1999 (5) TMI 29 - SC - Customs

Section 3(1) CVD applies only when the article has been manufactured; imported asbestos fibre not liable for additional duty

SC held that additional duty under Section 3(1) of the Customs Tariff Act (CVD) is measured by the excise duty leviable on a similar article and requires ... Levy of additional duty equal to excise duty under Section 3(1) of the Customs Tariff Act, 1975 - manufacture or production as precondition for excise and consequential additional duty - additional duty under the Tariff Act is independent of customs duty under Section 12 of the Customs Act - counter balancing / level playing field rationale for additional duty - judicial treatment of conflicting precedent (Khandelwal Metal & Engineering Works)Levy of additional duty equal to excise duty under Section 3(1) of the Customs Tariff Act, 1975 - manufacture or production as precondition for excise and consequential additional duty - Whether additional duty under Section 3(1) is leviable on imported asbestos fibre which has not been produced or manufactured in India. - HELD THAT: - Section 3(1) charges an additional duty equal to the excise duty leviable on a like article if produced or manufactured in India; the statutory explanation requires consideration of the article as if manufactured in India to determine the excise incidence. The Customs Tariff Act contemplates an independent charging provision for additional duty, distinct from the customs duty levied under Section 12 of the Customs Act. Where a like article cannot be subjected to excise duty because it has not come into existence by production or manufacture, there is no measure on which Section 3(1) can operate; consequently additional duty under Section 3(1) cannot be levied on imported articles which are not the product of manufacture or production and thus not exigible to excise duty. Applying that principle to the present appeals (on the accepted premise that the imported asbestos fibre had not undergone manufacture), the appellants were not liable to pay additional duty under Section 3(1). [Paras 8, 11, 13, 17, 18]Additional duty under Section 3(1) does not lie on imported asbestos fibre which is not a product of manufacture or production and hence not exigible to excise duty.Judicial treatment of conflicting precedent (Khandelwal Metal & Engineering Works) - additional duty under the Tariff Act is independent of customs duty under Section 12 of the Customs Act - Whether the decision in Khandelwal Metal & Engineering Works (holding that additional duty can be levied irrespective of manufacture) remains a correct statement of law. - HELD THAT: - Khandelwal proceeded on the premise that Section 12 of the Customs Act is the charging section and treated the additional duty under Section 3(1) as a customs duty extendable to imported articles regardless of whether they are manufactured. On a correct construction the Customs Tariff Act provides an independent charging provision for additional duty under Section 3(1) whose measure is the excise duty leviable on a like article if produced or manufactured in India. Where excise duty cannot be levied because the article is not produced or manufactured, Section 3(1) has no operation. For these reasons the Court held that the portion of Khandelwal which takes a contrary view does not correctly state the law; that aspect requires reconsideration and cannot be followed to sustain a levy in the present appeals. [Paras 16, 17]Khandelwal Metal & Engineering Works is not correct insofar as it holds that additional duty under Section 3(1) is leviable regardless of whether the like article is produced or manufactured; that aspect cannot be relied upon to sustain the demand in these cases.Counter balancing / level playing field rationale for additional duty - unjust enrichment - Relief consequential on allowing the appeals - whether refunds should be ordered or the principle of unjust enrichment applied to deny refunds or require restitution. - HELD THAT: - The Court declined to decide on the applicability of unjust enrichment in the abstract because there was no material on record to demonstrate that the additional duty had been included in the selling price of the finished goods. Although the appellants succeeded on the merits, the Court observed that the overruling of the contrary aspect of Khandelwal occurs after many years; in the interest of equity it would be inappropriate to order refunds of additional duty already realised by the Government. At the same time the appellants cannot be mulcted further on account of the illegal demand. Given the interim payments and bank guarantees furnished during litigation, the Court allowed the appeals, quashed the demand, directed that respondents need not refund any additional duty realised so far, and left the parties to bear their own costs. [Paras 19, 20, 21]Appeals allowed and the demand of additional duty quashed; no refund shall be made of additional duty realized so far, and parties to bear their own costs.Final Conclusion: The Court held that additional duty under Section 3(1) of the Customs Tariff Act, 1975 is leviable only where a like article is of such a nature as to attract excise duty (i.e., is produced or manufactured); on the admitted premise that the imported asbestos fibre was not a product of manufacture, the additional duty could not be imposed, the demand is quashed, the inconsistent aspect of Khandelwal Metal & Engineering Works is disapproved for this purpose, but no refund of additional duty realised earlier is directed. Issues Involved:1. Levy of additional duty of customs under Section 3(1) of the Customs Act, 1975.2. Whether asbestos fibre, separated from rock, is a manufactured or produced article.3. Applicability of excise duty on asbestos fibre.4. Interpretation of Section 3(1) of the Customs Tariff Act, 1975.5. Reconsideration of the decision in Khandelwal Metal & Engineering Works v. Union of India.6. Application of the principle of unjust enrichment.Detailed Analysis:1. Levy of additional duty of customs under Section 3(1) of the Customs Act, 1975:The appellants challenged the levy of additional duty of customs on imported asbestos fibre, arguing that it was not manufactured or produced but a natural mineral. The High Court dismissed the writ petition, accepting the contention that extracting asbestos fibre from rock amounted to a manufacturing process, thus making it liable for excise duty and consequently additional duty under Section 3(1) of the Customs Act.2. Whether asbestos fibre, separated from rock, is a manufactured or produced article:The Supreme Court, in its earlier decision, concluded that separating asbestos fibre from rock did not constitute a manufacturing process, as it did not result in a new or distinct commodity. The Court reaffirmed this view, stating that asbestos fibre, merely separated from rock, was not a manufactured or produced article and thus not liable for excise duty.3. Applicability of excise duty on asbestos fibre:The Court held that excise duty is applicable only if an article is produced or manufactured. Since asbestos fibre, separated from rock, did not undergo a manufacturing process, it was not liable for excise duty. Consequently, no additional duty could be levied on its import.4. Interpretation of Section 3(1) of the Customs Tariff Act, 1975:Section 3(1) provides for the levy of additional duty equal to the excise duty on a like article if produced or manufactured in India. The Court clarified that for additional duty to be levied, the imported article must be presumed to be capable of being manufactured or produced in India. However, since asbestos fibre was not a manufactured or produced article, no additional duty could be levied.5. Reconsideration of the decision in Khandelwal Metal & Engineering Works v. Union of India:The decision in Khandelwal Metal & Engineering Works, which allowed additional duty on imported articles regardless of their manufacturing status, was reconsidered. The Court concluded that the decision was incorrect to the extent it suggested additional duty could be levied without the article being manufactured or produced. The correct interpretation is that additional duty can only be levied if excise duty is applicable to a like article produced or manufactured in India.6. Application of the principle of unjust enrichment:The respondents argued that the principle of unjust enrichment should apply, preventing the appellants from receiving a refund of the duty paid. The Court, however, did not decide on the applicability of this principle due to a lack of material on record. It noted that normally, the consequence of allowing the appeals would be a refund, but due to the long-standing decision in Khandelwal Metal & Engineering Works, it would not be equitable to require a refund of the additional duty paid.Conclusion:The Supreme Court allowed the appeals, quashed the demand for additional duty, and held that the respondents were not liable to refund any additional duty already realized. The Court emphasized the need for correct interpretation of the law, especially in taxing statutes, to prevent undue burden on the public.