2025 (6) TMI 1869 - AT - Customs

Finalization of provisional assessment - entitlement for benefit of entry 33A or 33B of the N/N. 21/2002 - Shea Butter (intended for use in manufacture of Shea Stearin for export) - Goods of edible grade - goods refined and fit for human consumption - HELD THAT - It is an admitted fact that the imported shea butter is not in a refined form and it is in crude form. However for the purpose of entry what is important is to understand whether this crude shea butter is of edible grade or otherwise. It is also an admitted fact that there is no PFA standard specifically for shea butter till the time specific provision was made in 2021 in FSSAI. It is also on record that the resultant product shea stearin has been exported to different parties in Malaysia where it has been declared to be used as ingredient for manufacture of cocoa butter equivalent which in turn are used in the manufacture of chocolates. It is also observed on verification that they had imported 477.74 MT whereas exported only 163.375 MT shea stearin which is not confirming to SION norms for manufacture of shea stearin from shea butter. Thus it is obvious that certain amount of crude shea butter has also been used for other purposes like cosmetics etc. Therefore the argument that the entire quantity of imported crude shea butter was meant for manufacturing shea stearin which is an edible product is not correct. The item has been declared as edible by the Public Analyst applying only the general standards. It is also obvious that the notification issued at a much later date also confirms the same specifications for shea butter which prescribes that shea butter (unrefined) the FFA content should not be more than 4% whereas in the present case the FFA content is more than 8%. Hon le Supreme Court in the case of M/s Sandur Micro Circuits Ltd. Vs Commissioner of Central Excise Belgam 2008 (8) TMI 3 - SUPREME COURT interalia observed that a circular cannot take away the effect of notification substantively issued and infact in certain cases it has been held that issuing a circular with a new condition cannot restrict exemption notification and restrict the scope of exemption notification. The impugned product shea butter in crude form in the given factual matrix is not of edible grade and therefore it would not fall either under 33A or either 33B of the said notification and therefore not entitled for benefit of notification. Appeal dismissed.

Summary

The core legal questions considered by the Tribunal are:

1. Whether the imported crude shea butter qualifies as "edible grade" within the meaning of Serial Nos. 33A or 33B of Customs Notification No. 21/2002, thereby entitling the appellant to exemption benefits under the said notification.

2. The relevance and applicability of the Prevention of Food Adulteration (PFA) Act, 1954 and its Rules, specifically the standards prescribed therein, to the classification of shea butter as edible or non-edible.

3. The evidentiary value and interpretation of conflicting laboratory reports-one from the Customs House Laboratory and another from the Public Analyst-regarding the edibility of the imported shea butter.

4. The significance of the Free Fatty Acid (FFA) content in determining the edible grade status of crude shea butter.

5. Whether the ultimate intended use or end product (shea stearin used in edible products) can be the basis for claiming exemption on the crude imported material.

6. The applicability of precedents and circulars cited by the appellant concerning edible oils and exemption claims.

Issue-wise Detailed Analysis:

1. Classification of Shea Butter as Edible Grade Under Customs Notification

Legal Framework and Precedents: The Customs Notification No. 21/2002 provides exemption entries 33A and 33B for edible grade and crude/refined forms of certain oils and fats. The supplementary note to Chapter 15 of the Customs Tariff Act, 1975, clarifies that "edible grade" refers to standards specified under Appendix B of the Prevention of Food Adulteration (PFA) Rules, 1955. The PFA Act and Rules regulate quality standards for food articles.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant initially classified the shea butter under the correct Customs Tariff Heading and sought exemption under Serial No. 33B but later claimed eligibility under 33A, asserting the product was edible grade. The Department countered that no specific PFA standards existed for shea butter until 2021 under FSSAI regulations, and the PFA Rules' Appendix B does not specify standards for shea butter. The PHO opined that shea butter is not an article of food under the PFA Act. The Tribunal emphasized that the legislative intent is clear: exemption applies only if the crude or refined product is of edible grade as per prescribed standards.

Key Evidence and Findings: Two contradictory laboratory reports were pivotal: the Customs House Laboratory reported the shea butter as "unrefined shea butter other than edible grade" with FFA content ranging 8.5% to 9.5%, while the Public Analyst certified the crude shea butter as edible fat conforming to general PFA standards. The Tribunal observed that the Public Analyst's certification was based on general standards, not specific to shea butter, and that the Customs report's FFA content exceeded the later prescribed standard of 4% for unrefined shea butter.

Application of Law to Facts: The Tribunal held that in the absence of specific PFA standards for shea butter at the relevant time, and given the high FFA content, the product could not be considered edible grade. The appellant's reliance on the Public Analyst's general certification was insufficient to establish entitlement.

Treatment of Competing Arguments: The appellant argued that the FFA content should not determine edibility and cited cases where higher acid values were accepted subject to refining. The Tribunal distinguished those cases, noting they pertained to crude edible oils with specific standards and procedures under Customs Rules, unlike the present case. The appellant's reliance on circulars and precedents related to palm oil and edible oils was found inapplicable to shea butter due to lack of analogous regulatory standards.

Conclusions: The Tribunal concluded that crude shea butter, as imported and tested, was not of edible grade and thus did not qualify for exemption under Serial Nos. 33A or 33B.

2. Relevance of Laboratory Reports and FFA Content

Legal Framework and Precedents: The PFA Act and Rules set quality standards for edible products, with laboratory analysis forming the basis for classification. The FFA content is a recognized parameter indicating quality and suitability for edible use in fats and oils.

Court's Interpretation and Reasoning: The Tribunal analyzed the technical classification of unrefined shea butter into three grades based on FFA content: first grade (up to 1.0%) for cosmetics/pharmaceutical or direct consumption; second grade (up to 3.0%) for food industry; third grade (up to 8.0%) for soap-making and refining. The appellant's samples had FFA content exceeding these thresholds (8.5% to 9.5%), indicating lower quality unsuitable for edible use in crude form.

Key Evidence and Findings: The Customs House Laboratory's detailed report was given significant weight due to its technical basis. The PHO's report that shea butter was not a food item further supported the non-edible classification. The Public Analyst's certification was deemed insufficient as it applied only general PFA standards not specific to shea butter.

Application of Law to Facts: The Tribunal applied the technical standards and found that the high FFA content disqualified the product from edible grade status under the notification.

Treatment of Competing Arguments: The appellant argued that FFA content should not be decisive and cited cases allowing higher acid values with refining. The Tribunal rejected this, emphasizing that exemption eligibility must be determined based on the product's condition at import, not after processing, and no such condition exists in the notification.

Conclusions: The FFA content was a valid and determinative factor in denying edible grade status and exemption benefits.

3. Claim Based on Ultimate Use and Export of Shea Stearin

Legal Framework and Precedents: Customs notifications and tariff classifications are generally applied based on the imported goods' characteristics at the time of import, not on the intended or ultimate use after processing.

Court's Interpretation and Reasoning: The appellant contended that since the shea butter was used to manufacture shea stearin, an edible product exported for use in chocolates, the crude shea butter should be considered edible grade. The Tribunal rejected this, noting that only a portion of the imported quantity was exported as shea stearin, with the balance apparently used for non-edible purposes such as cosmetics. Further, no independent inquiry verified the ultimate use claims beyond departmental officer's report.

Key Evidence and Findings: Import and export quantities showed a discrepancy, indicating mixed usage. No specific condition in the notification allows exemption based on intended use or end product.

Application of Law to Facts: The Tribunal applied the principle that classification and exemption are to be determined on the product's condition at import, not on hypothetical or intended downstream use.

Treatment of Competing Arguments: The appellant's reliance on CBIC circulars and case law permitting exemption for goods meant for processing was found inapplicable due to absence of any such condition in the notification and lack of evidence for exclusive edible use.

Conclusions: The ultimate intended use of the imported shea butter could not confer edible grade status or exemption benefits.

4. Applicability of Precedents and Circulars Cited by Appellant

Legal Framework and Precedents: The appellant cited several decisions relating to palm oil and other edible oils, as well as CBIC circulars allowing exemptions under certain conditions.

Court's Interpretation and Reasoning: The Tribunal carefully distinguished these precedents, noting that they involved products with specific PFA standards and notifications prescribing testing procedures and conditions for exemption. The present case involved shea butter, for which no such specific standards existed at the relevant time, and the notification entries did not prescribe any condition based on intended use or processing.

Key Evidence and Findings: The Tribunal found that the PHO reports and test standards applicable to palm oil cases were not transferable to shea butter. The circular relied upon pertained to edible oils generally, not shea butter specifically.

Application of Law to Facts: The Tribunal held that reliance on these precedents and circulars was misplaced and could not override the clear legislative intent and statutory framework applicable to shea butter.

Treatment of Competing Arguments: The appellant's arguments based on delay in testing and acceptance of higher acid values were rejected as inapplicable to the facts and procedural history of the present case.

Conclusions: The precedents and circulars cited by the appellant did not support the claim for exemption.

Significant Holdings:

"The short question for decision is whether in the facts of the case, the appellant would be entitled for benefit of entry 33A or 33B of the notification or otherwise. It is an admitted fact that the imported shea butter is not in a refined form and it is in crude form. However, for the purpose of entry what is important is to understand whether this crude shea butter is of edible grade or otherwise."

"The intention of the legislature is quite clear and unambiguous that all crude and edible grade or all refined and edible grades are exempted without any condition."

"Even if it is assumed that on processing it may become edible, still not entire amount was used for edible purpose and the eligibility of the same cannot be examined in the form in which it would emerge later after processing, especially in the absence of any such condition in the notification itself."

"The impugned product 'shea butter' in crude form in the given factual matrix, is not of edible grade and therefore it would not fall either under 33A or either 33B of the said notification and therefore not entitled for benefit of notification."

"A circular cannot take away the effect of notification substantively issued and in fact in certain cases it has been held that issuing a circular with a new condition cannot restrict exemption notification and restrict the scope of exemption notification."

The Tribunal's final determination was to dismiss the appeal, upholding the original order denying exemption benefits on the ground that the imported crude shea butter was not of edible grade as per the relevant legal and factual matrix. The appellant's reliance on intended use, conflicting laboratory reports, and precedents related to other edible oils was rejected. The decision underscores the principle that exemption under customs notifications must be strictly construed based on the product's characteristics at import and applicable statutory standards, not on post-import processing or intended use.