1989 (5) TMI 61 - SC - Customs

Supreme Court Upholds Differential Customs Duty Rates for State Trading Corporation

M JHANGIR BHATUSHA Versus UNION OF INDIA

The Supreme Court upheld the differential treatment in customs duty rates between private importers and the State Trading Corporation, stating that the ... Whether there is justification for the differential treatment accorded between the State Trading Corporation and the private importers? Held that:- It is true that the State dons the robes of a trader when it enters the field of commercial activity and ordinarily it can claim no favoured treatment. But there may be clear and good reason for making a departure. Viewed in the background of the reasons for granting a monoply to the State Trading Corporation, acting as an agent or nominee of the Central Government in importing the specified oils, it will be evident that policy considerations rendered it necessary to make consummation of that policy effective by imposing a concessional levy on the imports. No such concession is called for in the case of the private importers who, in any event, are merely working out contracts entered into by them with foreign sellers before 2nd December, 1978. We are also not satisfied that any of the private importers have made out that their business will be crippled or ruined in view of the rate of customs duty visited on their imports. The material before us is not sufficient to warrant any conclusion in their favour. As the private importers are not entitled to relief, no question arises of considering whether the exemption orders should be struck down or their benefit extended in favour of the private importers also. Appeal dismissed. Issues Involved:1. Discriminatory treatment in customs duty rates between private importers and the State Trading Corporation.2. Violation of Article 14 of the Constitution.3. Legitimacy of the reasons provided for the exemption orders under Section 25(2) of the Customs Act, 1962.4. Impact of differential customs duty on the business of private importers.Detailed Analysis:1. Discriminatory Treatment in Customs Duty Rates:The appeals and writ petitions filed by private importers challenge the differential customs duty rates levied on them compared to the State Trading Corporation (STC). The private importers were subjected to a higher customs duty rate of 12.5% ad valorem, later increased to 42.5%, while the STC enjoyed a concessional rate of 5% with exemptions from auxiliary and additional duties. The private importers argued that this differential treatment lacked a real or substantial nexus with the proposed object of the exemption orders.2. Violation of Article 14 of the Constitution:The private importers contended that the discriminatory treatment violated Article 14 of the Constitution, which guarantees equality before the law. They argued that the exemption orders conferred an undue advantage on the STC, a private limited company engaged in commercial activities, and that the concession should relate to the goods and not the importer's identity. They cited various judgments to support their claim that the STC, despite being under government supervision, should not be treated differently from other traders.3. Legitimacy of the Reasons Provided for the Exemption Orders:The private importers challenged the legitimacy of the reasons provided in the exemption orders under Section 25(2) of the Customs Act, 1962. The exemption orders stated that the high international prices of vegetable oils and the need to keep domestic vanaspati prices at reasonable levels justified the differential treatment. The private importers argued that these reasons were unfounded, as international prices were falling, and their imports were intended for direct human consumption, not for vanaspati manufacturing. They claimed there was no real or substantial nexus between the differentiation and the object of Section 25(2).4. Impact of Differential Customs Duty on the Business of Private Importers:The private importers asserted that the differential customs duty would cripple their business, as the total duty impact would be unsustainable. They argued that the relief should include extending the concessional duty rate of 5% to their imports as well, given that the STC imported significantly larger quantities of oil.Judgment Analysis:The Supreme Court upheld the differential treatment, stating that the reasons provided in the exemption orders constituted a reasonable basis for the notifications. The Court acknowledged the fluctuating international prices and the need to maintain reasonable domestic vanaspati prices as valid considerations. It emphasized that the entire edible oil market was integrated, and high vanaspati prices could lead to unauthorized diversion of edible oils, causing scarcity and erratic prices.The Court also noted that the STC acted as an agent of the Central Government, and the policy considerations justified the concessional levy on its imports. The private importers were merely fulfilling pre-existing contracts and did not warrant the same concession. The Court found no sufficient material to support the claim that the differential duty would cripple the private importers' business.Conclusion:The Supreme Court dismissed the appeals and writ petitions, concluding that the private importers were not entitled to relief. The differential customs duty rates were justified based on policy considerations and the need to protect the domestic market. The Court found no violation of Article 14 and upheld the legitimacy of the reasons provided for the exemption orders under Section 25(2) of the Customs Act, 1962.