Mandatory Pre-Deposit Under Section 129E: Karnataka High Court Refuses Waiver to Established Importer

Background and Context

The Karnataka High Court in Parisons Foods Private Limited Vs Commissioner of Customs has reiterated that the statutory requirement of pre-deposit under Section 129E(ii) of the Customs Act, 1962 cannot be lightly diluted, particularly for an established commercial entity with substantial turnover and resources.

The assessee, a company engaged in refining edible oils and regularly importing crude palm oil, approached the High Court under Article 226 of the Constitution of India, seeking a direction that the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) should hear its appeal without insisting on the mandatory pre-deposit stipulated in Section 129E(ii) of the Customs Act. The core contention was that the pre-deposit condition made the appellate remedy illusory and violated Articles 19(1)(g) and 21 of the Constitution.

The High Court dismissed the writ petition, holding that:

  • The assessee is a long-standing, large-volume importer with significant financial strength.
  • No real or demonstrable financial hardship was shown.
  • Courts cannot override a clear statutory mandate on pre-deposit, except in extremely rare and exceptional situations, which were absent here.

Factual Matrix

Business Operations and Import Pattern

  • The assessee-company is engaged in the business of refining edible oils.
  • For this purpose, it regularly imports crude palm oil from Indonesia, Malaysia, and other ASEAN member countries.
  • India has entered into an India-ASEAN Preferential Tariff Agreement / Free Trade Agreement, also described as the Comprehensive Economic Cooperation Agreement, under which certain customs duty concessions are available.
  • The assessee imports through Mangalore Port and maintains storage tanks for bulk cargo at Mangalore.
  • It is a regular importer of crude palm oil classifiable under tariff item 1511 10 00 of the First Schedule to the Customs Tariff Act, 1975.

Claim of Exemption and Cess

  • For its imports of crude palm oil, the assessee availed:
    • Exemption from basic customs duty under Sl.No.3 of Notification No.48/2021-Customs dated 13-10-2021 (Exemption Notification), and
    • Paid Agriculture Infrastructure and Development Cess (AIDC) at 5% in terms of Sl.No.2 of Notification No.49/2021-Customs.

Shift to Crude Palmolein Imports

  • From June 2022, Indonesia imposed a ban on export of crude palm oil.
  • To sustain its manufacturing operations, the assessee decided to import crude palmolein, contending that it is a fraction or byproduct of crude palm oil and should be treated similarly for classification and exemption.
  • Between 17-06-2022 and 05-01-2023, the assessee imported 7 consignments of crude palmolein.
  • As per procedure, the vessel agent filed Import General Manifests (IGM) showing particulars like description of goods, bill of lading details, and quantities.

Testing and Classification of Goods

  • Samples of the imported crude palmolein were drawn both by the assessee and the Customs Authorities to determine whether the product was edible or non-edible oil.
  • Samples were forwarded to the Food Safety and Standards Authority of India (FSSAI).
  • FSSAI’s test reports confirmed:
    • The imported product was crude palmolein,
    • It was “other than refined, bleached and deodorized”.
  • The assessee’s independent test reports from a private laboratory were consistent with FSSAI’s findings.

Departmental Action and Demand

Search and Investigation

  • The Directorate of Revenue Intelligence (DRI) conducted search proceedings in the assessee’s premises under Section 105 of the Customs Act.
  • The department’s underlying premise was that crude palmolein was not eligible for the basic customs duty exemption claimed under the Exemption Notification, which specifically referred to crude palm oil, and not crude palmolein.

Show Cause Notice

  • Following investigation, a show cause notice dated 16-01-2024 was issued.
  • The notice proposed:
    • To deny exemption from basic customs duty on crude palmolein,
    • To demand differential basic customs duty under Section 28(4) of the Customs Act,
    • Recovery of interest and penalty,
    • The total demand quantified in the notice was Rs.488,14,60,120.

Assessee’s Defence

  • The assessee filed a detailed reply contending:
    • Crude palmolein is a fraction or byproduct of crude palm oil,
    • It is classifiable under tariff item 1511 10 00 of the First Schedule to the Customs Tariff Act, 1975, just like crude palm oil,
    • Consequently, it is entitled to the same exemption under the Exemption Notification,
    • It should only be liable to concessional rates available under the Comprehensive Economic Co-operation Agreement and not to full basic customs duty.

Order-in-Original