2023 (1) TMI 814 - AT - Customs

Levy of penalty u/s 112(a)(i) of CA - Violation of import conditions - Import through specified agencies - High seas sale - import of Urea purchased by the appellants on High Seas Sale from State Trading Enterprises (STEs) - whether the import is in accordance with the ITC (HS) Policy? HELD THAT - It emerges that the purchase from the foreign suppliers was made by STE viz. MMTC and Indian Potash Ltd and the goods were shipped by the foreign suppliers to MMTC/ Indian Potash Ltd and the Appellants have purchased the said goods on High Seas from the MMTC/Indian Potash Ltd. It can be seen that Heading No.3102 1000 of the ITC (HS) Policy 2009-2015, does not stipulate that Urea was allowed to be imported only by State Trading Enterprises; the said Heading allows import of Urea through STC, MMTC and Indian Potash Limited. Clearly, the word used in the said Heading 3102 1000 is through and not by STC, MMTC and Indian Potash - thus, when the import is allowed through STC, MMTC and Indian Potash, it means that so long as the purchase of the Urea from the foreign supplier is effected by STC, MMTC or Indian Potash and payment to foreign supplier is made by STC, MMTC or Indian Potash, who in turn sell the same to a party in India whether on High Seas or otherwise, the import is clearly through STC, MMTC or Indian Potash. Since the import was made through MMTC/Indian Potash Ltd and was in accordance with Heading No.3102 1000 of the ITC (HS) Policy and the letters of the Government of India, Ministry of Chemical and Fertilizers, the import was in accordance with law and therefore the goods cannot be held to be liable to confiscation under Section 111(d) of the Customs Act 1962. Consequently, no penalty is imposable on the Appellants under Section 112 of the said Act. The authorities below have mis-read the Conditions Nos. (v) and (xiv) of the Permission letter dated 15th May 2013 of the Government of India, Ministry of Chemical and Fertilizers and in inferring therefrom that High Seas purchase by Appellant from STE was not permitted as per the said conditions. The said conditions are not related to the Appellant s purchase from STE but are related to the purchases by the end users/ distributors from the Appellant. The meaning of the word through used in Heading No.3102 1000 of the ITC (HS) Policy, itself show that when the ITC Policy talks of import through STE, it means import using the help of STE and not import by STE. Further, as per the regular practice accepted by customs for over several decades in case of imports which are canalized through STEs, the STEs place the order on the foreign supplier and thereafter effect High Seas sale of the same to the Indian Buyers. The judgment in the case of MARICO INDUSTRIES LTD. VERSUS COMMISSIONER OF CUSTOMS (EP), MUMBAI 2006 (11) TMI 420 - CESTAT, MUMBAI relied upon by the Commissioner (Appeals) has no application to the facts of the present case. In that case the importer had directly established the Letter of Credit on the foreign supplier as result of which the import could not even be said to be through STE. Further, the import in that case was against Advance Release Order which is issued for sourcing inputs indigenously instead of importing against Advance License. The provisions relating to procurement of inputs against Advance Release Order which applied in that case did not provide for import through STE. The impugned Orders vide which penalty under section 112(a)(i) of the Act on the appellants was upheld cannot be sustained - appeal allowed.

Summary

Issues:
- Interpretation of ITC (HS) Policy regarding import of Urea through State Trading Enterprises (STEs) on High Seas Sale.
- Validity of import of Urea by appellants from STEs and clearance with customs.
- Imposition of penalty under Section 112(a) of the Customs Act 1962.

Analysis:
1. Interpretation of ITC (HS) Policy: The judgment revolves around the interpretation of Heading No. 3102 1000 of the ITC (HS) Policy 2009-2015 regarding the import of Urea through STEs. The Appellants argued that the word used in the policy is "through" and not "by," indicating that purchases from foreign suppliers could be made by STEs, allowing subsequent sale to Indian buyers. This interpretation was supported by past judgments and circulars illustrating the practice of canalized imports through STEs.

2. Validity of Import and Clearance: The dispute arose when the customs department questioned the legality of Urea imports by the Appellants from STEs on High Seas Sale. The Additional Commissioner of Customs alleged that such imports contravened the Foreign Trade Policy and Customs Act, leading to a Show Cause Notice proposing penalties. The Appellants contested this, emphasizing that their purchases were in line with the ITC Policy and permissions granted by the Government of India.

3. Imposition of Penalty: The core issue addressed was the imposition of penalties under Section 112(a) of the Customs Act 1962. The Appellants argued that no penalty should be imposed as their imports were compliant with the law, supported by the ITC Policy and permissions received. They highlighted the absence of any prohibition against Urea imports and cited past practices and circulars to justify their position.

4. Judgment and Conclusion: After detailed analysis, the Tribunal ruled in favor of the Appellants, setting aside the impugned orders and allowing the appeals with consequential relief. The Tribunal emphasized that the imports were made through STEs in accordance with the ITC Policy and permissions granted, dismissing the allegations of contravention. The judgment underscored the importance of interpreting the policy language, past practices, and permissions granted by the relevant authorities in determining the legality of imports and the imposition of penalties under the Customs Act 1962.