PER: P. ANJANI KUMAR

1. The appellants, M/s Star Spices (Appeal No. C/60207/2024), are engaged in the import of areca nut; they have imported five consignments of areca nut; M/s Prabhjyot Singh filed Bills of Entry No.7878147 dated 17.09.2023, 8102010 dated 01.10.2023; 8200735, 8200739, 8200740 all dated 08.10.2023.Acting on an intelligence that the importers are misdeclaring the country of origin to avail benefit under Indo-Sri Lanka FTA, officers of DRI have drawn samples of the above consignment and sent the samples for testing to three laboratories i.e. Central Revenues Control Laboratory (CRCL), New Delhi, Areca Nut Research and Development Foundation (ANRDF), Mangalore and National Food Laboratory of Food Safety and Standards Authority of India (FSSAI) at Ghaziabad. Report received from ANRDF indicated that the imported consignments of areca nuts were of bad quality and were infested with visible molds inside; the samples did not comply with the grades stipulated and that the areca nuts were a mixture of Indonesian and Sri Lankan origin. Statements of concerned persons from the importers and others were recorded and the imported consignments were seized under Section 110 of Customs Act, 1962 under the reasonable belief that they are liable for confiscation. The appellants’ request that they may be permitted to re-export the consignments was rejected by the Revenue. Hon’ble High Court, vide Order dated 04.12.2023, disposed the Writ Petitions filed by the appellants, directing the Department to decide the representation of the appellants for re-export of goods within ten days. Accordingly, the Adjudicating Authority passed an order rejecting the request of the appellants for re-export of the goods; confiscating the imported goods absolutely and imposing penalty on the appellants. On an appeal filed by the appellants, Appellate Authority passed a common impugned order, including the above imports and imports of M/s Sherry Network Pvt. Ltd, vide Bills of Entry No.7713276 dated 07.09.2023, 8102011 dated 01.10.2023 and 8102013 dated 01.10.2023 upholding the order of the lower authority. Hence, this appeal.

2. Shri Saurabh Kapoor, learned Counsel for the appellants, challenges the impugned order on the ground that the procedure for import of “Food Items” as per the provisions of FSSAI Act, 2016 read with FSSAI (Import) Regulations, 2018 were not followed inasmuch as:

• Report of the visual inspection was not submitted in Form-1;
• The sample was forwarded to referral laboratory without intimating the importer;
• The referral laboratory analysis was not given in Form-2 within five days of the date of receipt of sample;
• The test report was not given to the importer and thus, an opportunity, to file an appeal against the result given by the notified laboratory within 15 days of receipt of the report, was not given to the appellants;
• In case the sample was found hazardous, the imported goods shall be destroyed or re-exported within 30 days of being directed so;
• The report given by CRCL cannot be relied upon as it is not a food laboratory or a laboratory registered under FSSAI;
• The report given by ANDRF cannot be relied upon as Dr. S. Keshav Bhat, who furnished the report has confessed in another case that he did not have the necessary expertise and did not visit the countries in question i.e Sri Lanka and Indonesia; further, the report furnished by Shri Keshav Bhat that was disregarded by the Hon’ble Allahabad High Court;
• The Department did not adhere to the procedure prescribed under Circular No.30/2017 dated 10.07.2017;

3. Learned Counsel for the appellants further submits that as the appellants were not supplied the copies of the test reports and were denied an opportunity to get the samples re-tested; the Department, in other case i.e. LDH-CUS-ADC-VC-35-22-23 dated 25.11.2022 and LDH-CUS-ADC-VC-34-22-23 dated 24.11.2022 allowed the request of the importers therein for re-export. He further submits that Hon’ble Courts and Tribunal in similar cases have permitted re-export after imposing a minimum redemption fine. He relies on the following cases:

• 2015 (325) ELT 578 (Ker.) Ajfan Foods Vs Dy Commissioner of Customs.
• 2017 (356) ELT 38 Del. Alchemist Foods Ltd Vs Additional Commissioner of Customs
• 2018 (360) ELT 946 (Tr-All.) Commr. Of C. Ex. Ghaziabad Vs Bhole Baba Dairy Industries Ltd.
• 2015 (325) ELT 592 (Ker.) Choice Trading Corporation Ltd. Vs Commr of Cus (Import) Kochi
• 2022 (381) ELT 380 (Mad.) Deepam International Vs Commissioner of Customs Tuticorin
• (2023) 9 Centax 261 (Mad.) Genuine Spices Vs Commissioner of Customs Tuticorin.
• 2015 (324) ELT 83 (Ker.) Haripriya Traders Vs Union of India
• 2021 (377) ELT 865 (Tri-Mad) Royal Imports & Exports Vs Commissioner of Customs Tuticorin.
• 2003-TIOL-1525-HC-MAD-CUS Sankar Pandi Vs Union of India
• 2010-TIOL-147-SC-CUS Union on India &Ors Shri Sankar Pandi
• 2021-TIOL-232-CESTAT-Bang Nitta Gelatin India Ltd. Vs Commissioner of Customs Cochin.
• 2021 (377) ELT 458 (Tri-Chennai) Selvam Industries Ltd. Vs Commissioner of Customs Tuticorin

4. Learned Counsel for the appellants submits, also, that the appellants are regular importers having imported about 100 consignments of areca nut. In all the previous cases of import, the goods were cleared after testing by the Public Health Officer at the Customs station. In this case, Revenue has recorded a statement of the Public Health Officer stating that he did not know the parameters and standards of areca nut in regards to areca nuts. He further submits that it is not proper on the part of the Revenue to extrapolate the messages exchanged between the appellants and the foreign supplier in the year 2018, to conclude that the appellants have conspired to import sub-standard and hazardous areca nuts in 2023.

5. Learned Counsel for the appellants further submits that as one common adjudication order was passed imposing penalty on the appellant as well as its partner and a single copy of the order was served upon the appellants, they have filed only one appeal before the Commissioner (Appeals). He relies on Alliance Mills (Lessess) Ltd. – 1986 (81) ELT 615 (Tri.). He further submits that the appellant was not aware of the condition of the imported areca nut; in case the imported consignment was of inferior quality, their foreign supplier was ready to take back the consignment; nobody’s cause will be served by seizing the goods and huge loss of foreign exchange would occur to the appellant as well as the country. He submits that their appeal for re-export of the imported consignments may be allowed; he further submits that the importer was not aware of the fact that the imported consignment was of inferior quality and the importer would not have been benefitted in any manner particularly financially and therefore, imposition of penalty is not warranted.

6. Shri Siddharth Jaiswal, assisted by Shri Pawan Kumar and Shri Anurag Kumar, learned Authorized Representatives for the Department, reiterates the findings of the OIO and OIA. Raising a preliminary objection that a penalty of Rs.1 crore was imposed on Shri Prabhjyot Singh Dang, Partner of M/s Star Spices in the Orderin-Original; however, he has not filed any appeal before the First Appellate Authority i.e. learned Commissioner Appeals, who passed the impugned order; however, no separate appeal has been filed by Shri Prabhjyot Singh Dang, the Partner of the appellant. Learned Authorized Representative would submit that as per the practice, the Customs Officers at the place of import draw the samples and forward the same to the respective laboratories. In the instant case, though the Public Health Officer has cleared the consignments, he accepted in the statement recorded by the DRI Officers that he was not aware of the standards of FSSAI for areca nut; CRCL Delhi and National Food Laboratory, Ghaziabad are accreted laboratories and ANRDF have the requisite expertise regarding areca nut and as such the reports given by them cannot be brushed aside.

7. Learned Authorized Representative for the Department submits further that the investigation could lay their hands on the telephonic messages exchanged by the appellants and the foreign suppliers regarding the quality of the areca nut to be supplied; therefore, it cannot be said that the importer/ appellant has no knowledge and hence mens rea regarding the quality of the imported areca nuts. The Department has reasons to believe that the importer attempted to smuggle in low quality infested areca nuts into the country. As the impugned goods have been declared to be unfit for human consumption, they pose a health hazard to humans and therefore, the request for re-export was rightly rejected by the original and appellate authorities.

8. Learned Authorized Representative submits in addition that the instances of permission of re-export of areca nut by the same Commissionerate, cited by the appellants are not relevant as the imported areca nuts therein were not declared to be unfit for human consumption. The other cases relied upon by the appellants are not relevant as the facts of the cases are different. He relies on the following cases:

• 2022 (382) ELT 182 (Bom.) – Star Impex Vs UOI.
• 2010 (259) ELT 622 (Tri. Del.) – Ritu Agencies
• 2008 (232) ELT 774 (SC)- Exim Rajathi India Pvt. Ltd.

9. Heard both sides and perused the records of the case. In the instant case, brief issue for consideration is as to whether the appellants request for re-export of imported areca nuts can be entertained. The appellants have imported areca nuts from Sri Lanka and have filed Bills of Entry for clearance. Learned Counsel for the appellants submits that initially the officers of Revenue Intelligence (DRI) had the suspicion that the importer has managed to misdeclare the country of origin to be Sri Lanka whereas the goods were of Indonesian origin. On going through the Panchnama dated 09.10.2023, it appears that while investigations on the issue of country of origin were continuing, representative samples were sent to different laboratories and on the basis of the chemical analysis reports, Department entertained an opinion that the areca nuts imported were of inferior quality, infested with molds and were unfit for human consumption.

10. It is apparent from the records of the case that the appellant vide letters dated 08.12.2023 have waived the Show Cause Notice and requested for grant of personal hearing; during the personal hearing, they submitted that the test report was negative by a narrow margin and there was no big defect in the goods and submitted that Regulation 10(11) of Food Safety and Standards (Import) Regulations, 2017 provides that the samples are found to be hazardous, the same may be destroyed or permitted to be reexported. As per the test reports given by ANRDF, Mangalore, FSSAI Laboratory, Ghaziabad and CRCL, New Delhi, the impugned consignments did not confirm to the standards of BIS and FSSAI as follows:

(i) Areca Nut Research and Development Foundation (ANRDF), Mangalore (Report Date: 19.10.2023)

• Quality: “very bad”.
• About 53.3% (percentage varied for different samples) of nuts are infested with visible molds inside.
• Grade of areca nuts, as per IS 16962: 2018: does not comply with any grades stipulated in BIS

(ii) Food Safety and Standards Authority of India (FSSAI) Laboratory, Ghaziabad (Report Date: 02.11.2023)

• The sample of areca nut wasfound with the presence of visible fungal growth and musty in odor. 
• The sample does not conform to the standards laid down under Regulation No.2.3.55 of Food Safety & Standards (Food Products Standards and Food Additives), Regulations, 2011, as the sample shows moisture content, damaged nut, damaged by mold & inspects, lead (as Pb) and copper (as cu) above the maximum prescribed limit.
• Sample shows presence of Insect Infestation, fungal growth and musty in odor. The sample is thus substandard under section 3(1)(zx) and unsafe under sections 3(1)(zz)(x)(xi)(xii) of the FSS Act 2006.

(iii) CRCL Report dated 16.11.2023

• The samples do not meet the requirement of betel nut/ areca nut as per FSSAI 2011 and IS 16962:2018. The samples received were broken by molds and insects.

11. The appellants contend that the samples were tested at their back and no reports were given to them and the procedures laid down under the FSSAI Rules have been violated and the test reports were given to them after the prescribed time limits. However, revenue contends that the appellant was aware of the fact that the imported areca nuts are of inferior quality; this is evident from the submissions of the appellants at the time of personal hearing before the Adjudicating Authority. The appellant does not seem to contest the test reports on merits even at this stage. Their contention is that in case the areca nuts are found to be of inferior quality and unfit for human consumption, they may be allowed to re-export the goods. They further submit that they are regular importers and have imported more than 100 consignments of areca nuts from Mubarak Trading Company in Sri Lanka and also from DLK Spice Export and that at no point of time, their consignments were found to be of inferior quality. They further contend that the report given by ANRDF cannot be relied upon as Dr. S. Keshav Bhat, who furnished the report has confessed in another case that he did not have the necessary expertise and did not visit the countries in question i.e Sri Lanka and Indonesia; further, the report furnished by Shri Keshav Bhat that was disregarded by the Hon’ble Allahabad High Court. Even if the goods are of inferior quality, they may be permitted to reexport the goods as per the FSSAI Regulations.

12. It is the case of the Department that from the messages exchanged by the importer with the foreign supplier indicate that the importer has attempted to import inferior quality of areca nuts and to show the country of origin to be Sri Lanka; though, the correspondence pertains to the year 2018, they cast a doubt on the business ethics of the importer. Department further contends that the appellant has accepted that they have transferred Rs.10 million to the foreign exporter without any matching imports albeit during 2018. Department also contends that when the areca nuts are tested to be unfit for human consumption, permitting for re-export would always would pause a danger that the consignment will be re-routed back to India.

13. We find that the Adjudicating Authority has confiscated the goods for the reasons that substandard, unsafe and unfit areca nuts, being injurious to health; prohibition involved in the present matter is not a prohibition simpliciter; it is with reference to the requirements of balancing the wellbeing of the citizens on the one hand and the importers on the other; when personal business interest of importers clashes with public interest, the former has to, obviously, give way to the latter; the discretion in the cases of present nature, involving far reaching impact on public health, cannot be exercised only with reference to the hardship suggested by the importers; further, if these goods are allowed to be redeemed and re-exported then the chances of these same goods returning back to India cannot be ruled out.

14. Having heard the rival contentions and going through the records of the case, we find that though the appellants allege that the procedures laid down under FSSAI Regulations regarding the testing of samples have not been followed, the reports as such are not challenged by the appellants. Their only request appears to be that they may be permitted to re-export of goods; they contend that their foreign supplier has accepted to take back the goods as they are of inferior quality. Department contends that the importer has not supplied any documentary proof like affidavit, e-mail, SMS etc. to substantiate their claim; looking into the fact that the appellants have not yet transferred the money for the consignment to the foreign supplier and looking into the conduct of the appellant, which is still under investigation, re-export may not be permitted. 

15. Department proposes to rely on the decision of Hon’ble Bombay High Court in the case of Star Impex – 2022 (382) ELT 182 (Bom.). We find that the facts of the case are different as there was provisional assessment in that case it is not mentioned whether the appellants therein objected to the manner of testing of the samples. We find that to that extent the ratio is not be applicable to the facts of the present case. Moreover, the decision of Bombay High Court is in the exercise of Writ Jurisdiction under article 226 of the Constitution of India. Alternatively, we find that the appellants rely on some case law. Hon’ble High Court of Kerala, in the case of Azfan Foods – 2015 (325) ELT 578, has permitted Dates imported from Saudi Arabia to be re-exported for non-compliance of FSSAI Regulations. Hon’ble High Court of Delhi in the case of Alchemist Food Ltd. – 2017 (356) ELT 38 (Del.) permitted re-export of goods though they were to be treated as prohibited goods consequent to FSSAI refusal to issue No Objection Certificate. Thus, we find that the goods can be permitted to be re-exported even though they fail to meet the Indian Standards and for that reason become restricted or prohibited goods.

16. We find that the impugned goods have been tested to be unfit for human consumption as per FSSAI standards. Neither the Adjudicating Authority nor the Appellate Authority has given evidence vis-à-vis the Sri Lankan Standards. Moreover, it appears that the said conclusion has been arrived at with the presumption that there are no other uses of areca nuts other than for human consumption. We find that there are certain industrial uses of the areca nuts. On going through the technical sources, it is understood that areca nuts are used for the manufacture of paints; areca nut dust is used for dyeing clothes and tanning leather; it can be used as an adhesive in ply board; areca nut husk is used to make many industrial products such as hardboard, insulation wool, cushions, paper, paper board and activated carbon. Thus, we find that it cannot be presumed that the impugned areca nut, if re-exported, would be used only for human consumption in Sri Lanka and elsewhere. It cannot also be presumed that the consignment will be routed back to India. We are of the considered opinion that while the appellants can be penalized for importing goods in violation of provision of FSSAI and rules made there under, not permitting reexport would not serve any purpose. It has been more than 06 months since the import has taken place and it is likely that the goods will further deteriorate further and would not have any commercial value and would be in the danger of losing industrial usage, if any. Allowing the same to further deteriorate would only cause unintended financial loss to the appellant and would cause wasteful outflow of foreign exchange from the Indian importer to the foreign buyer. The Department contends that no evidence of the foreign buyer accepting the consignment has been given. However, we find that vide letter dated 24.04.2024, M/s DLK Spice Export, Sri Lanka have requested the appellants to make the outstanding payment and to avoid financial strain, immediate action may be taken to re-export the goods. In view of the same, we are of the opinion that benefit of doubt can be given to the appellant as the fact that they are regular importer is not denied. Therefore, we find that ends of justice can be met if suitable redemption fine is imposed in lieu of confiscation and if the appellant is suitably penalized while permitting the re-export of the impugned goods. Indian Authorities should not have any objection if the impugned goods are reexported. In case of such an apprehension, an endorsement can be made on the export documents that the goods are permitted to be re-exported as they were found to be unfit for human consumption as per Indian standards. We find that as the goods are of value of Rs.10 Crore imposition of redemption fine of Rs 2 Cr is certainly harsh. We are of the considered opinion that a fine of Rs 25.00 Lakhs would be sufficient to meet the ends of justice and the goods can be permitted to be re-exported on payment of redemption fine.

17. We find that in the instant case, the appellants have not been given an opportunity to contest findings of the test reports given by CRCL, New Delhi and National Food Laboratory, Ghaziabad. Their objection seems to be with regard to the observing of procedures in sampling and issuing reports. The appellants do not challenge the report that the goods are not as per BIS standards and are not fit for human consumption. They have accordingly requested for re-export of the goods. The appellants have involved themselves in import of goods that are prohibited, thus rendering the goods liable for confiscation and rendering themselves liable to pay penalty. The appellants argued that they are regular importers and are not aware of the fact that the impugned goods are of sub-standard quality and not adhering to the Indian Standards. Department contend that the appellant has exchanged messages with the foreign suppliers which would probably indicate an attempt to import inferior goods and to show the country of origin to be Sri Lanka while the goods were from Indonesia. This matter was of the year 2018/19. The matter and is under investigation and the appellants submit that the said import did not take place. Therefore, the same cannot be a reason to conclude the offence of the appellant in the instant case. Past conduct of the appellants cannot be criteria to decide the mens rea in the impugned case. At the same time the fact that previous imports were cleared cannot help the instant case as its quite likely that most of the consignments are cleared by the RMS System. On the basis of the records of the case, and as the goods are found to be unfit for human consumption, the fact of which is not controverted by the appellants, the imported goods are rendered liable for confiscation, Consequentially, the appellants have rendered themselves liable to penalty.

18. In the instant case, no appeal has been filed in respect of penalty imposed on Shri Prabhjyot Singh Dang, Partner of the appellant. In respect of the penalty imposed on the appellants, the appellants submit that the quantum of penalty has been adjudged arbitrarily. We find that Adjudicating Authority has imposed a fine of Rs.2 Crores on the appellants. Having regard to the facts and circumstances of the case a deterrent penalty would be sufficient. Therefore, in view of our discussion as above, we are inclined to reduce the penalty to Rs.10 Lakhs.

19. Appeal No. C/60206/2024 is held to be non-maintainable as no appeal was filed with the First Appellate Authority.

19.1. Accordingly, the appeal No. C/60207/2024 is partially allowed modifying the impugned order in the following terms:

i. Absolute confiscation is set aside and the appellants are allowed to re-export the impugned goods on payment of a fine, in lieu of confiscation, of Rs.25 Lakhs (Rupees Twenty-Five Lakhs only). Penalty imposed on the appellants under Section 112 of the Customs Act, 1962 is reduced to Rs.10 Lakhs.

ii. The impugned goods are permitted to be re-exported subject to the compliance of the impugned order subject to the above modifications.

iii. The appellant shall submit an undertaking that the goods will not be routed back to the country.

iv. An endorsement shall be made in the export documents to the extent that the goods are being re-exported for the reason that they are found to be unfit for human consumption as per Indian Standards.

20. Order pronounced in the open court on 07/06/2024.