Dr. I.P. Lal, J.
1. This is an appeal filed against the order dated 14.08.2013 passed by the Commissioner of Central Excise and Service Tax, Bolpur confirming the differential duty of Rs.1,42,09,369/-, imposing redemption fine of Rs.1,25,00,000/- in lieu of the confiscation of the imported goods and penalty of Rs.50.00 Lakhs on the Appellant.
2. Brief facts of the case are that the Appellant filed Bill of Entry No.197/ICD-DGP dated 11.10.2012 and 201/ICD-DGP/2012 Dated 17.10.2012 declaring therein the imported goods as dry nuts (betel nuts provisionally preserved with SO2 at the declared CIF price of US Doller 975 per M.T. (equivalent to Rs.51.53 per Kg.), claiming the classification of the said items under ITC HS Code 08129090 wherein the applicable rate of duty is 30% Basic Customs Duty + 2% Education Cess and 1% SHE Cess and 4% Additional Duty. The goods were of Indonesian origin and shipped from Singapore. In Singapore these goods were fumigated and sulphered. On examination the goods were found to be dry betel nuts in split condition. Samples of the goods were drawn and sent to the Plant Quarantine Authority and to the Central Food Laboratory (CFL) for testing. The Plant Quarantine Authority vide their reports dated 03.12.2012 and 27.11.2012 recommended release (for consumption purposes only). Central Food Laboratory (Referral Food Laboratory at Calcutta) in its report dated 10.12.2012 found the sample to be betel nuts (physical appearance : split betel nuts); SO2 present. Report further mentioned that sample is not adulterated in respect of the quality characteristics like presence of Aflatoxin, SO2 etc. As the goods were dry betel nuts in split condition, the department sought to classify the same under tariff sub-headnig 08028020 where applicable rate of duty is 100% BCD and 4% Additional duty. DGFT vide Notification No.10(RE-2012)/2009-14 dated 14.08.2012 allows importation of split betel nuts (botanical name Areca nut) provided CIF value is Rs.75/- and above per Kg. therefore the imported goods appeared to be restricted. Accordingly show cause notice was issued proposing recovery of differential duty, confiscation of the imported goods under Section 111(d) and 111(m) of the Customs Act, 1962 for mis-classification/mis-declaration of the impugned goods and imposition of penalty on the Appellant under Section 112(a)(i) of the Customs Act, 1962. In the meantime Applicant/Appellant filed Writ Petition No.626(W) of 2013 before the Honble High Court of Calcutta requesting for provisional release of the goods. The Writ Petition was disposed for considering the provisional release of the goods in accordance with law. The goods were released provisionally subject to the condition to pay duty as per declaration made by the importer and furnishing a bond and bank guarantee of Rs.3.30 Crore. The Applicant has taken release of the goods after furnishing the Bond and Bank Guarantee. Show cause notice was adjudicated by the Ld. Commissioner culminating into the impugned order. Being aggrieved the Appeal is filed before this forum.
3. The Ld.Advocate appearing for the Appellant has submitted that in view of the presence of SO2, the imported goods were classifiable under chapter Heading 0812 of CTA, 1975 which covers items description fruit and nuts provisionally preserved (for example, by sulphur dioxide gas, in brine, in sulphur water or in other preservative solutions), but unsuitable in that state for immediate consumption.
3.1 As regards the conditions put in the sub-heading 0802 that to merit the classification under the said heading, the subject goods should be unsuitable in that state for human consumption, he submitted that once SO2 is present in the imported goods, it is immaterial whether they were suitable in the form in which they were imported or become fit for human consumption after processing. He referred to the Apex Court judgment in case of the State of Tamil Nadu Vs. Krishnamurthy reported in 1980 SCC (1) 167 (1980 SCR (2) 59) wherein, Apex Court held that in order to put food under the above item an article need not be fit/for human consumption, it need not be described or exhibited as intended for human consumption, it is enough if it is generally or only used for human consumption or in the preparation of human food. There can be no question but that article is Food. He referred to Boards Circular No.29/97-CUS dated 31.07.1997 issued from F.No.528/27/97-CUS-TU clarifying that vegetable oil of edible grade appearing in the said notification will also include the vegetable oils which are not fit for human consumption at the time of import but will be fit for human consumption after further processing. He further relied on the judgment of the Honble Karnataka High Court in the case of Vishista Solvent Oils Pvt.Ltd. vs. Deputy Commissioner of Sales Tax reported in 2001 121 STC 492 Kar, under para 7 of the judgment the Honble Court made it clear that edible oil is genus and both refined and non-refined are its species. Aforesaid view was confirmed by the Division Bench of same High Court in the case of State of Karnataka And Another vs. Sangam Solvent Textiles Ltd. reported in 2004 137 STC 231 Kar.
3.2 He submitted that SO2 is recognized as a class II preservative as per Food Safety and Standard (Food Products Standard and Food additives) Regulation, 2011. Any preservative, not being a preservative of Class I, may be harmful, even if it is used in permitted quantity. In the light of this, the SO2 being present in the imported goods certain processes are necessarily to be carried out on them to make them free from SO2 before sending the same to the market.
3.3 The Ld.Advocate also relied upon the clarification of HS on the Web Zollamter, where it is clearly mentioned that provisionally preserved betel nuts is classifiable under heading 0812 of HSN (page 73 of the Paper Book).
3.4 He submitted that where a commodity is classifiable prima facie under two headings the same should be classified under the heading which occurs later in the tariff (interpretative rule 3(c) of the Tariff) is relied upon. It is therefore submitted that as the Chapter Heading 0812 appears later to the Chapter Heading 0802 in the sequential order, the subject goods are classifiable under Chapter sub-heading 0812.
3.5 The Ld.Advocate submitted that tariff heading 8 of the Customs Tariff is structured in a particular manner so as to cover the edible fruit and nuts; Peel of citrus fruit or melons. Thereafter, it is sub-divided into sub-headings. However, once it is established that any fruit or nut is treated in a manner mentioned in the said heading 0812, all such nuts and fruits will be covered by this heading. He illustrated his point by giving examples of the Cheris, if those are fresh are covered under Heading 08022100 and 08092900, but if the same are preserved by methods mentioned in 0812, the same goods classified under Heading 0812 only and that is more specific. Similarly betel nuts, if not preserved provisionally then those are classifiable under Heading 0802 of the Tariff; but if the same is provisionally preserved by methods mentioned in 0812, the same will get classified under that heading as that become more specific. He relied on the decision of Honble Supreme Court in the case of Commissioner of Central Excise vs. Minwool Rock Fibre 2012 (278) E.L.T. 581 (SC).
4. The Ld.Advocate submitted that once the classification is decided under heading 0812 of the tariff, they are freely importable as the DGFT Notification is not applicable to the items falling under this sub-heading.
5. The Ld.Advocate submits that in the matter of classification, the goods are not confiscable. In this regard he referred to Tribunal
s decision in the case of CC(ACC) Mumbai vs. R.K.Impex 2010 (259) ELT 725(Tri.Mumbai).
6. As regards the quantum of redemption fine, it is the submission that no market enquiry was held before fixing of redemption fine. It is submitted that under Section 125 of the Customs Act, market enquiry is necessary as the amount of redemption fine under the said provision shall not exceed the market price less duty. He referred to the Apex Court judgment in the case of Commissioner of Customs, Mumbai vs. Mansi Impex 2011 (270) E.L.T. 631 (S.C.), in absence of any market enquiry the Honble Court upheld the Tribunals order reducing the quantum of redemption fine and penalty. He furnished copy of few invoices bearing No.SKO/201/2012-13 dated 14.03.2013, invoice dated 10.05.2013 and dated 05.08.2013 wherein the Appellant had sold the consignments of betel nuts @ Rs.70/- to Rs.84/- per Kg.
7. The Ld.Special Counsel on behalf of the Revenue has submitted that according to Chapter Note-3 to chapter 8, dried fruit or dried nuts of this chapter may be partially re-hydrated or treated for additional preservation or stabilization by heat treatment, sulphuring etc. and therefore mere presence of SO2 will not alter the classification of the imported goods which are specifically mentioned under Chapter sub-heading 08028020 as split Areca nuts He submitted that for an item to fall under Chapter heading 0812 it is mandatorily required that the presence of sulphur dioxide must make the imported goods unsuitable in that state (at the time of importation) for immediate consumption. However, in the present case the Plant Quarantine Laboratory in its report has categorically recommended for release (for consumption only). Further Central Food Laboratory in its report dated 10.12.2012 has reported that SO2 is present within limit and opined that sample is found not adulterated in respect of the tests mentioned above. It is the submission that word adulterated has been defined in the Prevention of Food Adulteration Act, 1994, Section 2(ia), which reads under Section:-
(ia)adulterated an article of food shall be deemed to be adjulterated:-
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(f) if the article consists wholly or in part of any filthy, putrid, rotten, decomposed or deseased animal or vegetable substance or is insect-infested or is otherwise unfit for human consumption;
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(h) if the article contains any poisonous or other ingredient which renders it injurious to health;
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(k) if the article contains any prohibited preservative or permitted preservative in excess of the prescribed limits;
Thus, the test report indicating that the sample is not adulterated clearly indicates that it is neither unfit for human consumption, nor contains any ingredient which renders it injurious to health, nor does it contain any permitted preservative in excess of the prescribed limits. The imported goods are, therefore, NOT unsuitable for consumption.
The Ld.Special Counsel submitted that to get the matter more clarified the department wrote a letter dated 14.12.2012 to Central Food Laboratory asking whether the sample goods are fit for human consumption (copy of this report was taken on record with consent of both the parties). To this Central Food Laboratory had clarified under under:-
Conclusively, the product was declared as Safe Food on the basis of the food safety parameters tested under its rules and regulations, 2011. However, the opinion seek for Fit for Human Consumption can not be written as the Food Safety and Standards Act, 2006 define in its clause Section -3.1.zz- that Unsafe Food means an article of food whose nature, substances or quality is so affected as to render its injurious to health or vice versa Hence, the product could only be certified as safe food and as per section 3(q) of FSS Act, 2006 in which Food safety means assurance that food is acceptable for human consumption according to its intended use.
8. It is the submission that since the imported goods are safe good this means that they are acceptable for human consumption according to its intended use. Since the imported goods were not unsuitable in that state (in which they were imported) for immediate consumption, they cannot be classified under Heading 0812.
Ld.Special Counsel submitted that DGFT Notification dated 14.08.2012 allows the import of split betel nuts of CIF value of Rs.75/- per Kg. and above and in the present case the CIF value declared is Rs.51/- per Kg. and therefore their import requires specific licence. Since the importer has not produced any such licence import of subject goods is in violation of Foreign Trade Policy (FTP) and are liable for confiscation under Section 111(d) of the Act.
9. The Ld.Special Counsel has further submitted that self-assessment system has been introduced in respect of Customs clearance of imported goods under Section 17 of Customs Act, 1962 with effect from 8/4.2011 and Sub-rule (4) ibid provides that
(4).Where it is found on verification, examination or testing of the goods or otherwise that the self-assessment is not done correctly, the proper officer may, without prejudice to any other action which may be taken under this Act, re-assess the duty leviable on such goods.
Thus it was the responsibility of the importer, under self-assessment system, to declare the correct facts in regard to the imported goods and classify them under the appropriate heading. In the present case, the classification was dependent on the fact of the unsuitability of the goods for immediate consumption and on this very question of fact the importer has mis-declared, as the test reports have indicated.
10. He submitted that as the classification of the imported betel nut was sought for by the Appellant under CTH 0812 (which sub-heading has the essential criteria that the State in which the goods are imported are unsuitable for immediate consumption, which on test was found on test to be otherwise. It was obviously a mis-declaration on the part of the importer. The goods are, therefore, liable for confiscation under Section 111(m) of Customs Act, 1962.
Since in the present case the classification solely depends upon the fact of unsuitability of the imported goods for immediate consumption and on that point, the importer has mis-declared, as the test reports have proved, the goods are therefore liable for confiscation under Section 111(m) of the Customs Act, 1962.
11. On the issue of quantum of redemption fine it has been submitted by the Ld.Special Counsel that redemption fine of Rs.1.25 Crore has been imposed in this case. It is submitted that DGFT has fixed the value as Rs.75/- per Kg. At this value, the total value of imported goods works out to Rs.2,91,10,109/- as against the value of Rs.2,00,00,524/- declared in the bills of entry. The difference of value works out to Rs.91,09,495/- and the duty payable thereon works out to Rs.93,82,780/- at the rate applicable to the goods on the CTH 080280. As there already exists a standard by way of DGFT Notification for valuation of imported goods, it was not necessary to conduct a market survey to determine the price. As such, the judgment in the case of Mansi Impex (supra) relied upon by the appellant is distinguishable. As regards penalty it has been submitted that penalty of Rs.50.00 Lakhs imposed on the Appellant is roughly 35% of the duty amount of Rs.1,42,09,369/- sought to be evaded. Considering the gravity of the mis-declaration and the potential implication of revenue this penalty is stated to be justified.
12. After hearing both sides we find that issue involved in this Appeal is whether the goods imported are split betel nuts classifiable under CTH 0802 8020 or under CTH 0812 9090. Once the imported goods are found to be classifiable under CTH 0802 8020, their import is not allowable if their CIF value is below Rs.75 per kg. as provided in DGFT Notification (supra).
13. Relevant chapter note 3 and the competing sub-headings of chapter 8 of Customs Tariff read as under :-
3. Dried fruit or dried nuts of this Chapter may be partially rehydrated, or treated for the following purpose:
(a) For additional preservation or stabilization (for example, by moderate heat treatment, sulphuring, the addition sorbic acid or potassium sorbate);
(b) To improve or maintain their appearance (for example, by the addition of vegetable oil or small quantities of glucose syrup), provided that they retain the character of dried fruit or dried nuts.
0802 Other nuts, fresh or dried, whether or not shelled or peeled
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0802 80 Areca nuts
08028010 Whole
08028020 split
0812 Fruit and nuts provisionally preserved (for example, by sulphur di oxide gas, in brine, in sulphur water or in other preservative solutions), but unsuitable in that state for immediate consumption.
On going through the above chapter notes, we find that merely sulfuring, heat treatment etc. for additional preservation, will not alter their classification.
14. The Ld. Advocate has submitted that in this case split betel nuts are preserved by Sulphur-Di-Oxide which is class II preservative and requires various processing after the goods were imported to make them suitable for human consumption and therefore being unsuitable in that state for immediate consumption they are correctly classifiable under chapter 0812. As against this we find that the various test reports mentioned as under:-
Plant Quarantine Laboratory in its report dated 03.12.2012 and 27.11.2012 reported that recommended for release (for consumption purpose only).
Central Food Laboratory in its report dated 10.12.2012 mentioned that SO2 present within limit approved for nuts and opined the sample is found not adulterated in respect of tests mentioned above. Further against a specific query by the department, CFL in its report dated 27.01.2014 clarified that conclusively the product was declared safe food. On the basis of food safety parameters under its rules and regulations, 2011. However, on the opinion whether Fit for human consumption, cannot be written as the Food Safety and Standards Act, 2006 defined in its clause Section 3.1 zz that nsafe food means an article of food whose nature, substance or quality is so affected as to render it injurious to health or vice versa hence the product could only be certified as safe food as per Section 3(q) of the F.S.S. Act, 2006 in which Safe food means assurance that food is acceptable for human consumption according to its intended use. These reports have not been challenged by the Ld.Advocate. We find from the above reports that the sample of the imported goods are not unsuitable for immediate consumption and therefore they would merit classification under CTH 080280 and not under CTH 0812.
15. It is the contention of the Ld.Advocate that whether an item is classifiable under two headings, as per provisions of Rule 3 of General Rules for Interpretation of the First Schedule i.e. Import Tariff, they shall be classified under the heading which occurs last in numerical order. In this regard it is noticed that Rule 3 is applicable in case where the materials or substances are contained in mixed or composite goods whereas in the present case the imported goods are not contained in mixture.
16. Ld. Advocate submitted that as per clarification of the HS on the web Zollamter(at page 73 of the paper book), it is clearly mentioned that provisionally preserved Betel Nut is classifiable in Heading 0812 of the HSN. After going through the copy of the clarification, we find that the items unsuitable in that state for human consumption are not covered under the heading 0812. Further on going through the harmonized commodity description and coding system which is a guideline to determine the scope and content of the harmonized system sub-headings, it is noticed that the products classifiable under chapter heading 081290 are -
0812.10 - Cherries
0812.90 Other
Provided they remain unsuitable for immediate consumption in that state---------------.
Such products are used mainly in food industry (manufacture of jam, preparation of candied fruits etc.). The products most commonly presented in this state are Cherries, Strawberries, Oranges, Citrons, Apricots and Greengages. They are usually packed in casks, trays or open-lath type containers. As against this the imported goods are not presented in packed casks, trays etc..
17. The Ld. Advocate has referred to Boards Circular dated 31.07.1997 and the judgment of the Honble Karnataka High Court in case of Vishista Solvent Oils Pvt.Ltd. to support their plea that the exemption is available/admissible so long as the oil imported is used for edible purposes even after refining. We find that the issue involved in the above citations, was regarding applicability of exemption Notification. Thus, we find that the Boards Circular and the judgment in case of Vishista Solvent Oils Pvt.Ltd. cited by the Ld.Advocate are distinguishable from the facts of the present Appeal.
18. In view of the facts and circumstances of the case narrated above, we are of the opinion that the impugned goods are classifiable under CTH 0802 8020 of the Customs Tariff and chargeable to duty @ 100% BCD and 4% Additional duty. Since the declared CIF value is less than Rs.75/-, their import is not free in view of the DGFT Notification cited (supra). Accordingly the imported goods are liable for confiscation under section 111(d) of the Customs Act, 1962, as they are imported in violation of the provisions of D.G.F.T. regulation. They are also liable for confiscation under provisions of 111(m) of the Customs Act, 1962 as they were mis-classified by the Appellant along with the mis-declaration regarding their suitability for immediate consumption in the state in which they were imported.
19. As regards confiscation of the imported goods, the Ld. Advocate has submitted that as the department was free to classify the said goods, the wrong classification, if any, in the Bill of Entry does not render the said goods confiscable in view of Tribunals decision in the case of R.K. Impex (supra). After going through the said judgment we find that the facts of the present case are distinguishable in view of insertion of sub-rule 4 to Section 17 of the Customs Act w.e.f. 08.04.2011 which is reproduced below:-
"where it is found on verification, examination or testing of the goods or otherwise that self-assessment is not done correctly, the proper officer may, without prejudice to any other action which may be taken under this Act, re-assess the duty leviable on such goods.
20. The Ld. Advocate has submitted that under the provisions of Section 125 of the Customs Act, redemption fine shall not exceed the market price of the goods confiscated, less in the case of imported goods, less the duty chargeable thereon. He has referred to Tribunals order in the case of Mansi Impex cited (supra). In this regard we find that in the present case, the goods were sold @ Rs.70/- to 84/- per kg. and therefore considering the above facts the market price of imported goods works out to Rs.3.00 Crores(approx.) as against the declared CIF value of Rs.2,00,00,524/- declared in the Bills of Entry. The duty involved in the present case has been worked out to be Rs.2,16,00,566/- and therefore in view of these facts we are of the view that redemption fine of Rs.1.00 Crore would appropriate in this case. As regarding penalty imposed on the Appellant, we do not find any reason to interfere with the order of the Ld. Commissioner.
21. In these circumstances the order of the adjudicating Commissioner is modified to the extent of reduction in the amount of redemption fine from Rs.1.25 Crore to Rs.1.00 Crore only. As regards the confirmation of the duty and imposition of penalty we uphold the order of the adjudicating Commissioner. Appeal is disposed as above.