2016 (8) TMI 397 - SC - Customs

Period of limitation - violation of actual user condition - Import of crude palm oil (non-edible grade) - not used in the manufacture of Industrial Fatty Acid but for manufacturing the refined edible oil - entitlement to avail benefit - Notification No. 21/2002-Cus dated 01.03.2002 read with Notification No. 66/2004-Cus dated 09.07.2004 - Held that - crude palm oil which was imported was used for making edible products like refined oil/Vanaspati. In the process of said manufacture, 25% of fatty (palm) was produced and 75% was oil which was edible. Thus, when the main manufacturing activity relates to edible product which is 75%. If in the process 25% of fatty (palm) emerges as a by-product it cannot be said that first requirement of exemption notification is satisfied. Even if Industrial Fatty Acid is to be treated as separate manufacturing activity and it is non-edible, the same is only to the extent of 25%. That, according to us, would not satisfy the requirement of the exemption notification in question. Fatty Acid Distillate is characterised by high free fatty acid which cannot be 25%. So the by-product is rightly discarded by the Commissioner as not coming within the nomenclature of PFAD. Contrary reasons which are given by the Tribunal, thus, do not appeal to this Court. In this view of the matter, reliance on subsequent notification of 2006 is of no relevance. Period of limitation - impugned notification time barred - Held that - the question has to be decided keeping in view the facts of each case and to examine whether the period in question is reasonable or not. In the instant case, it is found that it is only through intelligence collected by DRI, Gandhidharn Regional Unit that it came to be revealed that the assessee had imported crude palm oil but it had no facility in manufacturing soap/Industrial Fatty Acid and was using the said imported crude palm oil for making edible products like refined oil/Vanaspati. At the time of import, the importer only gives declaration. It is the actual use, which event takes place much after the import, from where it can be gathered as to where the import is made for the purpose for which it was done. As soon as the aforesaid information was gathered by DRI, show cause notice was issued. Therefore, the show cause notice had been issued within a reasonable period and it cannot be treated as time barred. - Decided in favour of Revenue

Summary

Issues Involved:
1. Whether the respondent/assessee is entitled to avail the benefit of Notification No. 21/2002-Cus dated 01.03.2002 read with Notification No. 66/2004-Cus dated 09.07.2004 for import of crude palm oil (non-edible grade) used in manufacturing refined edible oil.
2. Whether Palm Fatty Acid Distillate (PFAD) qualifies as Industrial Fatty Acid.
3. Whether the demand raised by the Department is time-barred.

Issue-wise Detailed Analysis:

1. Entitlement to Benefit of Notification No. 21/2002-Cus:
The primary issue is whether the respondent/assessee can avail the benefit of the specified notifications for importing crude palm oil used in manufacturing refined edible oil. The assessee imported 8435.816 metric tons of crude palm oil (industrial grade) and paid customs duty under the said notifications. The Department issued a show cause notice demanding additional customs duty and penalties, arguing that the crude palm oil must be used for manufacturing soap or Industrial Fatty Acid to qualify for the exemption. The Adjudicating Authority concluded that the assessee did not fulfill the conditions of the exemption notification as the primary use of the imported crude palm oil was for manufacturing refined edible oil, not Industrial Fatty Acid.

2. Qualification of PFAD as Industrial Fatty Acid:
The Department argued that PFAD is not Industrial Fatty Acid, relying on chemical test reports and statements from customers indicating that PFAD requires further processing to become Industrial Fatty Acid. The Adjudicating Authority supported this view, stating that PFAD cannot be considered Industrial Fatty Acid in trade parlance. The Tribunal, however, disagreed, interpreting the HSN Explanatory Notes to mean that PFAD could be considered Industrial Fatty Acid, as the term "generally" does not imply exclusivity to certain processes. The Supreme Court sided with the Department, stating that the HSN Explanatory Notes serve as a guide and should not be used to interpret exemption notifications. The Court noted that PFAD, characterized by high free fatty acid content, does not meet the criteria for Industrial Fatty Acid as per the exemption notification.

3. Timeliness of the Demand:
The assessee argued that the demand was time-barred, citing the absence of a specific time limit in Rule 8 and referencing a precedent that suggests a reasonable period should be considered as six months. The Supreme Court rejected this argument, noting that the show cause notice was issued promptly after intelligence revealed that the imported crude palm oil was used for manufacturing edible products, not for the intended purpose stated in the exemption notification. The Court concluded that the show cause notice was issued within a reasonable period.

Conclusion:
The Supreme Court allowed the appeal, setting aside the Tribunal's order and restoring the Adjudicating Authority's decision. The Court held that the assessee did not fulfill the conditions of the exemption notification, PFAD does not qualify as Industrial Fatty Acid, and the demand was not time-barred. The Department's interpretation of the exemption notification was upheld, and the assessee was not entitled to the claimed benefits.