1993 (9) TMI 108 - SC - Customs

Supreme Court affirms exemption under Customs Act, clarifies duty calculation for ship scrapping.

UNION OF INDIA Versus JALYAN UDYOG

The Supreme Court allowed Civil Appeal No. 1104 of 1990, setting aside the judgment and order of the Bombay High Court in a case involving the Customs ... Whether the proviso in the notification No. 262-Cus., dated October 11, 1958 to mean that the duty will be payable as if the ships were imported for breaking-up on the date of its actual import? Held that:- Since the date of breaking-up is an uncertain event and may require an enquiry in each case and also because no ship can be broken-up or scrapped except under the prior permission granted by the Director General of Shipping, the date of breaking-up contemplated by the said proviso should be deemed to be the date on which the permission for scrapping/breaking is accorded by the Director General of Shipping. This clarification is made in the interest of certainty and to obviate avoidable controversy. It is with reference to such date that the value and the rate have to be determined. If on such date, any other procedural formalities prescribed by law are to be complied with, they too have to be complied with. Here the Central Government is exercising a power conferred upon it by the Parliament. The provision conferring such power does contemplate and empower the Central Government to create such a fiction, as explained hereinabove. Sub-section (1) as well as sub-section (3) place the matter beyond any doubt. To repeat, the nature of power under Section 25 is conditional legislation or a species of delegated legislation : an exemption notification under Section 25 is not an executive act. No decision has been brought to our notice in support of the said contention - which is raised only in the written submissions. For the above reasons, we see no reason to hold that the said notification No. 262-Cus., dated October 11, 1958 travels beyond the four corners of Section 25. It is perfectly within the ambit of Section 25. Equally unable to agree that by virtue of the fiction contained in the exemption notification, the ship-owners are being made to pay a higher duty than the statutory duty Issues Involved:1. Applicability of the Customs Act, 1962.2. Interpretation of Exemption Notification No. 262-Cus., dated October 11, 1958.3. Determination of the date of import for customs duty purposes.4. Validity of the public notice dated March 1, 1984.5. Legal sanctity of the exemption notification under Section 25 of the Customs Act.6. Assessment of customs duty on ships imported for scrapping.Detailed Analysis:1. Applicability of the Customs Act, 1962:The matters arise under the Customs Act, 1962. The Supreme Court examined the provisions of the Act, particularly Sections 12, 14, 15, and 25, which deal with the levy, valuation, and exemption of customs duty.2. Interpretation of Exemption Notification No. 262-Cus., dated October 11, 1958:The exemption notification stated: 'Ocean going vessels other than vessels imported to be broken up, are exempt from the payment of Customs duty leviable thereon: Provided that any such vessel subsequently broken up shall be chargeable with the duty which would be payable on her as if she were imported to be broken up.' The Court held that the notification was clear and unambiguous. It created a fiction that the vessel must be deemed to have been imported for breaking-up when it is broken up, and customs duty should be levied on the value and at the rate prevailing on the date of breaking-up.3. Determination of the Date of Import for Customs Duty Purposes:The Court clarified that the date of breaking-up contemplated by the proviso should be deemed to be the date on which the permission for scrapping/breaking is accorded by the Director General of Shipping. This clarification was made to ensure certainty and avoid controversy. The value and rate of duty should be determined with reference to this date.4. Validity of the Public Notice Dated March 1, 1984:The public notice prescribed the procedure for assessment of the value of Indian Flag Vessels meant for scrapping. The respondents contended that the public notice did not apply to them as the ships were imported long before the constitution of the Metal Scrap Trading Corporation and the issuance of the public notice. The Court did not find it necessary to examine the legal sanctity behind the public notice since the ships concerned had already been broken-up under interim orders or after paying the demanded duty.5. Legal Sanctity of the Exemption Notification Under Section 25 of the Customs Act:The Court held that the exemption notification was within the ambit of Section 25 of the Act. Section 25 allows the Central Government to exempt goods from customs duty either absolutely or subject to specified conditions in public interest. The Court found no reason to hold that the notification traveled beyond the four corners of Section 25. It was perfectly within the power conferred by the section.6. Assessment of Customs Duty on Ships Imported for Scrapping:The Court rejected the argument that the exemption notification altered the basic premises provided by Sections 12, 14, and 15. It held that the notification did not increase the duty but merely shifted the date of import for the purpose of duty calculation. The duty should be assessed based on the value and rate prevailing on the date of permission for breaking-up granted by the Director General of Shipping. The Court directed that in cases where ships had been scrapped/broken on payment of lesser duty pursuant to interim orders, duty should be payable at the value and rate in force on the date of permission for breaking-up. The authorities were instructed to verify the date and calculate the duty accordingly.Conclusion:The Supreme Court allowed Civil Appeal No. 1104 of 1990, setting aside the judgment and order of the Bombay High Court in Jalyan Udyog. The other civil appeals were dismissed. The Court emphasized that the exemption notification under Section 25 was valid and within the power conferred by the Customs Act. The duty should be assessed based on the date of permission for breaking-up granted by the Director General of Shipping.