2002 (2) TMI 129 - HC - Customs

Circular No.40/2001-Cus. and related order set aside; reassessment under Entry No.29 and Sec.151A; bonds quashed, bank guarantees released

HC held Circular No. 40/2001-Cus. and the impugned departmental order ultra vires Notification No. 17/2001-Cus., set aside them as unsustainable and ... Power to grant exemption under Sec. 25(1) of the Customs Act - legislating by circular / circular cannot amend or add conditions to a notification - taxable event occurs on import and assessment cannot be made contingent on future events - distinction between chargeability and assessment / quantification of customs duty - end use condition and burden of proof for claiming exemption - binding effect of Board instructions on departmental officers but not a fetter on assessee's right to challenge - conclusive weight of technical expert opinion unless displaced by cogent contrary technical evidenceLegislating by circular / circular cannot amend or add conditions to a notification - power to grant exemption under Sec. 25(1) of the Customs Act - Validity of Circular No.40 of 2001 insofar as it imposes an end use condition not contained in Notification No.17 of 2001 - HELD THAT: - Section 25(1) authorises the Central Government to grant exemption generally either absolutely or subject to conditions which may be required to be fulfilled before or after clearance; such conditions must therefore be incorporated in the notification itself and are subject to publication and laying before Parliament. A subsequent Board circular cannot impose a new substantive condition that alters or adds to the terms of a notification, since that would amount to legislating by circular and would bypass the statutory procedure. Where Notification No.17 contains no condition in respect of Entry No.29, Circular No.40 cannot lawfully convert a benefit under that entry into a conditional benefit by requiring production of end use certificates or similar obligations not prescribed in the notification. The circular therefore exceeds the permissible scope of administrative instructions under Sec.151A and conflicts with the statutory notification scheme. [Paras 10, 14, 16, 23]Circular No.40 of 2001 is contrary to Notification No.17 and cannot impose an end use condition not specified in the notification; the circular is quashed to that extent.Taxable event occurs on import and assessment cannot be made contingent on future events - distinction between chargeability and assessment / quantification of customs duty - Whether the department may postpone final levy or make assessment/quantification of duty contingent upon a future event (establishment of end use) - HELD THAT: - The charge to customs duty arises under Sec.12 when goods are imported; that taxable event fixes chargeability. Although assessment and quantification remain for determination under the Act, the statute does not permit the department to render final chargeability dependent upon a contingency occurring post import. Section 25(1) contemplates conditions may be attached in the notification itself to be fulfilled before or after clearance, but such conditions must be part of the notification; they cannot be created subsequently so as to convert the static taxable event into a contingent one. [Paras 8, 12, 13, 14]Once goods are imported the charge is fixed and assessment/quantification cannot be made contingent on future events by administrative instruction.End use condition and burden of proof for claiming exemption - interpretation of entries 28, 29 and 34 of Notification No.17 - Proper editorial/interpretative relationship between Entries 28, 29 and 34 of Notification No.17 and whether Entry 29 importers can be required to establish future non conversion to edible grade - HELD THAT: - Entry No.28 deals with edible oils under specified headings; Entry No.34 is a carve out dealing with crude palm oil of edible grade (sub heading 1511.10) and is not part of Entry No.29. Entry No.29 applies to 'all goods (other than edible oils)' falling under various headings. Therefore goods legitimately falling within Entry No.29 at the time of import (i.e., other than edible oils) cannot be reclassified into Entry No.34 by administrative fiat on the ground that the importer may subsequently refine or process them into edible grade. Treating Entry No.29 goods as liable under Entry No.34 unless the importer proves a negative future use would impose an arbitrary and irrational condition applicable only to certain oils and is unsupported by the notification's language. [Paras 17, 18]Goods falling under Entry No.29 must be assessed under Entry No.29; they cannot be made subject to Entry No.34 by imposing an end use proof requirement not found in the notification.Conclusive weight of technical expert opinion unless displaced by cogent contrary technical evidence - Whether the departmental officer could disregard the technical opinions of qualified analysts that the imported consignment was not of edible grade and insist on end use proof - HELD THAT: - Samples were taken and tested by the Chemical Examiner and the Public Analyst under statutory regimes; their opinions indicated the consignment did not conform to edible grade standards and could not be used as such for human consumption. Such a technical opinion by competent authorities cannot be displaced by an officer of the department merely by asserting that the goods might be processed into edible grade later. Displacement of a technical expert's report requires specific, cogent contrary technical evidence. [Paras 3, 19]The technical opinions that the imported goods were not of edible grade stand unless successfully displaced by cogent contrary technical evidence; the officer could not insist on end use proof notwithstanding those reports.Binding effect of Board instructions on departmental officers but not a fetter on assessee's right to challenge - Legal effect of Board circulars on departmental officers and on assessees - HELD THAT: - Circulars and instructions of the Board under Sec.151A bind officers and other persons employed in execution of the Act to ensure uniformity, but such administrative instructions cannot operate so as to override, amend or add to a statutory notification. Moreover, an assessee retains the right to question the validity or legality of a Board circular; the binding effect on officers does not preclude judicial review of the circular's legality. [Paras 11, 22]Board circulars bind departmental officers for uniformity but do not prevent an assessee from challenging their validity where they conflict with statutory notifications.Final Conclusion: The writ petition is allowed: Circular No.40 of 2001 and the consequential order dated 20 7 2001 are quashed insofar as they impose end use conditions not contained in Notification No.17; the respondents are directed to assess the specified consignments under Entry No.29 of Notification No.17, cancel the bonds and release the bank guarantees; no costs awarded. Issues Involved1. Constitutionality and legality of Circular No. 40 of 2001-Cus.2. Applicability of concessional rate of duty under Notification No. 17 of 2001-Cus.3. Requirement of end-use certification for concessional duty benefits.4. Validity of provisional assessment and the role of Sec. 151A of the Customs Act.SummaryConstitutionality and Legality of Circular No. 40 of 2001-Cus.The petitioners challenged Circular No. 40 of 2001-Cus., dated 13-7-2001, as unconstitutional, illegal, and ultra vires Arts. 14, 19(1)(g) and the provisions of Sec. 151A of the Customs Act, 1962, and Notification No. 17 of 2001-Cus., dated 1-3-2001. The court held that the circular cannot override the notification issued u/s 25(1) of the Customs Act, which has the force of statutory levy. The circular was found to be contrary to the notification and thus quashed.Applicability of Concessional Rate of Duty under Notification No. 17 of 2001-Cus.The petitioners sought assessment of imported goods at a concessional rate of 35% duty as per Entry No. 29 of Notification No. 17 of 2001-Cus. The court noted that the notification did not prescribe any condition for the said entry, and thus, the circular imposing such conditions was invalid. The goods were directed to be assessed at the concessional rate as per the notification.Requirement of End-Use Certification for Concessional Duty BenefitsThe circular required importers to produce an end-use certificate for claiming concessional duty benefits. The court held that such a requirement could not be imposed by a circular if not specified in the notification. The imposition of end-use conditions by the circular was deemed to be an overreach of administrative authority and hence invalid.Validity of Provisional Assessment and Role of Sec. 151A of the Customs ActThe court examined whether the provisional assessment pending end-use verification was permissible. It concluded that once the taxable event of importation occurs, the charge is fastened, and assessment cannot depend on future contingencies. The court also clarified that Sec. 151A allows for instructions for uniformity in classification and levy but does not permit modifying statutory notifications.ConclusionThe court quashed Circular No. 40 of 2001-Cus. and the consequential order dated 20-7-2001, directing the respondents to assess the goods as per Entry No. 29 of Notification No. 17 of 2001-Cus., and to cancel the bonds and release the bank guarantees furnished by the petitioners. The petition was allowed, and the rule was made absolute with no order as to costs. A stay on the operation of the judgment was denied.