Legal principle

An exemption notification must be construed on its own terms and its conditions strictly fulfilled — HSN Explanatory Notes being only a guide — so where imported goods are primarily used for a non-qualifying purpose with the qualifying product emerging merely as a by-product, the exemption fails, and a show cause notice under Rule 8 (which prescribes no limitation) need only be issued within a reasonable, fact-dependent period.

Court decision

The Supreme Court allowed the Revenue's appeal with costs, set aside the Tribunal's order and restored the order of the Commissioner/Adjudicating Authority confirming the duty demand. It held the exemption conditions were not fulfilled because the crude palm oil was principally used (about 75%) for edible refined oil/Vanaspati, with the qualifying product emerging only as a 25% by-product; HSN Explanatory Notes serve only as a guide when construing exemption notifications; and the show cause notice was issued within a reasonable period, Rule 8 having no limitation and Section 28's six-month period being inapplicable to it.

Facts

The respondent, M/s Gujarat Ambuja Exports Ltd, a manufacturer of refined edible oil and Vanaspati, imported 8435.816 MT of crude palm oil (industrial grade, non-edible) during 12.09.2004 to 12.08.2005 and cleared it at a concessional 20% basic customs duty under Notification No. 21/2002-Cus read with Notification No. 66/2004-Cus, conditioned on use for the manufacture of soap or Industrial Fatty Acid. The assessee had no saponification or fat-splitting facilities; through distillation, roughly 70-75% of the oil became refined edible palm oil and only about 25% emerged as Palm Fatty Acid Distillate (PFAD), a by-product. The Department issued a show cause notice dated 24.03.2006 demanding customs duty of Rs. 7,89,89,868 under para 8 of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996, interest under Section 28AB and penalty under Sections 112/114A of the Customs Act. The Adjudicating Authority confirmed the demand; the Tribunal allowed the assessee's appeal, and the Revenue appealed to the Supreme Court.

Key provisions

• Section 28AB, Customs Act, 1962 — [Omitted] ****