Enfield India Ltd. vs Union of India

These Writ Petitions coming on for hearing on this day, upon perusing the petitions and the respective affidavits filed in support thereof the order

of the High Court, dated 4-6-1981 and made herein and the records relating to the prayers aforesaid dated 14-5-1981 on the file of the first

respondent in all the petitions comprised in the return of said respondents to the writ made by the High Court and upon hearing the arguments of

Mr. T. K. Seshadri, Advocate for the petitioner in all the petitions and of Mr. P. Narasimhan, Additional Central Government Standing Counsel on

behalf of the respondents in all the petitions, the court made the following Order :

The main point that is stressed, on behalf of the petitioner, by Mr. T. K. Seshadri, is that the relevant provisions of the Customs Tariff Act, 1975

and the Central Excises and Salt Act, 1944; Act 51 of 1975 and Act 1 of 1944 respectively, have not been properly understood by the Revisional

Authority, while passing the impugned order. In this regard, he refers to the provisions of Section 3 of the Customs Tariff Act, 1975, which deals

with the additional duty. The concept of this additional duty is dealt with by the Supreme Court in Khandelwal Metal and Engineering Works and

Another Vs. Union of India (UOI) and Others, of which read as follows :-

Section 2(15) of the Customs Act, 1962 defines ''duty'' to mean a duty of customs leviable under the Act. Chapter V of the Act contains

provisions for the levy of and exemption from, customs duties. By Section 12(1) of the Act, ''Except as otherwise provided in the Act or in any

other law for the time being in force'', duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 or

under any other law for the time being in force, on goods imported into or exported from India. Section 25 of the Customs Act, which deals with

the power of the Central Government to grant exemption from the payment of customs duty, provides by sub-section (1) that, if the Central

Government is satisfied that it is necessary in the public interest so to do, it may, by a notification in the Official Gazette, exempt generally, either

absolutely or subject to such conditions as may be specified, goods of any specified description from the whole or any part of the duty of customs

leviable thereon.

Section 2 of the Customs Tariff Act, 1975 says that the rates at which duties of Customs shall be levied under the Customs Act, 1962 are

specified in the First and Second Schedules of the Tariff Act. Section 3 of the Tariff Act deals with the levy of ''additional duty equal to excise

duty''. Sub-section (1) of Section 3 of the Explanation to that section, which are relevant for our purpose, read thus :

''Levy of Additional duty equal to excise duty'' :- (1) Any articles which is imported into India shall, in addition be liable to a duty (hereafter in this

section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India

and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable

shall be calculated at that percentage of the value of the imported article.

Explanation :- In this section the expression the excise duty for the time being leviable on a like article if produced or manufactured in India ''means

the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or, if a like article is not so

produced or manufactured which would be leviable on the class or description of article to which the imported article belongs, and where such

duty is leviable at different rates, the highest duty''.

The question which we must first examine is as to what is the true nature of the duty mentioned in Section 3(1) of the Tariff Act. It has to be

appreciated at the threshold that the charging section is Section 12 of the Customs Act and not Section 3(1) of the Tariff Act. Section 12, Customs

Act, incorporates the different ingredients embodied in the concept of a fiscal imposition. It levies a charge, it indicates the taxable event (the

import or export of goods) and it indicates the rate of the levy. The rates are such ''as may be specified under the Customs Tariff Act, 1975''. The

last ingredient takes us to Section 2, Tariff Act, which lays down that ''the rates at which the duties of customs shall be levied under the Customs

Act are specified in the First or Section Schedule''. Nothing more would be ordinarily required to complete the scope of Section 12, Customs Act.

The scheme incorporated in that section read with Section 2 of the Tariff Act is analogous to the scheme embodied in Section 4, Income Tax Act

read with the relevant provisions of the Finance Act. The levy specified in Section 3(1) of the Tariff Act is supplementary levy, in enhancement of

the levy charged by Section 12 of the Customs Act and with a different base constituting the measure of the import. In other words, the scheme

embodied in Section 12 is amplified by what is provided in Section 3(1). The customs duty charged u/s 12 is extended by an additional duty

confined to imported articles in the measure set forth in Section 3(1). Thus, the additional duty which is mentioned in Section 3(1) of the Tariff Act

is not in the nature of countervailing duty. In Ashok Service center and Others Vs. State of Orissa, , which considered the nature of levy of

additional Sales-tax under an Orissa Act, this Court observed;

''This construction receives support from the use of the word ''additional'' in Section 3(1) which involves the idea of joining or uniting one thing to

another so as thereby to form one aggregate. The gross turnover referred to therein should therefore be understood as that part of the gross

turnover which is taxable under the principal Act'' Counsel for the appellants rely strongly on the ''Objects and Reasons'' of Section 3 of the Tariff

Act in support of their contention that the said section is a charging section and imposes a countervailing duty. The statement of objects and

reasons says :

''Clause 3 provides for the levy of additional duty on an imported article to counter balance the excise duty leviable on the like article made

indigenously, or on the indigenous raw materials, components or ingredients which go into the making of the like indigenous article. This provision

corresponds to Section 2A of the Existing Act, and is necessary to safeguard the interests of the manufacturers in India''.

This statement lends prima facie support to the contention of the appellants but, in the absence of any ambiguity in the wording of Section 3(1), we

cannot treat the additional duty referred to therein as countervailing duty. Nor, indeed, can we regard that provision as a charging section merely

because the statement says that Section 3 ''provides for the levy''. The statement of Objects and Reasons errs in being common to sub-sections (1)

and (3) of Section 3. It is more apposite to sub-section (3) though, even there, it may not be correct to say that it is a charging provision. Sub-

section (3) confers powers on the Central Government, in public interest, to levy on any imported article, ''such additional duty as would

counterbalance the excise duty leviable on any raw materials, components and ingredients of the same nature as, or similar to those, used in the

production or manufacture of such article'', whether on such article, duty is leviable under sub-section (1) or not. Since we are not concerned

directly with sub-section (3), we will not pronounce upon its meaning and implications.

That leads to the inquiry as to the reasons or purpose behind the argument that Section 3(1) of the Tariff Act is an independent, charging

section. It shall have been noticed that Section 3(1) provides that any article which is imported into India shall, in addition, (that is, in addition to the

duty of customs for which rates are specified in Section 2) be liable to an additional duty'' equal to the excise duty for the time being leviable on a

like article produced or manufactured in India''. The contention of Mr. Sorabjee, who appears on behalf of the appellants, is that the brass scrap

imported by them is not produced or manufactured in India because the damaged articles of brass which constitute brass scrap, are not only

incapable of being manufactured but are in fact not manufactured. Learned counsel contends that if the change in the condition of an article is the

result of an accidental event, that is to say, an event not intended, or if the change is the result of ordinary wear and tear, the change thus produced

cannot be termed as manufacture. It is urged that the article imported by the appellants are what they are because, they had suffered damage or

had been subjected to ordinary were and tear in the natural course. If such goods cannot be produced or manufactured in India, for the reason that

they cannot be and are, in fact, not produced or manufactured in India, or for the matter of that anywhere, no additional duty can be levied upon

them u/s 3(1). According to the learned counsel, the basis postulate underlying the levy of duty u/s 3(1) of the Tariff Act is that indigenous goods

belonging to the class of goods which are imported are chargeable to excise duty. They illustrations given are the import of live animals, live trees,

burnt-up cables, broken glass or fused bulbs. The argument is that there is and can be no levy of additional duty on these goods if imported

because they cannot be and are not manufactured for the simple reason that they are not the result of treatment, labour and manipulation, nor are

they the result of one or more processes through which the original commodity is made to pass. Putting it in one sentence, the original is that of

indigenous goods, similar to those which are imported, do not suffer excise duty for the reason that they are not manufactured, the charge leviable

u/s 3(1) of the Tariff Act is not attracted.

There is no substance in the argument. In the first place, as we have indicated earlier, Sections 2 and 3(1) of the Tariff Act are not charging

sections. The charging section is Section 12 of the Customs Act under which, duty is leviable on the taxable event of export of goods from India or

the import of goods into India, which is relatable to Entry No. 83 in List I of the Seventh Schedule to the Constitution; ''Duties of Customs

including export duties''. The taxable event is not the manufacture of the goods. u/s 3(1) of the Tariff Act, ''the excise duty for the time being

leviable on a like article if produced or manufactured in India'' is only the measure of the duty leviable on the imported article. Section 3(1) does

not require that the imported article should be such as to be capable of being produced or manufactured in India. The assumption has to be that an

article imported into India can be produced or manufactured in India and upon that basis, the duty has to be determined u/s 3(1)"".

The explanation to Section 3(1) is brought to the notice of this Court but Mr. T. K. Seshadri and also the ratio in Khandelwal Metal and

Engineering Works and Another Vs. Union of India (UOI) and Others, , for the purpose of showing that the revisional authority, in the instant case,

has not properly understood the nature of the manufacture of the connecting rod. Further the learned counsel submits that the revisional authority

has not classified it in accordance with the classifications, contemplated under the provisions of the Customs Tariff Act.

Mr. P. Narasimhan, Learned Senior Central Government Standing Counsel, submits that it is the law that was in existence on the date of the

imposition of this customs duty that has to be taken into consideration. The Customs duty and excise duty are different and they could be levied in

different spheres and as such the appreciation of the matters that were placed before the initial authority and the appellate authority as well as the

conclusion arrived at by the revisional authority are correct, and in conformity in law. In this regard, he refers to the decision in Lucas T.V.S. Ltd.,

Madras Vs. Government of India, New Delhi, , paragraph 7 of which reads as follows :

As per Section 2A countervailing duty is leviable for any article which is imported into India in addition to customs duty. The goods in question

imported by the appellant were treated as one coming under Item 70(1) of the First Schedule to the Tariff Act, since they contained less than 97

per cent aluminium, Item 27 of the First Schedule to the Excise Act will definitely cover goods imported by the appellant, as per the language

couched therein. The distinction between Item 6(1) and Item 70(i) of the First Schedule to the Tariff Act has no relevancy at all for the purpose of

countervailing duty, the question is as to whether the goods in question would attract excise duty under the Excise Act. It cannot be stated that the

goods similar to the one Imported by the appellant would not attract excise duty, if produced or manufactured in India, and if so, Item 27 of the

First Schedule would be attracted, in view of the fact that it is couched in general terms. Customs duty and excise duty are different and they come

to be levied in different spheres and under different statutes, each of which is self-contained. Only for the purpose of levying countervailing duty

under the Tariff Act, reference is made to the Excise Act and definitely not on the ground that goods as such are liable to excise duty. For that, the

Schedule to the Excise Act alone will govern, and there is no need to refer to and rely on the ration in the Schedule to the Tariff Act. For the

purpose of the Tariff Act, the goods imported by the appellant attract Item 70(i) of the First Schedule thereto, and definitely not Item 66(1)

thereunder. For the purpose of excise duty under the Excise Act, which is notionally invoked for levying countervailing duty, under the Tariff Act,

Item 27 of the First Schedule to the Excise Act will govern. The learned single Judge of this Court has correctly held that the distinction between

Section 2 and Section 2A loses its relevance because what is to be seen is whether the article imported is liable to duty under the Excise Act and

for that purpose, reference will have to be made to the provisions of the Excise Act alone. The learned single Judge has further held that if an article

comes under the description of an item chargeable under the Excise Act, it will be liable to countervailing duty which shall be equal to the excise

duty payable for it. We are in complete agreement with the reasoning given by the learned single Judge. The goods imported will definitely fall

within the definition of ''aluminium'' in Item 27 of the Excised Act and that would suffice for ascertainment of countervailing duty as contemplated

u/s 2A of the Tariff Act. The Central Government in its order in Review No. 4025 of 1972, has correctly applied the principles and has upheld the

levy of countervailing duty on the goods imported by the appellant herein.

It is seen from the order under revision that the countervailing duty has been construed as duty under Item 27(b) of the Central Excise Act. It

was so confirmed by the revisional authority. The petitioner herein agitated the levy of countervailing duty on the ground that the forgings in

question having been classified as finished product under the Customs Tariff Act, could not be classified as ''semi-finished forgings'' under the

Central Excise Tariff. In this regard, Mr. P. Narasimhan, Senior Central Government Standing Counsel appearing for the respondents, has brought

to the notice of this Court the dictionary meaning of ''Forge'', ''Forged, Forging'' etc., which is extracted from the Webster''s New World

Dictionary :

''Forge'' fabrics; workshop faber (workman)

a furnace for heating metal to be wrought.

a place where metal is heated and hammered or wrought into shape; smithy

a place where wrought iron is made as from iron ore.

''Forged, Forging''

to shape (Metal) by blows or pressure, usually after heating.

to form; shapel produce.

to imitate for purposes of deception or fraud esp. to counterfeit (a check, etc.)

to work at a forge.

to commit forgery;

II. Forge (forged, forging)

to move forward steadily, as if against difficulties.

to move in a sudden spurt often with ahead.

In the instant case, as a matter of fact, the learned counsel for the petitioner Mr. T. K. Seshadri, produced the actual imported model of the

connecting rod as well as the indigenous production of the same material, and submitted that there is not much difference between them and as

such the construing of the nature of the product by the revisional authority is not correct. In this regard he stressed that there is difference between

''additional duty'' as contemplated under the Customs Tariff Act and the ''countervailing duty'' found in the Indian Tariff Act. Indian Tariff Act came

to be replaced by the Customs Tariff Act 51 of 1975. So, the interpretation that can be given under the Customs Tariff Act, 1975 has to be taken

into account so far as the subject matter of imposition of tariff is concerned on the connecting rod used in the manufacture of motor-cycles by the

petitioner. In this view, this Court is definitely of the opinion that the Explanation to Section 3(1) in the light of the ratio decidendi in Khandelwal

Metal and Engineering Works and Another Vs. Union of India (UOI) and Others, , has to be borne in mind by the authorities concerned. Similarly,

Item 27 as contemplated in the Central Excises and Salt Act 1 of 1944 has to be considered since such an application, with the materials available

which is now also produced at this stage of heading of the case by means of a further affidavit filed on 25-2-1988 on behalf of the petitioner basing

on a gate-pass in which the product in question has been described as Tariff Item 68. Mr. P. Narasimhan, Senior Central Government Standing

Counsel, says that it is only since it suits the petitioner, it calls it under the provisions of Tariff Item 68, but it is not so. Anyhow, this Court is of the

opinion that the matter has to be gone into afresh on all the materials placed by either side for coming to a conclusion regarding the nature of the

article, namely, the connecting rod used for the manufacture of motor-cycles. In this view, the order under Writ Petition, namely, the order of the

revisional authority is set aside and the matter is remitted back to the Tribunal for fresh consideration, after giving opportunity to both sides to

produce evidence, both oral and documentary. Accordingly, the Writ Petition are allowed and the matter is remitted back to the Tribunal for

reconsideration, after giving opportunity to both sides to let in evidence, both oral and documentary; and the Tribunal is directed to dispose of the

matter within two months from the date of receipt of the records hereof, together with a copy of this order, in accordance with law. There will be

no order as to costs.