1981 (8) TMI 80 - HC - Customs

Customs Duty on Imported Woollen Rags Invalidated; Petitioners Liable for Demurrage Charges Under Item No. 92

The court invalidated the customs duty imposed on the petitioners for imported woollen rags, as the exemption notification did not specify a minimum wool ... Exemption from customs duty under Notification dated April 20, 1966 - trade advice lacks statutory force - sampling, testing and admissibility of scientific tests - standard of review - perversity of administrative findings - detention certificate and exemption from demurrage for period of special examination - classification for port demurrage under Scale of Rates - Item 85 v. Item 92Exemption from customs duty under Notification dated April 20, 1966 - trade advice lacks statutory force - Validity of denial of exemption on ground that wool content was below 50% and reliance on trade advice - HELD THAT: - The Exemption Notification of April 20, 1966 granted total exemption to woollen wastes and woollen rags and contained no stipulation that advantage would be confined to rags with more than 50% wool. The Court held that trade advice is not statutory and cannot be relied upon by quasi-judicial authorities to deny the Notification's benefit. Consequently, the authorities were not entitled to levy duty solely because the wool content was alleged to be below 50% pursuant to trade advice. The Court accepted prior Single Judge precedent to the same effect and set aside the denial of exemption on that basis. [Paras 7]Denial of exemption based on trade advice/50% wool requirement was incorrect; petitioners entitled to exemption.Sampling, testing and admissibility of scientific tests - standard of review - perversity of administrative findings - Validity of authorities' reliance on a single coredrill test (on one bale) when earlier physical and chemical tests on other bales showed contrary results - HELD THAT: - On the facts the Customs authorities conducted two earlier tests (physical and chemical) on samples from bale Nos. 12 and 34 which showed wool content above 50%, and subsequently carried out a coredrill test only on bale No. 19 yielding a much lower percentage. The Court found the Deputy Collector's acceptance of the coredrill result and rejection of the earlier tests to be perverse because no defect in the earlier tests was identified and there was no reasoned basis to extrapolate the single coredrill result to the entire consignment. Selecting the conclusion favourable to levy of duty merely because conflicting analyses existed was held to be improper. [Paras 8, 9]Finding that entire consignment lacked exemption based on the single coredrill test was perverse and unsustainable; the order denying exemption was set aside.Detention certificate and exemption from demurrage for period of special examination - Extent of entitlement to detention certificate and exemption from port demurrage where goods were detained for analytical/technical examination - HELD THAT: - The Scale of Rates provision exempts goods from demurrage fees during the period they are detained by Customs for special examination 'involving analytical or technical tests' if certified by the Collector and not attributable to the importer's fault, plus two working days. The Court interpreted the rule narrowly to cover only the period of actual detention for special examination. Finding that the goods were detained for special examination until end of May 1975, the Court held the petitioners were entitled to a detention certificate and exemption from demurrage for that period only; liability for demurrage from June 1, 1975 remains. [Paras 10]Respondents 1 and 2 must issue detention certificate for period ending May 31, 1975; exemption from demurrage applies only for the period of special examination.Classification for port demurrage under Scale of Rates - Item 85 v. Item 92 - Proper Scale of Rates item for computing demurrage on woollen rags (whether covered by Item 85 'textiles' or residuary Item 92) - HELD THAT: - The petitioners argued woollen rags fall within 'textiles' under Item 85; the Court declined that construction. Relying on earlier decisions and reasoning that Item 85 contemplates textile/fabrics in their pure form, the Court held wornout or torn woollen rags retain the character of rags and are not to be equated with textiles for the purpose of Item 85. The Mysore High Court authority and prior reasoning were applied to conclude Item 92 (residuary item) governs demurrage computation. The Port Trust will, however, apply any relevant deductions as per its Resolution from June 1, 1975 onwards. [Paras 12, 13]Demurrage to be computed under Item 92; petitioners liable for demurrage from June 1, 1975 subject to applicable deductions.Final Conclusion: The orders of the Deputy Collector and Appellate Collector denying exemption are quashed; petitioners entitled to customs clearance without payment of duty and to a detention certificate for the period ending May 31, 1975. Petitioners remain liable to pay port demurrage from June 1, 1975, to be computed under Item 92 of the Scale of Rates (with specified deductions), and the Port Trust shall not sell or dispose of the goods for four months to enable clearance. Issues Involved:1. Validity of Customs Duty Imposition2. Reliance on Trade Advice for Duty Assessment3. Methodology and Validity of Testing Wool Content4. Liability for Demurrage Charges5. Appropriate Scale of Rates for Demurrage ChargesIssue-wise Detailed Analysis:1. Validity of Customs Duty Imposition:The petitioners argued that the exemption notification dated April 20, 1966, exempted woollen wastes and woollen rags from customs duty without stipulating a minimum wool content. The Court agreed, stating, 'The Exemption Notification does not restrict the advantage only to those woollen wastes and woollen rags containing wool of more than 50 per cent.' Therefore, the Customs authorities could not levy duty on the basis that the wool content was less than 50%.2. Reliance on Trade Advice for Duty Assessment:The petitioners contended that the Customs authorities improperly relied on trade advice to impose duty. The Court held, 'It is now well settled that the trade advice issued by the Government of India has no statutory force,' and thus, it was impermissible for the authorities to base their quasi-judicial function on such advice. The Court referenced a similar case, M/s. Nagesh Hosiery Mills v. M.R. Ramchandran, to support this view.3. Methodology and Validity of Testing Wool Content:The Customs authorities conducted three tests to determine wool content, with conflicting results. The Court found the reliance on the third core-drilling test, which showed a wool content of 26%, to be unjustified. 'Merely because the different analysis show different conclusions it is not permissible to select that conclusion which suits the authorities to levy the duty,' the Court stated. The first two tests showed wool content above 50%, and the authorities provided no valid reason to discard these results.4. Liability for Demurrage Charges:The petitioners argued they should not be liable for demurrage charges as the goods were detained due to the Customs authorities' insistence on duty payment. The Court referred to the Supreme Court decision in The Board of Trustees of the Port of Bombay v. Indian Goods Supplying Co., which held that demurrage charges are due even if the delay in clearing goods is not the importer's fault. The Court concluded that the petitioners must pay demurrage charges after May 1975 but could seek reimbursement from the Customs authorities through appropriate proceedings.5. Appropriate Scale of Rates for Demurrage Charges:The petitioners contended that demurrage charges should be computed under Item No. 85 (textiles) rather than Item No. 92 (residuary). The Court disagreed, stating, 'In my judgment, it would not be possible to hold so. What was contemplated by Item No. 85 was textile or fabrics in its pure form and not the woolen rags.' The Court cited the Mysore High Court decision in H. Anjanappa & Son v. Commissioner of Commercial Taxes, which supported the view that woollen rags do not fall under the category of textiles.Conclusion:The Court quashed the orders of the Deputy Collector and the Appellate Authority, stating that the petitioners are not liable to pay Customs duty on the imported woollen rags. However, the petitioners are liable to pay demurrage charges from June 1, 1975, onwards, as per the rates provided by Item No. 92 of the Scale of Rates. The Port Trust authorities were instructed not to dispose of the goods for four months to allow the petitioners to clear them after payment of demurrage charges.