CESTAT Rules, Customs Duty Payable on Imported Crude Palm Oil Lost in Factory Fire
Sangeetha Prathap
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi has held that customs duty is payable on imported crude palm oil that was destroyed in a factory fire, since the goods were never actually used for manufacturing as required under the concessional duty rules. At the same time, the Tribunal set aside all penalties imposed by the Customs Department, noting that the loss was caused by an unforeseen accident and that no evidence suggested fraudulent intention or suppression on the part of the importer.
The dispute arose when M/s Ajanta Soya Limited imported crude palm oil at a concessional duty rate of 7.5 percent under Notification No. 12/2012-Customs, a benefit available only when the imported oil is used for manufacturing specified final products such as refined edible oil, vanaspati or bakery shortenings. In May 2017, a fire broke out in the company’s Bhiwadi unit and continued for nearly two days, destroying a significant portion of the imported crude palm oil stored in the premises. The importer promptly informed both the excise authorities and its insurance company. A detailed assessment carried out by the insurance surveyor quantified the loss at 230.77 metric tonnes, which the Tribunal later accepted as accurate.
Despite this, the Customs Department alleged discrepancies in the importer’s stock records and issued a show-cause notice demanding customs duty of ₹1.05 crore along with interest and penalties under Sections 114A, 114AA and 117 of the Customs Act, 1962. The department argued that the importer had not maintained complete or consistent records of the imported oil, particularly with respect to vessel-wise receipts, and claimed that duty was recoverable because the exemption conditions were not fulfilled. According to the Department, since the imported goods were not actually used in the manufacturing of finished products, the benefit of concessional duty could not be retained.
The importer contended that the shortage arose exclusively due to the accidental fire and that it had maintained proper statutory records. It argued that the destroyed goods should be treated as "used" for the purpose of the exemption, relying on interpretations under the Central Excise Rules. It also asserted that minor stock discrepancies were the result of clerical errors in its tally system and that the department had failed to appreciate the detailed surveyor’s report validating the loss.
After examining the evidence, the Tribunal observed that the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016 contain no deeming provision that allows destroyed goods to be treated as "used". Unlike certain excise law provisions, the customs concessional regime requires actual consumption of the raw material for manufacturing the exempted finished products. Therefore, the crude palm oil that was lost in the fire did not satisfy the statutory condition. The Tribunal concluded that customs duty was indeed payable on the destroyed quantity, and the demand of ₹1.05 crore was legally sustainable.
However, the Tribunal firmly rejected the imposition of penalties. It noted that the fire was an accidental event and there was nothing on record to suggest that the importer had caused the loss deliberately or that it had benefited in any way from the destruction of the crude palm oil. The Bench found no evidence of willful misstatement, suppression of facts or fraudulent intent, which are essential prerequisites for imposing penalties under Sections 114A, 114AA and 117 of the Act. It therefore set aside the entire penalty component while upholding the duty demand and interest.
The order, delivered as Final Order No. 51693/2025, clarifies that while importers availing concessional duty must strictly comply with usage conditions, penalties cannot be imposed where the loss occurs due to an accident beyond the importer’s control and without any intention to evade duty.
Appearance
Counsel For Appellant: Shubhankar Jha
Counsel For Respondent: Ranjan Prakash, Commissioner and Rajesh Singh, Authorized Representative for the Department
Cause Title: M/s Ajanta Soya Limited Versus Commissioner of Customs, (Preventive), Jodhpur
Case No: Customs Appeal No. 51089 Of 2020
Coram: Hon’ble Justice Mr. Dilip Gupta, President, Hon’ble Mr. P.V. Subba Rao, Member (Technical)
