1993 (9) TMI 108 - SC - Customs

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

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 ... Exemption notification creating legal fiction of deemed import for breaking-up - power under Section 25 to impose conditions affecting date and method of levy - date for determination of rate and tariff valuation in case of ships to be the date of permission for scrapping - validity of conditional/delegated legislation in taxationExemption notification creating legal fiction of deemed import for breaking-up - power under Section 25 to impose conditions affecting date and method of levy - validity of conditional/delegated legislation in taxation - Validity and proper interpretation of the exemption notification (Notification No. 262-Cus. as amended) issued under Section 25 of the Customs Act, 1962 - HELD THAT: - The Court held that the proviso in the exemption notification validly creates a legal fiction by deeming an ocean-going vessel which is subsequently broken-up to be imported for breaking-up on the date of breaking-up, so that value and rate are to be determined with reference to that deemed date. The power conferred by Section 25 is sufficiently broad to authorize the Central Government to grant exemptions subject to conditions which may relate to stages subsequent to clearance, and to provide for the levy of duty by a form or method different from the statutory method; subsection (3) (as amended) merely makes explicit what is implicit in sub-section (1). A fiction created by delegated conditional legislation must be given full effect; the fact that market circumstances (e.g., rise in steel prices) may produce a higher duty when assessed on the deemed date does not render the notification invalid or make the duty exceed the statutory duty as payable on that deemed date. The contention that the executive cannot create such a fiction or alter the date relevant for valuation under Sections 12, 14 and 15 was rejected; the notification falls within the four corners of Section 25 and is not ultravires. [Paras 21, 22, 24, 25, 26]The exemption notification is valid, creates the legal fiction of deemed import for breaking-up, and is within the power conferred by Section 25; duty is to be charged as if the vessel were imported for breaking-up on the deemed date.Date for determination of rate and tariff valuation in case of ships to be the date of permission for scrapping - exemption notification creating legal fiction of deemed import for breaking-up - The appropriate temporal point for applying the fiction (i.e., the date to be treated as the date of import for valuation and rate) under the exemption notification - HELD THAT: - Recognising that the actual date of physical breaking-up may be uncertain and that scrapping requires prior statutory permission, the Court clarified that the date to be treated as the date of import for the purposes of valuation and determining the rate of duty under the notification is the date on which the Director General of Shipping grants permission for scrapping/breaking. This clarification was made to secure certainty and avoid avoidable disputes; procedural formalities required on that date must also be complied with. [Paras 20]For ships covered by the notification, value and rate must be determined with reference to the date on which permission for scrapping/breaking is accorded by the Director General of Shipping (treated as the deemed date of import for breaking-up).Exemption notification creating legal fiction of deemed import for breaking-up - date for determination of rate and tariff valuation in case of ships to be the date of permission for scrapping - Effect of the foregoing conclusions on the decision in Jalyan Udyog and on the other appeals before the Court - HELD THAT: - Applying the interpretation and principles above, the Court found the decision of the Division Bench in Jalyan Udyog unsustainable. Civil Appeal No. 1104 of 1990 (Union of India v. Jalyan Udyog) was allowed and the Bombay High Court judgment set aside. For other appeals, the same reasoning led to dismissal of the ship-owners' writs. The Court directed that where ships have been broken-up, duties (including any shortfall) shall be assessed and recovered with reference to the date of grant of permission for breaking-up; authorities are to verify that date and proceed accordingly. Where duties were paid pursuant to interim orders or ships have been scrapped, claims for refund may be made and examined by customs authorities in light of this judgment; no immediate refund was ordered by the Court. [Paras 35, 36]The Bombay High Court decision in Jalyan Udyog is set aside; Civil Appeal No.1104 is allowed and other appeals are dismissed. Authorities are directed to assess and recover duty with reference to the date of permission for scrapping and to verify that date in each case; refunds, if any, are to be claimed and considered by customs authorities according to law.Final Conclusion: The exemption notification exempting ocean-going vessels until they are broken-up is valid and operates by creating a legal fiction that, for ships subsequently scrapped, they shall be treated as imported for breaking-up on the date permission to scrap is granted by the Director General of Shipping; valuation and rate of duty must be determined with reference to that date. The Bombay High Court decision in Jalyan Udyog is set aside; the appeals are disposed of in accordance with the directions to the customs authorities to verify the permission dates and assess/recover duty accordingly, with claims for any refund to be considered by the authorities in law. 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.