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Regarding clearance of vegetable oils imported for industrial purposes at
concessional rate of duty under notification No.17/ 2001-Cus., dated 1.3.2001
Circular No. 40
dated 13th July 2001
Varying practices
being adopted by Custom Houses in the matter of interpretation of notification
No.17/ 2001-Cus., dated 1.3.2001, in regard to import of vegetable oils
specially crude palm oil claimed to have been imported for industrial purposes
have been brought to Board�s notice. Whereas, in some Custom Houses some
manufacturer importers have been allowed the concessional rate of duty of 35%
treating the crude palm oil imported as other than edible oil, doubts have been
raised about admissibility of this concessional rate at certain other Custom
Houses taking into account the Board�s instructions under Circular No.29/
97-Cus., dated 31.7.1997. It has been argued that as per the said circular even
though the crude palm oil imported as such, considering the composition, free
fatty acid/ acid content may not qualify to be termed as edible oil under the
PFA Act, 1954, but since the oil imported can be made fit for human consumption
after further processing, it has to be considered as vegetable oil of edible
grade � having due regard to the Board�s said circular.
2. The issue has been examined in the
Board and the circumstances in which the aforesaid Board�s circular was issued
also looked into. Further, consultations also have been made with the Ministry
of Food & Directorate of Vanaspati. It is observed that notification No.17/
2001-Cus., dated 1.3.2001 inter alia prescribes effective rate of duty for
various categories of vegetable oils and in terms of Sl.No.34 of the table
annexed to the notification crude palm oil and its fractions of edible grade in
loose or bulk form � attract customs duty at 75%. However, in terms of the
same notification, Sl.No.29 of the said table, goods (other than edible oils)
falling under heading Nos.15.07 to 15.15 are liable to a concessional duty of
35%. Doubts arise as to the exact scope of terms other than edible oils and
edible grade which are not defined in the said notification for the purposes of
extending the lower duty or charging higher duty for palm oil. It is observed
that in �Edible Oils Packaging (Regulation) Order, 1998 issued under Essential
Commodities Act by the Ministry of Food and Consumer Affairs (Department of
Sugar and Edible Oils) vide notification G.S.R. 584(E), dated 17.9.98, the term
edible oil means vegetable oils and fats and includes any margarine, Vanaspati,
bakery shorting and fat spread as specified in the Prevention of Food
Adulteration Act, 1954 and rules made thereunder for human consumption. The PFA
Act, 1954 has laid down the standards of crude palm oil and prescribed the
maximum limit of the acid value for crude palm oil as 10.0.
3. Considering
this definition one of the food and drugs laboratory after taking samples from a
consignment of the imported crude palm oil � which showed acid values varying
from 13% to 18%, has opined that the samples do not conform to the standards of
edible grade palm oil prescribed under PFA rules and is not edible as such. In
another case, a chemical examiner relying upon the Board�s 1997 circular, even
though the sample had acid values of more than 13%, took the view that it may be
considered as edible oil as after processing it could be made fit for human
consumption. The discussions with the officers of Department of Food and a
critical look at the Board�s Circular of 1997 reveals that when the question
of extending concessional rate for edible oils was examined in consultation with
the Ministry of Food in 1997, for granting concessional rate for edible oil, it
is the end use which was finally stressed. The definition of edible oil in
�Pulses, Edible Oilseeds and Edible Oils (Storage Control) Order, 1977 also is
worth noting in this regard & it says edible oil means any oil used directly
or after processing for human consumption and include hydrogenated vegetable
oils.
4. It may be observed that this definition
does not make every crude palm oil straightway to be termed as edible oil for
the purposes of the aforesaid order. It is to be noted that the oil should not
only be capable of being used after processing for edible purposes but the
definition also contemplates that such oil after refining should be used for
edible purposes. In fact, in the Board�s circular this aspect had been clearly
mentioned and highlighted in the last para when clarifying the scope of the term
vegetable oils of edible grade in serial number 15 to 11/ 97-Cus dated 1.3.97,
for giving the concessional rate. In other words, the benefit of the
concessional rate for edible oils was to be given so long as the oil imported
was used for edible purposes even after refining.
5. In the context of the existing tax
structure in terms of notification No.17/ 2001-Cus, Government has consciously
provided for a concessional rate of 35% duty for oils used other than for edible
purposes. Thus if it can be established by the importing industry/ trade that
the oil imported as such is not fit for human consumption, (and needs to be
refined before it can possibly be made fit for human consumption) and actually
it is not being subjected to refining for edible use but on the other hand it is
used for industrial purposes, it will not be proper to deny the benefit of lower
concessional rate of 35%. The onus of proving the actual final use could be put
on the importer of such crude palm oil wherever he claims that the consignment
of crude palm oil which does not satisfy straightaway the conditions of edible
grade crude palm oil under PFA Act, 1954, will not be refined for edible use but
is actually used for industrial purpose after Customs clearance. In fact, if it
is viewed that crude palm oil containing free fatty acids, acid value higher
than the limits prescribed under the PFA Act, 1954 falls in the category of the
edible grade, because it can be subsequently refined to make it fit for human
consumption, then the concessional rate provided under serial number 29 of the
table annexed to the notification 17/ 2001 may be redundant & would defeat
the intention of the Government for giving the concessional duty for crude oils
used for industrial purposes & not for edible purposes.
6. In view of the above, and with a view
to ensure that the benefit of the concessional rate of 35% where claimed for
crude oils is extended only where the actual use is shown to be for industrial
application to the satisfaction of the proper officer, the following procedure/
guidelines may be followed:
(a) For consignments of vegetable oils, where the
importers claim concessional rate of duty of 35% as applicable for oils other
than edible oils, samples may be sent for testing to see whether the oil
conforms to standards of PFA Act, 1954. If it is found that the vegetable oil
conforms to the standards of PFA, 1954, the higher effective duty for edible
oils only be charged & lower rate denied, apart from taking suitable action
for misdeclaration etc.;
(b) In case on test, it is found that vegetable
oil does not conform to the standards of PFA Act, 1954 and acid value & free
fatty acid are higher than the permissible limits (i.e. acid value exceeds 10%)
the consignments may be assessed provisionally at the rate claimed, i.e., 35%
and allowed to be moved on execution of a bond for establishing the end use of
the oil for actual manufacture of soap or other industrial use as claimed. The
bond should cover the differential duty liability between the industrial and
edible grade oil. In case, import is by an actual user manufacturer, a security/
bank guarantee amounting to 25% of the bond value may be taken. However, where
the import is not for actual use but for trading and sale to actual industrial
users, the concessional rate may be extended on provisional basis but the amount
of security/ bank guarantee should be equal to bond value, i.e. 100% of
differential duty liability between the industrial and edible grade oil.
(c) The bond shall be discharged and security/
bank guarantee released when the actual end use certificate from the Assistant/
Deputy Commissioner of Central Excise having the jurisdiction over the factories
of soap manufacturers (or other industrial applications for which the vegetable
oil is claimed to have been used), is produced to the Customs authorities within
a period of 3 months or a period as may be extended by the Commissioner of
Customs on being requested by the importers. In case, such certificate is not
produced to Customs within 3 months or period as extended by the Commissioner of
Customs, immediate recovery action of differential amount is initiated.
7. The above said instructions may be
brought to the notice of all concerned by issuing suitable Public Notice and
Standing Order.
8. Difficulties,
if any, in implementation of this circular may be brought to the notice of the
Board. Kindly acknowledge receipt of the circular.
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