1999 (5) TMI 29 - SC - Customs

Supreme Court quashes demand for additional duty, emphasizes correct law interpretation

HYDERABAD INDUSTRIES LTD. Versus UNION OF INDIA

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 ... Levy of additional duty of customs (CVD) under Section 3(1) of the Customs Act, 1975 on import of asbestos fibre - whether manufacturing activity taken place or not - applicability conditions of levy of duty of excise on import of goods for the purpose of levy of CVD Held that:- there can be no manner of doubt that additional duty which is levied under Section 3(1) of the Tariff Act is independent of the customs duty which is levied under Section 12 of the Customs Act. Secondly, it has been held by the Three Judge Bench in this case that excise duty is leviable if the article has undergone production or manufacture. The observation in Khandelwal Metal & Engineering Works case which seems to suggest that even if no process of manufacture or production has taken place the imported articles can still be subjected to the levy of additional duty does not appear to be correct inasmuch as the measure for levy of additional duty is the quantum of excise duty leviable on a similar article under the Excise Act. As a result of the aforesaid discussion it follows that on the asbestos fibre imported into India the appellants were not liable to pay any duty under Section 3 of the Customs Tariff Act. The High Court, therefore, erred in discussing the writ petitions filed by the appellants. Allow these appeals with the result that the writ petitions filed by the appellants stand allowed. The demand of additional duty from the appellants is quashed but the respondents shall not be liable to refund any additional duty realised so far from the appellants. 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.