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End-use certification for industrial-grade palm oil -- Questions remain over Customs bond

G. Chandrashekhar

MUMBAI, July 18

EXACTLY three months after Business Line exposed certain loopholes in the customs tariff (BL April 13, 2001) whereby a few importers have been able to get away with clearing what they describe as ``industrial grade palm oil'' and pay a low rate of duty _ 35 per cent ad valorem, against 75 per cent prescribed for edible grade palm oil _ the Ministry of Finance has woken up to the realities of the situation.

On July 13, the Government advised the Customs field formations across the country to test consignments of industrial grade palm oil and insist on end-use certificate to avail of concessional duty in order ensure that the material is actually used for in dustrial purposes as soap-making, and not diverted for edible purposes after refining.

However, there are serious doubts about the legality of the Government's advice to Customs officials. There is no provision in the Customs law _ either in the Customs Act or the Customs Tariff Act _ that empowers the Customs authorities to insist on a b ond or bank guarantee or end-use undertaking.

The vanaspati industry has for some time been making noises about misuse of the concessional duty facility for industrial oils, particularly industrial grade crude palm oil. The intention of the Finance Ministry may be to put some fear in the minds of un scrupulous importers, many believe.

However, anyone aggrieved by the new regulation can challenge it; but the general perception is that no one would. Resourceful importers know how to get around uncomfortable restrictions. In any case, it is common knowledge that the monitoring machinery is lax.

Also, it is unclear how the Government would deal with past imports that have been cleared in a number of ports without end-use certificate. Apparently, the applicability of July 13 communication is prospective and not retrospective.

Worse, there are many who insist that there is nothing called ``industrial grade crude palm oil'' and that the description has been coined by resourceful Indian minds. The international vegetable oil market does not recognise and does not trade in the so -called industrial palm oil.

According to the Prevention of Food Adulteration Act, crude palm oil must have maximum free fatty acid (FFA) of 5 per cent or acid value of 10, so that it can be refined and the value brought within prescribed limit for human consumption. Some interprete rs suggest that if the imported oil shows acid value of more than 10 or FFA more than 5 per cent, the consignment should be rejected and not accorded import clearance because it does not conform to the law.

The lengthy explanation issued by the Central Board of Customs and Excise to justify insistence on bond or bank guarantee and actual end-use certificate is not only laboured, but also shows the authorities have been caught napping over unusual business p ractices of the trade, but do not wish to admit existence of a loophole.

An easy move to plug the glaring anomaly of a high 75 per cent duty on crude palm oil with maximum five per cent FFA and a mere 35 per cent duty on crude palm oil with marginally higher 5.1 per cent FFA would have been to simply ban import of the latter or permit only established actual users to undertake imports to the extent of their genuine production requirement.