2018 Taxo.online 248

R/SPECIAL CIVIL APPLICATION NO. 10696 of 2018 dated 18.07.2018





Central Goods and Service Tax Act, 2017

Notification NO. 01/2017 – Integrated Tax (Rate), dated 28.06.2017

Akil Kureshi, Justice & B.N. Karia, Justice

Partly in favour of assessee

High Court


Represented by: – 

Petitioner: – Mr Vikram S. Nankani & Mr Anuj K Trivedi 

Respondent: – Mr Py Divyeshvar & Mr Nirzar S Desai 

Order: – 

1. The petitioner has imported a consignment, declaring it as Biodiesel. The Customs authorities refused to permit release of the goods for various reasons, upon which the present petition has been filed.
2. At the outset, brief facts may be noted; The petitioner is a Company registered under the Companies Act and is engaged in the business of import and trading in edible oils. The petitioner had placed an order with British Petroleum Singapore Pte. Limited at Singapore for 5000 Metric Tonnes of Biodiesel, which would be supplied as a blend containing not less than 30.1% and not more than 35.0% of Biodiesel meeting the Indian Biodiesel Specifications and not less than 65.0% and not more than 69.9% diesel meeting Bharat Stage IV Diesel Specifications. Such goods were shipped from Singapore on 04.06.2018 and arrived at Kandla Port in the middle of June 2018. On 15.06.2018 the petitioner filed the Bill of Entry. The Customs authorities processed such Bill of Entry and also cleared the goods upon payment of applicable Customs Duty, Integrated Goods and Service Tax (“IGST” for short) and other Taxes. However, while the petitioner was in the process of clearing the goods from the bonded Warehouse, the respondents intercepted and prevented further clearance of goods, after the petitioner had cleared approximately 223 Metric Tonnes of the liquid.
3. The petitioner made detailed correspondence with the respondents, upon which, the Joint Director of Revenue Intelligence, under his communication dated 09.07.2018, cited his reasons for not permitting clearance, which read as under;
“2. Import of Biodiesel / Biofuels is not allowed under National Policy on Biofuels. However, in this regard, it is to inform that opinion of competent authority in the Ministry of Petroleum & Natural Gas has been sought regarding applicability of “National Policy on Biofuels” to subject import consignment and reply is awaited till date.
3. Further, it is also informed that only “Biodiesel” (as defined in Note 7 to Chapter 38) is eligible for exemption under entry 80A of Schedule II of Notification No. 01/2017 – Integrated Tax (Rate), dated 28th June 2017 as amended by Notification NO. 7/2018 – Integrated Tax (Rate) dated 25th January, 2018. Since the subject goods are “mixture of Biodiesel and Petroleum oil or oils obtained from bituminous minerals”, hence IGST @ 18% as mentioned at Sl. No.453 of schedule III of Notification NO. 01/2017 – Integrated Tax (Rate), dated 28th June 2017 would be applicable.”
4. The petitioner thereupon filed the present petition.
5. According to the petitioner, the imported material is Biodiesel, which is, as per the prevailing import policy free for import. The petitioner had, in fact, written to DGFT on 13.06.2018 seeking clarification in this respect. It was conveyed by DGFT on the same day that Biodiesel, as described under 38260000, is free for import. The petitioner points out that Chapter 38 of the Tariff ITC (HS) contains EXIM Code 38260000, which pertains to “Biodiesel and mixtures thereof, not containing or containing less than 70% by weight of petroleum oils or oils obtained from bituminous minerals” and as per the Import Policy, the import thereof is free. The petitioner further points out that such goods are, even today, freely allowed to be imported and cleared by other Ports in the country. Our attention was drawn to the impugned communication dated 09.07.2018 of the Joint Director, in which two objections were raised to the clearance of goods; (i) that the import of Biodiesel is not allowed under the National Policy on Biofuels and (ii) that the IGST rate would be 18% and the product would, in any case, invite IGST at a higher rate than discharged.
6. The respondent nos.2 & 3 have filed an affidavit dated 18.07.2018, in which, principally, two grounds have been raised; firstly, that Biodiesel is not free for import as per the present policy and secondly, that the Department has received a complaint suggesting that under the guise of Biodiesel what is being imported is High Speed Diesel (“HSD” for short). The authorities have, therefore, sent the sample of goods for Laboratory testing to verify whether the same is Biodiesel or HSD.
7. Having heard learned counsel for the parties at considerable length and having perused the documents on record, what prima facie emerges is that the petitioner had placed an order for supply of Biodiesel. The specifications thereof, as noted, were that the product would contain not less than 30.1% and not more than 35.0% of Biodiesel meeting the Indian Biodiesel Specification. Correspondingly, it would contain not less than 65.0% and not more than 69.9% of Diesel meeting the Bharat Stage IV Diesel Specifications. British Petroleum Singapore Pte. Limited, which supplied the said product to the petitioner, also provided necessary Certificate in this respect. Once the product arrived in India, the petitioner also supplied a Certificate of the local Laboratory, which specified that the Biodiesel content in the product was 34.81%(V/V). In other words, the product, other than Biodiesel, be it HSD, was at any rate, less than 70%.
8. In this background, we may refer to the three objections of the Department for clearance of the goods, which are; (i) that Biodiesel is not free for import as per the current policy of the Government of India (ii) that proper IGST has not been discharged and (iii) that, in any case, it is doubtful whether the product is Biodiesel or HSD. Incidentally, it is undisputed that import of HSD is restricted.
9. In the context of the first objection, the Department heavily relies on a Government of India Notification dated 04.06.2018 issued by the Ministry of Petroleum and Natural Gas, under which the policy called National Policy of Biofuels – 2018 was notified. The Preamble to this Notification inter alia states as under;
“India is one of the fastest growing economies in the world and will continue to enjoy the demographic dividend for few decades. The Development Objectives focus on Samavesh – Inclusion, shared vision of National development, technology upgradation & capacity building, economic growth, equity and human well being. Energy is a critical input towards raising the standard of living of citizens. The energy strategy of country aims to chart the way forward to meet the Government’s recent ambitious announcements in the energy domain such as electrification of all census villages by 2019, 24X7 electricity & 175 GW of renewable energy capacity by 2022, reduction in energy emissions intensity by 33%-35% by 2030 and share of non-fossil fuel based capacity in the electricity mix is aimed at above 40% by 2030. Even if there is likely expansion in the energy contribution of oil, gas, coal, renewable resources, nuclear and hydro in the coming decade, fossil fuels will continue to occupy a significant share in the energy basket. However, conventional or fossil fuel resources are limited, non-renewable, polluting and therefore, need to be used prudently. On the other hand, renewable energy resources are indigenous, non-polluting and virtually inexhaustible. India is endowed with abundant renewable energy resources. Therefore, their use should be encouraged in every possible way. This National Policy on Biofuels – 2018 builds on the achievement of the earlier National Policy on Biofuels and sets the new agenda consistent with the redefined role of emerging developments in the Renewable Sector.”
10. Para-6.0 of this Policy pertains to Import and Export of Biofuels. Sub-para 6.1 thereof provides that indigenous production of Biofuels would be encouraged by a set of practical and judicious incentives. The Policy emphasizes development of domestic Biofuel Industry and Feedstock. Allowing import will adversely affect domestic Biofuels and hence import of Biofuels will not be allowed. This Policy is framed and notified in terms of Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (“the Act” for short). It provides that the Central Government may from time to time formulate and announce by Notification in the Official Gazette the Foreign Trade Policy and may also in like manner amend such Policy. In exercise of such powers, therefor, it is open for the Central Government to formulate and announce the Foreign Trade Policy. 
11. On the other hand, Section 3 of the said Act pertains to the powers to make provisions relating to imports and exports. Sub-section 1 of Section 3 provides that the Central Government may, by an order published in the Official Gazette, make provision for the development and regulation of Foreign Trade by facilitating imports and increasing exports. Sub-section thereof provides that the Central Government may, by an order published in the Official Gazette, make provision for prohibiting, restricting or otherwise regulating, in all cases or specified class of cases, the import and export of goods or services or technology. Sub-section 3 of Section 3 provides that all goods to which any order under sub-section 1 applies, shall be deemed to be goods, the import and export of which has been prohibited u/s.11 of the Customs Act and that all the provisions of that Act shall have effect accordingly.
12. It would, thus, prima facie appear that the promulgation of Foreign Trade Policy in terms of Section 5 of the Act would not be sufficient to change the category of a product from being freely importable to the import of which is restricted. Such restrictions are envisaged under sub-section 2 of Section 3 of the Act. No Notification under the said provision has been issued. Further, in the present case, the petitioner had sought a clarification from the Director General of Foreign Trade whether the import of the goods is free. The answer of the Director General of Foreign Trade, as noted, was in the affirmative. The first objection of the authorities, at this stage, therefore, would not be sufficient to permit detention of the goods.
13. Coming to the second objection, we may recall the issue of correct declaration of the nature of imported substance. There was no such mention in the impugned communication dated 09.07.2018, even then, we have prima facie examined the validity of the stand of the respondents. This objection emanates, admittedly, from a complaint letter received by the Investigation Wing. The contents of this letter are reproduced in the affidavit in reply. In the complaint also, no dispute is raised about the composition of the product imported. In other words, it is not the case of the complainant that the chemical composition of the imported product is different from what the petitioner has declared. His prime contention appears to be that when fuel is allowed to be imported as Biodiesel, which contains a high percentage of HSD with the ceiling of 70%, the same is against the Policy. He also pointed out that import of HSD is restricted and invites higher rate of IGST.
14. As noted, firstly, in the impugned communication dated 09.07.2018, there is no mention of the dispute about the chemical characteristics of the goods in question. Secondly, the complainant himself does not dispute that the declaration of the petitioner that the goods contain less than 70% HSD is incorrect. Thirdly, the petitioner has produced chemical analysis of two Laboratories, both confirming the proportion of Biodiesel and HSD in the imported consignment. Fourthly, the Department has not pointed out any basis for the initiation of investigation into the composition of the fuel. From the affidavit in reply what can be culled out is that the starting point for such investigation is the above-noted complaint letter. It is nobody’s case, at least as of now, that the fuel contains more than 70% HSD or conversely, less than 30% biofuel. We have already noted that the very definition of Biofuel is that it must have not more than 70% of weight of petroleum oil or oils obtained from bituminous minerals. This is not disputed by the Department. Under the circumstances, we would not prevent the Department from carrying out further investigation. Nevertheless, only on this ground, the detention of goods cannot be permitted.
15. The last issue is of the correct rate of duty. It, prima facie, appears that this dispute is also closely correlated to the correct composition of the goods. The complainant has argued that if the imported goods happen to be HSD, then the same would invite higher rate of IGST. The Department seems to be canvassing that such rate of duty would be 18% for HSD as compared to 12% paid by the petitioner on Biodiesel. This issue can, even otherwise, be adjudicated over a period of time. At best, the Department can seek safeguard for revenue.
16. In the facts of the case, therefore, while not preventing the Department from carrying out further investigation and adjudicating the entire issue on both counts – whether the imported goods happen to be Biodiesel as declared or HSD as complained and the correct rate of duty leviable therein, we propose to direct the provisional release of goods subject to certain safeguards. In any case, if it is, ultimately, found that the goods were mis-declared, the Customs Act, particularly, Sections 111 and 112 therein, provide for adequate penalty and other adverse consequences.
17. Under the circumstances, the respondents shall permit provisional clearance of goods upon the petitioner providing Bond for the difference in duty between 12% already deposited and 18% of IGST. It is clarified that we have expressed no final opinion on the nature of goods imported or the question whether it is otherwise freely importable. The petition stands disposed of accordingly. 

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