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Commissioner of Central Excise v. Gujarat Ambuja Exports Limited - (Supreme Court) (08 Aug 2016)

Purpose of import can be gathered from actual use, Supreme Court held that, Show cause notice not time barred as issued soon after the information gathered



As soon as information was gathered by DRI, show cause notice was issued. Therefore, Supreme Court opined that, show cause notice had been issued within a reasonable period and it cannot be treated as time barred

Issue involved in present appeal is relating to import of crude palm oil (non-edible grade) which is not used in the manufacture of Industrial Fatty Acid whereas Assessee is using the same for manufacturing the refined edible oil. Assessee engaged itself in refining of various edible oils. During the course of refining, it used to get Palm Fatty Acid Distillate as a by-product.

Assessee imported tons of crude palm oil (industrial grade) and cleared the same on payment of customs duty under Notification No. 21/2002-Cus dated 1st March, 2002 read with Notification No. 66/2004-Cus dated 9th July, 2004 during the period 12th September, 2004 to 12th August, 2005. As per said Notification, crude oil (non-edible oil) could be imported by paying customs duty @20% only when said crude oil is to be used in manufacture of soap or Industrial Fatty Acid. Assessee in present case have been manufacturing refined edible oil out of said crude oil. Assessee did not have facilities for saponification and fat splitting in their factory. Manufacturing process is one of distillation. As a result of this process, a product called "Palm Fatty Acid Distillate" emerges. Assessee after processing of imported crude oil (non-edible grade) manufactured 2219.895 metric tons of palm fatty acid distillate (industrial grade) i.e. approximately 25% and approximately 70% as refined palm oil. As Tribunal allowed Assessee’s appeal, Revenue appealed against the same arguing that, Assessee was not entitled to benefit of Notification No. 21/2002 read with Notification No. 66/2004

In instant case, crude palm oil which was imported was used for making edible products like refined oil/Vanaspati. In process of said manufacture, 25% of fatty (palm) was produced and 75% was oil which was edible. Thus, when main manufacturing activity relates to edible product which is 75%, If in process 25% of fatty (palm) emerged as a by-product, it could not be said that first requirement of exemption notification was satisfied. Even if Industrial Fatty Acid is to be treated as separate manufacturing activity and it is non-edible, same is only to extent of 25%. That would not satisfy the requirement of exemption notification in question.

Fatty Acid Distillate is characterised by high free fatty acid which cannot be 25%. The by-product is rightly discarded by Commissioner as not coming within the nomenclature of PFAD. Through intelligence collected by DRI, it was revealed that, Assessee imported crude palm oil but it had no facility in manufacturing soap/Industrial Fatty Acid and was using said imported crude palm oil for making edible products like refined oil/Vanaspati. At time of import, importer only gives declaration. It is actual use, which event takes place much after import, from where it can be gathered as to where the import is made for purpose for which it was done. As soon as information was gathered by DRI, show cause notice was issued. Therefore, Supreme Court opined that, show cause notice had been issued within a reasonable period and it cannot be treated as time barred.


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