2025 (4) TMI 1020 - HC - Customs

Goods exempted from basic customs duty can still face additional duty under separate enactments unless specifically exempted

Transasia Bio-Medicals Ltd. Rep. by Ashok Suthar (General Manager-Taxations & Legal) Versus Union of India, Deputy Commissioner of Customs (Group-5B)

The Madras HC dismissed a petition challenging the levy of 4% additional duty on goods exempted from basic customs duty under Notification 24/2005-Cus. ... Demand of additional duty on the ground that as per the N/N.19/2005-Cus dated 01.03.2005, the goods covered under the exemption N/N. 24/2005-Cus dated 01.03.2005 are liable to pay additional duty at the rate of 4%. The goods imported by petitioner fell under the Customs Tariff (9027 80), which is found in the Customs Exemption N/N.24/2005-Cus. - HELD THAT:- he Customs Tariff Act specifies the rate at which duties of customs shall be levied. For the goods imported by petitioner in 2004 and 2005, the duty was 5%. In 2005-06, the goods were made free of customs duty. Therefore, what the Customs Tariff Act only signifies is what is the rate of duty that will be levied on goods imported into India. Section 2 of the Customs Tariff Act, 1975 provides the rates at which duties of customs shall be levied under the Customs Act, 1962 and are specified in the First and Second Schedules. Notification No.19/2005 has been issued in exercise of the powers conferred by Subsection (5) of Section 3 of the Customs Tariff Act, 1975 and in the table it only indicates the description of goods that shall be liable to additional duty at 4% ad valorem. That has nothing to do with Section 25 of the Customs Act. It does not mean that where goods are allowed to be imported free of customs duty, Government of India is not empowered under Section 25 of the Customs Act, 1962 to exempt the goods from the whole of the customs duty leviable thereon under the First Schedule. The goods imported, even though exempted from basic customs duty, may still be subject to levy of additional duty under the respective enactments and they would be so subject unless and until they are specifically exempted by the competent authority in exercise of the powers vested under those respective enactments from such additional duty. The Division Bench in Century Floor Mills Ltd. v. Union of India [2013 (10) TMI 1053 - MADRAS HIGH COURT] held that under Section 25 of the Customs Act, the Government has authority to grant exemption from duty only conditionally or in absolute terms and in which event, the power under Section 25 of the Customs Act will only go for exempting generally and in absolute terms, thus making import free of any liability under the Act or permit import subject to other conditions as it may deem fit in the given circumstances. The Court held that there could not be much of difference in an item being notified under the Customs Tariff Act as nil or free, which matters very little. Conclusion - i) The petitioner's contention that goods exempted from basic customs duty cannot be subjected to additional duty is rejected. ii) Notification No.24/2005 is valid and not bad in law. iii) The levy of 4% additional duty under Notification No.19/2005 on goods covered under Notification No.24/2005 is lawful and valid. Petition dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:Whether goods that are exempted from basic customs duty under the Customs Tariff Act, 1975 (i.e., having a tariff rate of 'free'), can still be subjected to additional duty under Notification No.19/2005-Cus issued under Section 3(5) of the Customs Tariff Act, 1975.Whether Notification No.24/2005-Cus issued under Section 25(1) of the Customs Act, 1962, which exempts certain goods from customs duty, is invalid or bad in law when the Customs Tariff Act already specifies a duty rate of 'free' for those goods.The interplay and independence of the Customs Act, 1962 and the Customs Tariff Act, 1975, particularly in relation to the levy of basic customs duty and additional duty.The validity and scope of the Government's power to levy additional duty on goods exempted from basic customs duty.The applicability and interpretation of relevant judicial precedents concerning levy of customs duty and additional duty on exempted goods.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Can goods exempted from basic customs duty (rate 'free' under Customs Tariff Act) be subjected to additional duty under Notification No.19/2005-CusRs.Relevant legal framework and precedents: Section 3(5) of the Customs Tariff Act, 1975 empowers the Central Government to impose additional duty on imported goods. Section 12 of the Customs Act, 1962 mandates that customs duties be levied at rates specified under the Customs Tariff Act. The Court referred to the judgment in Colgate Palmolive (India) Limited v. Commissioner of Customs, Patna, which supports the view that the Customs Act and Customs Tariff Act operate independently and duties can be levied under one without the other.Court's interpretation and reasoning: The Court observed that the Customs Tariff Act specifies the rate of basic customs duty, which in this case is 'free' for the goods in question. However, the additional duty under Notification No.19/2005 is levied under Section 3(5) of the Customs Tariff Act and is independent of the basic customs duty levy under Section 12 of the Customs Act. The additional duty is 'in addition to any other duty imposed under this Act or any other law for the time being in force,' as clarified by the Supreme Court in Hyderabad Industries Ltd v. Union of India.Key evidence and findings: Notification No.19/2005 specifically directs that goods specified in Notification No.24/2005 shall be liable to an additional 4% ad valorem duty, regardless of the basic customs duty rate.Application of law to facts: Since the goods imported by the petitioner fall under the exemption Notification No.24/2005 and have a basic customs duty rate of 'free,' the Court held that this does not preclude the levy of additional duty under Notification No.19/2005.Treatment of competing arguments: The petitioner argued that if the basic customs duty is 'free,' then the goods cannot be subjected to additional duty. The Court rejected this, emphasizing the independent statutory basis for additional duty and the express language of the notifications.Conclusion: Goods exempted from basic customs duty can still be subjected to additional duty under Notification No.19/2005.Issue 2: Is Notification No.24/2005-Cus invalid or bad in law because the Customs Tariff Act already specifies a duty rate of 'free' for the goodsRs.Relevant legal framework: Notification No.24/2005 is issued under Section 25(1) of the Customs Act, 1962, which empowers the Central Government to exempt goods from customs duty in the public interest. The Customs Tariff Act specifies rates of duty under its schedules.Court's interpretation and reasoning: The Court held that the Customs Act and Customs Tariff Act are independent legislations. The power to exempt goods from customs duty under Section 25(1) of the Customs Act is distinct from specifying tariff rates under the Customs Tariff Act. Therefore, the exemption notification is valid and not rendered bad merely because the tariff rate is 'free.'Key evidence and findings: The Court noted that the exemption notification is a conditional or absolute exemption granted by the Government in public interest and is separate from tariff rate notifications.Application of law to facts: The petitioner's contention that Notification No.24/2005 is bad in law was rejected as the Government's power to exempt under Section 25(1) remains valid irrespective of tariff rates.Treatment of competing arguments: The petitioner's argument that exemption notification is unnecessary or invalid when tariff rate is 'free' was dismissed as misconceived.Conclusion: Notification No.24/2005 is valid and not bad in law despite the tariff rate being 'free.'Issue 3: The relationship between Customs Act and Customs Tariff Act regarding levy of duties and additional duties.Relevant legal framework: Section 12 of the Customs Act mandates that customs duties be levied at rates specified in the Customs Tariff Act. Section 3(1) and (5) of the Customs Tariff Act provide for levy of additional duties, which are in addition to basic customs duties.Court's interpretation and reasoning: The Court emphasized that the Customs Act and Customs Tariff Act operate independently. Basic customs duty is levied under Section 12 of the Customs Act, while additional duty is levied under Section 3 of the Customs Tariff Act. The levy of additional duty is not contingent upon the existence of basic customs duty.Key evidence and findings: The Court relied on the Supreme Court judgment in Hyderabad Industries Ltd, which clarified that additional duty under Section 3 is chargeable in addition to any other duty.Application of law to facts: Even when basic customs duty is nil or 'free,' the Government can levy additional duty under the Customs Tariff Act.Treatment of competing arguments: The petitioner's argument that additional duty cannot be levied if basic duty is 'free' was rejected.Conclusion: Additional duty under the Customs Tariff Act can be levied independently of basic customs duty under the Customs Act.Issue 4: Validity of the additional duty levy on goods exempted from basic customs duty and the applicability of judicial precedents.Relevant legal framework and precedents: The petitioner relied on the Supreme Court judgment in Associated Cement Companies Ltd., which held that goods allowed to be imported free cannot be subjected to customs duty. The Court also referred to a coordinate bench judgment in Century Floor Mills Ltd. v. Union of India, which dealt with similar issues of exemption and additional duty.Court's interpretation and reasoning: The Court distinguished the Associated Cement Companies case, holding it inapplicable to the facts since it dealt with basic customs duty, not additional duty. The Century Floor Mills judgment supported the Government's power to grant exemptions conditionally or absolutely and recognized that notification of goods as 'free' or exempted under the Customs Act is not materially different.Key evidence and findings: The Court found no merit in the petitioner's reliance on these precedents to negate the levy of additional duty.Application of law to facts: The Court applied the principle that additional duty can be levied unless specifically exempted, and the petitioner's goods were not exempted from additional duty.Treatment of competing arguments: The Court rejected the petitioner's reliance on precedents that do not address the levy of additional duty under Section 3(5) of the Customs Tariff Act.Conclusion: The levy of additional duty on goods exempted from basic customs duty is valid, and the petitioner's reliance on precedents was misplaced.3. SIGNIFICANT HOLDINGS'Both the Acts, i.e., the Customs Act as well as the Customs Tariff Act, are independent to each other and one duty can be levied without the other.''Section 3(1) of the Customs Tariff Act provides for levy of additional duty. The duty is, in other words, in addition to the customs duty leviable under Section 12 of the Customs Act and Section 2 of the Customs Tariff Act.''Even if under the Customs Act the duty leviable is stated to be 'free', still this additional duty can be levied under the Customs Tariff Act and that has been levied in exercise of powers conferred by Sub-section 5 of Section 3 of the Customs Tariff Act.''The goods imported, even though exempted from basic customs duty, may still be subject to levy of additional duty under the respective enactments and they would be so subject unless and until they are specifically exempted by the competent authority in exercise of the powers vested under those respective enactments from such additional duty.''Notification No.24/2005 is not bad in law merely because the Customs Tariff Act specifies the rate of duty as 'free' for the goods covered therein.'Final determinations:The petitioner's contention that goods exempted from basic customs duty cannot be subjected to additional duty is rejected.Notification No.24/2005 is valid and not bad in law.The Customs Act and Customs Tariff Act operate independently, and additional duty can be levied even when basic customs duty is nil.The levy of 4% additional duty under Notification No.19/2005 on goods covered under Notification No.24/2005 is lawful and valid.The petitions are dismissed with no order as to costs.