CESTAT Ahmedabad Quashes Penalty On Gujarat Trader Over Urea Imports on High Sea Sales Basis Through MMTC

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) at Ahmedabad has set aside confiscation and penalties imposed on Deep Traders, Gujarat, holding that its import of technical-grade urea through a State Trading Enterprise on a high sea sales basis did not violate the Foreign Trade Policy.

In a high-seas sales transaction, the State Trading Enterprise imports the goods and sells them to an Indian buyer while the shipment is still at sea, with the buyer completing customs clearance.

A coram of Technical Member Satendra Vikram Singh said the issue was “no more res-integra” and followed earlier tribunal decisions to allow the appeals filed by Deep Traders.

The case arose from imports of Technical Grade Urea made by Deep Traders between April 2012 and April 2015. The firm purchased the goods from MMTC Limited, a State Trading Enterprise, on a high-seas sales basis and cleared them on payment of applicable customs duties.

The Ministry of Chemicals and Fertilizers had, by a letter dated May 16, 2013, permitted Deep Traders to import 1,500 metric tonnes of Technical Grade Urea for industrial use through State Trading Enterprises, subject to certain conditions. The tribunal noted that none of these conditions prohibited procurement on a high-seas sales basis.

The department alleged that Deep Traders had violated the Foreign Trade Policy by importing urea without a valid licence from the Director General of Foreign Trade. Two show cause notices issued in July 2018 and October 2019 led to orders confiscating the goods under Section 111(d) of the Customs Act and imposing penalties of Rs.2,25,000 and Rs 1,31,912. These findings were upheld by the Commissioner (Appeals), Ahmedabad.

Before the Tribunal, Deep Traders argued that both the Ministry's permission and its agreement with MMTC Limited permitted the mode of procurement adopted. It also contended that there was no revenue loss, as customs duties had been duly paid, and that in the absence of any policy prohibition, neither confiscation nor penalty could be sustained.

The department argued that by filing the Bill of Entry, Deep Traders became the importer and was therefore required to hold a valid licence from the Director General of Foreign Trade.

Rejecting this contention, the Tribunal relied on its earlier rulings in Sunita Commercials Pvt. Ltd., Pooja Chemicals, and Brightglow Ventures. It held that Heading 3102 1000 of the ITC (HS) Policy 2009 to 2015 permits import of urea “through” State Trading Enterprises and that this requirement is satisfied so long as the State Trading Enterprise undertakes the import from the foreign supplier and subsequently sells the goods to an Indian buyer, including on a high-sea sales basis.

The tribunal further held that there is no restriction in the policy on State Trading Enterprises undertaking high sea sales, and that the mere filing of a Bill of Entry by Deep Traders does not render the import unlawful so long as it is routed through an STE.

It also found that the Commissioner (Appeals), Ahmedabad, had misread the permission granted by the Ministry of Chemicals and Fertilizers in concluding that only domestic purchases from State Trading Enterprises were permitted.

The tribunal held that such an interpretation was contrary to the express language of the permission letter.

The tribunal said the issue was no longer res integra and stood covered by its earlier decisions and accordingly allowed the appeals and set aside the impugned orders.

Allowing both appeals, the tribunal set aside the confiscation and penalties imposed on Deep Traders in their entirety.