M/S Jay Agro Organics Ltd vs Commissioner Of Customs, Ahmedabad

Appeal No.C/10645/2015-DB [Arising out of OIO No.01/COMMR/O&A/DGCEI/2015, dt.27.02.2015, passed by Commissioner of Customs, Ahmedabad]

M/s Jay Agro Organics Ltd. Appellant

Vs

Commissioner of Customs, Ahmedabad Respondent

Represented by:

For Appellant: Shri J.C. Patel, Shri Prakash Shah - Advocates For Respondent: Shri G.P. Thomas, Authorised Representative

For approval and signature:

Honble Mr. H.K. Thakur, Member (Technical)

1. Whether Press Reporters may be allowed to see the No Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of Seen the order?

4. Whether order is to be circulated to the Departmental Yes authorities?

CORAM:

HONBLE MR. H.K. THAKUR, MEMBER (TECHNICAL)

Date of Hearing/Decision:23.06.2015

Order No. A/10853 / 2015, dt.23.06.2015

Per: H.K. Thakur

This appeal has been filed by the Appellant against the OIO No. 01/COMMR/O&A/DGCEI/2015, dt.27.02.2015, under which a penalty of Rs.25 lakhs is imposed upon the Appellant under Section 114AA of the Customs Act, 1962.

2. Shri J.C. Patel, learned Advocate appearing on behalf of the Appellant argued that the Appellant was issued a show cause notice for imposing penalty for wrongly availing the benefit of export promotion scheme viz. Vishesh Krish & Gram Upaj Yojana Scheme (VKGUY) for mis-declaring that export product which has been declared as Oil Cake Meal, expeller variety when actually the oil cake meal was made by solvent extraction method. It was the case of the Appellant that the Castor seeds are subjected to a process of expelling in an expeller which is a high pressure continuous pressing machine. That in expelling process, 90 to 92% of the oil is extracted. That the remaining 8 to 10% of the oil left inside the oil cake can be extracted from the oil cake only by solvent extraction. That according to their view, a part of the oil from the seed is extracted by expelling and remaining oil is recovered by solvent extraction method and that when 90% oil is recovered by expelling then the oil cake meal of castor will remain classifiable under 23069017 of the ITC policy as expeller variety. That if 100% of the oil is extracted with the help of solvent extraction then only such oil cake meal will be classified as solvent extracted variety of meal. In view of the above fact, it was argued by the learned Advocate that the Appellant had a bonafide belief that oil cake meal of castor exported by them was to be classified as expeller variety of oil cake meal. He made the Bench go through Para 17.2 and 17.3 of the OIO dt.27.06.2014 passed by the Adjudicating authority, to highlight that this bonafide belief was brought to the notice of the Adjudicating authority also. The learned Advocate also relied upon the case law of Northern Plastic Ltd Vs Collr of Customs & Central Excise [1998 (101) ELT 549 (SC)], where it has been held by the Honble Apex Court that a declaration given in the Bill of Entry under a bonafide belief will not amount to mis-declaration. It was his case that penalty is not imposable under Section 114AA of the Customs Act, 1962.

3. Shri G.P. Thomas, Authorised Representative for the Revenue raised a preliminary objection that this case involves classification of the product oil cake meal and should be decided by Division Bench. In this regard, it is observed from the case records that this appeal was initially put up before DB on 03.06.2015 and DB sitting at Ahmedabad by note-sheet order transferred the case to be listed before SMB. As the only issue appealed against is imposition of penalty, which is less than Rs.50 lakhs, therefore, SMB has jurisdiction to decide this appeal.

3.1 Learned Authorised Representative also argued that the issue involved is one of classification of the product oil cake meal whether expeller variety or not. On merit, it was his case that when 10% of the oil left in the oil cake, after expelling process, is recovered by adopting solvent extraction then the resultant cake meal exported will not be expeller variety which has been deliberately mis-declared by the Appellant in shipping bill in order to get the benefit of VKGUY. The learned Authorised Representative strongly defended the order passed by the Adjudicating authority. It was also argued that there is no evidence that 100% oil directly from the seed can be recovered by solvent extraction method.

4. As a counter to the above argument of the Authorised Representative, learned Advocate of the Appellant brought to the notice of the Bench Para 22 of the OIO dt.27.06.2014 and argued that it is not in dispute that in the present case, both oil extraction by expelling and solvent extraction is involved.

5. Heard both the sides and perused the case records. The issue involved in the present proceedings is whether penalty is imposable upon the Appellant under Section 114AA of the Customs Act, 1962 or not. The said Section is produced below:-

Section 114AA:

Penalty for use of false or incorrect material.

If a person knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of the goods.

6. On a plain reading of the above Section, it is conveyed that for a penalty to be imposed under this section, the person should perform an act knowingly or intentionally, while making a false or incorrect declaration with respect to a material particular in a document. It is the case of the Appellant that the oil cake meal can be made by 100% solvent extraction or partly by physical extraction and partly by solvent extraction. That in the opinion of the Appellant when both the processes of physical extraction and solvent extraction are involved in making oil cake then that oil cake meal will remain expeller variety. It is the case of the Appellant that 100% oil extraction from oil seed is not possible by physical expression of seeds. That if Revenues argument is believed that no oil cake meal will be of expeller quality. It was also argued on behalf of the Appellant that when 100% Oil is extracted from the oil seeds by solvent extraction, then only oil cake meal will be called solvent extracted meal. That having this interpretation in mind, the Appellant raised the ground of bonafide belief before the Adjudicating authority. Learned Advocate argued that there is no evidence in the present proceedings produced by the Revenue that oil cake meal has been prepared only by solvent extraction. In this regard, Para 22 of the OIO dt.27.06.2014 recording certain facts is reproduced below:-

22. On going through the manufacturing process, it is seen that the seeds are first crushed in an expeller which results in extraction of 90 to 92% oil. Since this method does not result in extraction of 100% oil from the castor seeds, the remnant oil in the oil cake is removed by solvent extraction process by spraying a solvent namely hexane on the oil cake. These facts are not in dispute as these are also narrated in Para 8 of the SCN.

7. Para 8 of the show cause notice dt.27.06.2014 also record similar facts as reproduced below:

8. From the investigation, it is revealed that the Castor Seeds are subjected to crushing in expeller or obtaining Castor Oil, which is further subjected to Hydrogenation process for various derivatives of Castor oil. During such process of expelling of Castor seeds, remnant of Castor seeds is known as De-oiled cake. However, even after the expelling process, the De-oiled cake is having some oil content, which usually ranges from 8 to 10%. To extract this remaining content of oil, the cake is further subjected to process of Solvent extraction.

8. In view of the above, there is no doubt that in the present proceedings, oil was extracted by a combination of both by expelling process and by solvent extraction. There was thus a bonafide opinion on the part of the Appellant, based on their understanding, that when both the processes of expelling and solvent extraction are used then the resultant meal will continue to be called as expeller variety of oil cake meal. Though the reasoning given by the Appellant was not accepted by the Adjudicating authority, while deciding the classification, but it cannot be said that there was a deliberate act of mis-declaring, knowingly and intentionally, while describing the export product.

9. It is also observed that Honble Apex Court in the case of Northern Plastic Ltd (supra) Vs Collector of Customs & Central Excise (supra) held as follows:-

19. The appellant had not described the rolls as? jumbo rolls but had given the length and width of each roll. The word jumbo is only indicative of size of the goods and the appellant having specifically stated the size of each roll it was not necessary, as there was no such requirement of law, for him to have described the goods which were in the form of rolls as jumbo rolls. It was also not necessary for him to describe them as the `jumbo colour film as there was no separate heading or sub-heading for jumbo colour film in Chapter 37. Merely because the appellant claimed that it was entitled to exemptions in respect of customs duty under exemption Notification No. 52/86 as amended by 157/88 and because there was a separate exemption notification in respect of colour jumbo films, it cannot be said that the declaration made in the Bill of Entry did not correspond with any other particular of the imported goods. Whether the appellant was entitled to the benefit of exemption under the said notification or not was a matter of belief of the appellant and not a matter of `any other particular with respect to the goods. It is also relevant to note that the appellants earlier consignment bearing the same description, same classification and identical claim for exemptions was cleared by the Delhi Customs House in the previous year. The Collector and CEGAT were, therefore, clearly in error in holding that by claiming benefit of exemptions under notifications which really did not apply to the imported goods, the appellant had intentionally tried to evade proper payment of customs duty.

10. In the light of above case law also, if an incorrect exemption is claimed by the Appellant, as a matter of belief then it cannot be considered as a declaration intentionally made to evade customs duty. The ratio of the above law laid down by Honble Apex Court will be applicable to the present facts & circumstances as the Appellant was holding a bonafide belief that so long as majority of the oil is extracted by expelling process, the resultant meal will continue to be classified as expeller variety of oil cake meal. In view of the above observations and settled proposition of law, there was no justification for imposing penalty upon the Appellant under Section 114AA of the Customs Act, 1962 and accordingly, appeal filed by the Appellant is required to be allowed.

11. Appeal filed by the Appellant is allowed by setting aside the OIO passed by the Adjudicating authority.

(Dictated and pronounced in Court)

(H.K. Thakur) Member (Technical)

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