicating Authority does not choose to give such an option, the result would be of absolute confiscation. The Adjudicating Authority in the present matters had given such an option of payment of fine in lieu of confiscation with imposition of penalty whereas the Appellate Authority has found faults in such exercise of discretion and has ordered absolute confiscation with enhancement of the amount of penalty. This takes us to the principles to be applied for exercise of the discretion so available in the first part of Section 125(1) of the Customs Act.
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71. Thus, when it comes to discretion, the exercise thereof has to be guided by law; has to be according to the rules of reason and justice; and has to be based on the relevant considerations. The exercise of discretion is essentially the discernment of what is right and proper; and such discernment is the critical and cautious judgment of what is correct and proper by differentiating between shadow and substance as also between equity and pretence. A holder of public office, when exercising discretion conferred by the statute, has to ensure that such exercise is in furtherance of accomplishment of the purpose underlying conferment of such power. The requirements of reasonableness, rationality, impartiality, fairness and equity are inherent in any exercise of discretion; such an exercise can never be according to the private opinion.
71.1 It is hardly of any debate that discretion has to be exercised judiciously and, for that matter, all the facts and all the relevant surrounding factors as also the implication of exercise of discretion either way have to be properly weighed and a balanced decision is required to be taken.
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78. It is true that, ordinarily, when a statutory authority is invested with discretion, the same deserves to be left for exercise by that authority but the significant factors in the present case are that the Adjudicating Authority had exercised the discretion in a particular manner without regard to the other alternative available; and the Appellate Authority has found such exercise of discretion by the Adjudicating Authority wholly unjustified. In the given circumstances, even the course adopted in the case of Hargovind Das K. Joshi (of remitting the matter for consideration of omitted part of discretion) cannot be adopted in the present appeals; and it becomes inevitable that a final decision is taken herein as to how the subject goods are to be dealt with under Section 125 of the Customs Act.
79. As noticed, the exercise of discretion is a critical and solemn exercise, to be undertaken rationally and cautiously and has to be guided by law; has to be according to the rules of reason and justice; and has to be based on relevant considerations. The quest has to be to find what is proper. Moreover, an authority acting under the Customs Act, when exercising discretion conferred by Section 125 thereof, has to ensure that such exercise is in furtherance of accomplishment of the purpose underlying conferment of such power. The purpose behind leaving such discretion with the Adjudicating Authority in relation to prohibited goods is, obviously, to ensure that all the pros and cons shall be weighed before taking a final decision for release or absolute confiscation of goods.”
Therefore, it is apparent Hon’ble Supreme Court while upholding the decision of the Appellate Authority for not giving the option for redemption in the given set of facts, also observed that this discretion is not an absolute discretion and the Adjudicating Authority has to taken into consideration various pros and cons and other relevant factors to arrive at his decision.
16. Therefore, the next question to be decided is whether in the given facts of the case, the goods were liable for absolute confiscation or the Adjudicating Authority should have given an option to the importer to redeem the goods on payment of fine in lieu of confiscation, as provided in the Section 125 of the Customs Act. The Adjudicating Authority has analysed the provisions and analysed the word “may” as provided under Section 125 of the Customs Act to come to the conclusion that the said discretion cannot be exercised for giving option to redeem the goods in the given facts of the case. He has relied on certain case laws in support of his not giving an option and going in for absolute confiscation namely:
i) Abdul Razak Vs Union of India [2012 (275) ELT 300 (ker)]
ii) S. Sivagnanam, J.Kamal Sarbudeen Vs Addl. Commissioner of Customs(Air) Chennai-I [2017 (356) ELT 563 (Mad)]
iii) Commissioner of Customs(Air) Chennai-I Vs P. Sinnasamy [2016 (344) ELT 1154 (Mad)]
vi) Nickunj Shah Vs Commissioner of Customs (Exp) ACC, Mumbai [2015 (316) ELT 291 (Tri-Mumabi)]
v) Nine Star Exports Vs Commissioner of Customs (Ports), Chennai [2003 (151) ELT265 (Mad)]
17. The essential part of all these judgments are that authorities were not bound to grant any option for redemption in the case of prohibited goods in the given set of facts of the case. Commissioner has also relied on the case of UOI Vs Raj Grow Impex LLP [2021 (377) ELT 145 (SC)], where it was held that absolute confiscation was the proper for contravention of DGFT Notification. The Commissioner has in para 60 of his order, interalia, analysed the reasons for not exercising his discretion to give the option to the importer. He, interalia, held that the item in question is Arecanut whose propensity to diversion and mis-use for manufacture of illicit Gutka is well known. The para is quoted below for understanding the reasons adopted for denying option.
“60. Keeping in view all the above factors in mind, I hold that the subject “prohibited goods” merits absolute confiscation. A reading of the above judicial pronouncements and the nature of the goods in relation to which the said pronouncements were made is also of guidance value in determining the yardsticks wherein a stricter view needs to be taken, As an illustration it can be seen, strict views have been taken in respect of gold smuggling which has implications for the financial health of the Country and also items such as some agricultural commodities whose import was detrimental to the interests of domestic farmers, That being the case, in the case under adjudication, the item in question is Areca nut, whose propensity to diversion and misuse for manufacture of illicit Gutka is well known. Therefore, it does appear that in the absence of a specific clarification, there are grounds to presume that at the pertinent point of time, it was a policy decision not to allow exemption of MIP condition even to 100% EOU’s. This is especially so as at the same point of time, in respect of certain agricultural commodities, there was in black and white, a specific relation from MIP condition with respect to 100% EOU imports.”
18. As far as confiscation is concerned, the goods have been correctly confiscated as they were prohibited in nature on the date of importation. However, whether in the given facts of the case the Commissioner has erred in not giving the option to pay fine in lieu of confiscation or otherwise needs to be analysed in a little more detail. Firstly, the case laws relied upon by the Adjudicating Authority are clearly meant for goods which were entering into the domestic tariff area and there were either detrimental to the economy or some policy or for protecting farmers interest etc. This is not the case where the imports are only for the purpose of re-export by an EOU without payment of duty, following the exemption notification meant for duty free import by EOU. Therefore, facts are not on all fours in so far as this case is concerned. Further, while it is correct that he has relied on Raj Grow Impex for justifying absolute confiscation, he has not appreciated that in the said order the Hon’ble Supreme Court, interalia, held that discretion has to be exercised to further the purpose of such law and therefore all pros and cons have to be weighed before the final decision for giving option or absolute confiscation of prohibited goods are taken. Essentially, it observed that it is the discretion of Adjudicating Authority to give the option, however, the discretion has to be based on facts of the case and cannot be done mechanically, either ways.
19. I find that in so far as his basis for denying the option is concerned he has presumed that the Arecanut was some sort of sensitive commodity used in the manufacture of Gutka and there must be some policy decision for not to allow exemption of MIP condition for 100% EOU. This presumption is not based on any valid documents or policy statement. It is observed that the same Arecanut becomes “free” commodity if the CIF value is equal or above MIP. Therefore, it not prohibited in that sense that it is absolutely prohibited. Therefore, the moment the conditions are met, it will be deemed to be a free good. It is also obvious that the goods were not meant for import into domestic market nor for consumption in the domestic market. Therefore, in the facts of the case, the presumptions are not well founded so as not to exercise his discretion in favour of giving option.
20. On the other side, on going through the records, I find there are several mitigating factors which prove that under the given facts, the Adjudicating Authority should have given the option. Firstly, this is an import by 100% EOU for conversion and re-export back to the principal from where the Arecanut was received. Secondly, Commissioner has himself held in para 68 of his order that this is not a case of mis-declaration or misclassification and it is also not a case of deliberate attempt on the part of importer to circumvent the policy provisions. Thirdly, the importer had a bona fied belief that MIP conditions were not applicable to them in view of similar goods having the same exemptions. The fact that they approached the Ministry of Commerce, who agreed with their submissions and requested the DGFT to issue clarification also relevant. It is a different matter altogether that the DGFT did not issue any clarification/notification till 03.2023, which has however been held to have prospective effect only as discussed supra.
21. It is also noted that in para 54 of the Order-in-Original, the Adjudicating Authority has recorded that during the course of personal hearing the importers were specifically asked whether they would like to consider the option of re-export in the event of their submission for clearing of their goods not being considered and in reply the importer stated reexport was not an available option. This indicates that the option of reexport was also offered which was not taken at that point of time for certain reasons but it essentially means that at that point the Adjudicating Authority was not considering absolute confiscation otherwise he would not have give option for re-export. The facts that goods were imported on nominal value and not based on commercial value, is also relevant. Similarly, irrespective of any value declared, even higher than MIP, duty was not payable in view of exemption available to EOU.
22. Therefore, having regard to the several mitigating factors and the facts of the case, it is obvious that the Commissioner has erred in not giving the option by not excersising his discretion in favour of the appellant under Section 125 of the Customs Act 1962. In so far as the issue of penalty is concerned in the light of Commissioner’s observation that there was no malafide intention nor any mis-declaration/mis-classification, the penalty appears to be excessive and perhaps based on the value indicated in the SCN i.e. Rs. 12,35,32,938/. However, this value is erroneous in as much as the declared value had not been re-determined by Customs, in as much as there is no indication in the SCN as to how the assessable value has been arrived at. It appears that they have indicated the assessable, value based on “tariff value” at the rate of 7.065 USD/kg. This is not correct as the MIP is not same as “tariff value”, as both are different concepts. While the tariff value is fixed in terms of Section 2(40) and Section 14(2) of the Customs Act by way of notification in the Official Gazette and such tariff value becomes the basis for charging duty, whereas the MIP is value which is determined by the DGFT for the purpose of imposing certain provision/restriction on import of goods. Therefore, these two cannot be used interchangeably. In this case, admittedly the goods were for job work by EOU on a “free of cost” basis and therefore a notional value was Thus, in view of relevant fats discussed supra, the penalty imposed appears to be excessive. The penalty therefore, is reduced to Rs. 2,00,000/- (Two Lakhs) from Rs. 10,00,000/- (Ten Lakhs).
23. In view of the discussions in above paras, the Original Authority is directed to give an option to appellant to redeem the goods on payment of fine in lieu of confiscation. The amount of fine shall be reasonable and appropriate, having regards to mitigating factors discussed supra and to be determined as per provisions under Section 125 of Customs Act. However, this option will be given to the appellants only for the purpose of re-export, subject to his complying with other statutory obligations, payment of duty, charges etc, if applicable. Further, Since Arecanut is a perishable commodity, the Adjudicating Authority shall finalise the exercise of giving option on payment of fine in lieu of confiscation within one month of the receipt of this order. He may give personal hearing, if desired by appellant, before passing the order. It is also made clear that in case the appellants do not avail the option given or fail to fulfil the conditions stipulated by the Adjudicating Authority for availing the option within the stipulated time, the impugned goods will stand absolutely confiscated.
24. Therefore, the appeal is partly allowed and the order of the Commissioner is modified to the extent discussed supra and the order is remanded back to the Original Adjudicating Authority for giving the option to the appellants for redemption of goods on payment of fine for re-export purpose only, subject to stipulated conditions, if any, indicated in the order.
(Order pronounced in the open court on 27.07.2023)
