Prabhat Silk and Cotton Mills Co. Ltd. vs Union of India

Ravani, J.—Which point of time is relevant for the purposes of levy and collection of additional duty of customs ? Is the rate of duty

prevailing at the time when the goods enter territorial waters of India is applicable ? Or the rate of duty prevailing at the time of clearance of the

goods from the bonded warehouse of the petitioner would be applied ? These are the questions which need to be examined and answered in this

petition.

Petitioner No. 1 is a mill company and Petitioner No. 2 is a shareholder and Manager thereof. (Hereinafter both petitioners referred to as ''the

petitioner''). The petitioner is manufacturing fabrics falling under Tariff Item No. 22 of the First Schedule (as in force at the relevant time) to the

Central Excises & Salt Act, 1944. For the purpose of its business, the petitioner imported man-made filament yarn from Japan and other countries.

The imported goods were subject to payment of additional duty of customs equal to excise duty, which is also popularly called countervailing duty,

under the Customs Tariff Act, 1975. The petitioner is also liable to pay auxiliary duty under the Finance Act, 1978 and also under the Finance Act

of the relevant years in question.

It is contended that the additional duty of customs and the auxiliary duty is levied on the imported goods and therefore the taxable event which

attracts the duty is importation of the goods into India. The taxable event occurs when the goods enter into the territorial water of India. Therefore,

it is submitted that it is only at the point of time when the goods entered into the territorial waters of India, the same can be subjected to tax under

the provisions of the Customs Tariff Act, 1975 and under the relevant Finance Act. It is further argued that the rate of duty applicable on the

imported goods would be the prevailing rate of duty when the taxable event occurs i.e. when the goods enter into the territorial water of India.

The grievance of the petitioner is that the additional duty of customs under the Customs Tariff Act, 1975 and the auxiliary duty under the

relevant Finance Act have been levied and collected at the rate in force when the goods have been cleared from the bonded warehouse and not at

the rate prevailing at the point of time when the goods entered into the Indian territorial water. The petitioner has annexed a statement showing the

difference in the rate of duty prevailing at the time when the goods entered into the territorial water of India and the rate of duty prevailing at the

time of clearance of the goods for the home consumption from the bonded warehouse of the petitioner. According to the petitioner, as shown in

the statement, from April 1, 1978 onwards, an amount of Rs. 4,07,546/- (Rupees Four lakhs seven thousand five hundred and forty-six only) has

been unauthorisedly collected. Therefore, it is prayed that the respondents be directed to refund the said amount to the petitioner. It is also

contended that as on June 18, 1980 and as on February 28, 1981, the petitioner had got a large quantity of imported filament yarn lying in the

bonded warehouse of the petitioners. (It is not clear from the averments made in the petition as to what is the significance of two dates i.e. June 18,

1980 and February 28, 1981. Probably on these dates some changes might have taken place in the rates of additional customs duty and auxiliary

duty). The details of such goods are stated in Annexure ''B'' to the petition. It is also prayed that the respondents be restrained from levying and

collecting additional duty and auxiliary duty from the petitioner in respect of the uncleared goods lying in the bonded warehouse of the petitioner at

a rate higher than the rate in force at the time when the goods entered in the Indian territorial water.

The contentions be examined. The Customs Tariff Act, 1975 has been enacted with a view to consolidate and amend the law relating to

Customs duty. Section 2 of the Act provides that the rates at which the Customs duty shall be levied under the Customs Act, 1962 are specified in

the First and Second schedules. Section 3 of the Customs Tariff Act, 1975 provides for levy of additional duty equal to excise duty for the time

being leviable on a like article if produced or manufactured in India. This is also called countervailing duty. Section 3(6) provides that the Customs

Act, 1962 and the rules and regulations made thereunder are applicable to the duty chargeable u/s 3 of the Customs Tariff Act, 1975 and they are

to be applied accordingly. Thus this is an instance of legislation by reference or citation. Hence the provisions of the Customs Act, 1962 are to be

read as if they are written down in the body of the Customs Tariff Act, 1975. The provisions of the Customs Act, 1962 and the provisions of the

Customs Tariff Act, 1975 are supplementary to each other. They cannot be applied and implemented without the aid of each other. Similar is the

position with regard to Finance Act, 1975. By Section 35 of the Finance Act, 1978, auxiliary duty of customs has been imposed. Section 35(4)

also provides that the Customs Act, 1962 and the rules made thereunder shall apply in relation to the levy and collection of the auxiliary duty of

customs leviable u/s 35 of the Finance Act. It is also provided that these provisions of the Customs Act, 1962 and the rules shall apply as if the

duty of customs of such goods were levied and collected under the provisions of the Customs Act, 1962 and the rules and regulations made

thereunder. Thus, this is also an instance of legislation by reference. It is stated at the bar that in the Finance Act of each year similar provision is

made and auxiliary duty is levied as per the provisions of the relevant Finance Act in each year.

The learned counsel for the petitioner submits that the additional duty under the Customs Tariff Act, 1975 and the auxiliary duty under the

relevant Finance Act are separate duties. The source of power of imposition of duty is different and it is not under the Customs Act, 1962. In his

submission, the taxable event of additional duty under the Customs Tariff Act, 1975 and the auxiliary duty under the relevant Finance Act occurs

when the goods enter into the Indian territorial water. At that point of time whatever be the rate of duty, that alone could be levied and the

provisions of the Customs Act, 1962 and the rules and regulations framed thereunder cannot be resorted to for levying the rate of duty prevailing at

the time of clearance of the goods from the bonded warehouse. It is submitted that if such a course is adopted, the provisions of the Customs Tariff

Act, 1975 and the provisions of the relevant Finance Act would be retrospective. Hence it would be bad because ordinarily an Act is not to be

given retrospective operation unless it is so specifically provided in the Act itself, or that it is retrospective by necessary implication.

The very basis of the aforesaid argument is that if the additional duty and auxiliary duty is levied and collected at the rate prevailing at the time of

the clearance of the goods from the bonded warehouse, it would amount to giving retrospective effect to the Act and this is not permissible. The

argument is based on misconception as regards the meaning of the term ''retrospective''. In CRAIES on Statute Law (Seventh Edition), meaning of

the term ''retrospective'' is stated as follows :-

A statute is to be deemed to be retrospective, which takes away or impairs any vested right acquired under existing laws or creates a new

obligation, or imposes a new duty, or attaches a new disability in respect of transactions or considerations already past. But a statute is not

property called a retrospective statute because a part of the requisities for its action is drawn from a time antecedent to its passing.

The aforesaid meaning has been approvingly quoted by the Supreme Court in the case of D.G. Gouse & Co. v. State of Kerala reported in AIR

1980 SC 271. In that case, the legality and validity of the Kerala Buildings Tax Act, 1975 (7 of 1975) was challenged. It was inter alia submitted

that the Act came into force on April 2, 1975. Even so, the tax was imposed on buildings with retrospective effect from April 1, 1973 and

therefore the Act was unconstitutional and hence illegal and void. Repelling the argument, the Supreme Court has approvingly quoted the aforesaid

paragraph from CRAIES ON STATUTE LAW and has further stated as follows in para 14 of the reported judgment :-

It may be that there was no liability to building tax until the promulgation of the Act (earlier the Ordinances) but mere absence of an earlier taxing

statute cannot be said to create a ''vested right'', under any existing law, that it shall not be levied in future with effect from a date anterior to the

passing of the Act. Nor can it be said that by imposing the building tax from an earlier date any new obligation or disability has been attached in

respect of any earlier transaction or consideration. The Act is not therefore retrospective in the strictly technical sense.

Similar view is taken by the Supreme Court in the case of The Union of India Vs. Madan Gopal Kabra, . In para 15 of the reported judgment,

the Supreme Court has observed that an enactment cannot, strictly speaking, be said to be retrospective legislation, though its operation may affect

acts done in the past. Recently in the case of Mithilesh Kumar and Another Vs. Prem Behari Khare, in para 21 of the reported judgment, the

Supreme Court has observed that a statute is not properly called a retrospective statute because a part of the requisites for its action is drawn from

a time antecedent to its passing.

Following the aforesaid principles laid down by the Supreme Court, it cannot be said that any ''vested right'' much less an existing right of the

petitioner is affected because no duty liability as regards payment of additional duty of customs was there before passing of the Customs Tariff Act,

1975 and the relevant Finance Act. As held by the Supreme Court, there is no vested right under any existing law that the goods imported into

India shall not be subjected to tax in future after the same entered into the territorial waters of India. Nor it can be said that by levying customs duty

from an earlier point of time any new obligation or disability arises in respect of any earlier transactions or considerations.

Here reference may be made to the provisions of Section 64A of the Sale of Goods Act (3 of 1930). Section 64A has been inserted in the

Act by way of amendment in the year 1940. Therein it is provided that increase or decrease in the duty of customs or excise could be added or

deducted if the rate of tax increases or decreases between the date of contract and the actual delivery of the goods in question. In the case of

Chhotabhai Jethabhai Patel and Co. Vs. The Union of India and Another, , the Supreme Court observed that the provisions of Section 64A of the

Sale of Goods Act, 1930 provides for the recovery be the seller of the amount of increase in duty from the purchaser where the increase takes

effect subsequent to the contract. It also provides for the right of the purchaser to recover from the seller the duty in cases where there is a similar

decrease. Moreover this right exists both before the delivery is given, taken and price received or paid as the case may be.

It may happen that when the importer imports goods in India, there may not be any customs duty leviable when the goods entered the

territorial water of India. As indicated hereinabove, the importer has no right to say that simply because at the time when the goods entered into the

territorial water of India, the goods were not subjected to tax and therefore they shall not be taxed or subjected to customs duty thereafter. If the

Act provides that the duty shall be levied at the rate when the goods are cleared from the bonded warehouse or at the time of presentation of the

bill of entry, the tax can be levied on such goods even though the goods may not be liable to any tax at the point of time when the goods entered

the territorial water of India. Just as in the case of excise duty, the duty of customs can be assessed and collected at the point of time when it may

be found administratively most convenient. The only condition is that the character of the duty that it is customs duty should not be lost. It is not

even the case of the petitioner that because the goods are subjected to levy of customs duty at the rate prevailing when the goods are cleared from

the bonded warehouse, the character of the duty is changed.

The learned counsel for the petitioner has relied upon the following decisions of the Bombay High Court :-

In the case of Century Spinning and Manufacturing Co. Ltd. Vs. Union of India, .

In the case of Madhusudan Mills Limited Vs. Union of India and others, .

In the case of Apar Private Ltd. and others Vs. Union of India and others, .

Relying on the aforesaid decisions, it is submitted that the rate of duty prevailing at the time when the goods entered into the territorial water of

India should be charged. The aforesaid decisions of the Bombay High Court do support the view canvassed by the learned counsel for the

petitioner. However, it is not possible to agree with the view taken by the Bombay High Court in the aforesaid decisions for the simple reason that

the attention of the learned Judges who decided the aforesaid cases does not appear to have been drawn to the decision of the Supreme Court in

the case of Prakash Cotton Mills (P) Ltd. Vs. B. Sen and Others, . It also appears that there are at least two least two reported decisions of the

Bombay High Court itself taking the contrary view.

Synthetics and Chemicals Ltd. Vs. S.C. Coutinho and others,

New Chemi Industries Pvt. Ltd. and another Vs. Union of India and others, .

In view of the decisions of the Supreme Court in the case of Prakash Cotton Mills (supra) and in case of Northern Corporation Vs. Union of India

and others, , it is not necessary to elaborately discuss the judgments of the Bombay High Court on which reliance is placed by the learned counsel

for the petitioner.

In the case of Prakash Cotton Mills (supra) the question arose before the Supreme Court as to which is the relevant date for the purpose of

determination of the rate of duty. The question arose in the background of the fact that there was an amendment of law. Hence the question as to

whether the amended law would be applicable to the consignments which had been received, stored and assessed to duty before the Ordinance

amending the law came into force. The Supreme Court held that Section 15 of the Customs Act, 1962 specified the date for determination of the

rate of duty and tariff valuation of imported goods. The Supreme Court observed as follows :-

It is thus, the clear requirement of clause (b) of sub-section (1) of Section 15 of the Act that the rate of duty, rate of exchange and tariff valuation

applicable to any imported goods shall be the rate and valuation in force on the date on which the warehoused goods are actually removed from

the warehouse. A cross reference to Section 49 of the Act shows that an importer may apply to the Assistant Collector of Customs for permission

to store the imported goods in a warehouse pending their clearance, and he may be permitted to do so. The other relevant provision is that

contained in Section 68 of the Act which provides that the importer of any warehoused goods may clear them for ''home consumption'' if, inter alia,

the import duty leviable on them has been paid. That is why clause (b) of sub-section (1) of Section 15 of the Act makes a reference to Section

It is therefore quite clear that the rate of duty, rate of exchange and tariff valuation shall be those in force on the date of actual removal of the

warehoused goods from the warehouse.

The same position of law is reiterated by the Supreme Court in the case of Northern Corporation Vs. Union of India and others, . The

Supreme Court has held that the rate of duty and tariff valuation, if any, would be as on the date on which the goods are actually removed from the

warehouse. It is further held that even when the goods, after importation could not be immediately cleared due to the prohibitory order of the

Income Tax authorities, the rate of customs duty would be as prevalent on the date the goods were actually removed after withdrawal of

prohibitory order.

In the case of Khandelwal Metal & Engg. Works v. Union of India reported in AIR 1985 Supreme Court 1211, the provisions of Customs

Tariff Act, 1975 came up for consideration. Therein it has been held that Section 3(1) of the Customs Tariff Act is not an independent charging

section. It is further held that the additional duty which it speaks of is duty of customs and it does not cease to be customs duty merely because it is

called countervailing duty. After considering the entire scheme of the Customs Tariff Act and the Customs Act, 1962, the Supreme Court held that

the scheme embodied in Section 12 of the Customs Act, 1962 is amplified by what is provided in Section 3(1) of the Customs Tariff Act, 1975.

The customs duty charged u/s 12 of the Customs Act, 1962 is extended by an additional duty confined to imported articles in the measure set forth

in Section 3(1) of the Customs Tariff Act, 1975. In view of this decision of the Supreme Court, the argument that the provisions of the Customs

Act, 1962 will not be applicable while determining the rate of duty for additional duty or auxiliary duty has also no merits.

No other contention is raised. There is no substance in the petition.

In the result, the petition is rejected. Rule discharged.