Punjab-Haryana High Court

Commissioner Of Customs, Ludhiana vs M/S Star Spices on 14 November, 2024

Author: Sanjeev Prakash Sharma

Bench: Sanjeev Prakash Sharma

                                Neutral Citation No:=2024:PHHC:148495-DB


     CUSAP No. 4 of 2024                                            -1-


       IN THE HIGH COURT OF PUNJAB AND HARYANA
                    AT CHANDIGARH

                                               Reserved on :     24.10.2024
                                    Date of Pronouncement :      14.11.2024


1.      CUSAP No. 4 of 2024 (O&M)

        Commissioner of Customs, Ludhiana                     ... Appellant
                                    Versus
        M/s Star Spices                                       ...Respondent

2.      CUSAP No. 5 of 2024 (O&M)

        Commissioner of Customs, Ludhiana                     ... Appellant
                                     Versus
        M/s Sherry Network Private Limited                    ...Respondent


CORAM: HON'BLE MR. JUSTICE SANJEEV PRAKASH SHARMA
       HON'BLE MR. JUSTICE SANJAY VASHISTH

Present:     Mr. Sunish Bindlish, Senior Standing Counsel and
             Mr. Viney Kumar, Advocate, for the appellant.

             Ms. Radhika Suri, Senior Advocate with
             Mr. Saurabh Kapoor, Advocate,
             Mr. Abhinav Narang, Advocate and
             Ms. Muskaan Gupta, Advocate, for the respondents
                                                  respondents.
                                   ***
SANJEEV PRAKASH SHARMA, J.

These are two Customs Appeals preferred by the Commissioner of

Customs against the order passed by the Customs, Excise and Service Tax

Appellate Tribunal, Chandigarh (for short, "the CESTAT") dated 07.06.2024

whereby the order of absolute confiscation of A Areca reca Nuts imported by the

two companies, namely, M/s Star Spice and M/s Sherry Network Private

Limited, respondents in CUSAP No. 4 and 5 of 2024, respectively, by the

order in original dated 14.12.2023, and the order which was further upheld

by the order in in Appeal dated 15.04.2024, have been set aside and the goods

have been permitted to be re-exported re exported on payment of fine of ` 25 lacs in lieu

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of confiscation and at the same time, the penalty imposed was reduced to `

10 lacs.

2. The brief facts are being quoted oted from the case relating to

CUSAP No.4 of 2024, wherein it has been stated that the respondents

imported consignments of Areca Nuts claiming benefit of exemption from

payment of customs duty in terms of Indo-

Indo Sri Lanka Free Trade Agreement

notification dated 01.03.2023, which permits 100% exemption from levy of

basic customs duty in respect of imports only from Sri Lanka. It is the case

of the Revenue that as per the prior intelligence received by DRI, certain

importers were engaged in malpractice of mix mixing ing 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. It was suspected that the respondents were

engaged in such exports exports and, therefore, the consignments imported by the

respondents were put on hold and examined by the customs authority along

with the officers of DRI in the presence of the authorized representatives of

the respondent-importers.

respondent importers. Samples were drawn from the said consignments

and sent for testing to three different laboratories, namely, (i) Central

Revenue Control Laboratory, New Delhi; (ii) Areca Nut Research and

Development Foundation, Mangalore; and (iii) National Food Laboratory,

Ghaziabad. It has been stated that as per the examination and testing of the

representative samples, it was found that the Areca Nuts were not meeting

the requirements as per FSSAI, 2011 and were found to be broken by

moulds and insects. As per the report received from the Arec Arecaa Nut Research

and Development Foundation, the quality of samples of Areca Nuts was

found to be very bad with infestation and visible moulds inside. The report

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further confirmed that the Areca Nuts were a mixture of Sri Lankan and

Indonesian origin. The report 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, Re Regulations, gulations,

2011. As per the report, the samples were, thus, 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 (for short, 'the Food Act of

2006").

3. The adjudicating authority arrived at a conclusion that the

imported consignment was contrary to the prohibition imposed under

Section 25 of the Food Act of 2006. The respondents have fraudulently mis mis--

declared the country of origin to avail the benefit of noti notification fication dated

01.03.2023 and that the imported consignment was not fit for human

consumption. Apart from considering the reports of the concerned

laboratories, it considered the evidence retrieved from the partner of the firm

in the shape of phone records, records, chats, emails extracted by the forensic team

on 05.10.2023, which reflected that the respondents had enquired about

containers from Indonesia, which was to reach Colombo. There was

conversation regarding hiding of low quality goods at the back of the

container tainer and the response of the partner of the respondents to the request by

the exporter to make payment directly, thus, stating that he cannot show

shipment through Indonesia. There were documents shared between the

partner of the respondents and the exporter exporter wherein payment from Sri Lanka

to Indonesia were being shared. It was evident that the consignment from

Indonesia was being re-routed re routed through Sri Lanka in order to avail the undue

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benefit of the notification. The statement of the partner under Section 108 of

the Customs Act, 1962 admitting of having such conversation was also

noticed. It was contended by learned counsel for the appellant that the

confiscation of goods under Section 111 (d) of the Customs Act, 1962 was

rightly directed in terms of the provisions provisions by the adjudicating authority.

Therefore, the discretion exercised by it under Section 125 of the Customs

Act, 1962 of absolute confiscation of goods was not liable to be interfered

with.

4. Learned counsel for the appellant has taken pain to take this

Court to the order dated 14.12.2023 passed by the adjudicating authority to

submit that there was no occasion to interfere with the said order by the

appellate authority. The request for re-export re export made by the respondent respondent--

importers was rejected. The The respondents challenged the order in original by

filing appeal before the appellate authority. In appeal the order dated

15.04.2024 passed by the adjudicating authority was upheld.

5. It was further submitted by learned counsel for the appellant

that thee respondents had not requested that the goods to be tested by any

other 'A' credited laboratory to prove that the goods were of edible grade.

The respondent-importers respondent importers preferred appeal before the CSTAT, who vide its

order dated 07.06.2024 partially allowed the appeal, reducing the penalty to

` 10 lacs and setting aside the order of absolute confiscation. It permitted the

goods to be re-exported re exported on payment of fine of ` 25 lacs in lieu of

confiscation of goods.

6. Learned counsel for the appellant further submitted that the

CSTAT has wrongly interfered with the discretion available to the Customs

Authorities with regard to the imposition of fine and of absolute

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confiscation. There was no occasion to direct for re re-exporting porting of the goods,

which were prohibited to import in India. It was submitted that the evidence

relating to the statements, the partner's conduct and the digital evidence of

conversation with the supplier was collected in the year 2018 and can be

considered ered while examining the goods, which were imported in 2023. Since

the Areca nuts were found to be not consumable humanly, there was no

occasion to direct the goods be re-exported.

re exported. It is further submitted that

there is conscious mis-declaration.

mis He relies on the judgments of Supreme

Court in U. P. State Road Transport Corporation and another vs Mohd.

Ismail and others 1991 (3) SCC 239; Union of India vs Jain Shudh

Vanaspati Limited 1996 (86) E.L.T. 460 (SC); Garg Woolen Mills (P)

Limited vs Addl. Collr of Customs, Customs, New Delhi 1998 (104) E. L. T. 306

(SC); judgments of Bombay High Court in Commissioner of Customs (AP),

Mumbai vs Alfred Menezes 2009 (242) E.L.T. 334 (Bom.); Jigesh Praveen

Shah vs Union of India (2023) 8 Centax 3 (Bom.); and judgment of Madras

High gh Court in Commissioner of Customs (AIR), Chennai Chennai-1 1 vs P.

Sinnasamy 2016 (344) E. L.T. 1154 (Mad.).

7. It is further submitted that the observations of the Tribunal that

the respondent-importer respondent importer was not aware of the fact that the impugned goods

are of substandard bstandard quality and not adhering to Indian standards, is a way of

misleading the Court. It is further submitted that the guarantees sustained by

the Tribunal is not in accordance with the provisions of the Customs Act and

reduction of penalty cannot be sustained.

8. Per contra, the respondents have filed their written submissions.

It is submitted that Section 25 of the Food Act of 2006 read with Food

Safety Standard Authority of India Import (Regulations) 2017 requires that

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all imports of food items ought ought to be subject to the provisions of the Food

Act of 2006. The respondent is a regular importer of food items and duly

registered with the FSSAI and imported 6 consignments of Areca Nuts and

filed Bills of Entries dated 17.09.2023, 01.10.2023, 08.10.2023, 08.10.2023,

08.10.2023 and 08.08.2023 at the Port of ICD CONCOR, Ludhiana. The

consignments comprising of Sri Lankan origin Areca Nuts from M/s DLK

Spice Export, 476/2, Kandy Road, Anwarama, Mawenella, Sri Lanka was

done while various invoices which have been mentioned in the petition.

9. It is stated that in terms of the Customs Act, 1962 as well as

Foreign Trade Policy, whenever any goods namely food items are being

imported, the same are subject to Fumigation Certificate as well as

Phytosanitary Certificate Certificate issued in terms of the requirements of FSSAI

Department. The respondents on the basis of the aforesaid documents issued

by the exporter filed bill of entries under Section 46 of the Customs Act for

the purpose of clearance of goods. Since the import imported ed Areca Nuts having

originated from Sri Lanka, the same were subject to exemption from basic

customs duty in terms of notification dated 01.03.2023. The respondents

claimed the said exemption. It is submitted that the goods accompanied with

the E.Country of origin certificate issued by the Sri Lankan Government

duly affixed with bar code on the said certificates, which upon verification

were linked to the Sri Lankan Website confirming the origin of goods from

Sri Lanka. On 17.09.2023, the goods were import imported ed vide bill of entry subject

to examination and testing from Port Health Officer, Amritsar, who opined

the samples were fit for human consumption. However, the officers of DRI

and Custom Department examined the bill of entry and again drew samples

on 09.10.2023.

0.2023.

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10. Learned counsel for the respondents further submitted that

when the goods were not released, they requested for release of the goods

but the same were retained for further testing, although there was no such

requirement in law. It is submitted submitted that as per FSSAI Import Regulations,

2017, procedure for testing has been prescribed and timelines for testing of

samples have been laid down. But the appellant failed to follow the timelines

and deliberately sent the same to three different laboratorie laboratories.

s. One

consignment had already been tested and found to be fit for human

consumption. The protest of the respondents was not taken into

consideration and the samples were sent much after the goods had been

imported to India. After sending the samples to th thee National Food

Laboratory, Ghaziabad on 21.10.2023, the samples were again drawn on

26.10.2023 and forwarded to the Central Revenue Control Laboratory, New

Delhi and it reported that the samples were found with visible fungal growth

and musty in odour and do not confirm with the Food Safety and Standards

Regulations 2011 and are unsafe for human consumption. The said report

was not made available to the respondents and the Customs Department did

not supply the test reports to the respondents although the ssame ame were

required to be provided in terms of circular dated 18.07.2017.

11. It was further submitted by learned counsel for the respondents

that the respondents vide their letter dated 19.10.2023 requested for re re--

testing of the samples. The writ petition was filed before this Court as the

imported goods were subject to heavy demurrage and detention charges. The

respondents were facing immense pressure from the supplier. The

respondents vide letter dated 25.11.2023, 05.12.2023, 06.12.2023 and

12.12.2023 requested re for re-export export of the imported consignments. The re re--

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testing was not acceded to and the Custom Department proceeded to reject

the request for re-export.

re export. He submitted that the CESTAT ultimately accepted

the request and the respondents did not want the concerned goods to be

taken, having noticed the report of the laboratories, which they are not

contesting. Further submitted that they should not be made to suffer on

account of substandard material having been sent by the supplier to them. It

is submitted d that the order passed by the CESTAT does not warrant any

interference.

12. We have carefully considered the written submissions as having

been filed by both the parties and the judgments cited. We find that the only

question which needs to be determined determined by this Court is 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.

13. We find that the learned CESTAT while partly all allowing owing the

appeal, passed the following order:-

order:

"19.1. Accordingly, the appeal No. C/60207/2024 is partially allowed modifying the impugned order in the following terms:

i. Absolute confiscation is set aside and the appellants are allowed to re-export export the impu impugned gned goods on payment of a fine, in lieu of confiscation, of Rs.25 Lakhs (Rupees Twenty Twenty-Five Five Lakhs only). Penalty imposed on the appellants under Section 112 of the Customs Act, 1962 is reduced to Rs.10 Lakhs. ii. The impugned goods are permitted to be re re-exported rted subject to the compliance of the impugned order subject to the above modifications.

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iii. The appellant shall submit an undertaking that the goods will not be routed back to the country. iv. An endorsement shall be made in the export documents to the extent th that the goods are being re-- exported for the reason that they are found to be unfit for human consumption as per Indian Standards."

14. It has come on record that the respondents are regular importers

having imported about 100 consignments of Areca Nuts. Th Thee goods were

cleared after testing by the Public Health Officer at the custom stations. The

Revenue Officers, however, in the present case seized the three

consignments on the basis of messages exchanged between the partner of the

firm and the foreign supplier supplier in the year 2018 and proceeded to conclude

that the Areca Nuts which have been imported in the year 2023 were

wrongfully shown to be imported from Sri Lanka but the goods were

actually brought from Indonesia.

15. Learned counsel for the respondents has candidly stated during

the course of arguments that they have not challenged the reports of the

Areca Nut Research and Development Foundation, Mangalore because they

do not want to continue and keep the goods with them and want the same to

be re-exported ed back to the concerned consigner. It has also been argued that

the report from the Areca Nut Research and Development Foundation,

Mangalore, has not been held to be reliable as the said institute is not

credited by the Supreme Court while dismissing the SLP in the case of

Commissioner of Customs (Preventive) vs Laltanpuh (2022) 1 Centax 4

(SC). We, therefore, accepted the contention raised by the Customs

Department that the goods were found to be not fit for human consumption.

The Areca Nuts were not fit or safe as per the National Food Laboratory,

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Ghaziabad. The question arises as to whether after such report is received,

the authorities can be said to have correctly taken a decision to confiscate the

substandard goods and not allow to be re-exported.

re exported.

16. From the documents which have been noticed in the order in

original dated 14.12.2023, it is apparent that the goods having been imported

from Sri Lanka stands fully established. The report of Areca Nut Research

and Development Foundation, Mangalore men mentioned tioned that the ceased Areca

Nuts are mixture of Sri Lankan and Indonesian origin. The exemption from

payment of custom duty is for imports only from Sri Lanka as per the

notification No. 26/2000 dated 01.03.2023.

17. While the appellants have relied upon the said report to treat all

the Areca Nuts to be of Sri Lankan origin, we find that the Supreme Court in

Laltanpuh's 's case (supra) has held that the report of the Areca Nut Research

and Development Foundation, Mangalore, about foreign origin of ceased

goods ds could not be relied upon. At the same time, there is a certificate of

origin, duly signed by the Assistant Director of Commerce, Colombo, which

has been placed on record as Annexure R-13, R 13, which has not been found to

be forged by the authorities. The verification verification of the consignment by the

Department of Commerce, Sri Lanka dated 09.10.2023 is also on record.

Another certificate of origin of 18,000 kg of Areca Nuts containing Sri

Lanka Areca Nuts is also on record. The respondents have also placed on

record the gazette notification dated 26.03.2019 issued by the Democratic

Socialist Republic of Sri Lanka whereby the import of Black Pepper, Areca

nuts, Nutmeg/ Mace, Tamarind and Cinnamon is not permitted in Sri Lanka

from any other country. Thus, it is apparent apparent that the alleged allegation of

Areca Nuts not being from Sri Lanka origin seems to be doubtful and on

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messages retrieved between the concerned partner of the respondents and the

seller from Indonesia of the year of 2018, cannot be taken into considerati consideration on

for the purpose of import of Areca Nuts done after 26.03.2019, when the

aforesaid notification banning import of Areca Nuts, etc. from any other

country in Sri Lanka was imposed.

18. A presumption against law cannot be allowed. Therefore, the

basis of holding that there is an attempt to evade duty by the importers importers--

respondents is found to be without basis.

19. It would be apposite to quote the findings of CESTAT, which

are as under:--

"16. We find that the impugned goods have been tested to be unfit for human consumption as per FSSAI standards. Neither the Adjudicating Authority nor the Appellate Authority has given evidence vis vis-à-vis vis the Sri Lankan Standards. Moreover, it appears that the said conclusion has been arrived at with the presumption that there are no other uses of areca nuts other than for human consumption. We find that there are certain industrial uses of the areca nuts. On going through the technical sources, it is understood that areca nuts are used for the manufacture of paints; areca nut dust used for dyeing clothes and tanning leather, it can be used as an adhesive in ply board, areca nut husk is used to make many industrial products such as hardboard, insulation wool, cushions, paper, paper board and activated carbon. Thus, we find that it cannot be presumed that the impugned areca nut, if re re-exported, exported, would be used only for human consumption in Sri Lanka and elsewhere. It cannot also be presumed that the consignment will be routed back to India. We are of the considered opinion that while the appellants can be penalized for importing goods in violation of provision of

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FSSAI and rules made there under, not permitting re re-export export would not serve any purpose. It has been more than 06 months since the import has taken place and it is likel likelyy that the goods will further deteriorate and would not have any commercial value and would be in the danger of losing industrial sage, if any. Allowing the same to further deteriorate would only cause unintended financial loss to the appellant end would cause ause wasteful outflow of foreign exchange from the Indian importer to the foreign buyer. The Department contends that no evidence of the foreign buyer accepting the consignment has been given. However, we find that wide letter dated 24.04.2024, M/s DLK Spi Spice ce Export, Sri Lanka have requested the appellants to make the outstanding payment and to avoid financial strain, immediate action may be taken to re re-export export the goods. In view of the same, we are of the opinion that benefit of doubt can be given to the appellant ellant as they are regular importer is not denied. Therefore, we find that ends of justice can be met if suitable redemption fine is imposed in lieu of confiscation and if the appellant is suitably penalized while permitting the re-export export of the impugned ggoods.

oods. Indian Authorities should not have any objection if the impugned goods are re- exported. In case of such an apprehension, an endorsement can be made on the export documents that the goods are permitted to be re re-exported exported as they were found to be unfit for human consumption as per Indian standards. We find that as the goods are of value of Rs.10 Crore Imposition of redemption fine of Rs 2 Cr is certainly harsh. We are of the considered opinion that a fine of Rs 25.00 Lakhs would be sufficient to meet th thee ends of justice and the goods can be permitted to be re re-exported exported on payment of redemption fine."

21. The submission of learned counsel for the Revenue that once

the authority has exercised its jurisdiction in terms of Regulation 10 (11) of

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the Food Safety Safety & Standards (Import) Regulations 2017 and disallowed the

re-export export of food items, the CESTAT would not have taken another view, is

found to be without any basis. The CESTAT hears an appeal, and therefore,

all the arguments including the submissions rela relating ting 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 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 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, erefore, has interfered with the discretion exercised by the

concerned authority and directed for re-export.

re export.

22. We also do not find force in the arguments raised by learned

counsel for the appellant with regard to reducing of fine of ` 2 crores to ` 25

lacs and personal fine of ` 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 substandard Areca Nuts. We, accordingly, reject the

aforesaid submission of learned counsel for the appellant also.

23. 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 he reasons for allowing the re-export.

re export. We find such reason to be

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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.

dismissed.

If the goods have not been allowed to be re re-exported, exported, the

authority shall now allow them to be re-exported re exported forthwith.

24. All pending applications stand disposed of.

25. No costs.



                                      (SANJEEV PRAKASH SHARMA)
                                                 JUDGE



14.11.2024                                       (SANJAY VASHISTH)
vs                                                    JUDGE



Whether speaking/reasoned                   Yes/No

Whether reportable                          Yes/No




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