2024 (11) TMI 1013 - HC - Customs

Absolute confiscation of Areca Nuts imported - report received from National Food Laboratory, Ghaziabad reflected that the Areca Nuts were found with presence of visible fungal growth and musty, which did not confirm to the standards laid down under Regulation 2.3.55. of the Food Safety and Standards, Regulations, 2011 - case of the Revenue that as per the prior intelligence received by DRI, certain importers were engaged in malpractice of mixing consignments of Areca Nuts of Sri Lanka origin with that of shipments originating outside the SAARC territory and paying nil basic customs duty on the basis of notification dated 01.03.2000 - Goods found to be substandard in terms of Section 3(1)(zx) and unsafe food as per Section 3(1)(zz)(x)(xi)(xii) of the Food Safety and Standards Act, 2006 Whether the Tribunal has erred in setting aside the order in original and order in appeal whereby the absolute confiscation of the Areca Nuts imported by the respondents was ordered? - HELD THAT - CESTAT hears an appeal, and therefore, all the arguments including the submissions relating to decision on Regulation 10 (11) of the Regulations 2017 can be examined by the Tribunal. Scope of Tribunal is wide enough to examine whether the discretion exercised by the authority was legal and proper. It can also take a different view after examining the reasons taken into consideration by the concerned authority. In the present case, the CESTAT found that the Areca Nuts may not be fit for human consumption, but the same are of such a nature which can be used for ancillary and industrial purposes by its original consignee or seller. Having reached to such a conclusion, it decided to direct the authority to allow the re-export of the food items which is provided as one of the option available under Regulation 10 (11) of the Regulations 2017. It, therefore, has interfered with the discretion exercised by the concerned authority and directed for re-export. We also do not find force in the arguments raised by learned counsel for the appellant with regard to reducing of fine of Rs. 2 crores to Rs. 25 lacs and personal fine of Rs. 10 lacs, as no reason has come forward for imposing such a harsh fine. More so, when we find that the goods were sent by the seller to the importer without there being any participation of the importer in receiving substandard Areca Nuts. We, accordingly, reject the aforesaid submission of learned counsel for the appellant also. We also find that the CESTAT has also examined the wasteful outflow of foreign exchange from Indian Importers for Foreign Buyers as one of the reasons for allowing the re-export. We find such reason to be sound and in accordance with public policy. We, therefore, do not find any ground to warrant interference. The appeals filed by the Revenue are found to be without merit and are accordingly dismissed. If the goods have not been allowed to be re-exported, the authority shall now allow them to be re-exported forthwith.

Issues Involved:
1. Legality of the absolute confiscation of Areca Nuts by customs authorities.
2. Validity of the exemption claimed under the Indo-Sri Lanka Free Trade Agreement.
3. Compliance with the Food Safety and Standards Act, 2006 and associated regulations.
4. Admissibility of evidence and the basis for determining the origin of goods.
5. Appropriateness of the penalties and fines imposed.
6. Tribunal's discretion in allowing re-export of goods.

Issue-wise Detailed Analysis:

1. Legality of the Absolute Confiscation:
The primary issue was whether the Tribunal erred in setting aside the order of absolute confiscation of Areca Nuts. The customs authorities had initially confiscated the goods based on findings that they were substandard and not fit for human consumption. However, the Tribunal allowed re-export of the goods, imposing a fine of Rs. 25 Lakhs in lieu of confiscation and reducing the penalty to Rs. 10 Lakhs. The Tribunal's decision was based on the premise that the goods, although unfit for human consumption, could be used for industrial purposes, and thus, re-export should be permitted.

2. Validity of the Exemption Claimed:
The respondents claimed exemption from customs duty under the Indo-Sri Lanka Free Trade Agreement, asserting that the Areca Nuts were of Sri Lankan origin. The customs authorities challenged this claim, alleging misdeclaration of the country of origin to avail the exemption. Evidence, including phone records and conversations, suggested the possibility of mixing Sri Lankan and Indonesian Areca Nuts. However, the Tribunal found that the evidence from 2018 could not be conclusively applied to imports made in 2023, especially given the Sri Lankan government's ban on importing Areca Nuts from other countries since 2019.

3. Compliance with the Food Safety and Standards Act, 2006:
The imported Areca Nuts were found to be substandard according to the Food Safety and Standards Act, 2006, with reports indicating fungal growth and mustiness. The customs authorities used these findings to justify confiscation. The Tribunal, however, noted that the goods could have industrial uses and thus allowed re-export, provided they were not routed back to India for human consumption.

4. Admissibility of Evidence and Determining Origin:
The customs authorities relied on laboratory reports and digital evidence from 2018 to question the origin of the Areca Nuts. The Tribunal highlighted that the Areca Nut Research and Development Foundation's report, which suggested a mixture of origins, was not deemed reliable by higher courts. Additionally, certificates of origin from Sri Lankan authorities were not found to be forged, casting doubt on the claim of misdeclaration.

5. Appropriateness of Penalties and Fines:
The Tribunal reduced the penalty from Rs. 2 Crores to Rs. 25 Lakhs and the personal fine to Rs. 10 Lakhs, finding the original fines excessively harsh. The Tribunal considered the lack of evidence suggesting the importers' participation in importing substandard goods and the potential financial loss due to further deterioration of the goods.

6. Tribunal's Discretion in Allowing Re-export:
The Tribunal exercised its discretion to allow re-export, emphasizing that the goods could be used for non-consumable purposes and that preventing re-export would lead to unnecessary financial loss. The Tribunal also considered the wasteful outflow of foreign exchange as a factor supporting re-export. It concluded that the customs authorities' decision to confiscate was not justified under the circumstances, allowing re-export with conditions to prevent the goods from being re-imported into India for human consumption.

The High Court upheld the Tribunal's decision, dismissing the appeals by the Revenue and affirming the Tribunal's reasoning and discretion in permitting re-export. The court found no merit in the Revenue's arguments and emphasized the soundness of the Tribunal's decision in line with public policy.

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