2025 (7) TMI 362 - AT - Customs

Requirement to satisfy the conditions for export of brown basmati rice laid down as per Sl. No. 57 of ITC (HS) Schedule-2 Export Policy for basmati Rice (De- husked brown) or also required to satisfy the condition laid down vide Notification dated 11.01.2023 issued by FSSAI - HELD THAT - As per Para 2.03 of the Foreign Trade Policy (a) Domestic Laws/ Rules/ Orders/ Regulations/ technical specifications/ environmental/ safety and health norms applicable to domestically produced goods shall apply mutatis mutandis to imports unless specifically exempted and (b) However goods to be utilized/ consumed in manufacture of export products as notified by DGFT may be exempted from domestic standards/ quality specifications. In respect of the impugned goods no condition has been prescribed with reference to FSSAI standards and whatever condition that was prescribed has been satisfied by the appellants. The Adjudicating Authority did not appreciate the submission of the appellant that the provisions of FSSAI are not applicable in respect of goods to be exported unless specifically mentioned in the Foreign Trade Policy. It is found that except taking the argument that export is at par with sale in India Commissioner does not refer to any statutory provisions/ Authority/ Notification / Circular etc stipulating applicability of FSSAI provision for export of basmati rice. Nothing has been brought on record by department. Further we find that the food security standards vary from one country to the other. There is no evidence or report to the extent that the said consignment was rejected by the importing country i.e. UK for lack of standards. There is no allegation that the consignment did not reach the declared destination but was diverted midway and the transactions made were through non-banking channels etc. Revenue did not make any efforts to refer to FSSAI to seek opinion on the applicability of the FSSAI to the impugned goods. Revenue has simply relied on the report and opinion of the CRCL which is not a specialized Testing Laboratory for food standards - in the absence of the same and in the absence of any requirement of satisfying the FSSAI standards in India statutorily there are no merit in the impugned order. It is opined that the revenue could not establish that the exported goods were mis- declared and therefore liable for confiscation. When the department failed to establish that the goods are liable for confiscation imposition of redemption fine demand of duty and imposition of penalties cannot be sustained. The impugned order is set aside and the appeal is allowed.

Summary

The core legal questions considered in this judgment are:

1. Whether an exporter is required to satisfy the conditions for export of brown basmati rice as laid down under Schedule-II of the Foreign Trade Policy (FTP), specifically Sl. No. 57 of ITC (HS) for basmati rice (de-husked brown), or whether the standards prescribed by the Food Safety and Standards Authority of India (FSSAI) Notification dated 11.01.2023 are also applicable to exported goods.

2. Whether the impugned goods, described as "brown basmati rice," were correctly classified under Customs Tariff Heading (CTH) 10063020 or whether they were non-basmati rice, thus subject to export restrictions and liable for confiscation, duty, penalties, and redemption fine.

3. Whether the provisions of the Customs Act, including confiscation under Section 113(d), penalties under Sections 114A and 114AA, and redemption fines, were rightly imposed on the appellants given the facts and applicable legal framework.

Issue-wise Detailed Analysis:

Issue 1: Applicability of Foreign Trade Policy (FTP) conditions versus FSSAI standards for export of brown basmati rice

Legal Framework and Precedents: The export of brown basmati rice is regulated by the Foreign Trade Policy and the ITC (HS) Schedule-II, Sl. No. 57, which prescribes specific conditions for export such as contract registration with APEDA, grain length and length-to-breadth ratio, export through specified ports, and certification requirements. The Food Safety and Standards Act, 2006, and FSSAI regulations govern food safety and standards domestically, including licensing and standards for food products sold or imported in India.

Court's Interpretation and Reasoning: The Court examined whether FSSAI standards, specifically the Notification dated 11.01.2023, apply to goods exported from India. The Court noted that the FSSAI Act's functions relate to regulation of manufacture, processing, distribution, sale, and import of food within India, but do not explicitly mention exports. The definition of "food business" under Section 1(n) and "food business operator" under Section 1(o) of the FSSAI Act was considered, emphasizing that export is not included within these definitions.

The Court observed that the Foreign Trade Policy explicitly prescribes the conditions for export of basmati rice and does not incorporate FSSAI standards as mandatory for export unless specifically mentioned. The appellants fulfilled all conditions under Sl. No. 57 of Schedule-II of ITC (HS) applicable for brown basmati rice export. The Court found no statutory provision or notification mandating compliance with FSSAI standards for exports.

Key Evidence and Findings: The appellants submitted proof of contract registration with APEDA, compliance with grain length and length-to-breadth ratio, export through an EDI port, and certification from the Export Inspection Agency. The Revenue relied on the CRCL report and FSSAI regulations but failed to produce any statutory mandate making FSSAI standards applicable for exports.

Application of Law to Facts: The Court applied the principle that domestic laws apply mutatis mutandis to imports unless exempted, but no such application is prescribed for exports in this case. The Court emphasized that the FTP governs export conditions and that FSSAI regulations are meant for domestic food safety and standards.

Treatment of Competing Arguments: The Revenue argued that FSSAI standards apply to exports to prevent substandard or unsafe food products leaving India, citing the Commissioner's view and FSSAI's press release. The appellants countered that no statutory provision supports this and that the export policy governs exports exclusively. The Court found the Revenue's reliance on FSSAI and CRCL reports insufficient without statutory backing and noted the absence of any evidence that the importing country rejected the consignment.

Conclusion: The Court concluded that FSSAI standards are not applicable to the export of brown basmati rice unless specifically incorporated in the FTP. The appellants complied with the FTP conditions, and therefore, the FSSAI standards cannot be imposed extraneously on exports.

Issue 2: Classification of the exported rice and liability for confiscation, duty, and penalties

Legal Framework and Precedents: The Customs Act, 1962, and the Customs Tariff Act govern classification and duty liability. Section 113(d) authorizes confiscation for misdeclaration of goods. Penalties under Sections 114A and 114AA apply for wrongful acts including misclassification and evasion. The DGFT Notification No. 20/2023 prohibits export of non-basmati rice (CTH 10063090).

Court's Interpretation and Reasoning: The Revenue relied on the CRCL report which found that the sample did not meet two FSSAI parameters: average cooked rice length and elongation ratio after cooking, concluding the rice was non-basmati and thus prohibited for export. The appellants argued that the FTP standards for export, which require grain length over 6.61 mm and length-to-breadth ratio over 3.5, were met, and that the CRCL report's findings on FSSAI parameters are irrelevant to export classification.

The Court noted that the CRCL is not a specialized food standards laboratory and that the Revenue did not seek FSSAI's opinion on export applicability. The Court found that the appellants satisfied the export policy parameters and that the Revenue failed to establish that the goods were misclassified or misdeclared under the Customs Act.

Key Evidence and Findings: The CRCL report showed conformity with six out of eight FSSAI parameters, including grain length and length-to-breadth ratio, which are the parameters relevant under the FTP. The Revenue did not produce evidence of rejection by the importing country or diversion of goods. The appellants provided contract registration, inspection certificates, and proof of export through authorized channels.

Application of Law to Facts: Since the FTP conditions were met and no statutory provision required compliance with FSSAI standards for export, the Court held that the classification as basmati rice was justified. Consequently, confiscation and duty demand based on misclassification could not be sustained.

Treatment of Competing Arguments: The Revenue's contention of deliberate misdeclaration to evade restrictions was rejected due to lack of evidence of mala fide intent or misdeclaration. The appellants' argument that no misclassification occurred was accepted.

Conclusion: The Court held that the impugned goods were rightly classified as brown basmati rice under the FTP and Customs Tariff and that the Revenue failed to prove misclassification or misdeclaration warranting confiscation and duty demand.

Issue 3: Validity of imposition of penalties and redemption fine under Customs Act

Legal Framework and Precedents: Penalties under Sections 114A and 114AA of the Customs Act are imposed for wrongful acts including misdeclaration and evasion of duty. Redemption fine is imposed as a punitive measure when goods are liable for confiscation.

Court's Interpretation and Reasoning: Since the Court found no misclassification or misdeclaration, and that the appellants complied with the export policy, the basis for confiscation and penalties was absent. The Court noted that the adjudicating authority withdrew penalty under Section 114(i) and imposed penalties under Sections 114A and 114AA without establishing mala fide intent or wrongdoing.

Key Evidence and Findings: No evidence of intentional wrongdoing or falsification of documents was found. The appellants' compliance with FTP conditions was established. The Revenue did not demonstrate that the goods were diverted or that the export transaction was irregular.

Application of Law to Facts: Penalties and redemption fine cannot be sustained without proof of misdeclaration or violation of export conditions. The Court held that imposition of such penalties was arbitrary and unjustified.

Treatment of Competing Arguments: The Revenue argued penalties were warranted due to misclassification and non-compliance with FSSAI standards. The Court rejected this as the FSSAI standards were not applicable and the FTP conditions were met.

Conclusion: The penalties and redemption fine imposed on the appellants were set aside as unsustainable in law and fact.

Significant Holdings:

"The appellants claim that the export of goods, including food items, are governed by the Foreign Trade Policy and the conditions prescribed therein and not by the FSSAI; even if the item is required to satisfy the standards of FSSAI, a condition to that effect must be there in the ITC as relevant to the item under respective ITC (HS) Code."

"The Food Safety and Standards Act, 2006, does not mention 'export' within its scope and primarily regulates manufacture, processing, distribution, sale, and import of food within India. Therefore, FSSAI standards are not applicable to exports unless explicitly incorporated in the Foreign Trade Policy."

"The appellants have fulfilled all the conditions laid down under Sl. No. 57 of Schedule-II of ITC (HS) for export of brown basmati rice including contract registration with APEDA, grain length and length-to-breadth ratio, export through EDI port, and inspection certificate."

"The Revenue failed to establish that the goods were misclassified or misdeclared, or that the FSSAI standards apply mandatorily to exports. The reliance on CRCL report and FSSAI regulations without statutory backing is insufficient."

"When the department failed to establish that the goods are liable for confiscation, imposition of redemption fine, demand of duty and imposition of penalties cannot be sustained."

"The impugned order is set aside and the appeal is allowed."