1983 (1) TMI 88 - HC - Customs

Court upholds Customs Tariff Act, 1975 validity, denies exemption under Customs Notification, affirms legislative competence.

The court dismissed the writ petitions, upholding the constitutional validity of section 3(1) of the Customs Tariff Act, 1975, the inclusion of customs ... Constitutional validity of additional duty under section 3(1) of the Customs Tariff Act, 1975 - Inclusion of customs duty in assessable value under section 3(2) of the Customs Tariff Act, 1975 - Characterisation of customs duty as an importation expense and not a post-importation expense - Parliamentary competence under Entry 83, List I of the Seventh Schedule - Parliamentary competence under Article 248 and Entry 97, List I of the Seventh Schedule - Surcharge conceived as an additional tax on customs duty - Scope of customs notification exemption - entitlement limited to actual users/manufacturersConstitutional validity of additional duty under section 3(1) of the Customs Tariff Act, 1975 - Inclusion of customs duty in assessable value under section 3(2) of the Customs Tariff Act, 1975 - Section 3(1) read with section 3(2) of the Customs Tariff Act, 1975 is intra vires the legislative competence of Parliament and validly permits addition of customs duty to the value of imported goods for computing the additional duty under section 3(1). - HELD THAT: - The Court held that the customs duty leviable under the Customs Act, 1962 is not a post-importation expense but an importation expense attracted at the time of importation when the taxable event occurs. Consequently the addition of the customs duty to the value of the imported article for the purpose of calculating the additional duty under section 3(1) falls within the field of Entry 83, List I, as the impugned levy is, in pith and substance, a levy of customs duty (and may be regarded as additional customs duty or a surcharge on customs duty). Further, even if the impugned levy were thought not to be the precise species of customs duty envisaged by Entry 83, Parliament possessed legislative competence under Article 248 and Entry 97, List I to enact a nondescript tax of the character of the impugned levy, provided it does not trench on State legislative spheres or fundamental rights. The Court therefore rejected the contention that section 3(2)'s inclusion of customs duty in assessable value rendered section 3 unconstitutional. [Paras 13, 15, 16, 17, 18]Section 3(1) read with section 3(2) is constitutionally valid and Parliament could lawfully include customs duty in the assessable value for computing the additional duty.Characterisation of customs duty as an importation expense and not a post-importation expense - Landing charges and other post-importation expenses - Customs duty and certain landing charges are importation expenses and not post-importation expenses, and therefore may be included in the valuation for the additional duty under section 3. - HELD THAT: - The Court emphasised that the taxable event for customs duty occurs on importation and that customs duty is an expense connected with importation because payment of that duty is necessary before the importer can obtain possession and utilise the goods. By parity with excise law principles distinguishing postmanufacturing (selling) expenses, postimportation expenses are those not relatable to import; customs duty and landing charges (as held in earlier authority relied upon) are expenses relatable to importation and hence not excluded from valuation under section 3(2). The Court therefore rejected the petitioners' submission that addition of such charges to value contravened Entry 83. [Paras 9, 10, 11, 19]Customs duty (and landing charges as previously decided) are importation expenses and may be included for calculating the additional duty under section 3.Parliamentary competence under Article 248 and Entry 97, List I of the Seventh Schedule - Surcharge conceived as an additional tax on customs duty - Even if the impugned levy were not exactly the form of customs duty contemplated by Entry 83, Parliament had competence under Article 248 and Entry 97, List I to enact the provision imposing the additional duty under section 3. - HELD THAT: - Relying on precedent, the Court observed that the Lists demarcate fields but Parliament's power under Article 248 and Entry 97 permits enactment of taxes not falling precisely within other Entries so long as there is no conflict with State legislative powers or fundamental rights. The impugned levy can be regarded as either an additional customs duty or as a nondescript tax (labelled for convenience as customs duty); jurisprudence permits a surcharge/augmentation of an existing tax as an additional tax of the same nature. Accordingly, the impugned provision is sustainable under Article 248 and Entry 97 if not strictly within Entry 83. [Paras 13, 15, 16, 17, 18]Parliamentary competence under Article 248 and Entry 97 validates the impugned levy even if it does not conform in form to Entry 83 alone.Scope of customs notification exemption - entitlement limited to actual users/manufacturers - The exemption under Customs Notification No. 175/81-Cus. is available only to original equipment manufacturers or ancillary manufacturers/actual users as specified and not to an Export House importing for sale to users; the petitioners were not entitled to the exemption. - HELD THAT: - The conditions of the Notification require certification and an approved manufacturing programme of the actual user/importer demonstrating that the imported components are used in manufacture of specified vehicles. The Directorate's decision refusing approval to the petitioners (who were not manufacturers and sought imports for sale to users) followed the plain terms of the Notification. The Court found no illegality in the Directorate's interpretation that the programme to be approved must be that of the actual user/importer and not of a trading/export house intermediary. [Paras 20, 21, 22]The petitioners, being nonmanufacturers/export house importers, were not entitled to the Notification's exemption and the administrative refusal of approval was upheld.Final Conclusion: The writ petitions are dismissed: section 3(1) read with section 3(2) of the Customs Tariff Act, 1975 is constitutionally valid (customs duty is an importation expense and may be included in assessable value; alternatively Parliament can legislate under Article 248/Entry 97), landing charges are not postimportation expenses, and the denial of notification benefit to the nonmanufacturer petitioners was justified. Issues Involved:1. Constitutional validity of section 3(1) of the Customs Tariff Act, 1975.2. Legislative competence of Parliament under Entry 83 of List I of the 7th Schedule to the Constitution of India.3. Inclusion of customs duty in the valuation of imported goods under section 3(2) of the Customs Tariff Act, 1975.4. Inclusion of landing charges in the valuation of imported goods.5. Entitlement to exemption under Customs Notification No. 175/81-Cus., dated 25th July, 1981.Issue-wise Detailed Analysis:1. Constitutional Validity of Section 3(1) of the Customs Tariff Act, 1975:The petitioners argued that section 3(1) of the Customs Tariff Act, 1975, which imposes an additional duty on imported goods equivalent to the excise duty on like articles produced in India, was ultra vires. They contended that the additional duty calculated under section 3(2) included customs duty, which they claimed was a post-importation expense and thus beyond the legislative competence of Parliament under Entry 83 of List I.2. Legislative Competence of Parliament under Entry 83 of List I of the 7th Schedule:The petitioners asserted that under Entry 83, customs duty could only be levied on the importation of goods, and the value for such duty should be the value at the time and place of importation without including post-importation charges. The respondents, however, argued that even if Entry 83 did not cover such a provision, Parliament had the power under Article 248 and Entry 97 of List I to enact it. The court held that customs duty, payable upon the importation of goods, is not a post-importation expense but an importation expense, thus falling within the legislative competence of Parliament under Entry 83.3. Inclusion of Customs Duty in the Valuation of Imported Goods under Section 3(2):The court concluded that customs duty, which is payable upon the importation of goods, is an importation expense and not a post-importation expense. Therefore, adding customs duty to the value of imported goods for the purpose of determining the assessable value under section 3(1) was within the legislative competence of Parliament under Entry 83. The court further elucidated that the levy under section 3(1) could be seen as an additional customs duty and a surcharge on the customs duty, which Parliament was competent to impose.4. Inclusion of Landing Charges in the Valuation of Imported Goods:The petitioners contended that landing charges should not be included in the valuation of goods for the purpose of the additional duty. The court referred to a previous decision in M/s. Super Traders v. Union of India, where it was held that landing charges are not post-importation expenses. Consequently, the inclusion of landing charges in the valuation was upheld.5. Entitlement to Exemption under Customs Notification No. 175/81-Cus., dated 25th July, 1981:In Civil Writ No. 3678, the petitioners challenged the denial of exemption under the said notification, which provided exemptions for components required for manufacturing heavy commercial vehicles, subject to certain conditions. The Directorate General of Technical Development denied the approval as the petitioners were not manufacturers but importers for resale. The court upheld this decision, stating that the benefit of the notification was intended for actual users or manufacturers, not for importers who sell to actual users.Conclusion:The writ petitions were dismissed, and the court upheld the constitutional validity of section 3(1) of the Customs Tariff Act, 1975, the inclusion of customs duty and landing charges in the valuation of imported goods, and the denial of exemption under the specified customs notification. The court also affirmed the legislative competence of Parliament under Entry 83 of List I and Article 248 and Entry 97 of List I of the 7th Schedule.