2015 (4) TMI 561 - SC - Customs

Nylon Filament Yarn Exemption Confirmed: Non-CENVAT Credit Actual Withdrawal Determines Customs Duty Calculation Criteria

SC ruled that the appellant was entitled to exemption from additional customs duty on Nylon Filament Yarn under Notification No. 6/2002-CE. The court held ... Exemption from additional duty/Countervailing Duty (CVD) - condition precedent of non-availability of CENVAT credit - impossibility of compliance not defeating statutory exemption - hypothetical manufacture in India for determining chargeability under the Tariff ActExemption from additional duty/Countervailing Duty (CVD) - condition precedent of non-availability of CENVAT credit - impossibility of compliance not defeating statutory exemption - Whether appellants were entitled to the nil rate exemption from payment of additional duty/CVD under Serial No. 122 of Notification No. 6/2002 despite the fact that CENVAT credit under the CENVAT Credit Rules, 2002 was not admissible to them. - HELD THAT: - The notification condition (Condition No. 20) requires that no CENVAT credit under rule 3 or rule 11 has been taken in respect of inputs or capital goods used in manufacture of the goods. The admitted fact was that the appellants had not availed any such CENVAT credit, but the authorities denied exemption on the ground that such credit was not admissible to the appellants in law. The tribunal's reasoning, following Ashok Traders, treated a condition which was impossible of satisfaction as not satisfied. This Court held that such reasoning is inconsistent with the principle laid down in Thermax Private Limited v. Collector of Customs and affirmed in Hyderabad Industries Ltd. Those authorities explain that for purposes of additional duty under the Tariff Act, the law requires treating an imported article as if it could be manufactured in India (a hypothetical manufacture) to determine chargeability; applying that approach, impossibility of taking credit abroad or non-admissibility of credit under CENVAT Rules does not preclude satisfaction of a notification condition which simply requires that credit has not been taken. On these facts, since no CENVAT credit was in fact taken by the appellants, Condition No. 20 was satisfied and the exemption under Serial No. 122 of Notification No. 6/2002 applied. [Paras 6, 7, 8]Appellants entitled to exemption from payment of CVD in terms of Notification No. 6/2002; demand of CVD set aside.Final Conclusion: Appeals allowed; demand of countervailing duty raised by the authorities set aside and exemption under Notification No. 6/2002 (Serial No. 122) held to be available to the appellants. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:Whether the appellant was entitled to exemption from payment of additional duty of customs (Countervailing Duty or CVD) on imported Nylon Filament Yarn under Serial No. 122 of Notification No. 6/2002-CE dated 01.03.2002, which prescribed a nil rate of duty subject to Condition No. 20.The interpretation and applicability of Condition No. 20, which requires that 'no credit under rule 3 or rule 11 of the CENVAT Credit Rules, 2002, has been taken in respect of the inputs or capital goods used in the manufacture of these goods.'Whether the appellant's inability to avail CENVAT credit (due to the nature of import and manufacturing) precluded it from claiming exemption under the Notification.The correctness of the reasoning by the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) in denying exemption on the ground that since CENVAT credit was not admissible to the appellant, the condition could not be fulfilled.The relevance and applicability of precedents, particularly the judgments in Thermax Private Limited v. Collector of Customs and Hyderabad Industries Limited v. Union of India, regarding the interpretation of additional duty of customs under Section 3(1) of the Tariff Act.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement to exemption under Notification No. 6/2002-CE, Serial No. 122Relevant legal framework and precedents: The Notification No. 6/2002-CE provides for nil rate of additional duty of customs on Nylon Filament Yarn of 210 deniers, subject to Condition No. 20. The CENVAT Credit Rules, 2002, particularly rules 3 and 11, govern the availment of credit on inputs and capital goods used in manufacture. The Court referred to the precedents of Thermax Private Limited and Hyderabad Industries Limited, which interpret Section 3(1) of the Tariff Act and clarify the scope of additional duty.Court's interpretation and reasoning: The Court observed that the appellant had not availed any CENVAT credit as per the admitted facts. The authorities below denied the exemption on the ground that credit under the CENVAT Rules was not admissible to the appellant, thus the condition could not be fulfilled. The Court rejected this reasoning.Key evidence and findings: The appellant's import of Nylon Filament Yarn fell under the specified tariff heading. The appellant did not claim or avail any CENVAT credit under the relevant rules. The authorities' denial was based solely on the non-admissibility of credit, not on any actual credit taken.Application of law to facts: The Court held that the condition requiring no CENVAT credit to have been taken is satisfied if the appellant has not availed such credit, regardless of whether credit is admissible or not. The condition is about actual credit taken, not hypothetical admissibility.Treatment of competing arguments: The Court considered the CEGAT's reliance on the Bombay High Court's decision in Ashok Traders, which held that it is impossible to levy excise duty on raw materials used abroad. The Court found this reasoning outdated and inconsistent with later Supreme Court rulings.Conclusions: The appellant was entitled to the exemption under the Notification as it fulfilled the condition of not availing CENVAT credit.Issue 2: Interpretation of Condition No. 20 and applicability of precedents Thermax and Hyderabad IndustriesRelevant legal framework and precedents: Section 3(1) of the Tariff Act levies additional duty of customs equivalent to excise duty leviable on like articles if produced in India. Thermax Private Limited clarified that the actual manufacture in India is not necessary; it suffices to imagine the article manufactured in India to determine the duty. Hyderabad Industries affirmed this interpretation.Court's interpretation and reasoning: The Court emphasized that the condition in the Notification must be interpreted in light of these precedents. The Court noted that the additional duty is to be levied as if the article were manufactured in India, even if it is not actually manufactured there. Therefore, the condition relating to CENVAT credit must be understood as applicable to the actual availment of credit, not to the theoretical possibility of credit admissibility.Key evidence and findings: The Court referred to the recent judgment in AIDEK Tourism Services Private Limited, which summarized the principles from Thermax and Hyderabad Industries, reinforcing the approach that the law presumes manufacture in India for the purpose of additional duty but does not require actual manufacture.Application of law to facts: Applying these principles, the Court found that the appellant's inability to claim CENVAT credit under the rules did not disqualify it from exemption, since the condition required no credit to have been taken, which was the case.Treatment of competing arguments: The Court rejected the reasoning that a condition impossible to satisfy must be treated as not satisfied. Instead, the Court held that the condition is about the actual fact of credit being taken, not about the possibility of taking credit.Conclusions: The Court concluded that the appellant satisfied Condition No. 20 and was entitled to the exemption.3. SIGNIFICANT HOLDINGS'The condition precedent for levy of additional duty thus contemplated by the explanation deals with the situation where 'a like article is not so produced or manufactured'. The use of the word 'so' implies that the production or manufacture referred to in the second limb is relatable to the use of that expression in the first limb which is of a like article being produced or manufactured in India. The words 'if produced or manufactured in India' do not mean that the like article should be actually produced or manufactured in India. As per the explanation if an imported article is one which has been manufactured or produced, then it must be presumed, for the purpose of Section 3(1), that such an article can likewise be manufactured or produced in India. For the purpose of attracting additional duty under Section 3 on the import of a manufactured or produced article the actual manufacture or production of a like article in India is not necessary. For quantification of additional duty in such a case, it has to be imagined that the article imported had been manufactured or produced in India and then to see what amount of excise duty was leviable thereon.'This Court overruled the reasoning that a condition impossible of fulfillment must be treated as not satisfied, clarifying that Condition No. 20 requires that no CENVAT credit has actually been taken, not that credit must be admissible or capable of being taken.The Court held that the appellant was entitled to exemption from payment of Countervailing Duty under Notification No. 6/2002-CE, Serial No. 122, as it had not availed CENVAT credit, fulfilling Condition No. 20.The demand for CVD raised by the authorities was set aside accordingly.