Court Rules No Excise Duty on Imported Vessels for Breaking Up

The court declared Heading No. 89.08 of the Central Excise Tariff Act, 1985, to be ultra vires Section 3(1) of the Customs Tariff Act, 1975. It held that no excise duty is leviable on vessels and floating structures imported for breaking up as they are not produced or manufactured in India, thus no additional customs duty can be imposed under Section 3(1) based on this heading. The court allowed the petitions, making it clear that no additional duty is applicable to imported vessels and floating structures for breaking up.

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Issues Involved
1. Constitutionality of Heading No. 89.08 of the Central Excise Tariff Act, 1985.
2. Levy of Additional Customs Duty on imported vessels and floating structures for breaking up.
3. Applicability of the Supreme Court's decision in Khandelwal Metal & Engineering Works vs. Union of India.
4. Validity of the levy under Section 3(1) of the Customs Tariff Act, 1975.

Detailed Analysis

1. Constitutionality of Heading No. 89.08 of the Central Excise Tariff Act, 1985
The petitioners challenged Heading No. 89.08 of the Central Excise Tariff Act, 1985, arguing it was unconstitutional and ultra vires Entry No. 84 of the Union List of the Seventh Schedule to the Constitution of India, as well as Articles 14 and 19 of the Constitution. They contended that the heading, which covers vessels and other floating structures for breaking up, was improperly used to levy additional customs duty on imported vessels intended for scrapping.

2. Levy of Additional Customs Duty on Imported Vessels and Floating Structures for Breaking Up
The petitioners argued that additional customs duty under Section 3(1) of the Customs Tariff Act, 1975, should only be levied if the imported article is similar to one that is produced or manufactured in India. They contended that since vessels and floating structures for breaking up are not manufactured in India, they should not be subject to additional customs duty. The respondents, however, maintained that the additional duty was validly levied under Heading No. 89.08.

3. Applicability of the Supreme Court's Decision in Khandelwal Metal & Engineering Works vs. Union of India
The respondents relied on the Supreme Court's decision in Khandelwal Metal & Engineering Works, which held that additional customs duty could be levied even if the imported article was not manufactured or produced in India. However, the petitioners pointed out that this decision had been partly overruled by the Supreme Court in Hyderabad Industries Ltd. vs. Union of India, which clarified that additional duty could only be levied if a like article was produced or manufactured in India.

4. Validity of the Levy under Section 3(1) of the Customs Tariff Act, 1975
The court examined Section 3(1) of the Customs Tariff Act, 1975, which prescribes the levy of additional duty equal to the excise duty on a like article if produced or manufactured in India. The court noted that the explanation to Section 3(1) specifies that the additional duty should be equivalent to the excise duty for the time being leviable on a like article if produced or manufactured in India.

Judgment
The court held that the vessels and other floating structures imported for breaking up are not produced or manufactured in India, and therefore, no excise duty is leviable on such articles. Consequently, no additional customs duty can be levied under Section 3(1) of the Customs Tariff Act, 1975, as per the rate prescribed under Heading No. 89.08 of the Central Excise Tariff Act, 1985. The court declared Heading No. 89.08 to be ultra vires Section 3(1) of the Customs Tariff Act, 1975, and quashed any demand for additional duty based on this heading. The petitions were thus allowed, and the rule was made absolute to the extent that no additional duty is leviable on the imported vessels and floating structures for breaking up.

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