2017 (10) TMI 673 - HC - Customs

Additional Duty of Customs - interpretation of statute - subsection (1) of section 3 of the CTA Act 1975 - transformer oil - case of petitioner is that the transformer oil has been exempted under the N/N. 5/84 C.E. dated 1st March 1984 and therefore the additional duty under subsection (1) of section 3 of the said Act of 1975 is not payable - Held that - The Apex Court had an occasion to interpret subsection (1) of section 3 of the said Act of 1975 in the case of Khandelwal Metal & Engineering Works v. Union of India 1985 (6) TMI 178 - SUPREME COURT OF INDIA where the Apex Court has held that subsection (1) of section 3 of the said Act of 1975 does not require that the imported article should be such which is capable of being produced or manufactured in India. The assumption has to be that the article imported into India can be manufactured in India and upon that basis the duty has to be determined under subsection (1) of section 3 of the said Act of 1975. If like article is not produced or manufactured in India the duty levied within the meaning of subsection (1) of section 3 would mean the duty which would be leviable on the class or description of the articles to which the imported article belongs. The levy under subsection (1) of section 3 is permissible provided the imported article is liable to excise duty if manufactured in India. If goods of class A are imported and if excise duty is not payable on the goods manufactured in India of that class there is no question of levy of additional duty under subsection (1) of section 3 - it is not disputed that exemption notification dated 1st March 1984 will apply to the transformer oil imported by the first petitioner. The provision of section 3 is basically enacted to safeguard the interests of the manufactures in India. In fact the provision for levy of additional duty on the imported articles is to counterbalance the excise duty leviable on like articles made indigenously. As the additional duty is to counterbalance and to safeguard the interests of the manufactures in India if the manufactures in India are not liable to pay duty on the goods of the like category then on import of such goods the additional duty under subsection (1) of section 3 of the said Act of 1975 cannot be levied for the reason that so far as Indian manufactures are concerned the goods are exempted. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:

1. Liability of additional duty under subsection (1) of section 3 of the Customs Tariff Act, 1975.
2. Applicability of exemption notification no. 75/84 C.E. dated 1st March 1984 to imported transformer oil.
3. Interpretation of section 3 of the Customs Tariff Act, 1975.
4. The legal basis for the additional duty and its relation to excise duty on indigenous goods.

Issue-wise Detailed Analysis:

1. Liability of Additional Duty Under Subsection (1) of Section 3 of the Customs Tariff Act, 1975:

The first petitioner, a company engaged in the manufacturing and distribution of transformers, imported transformer oil under valid import licenses. The primary contention was whether the petitioners were liable to pay additional duty under subsection (1) of section 3 of the Customs Tariff Act, 1975. The petitioners argued that as per the notification no. 75/84 C.E. dated 1st March 1984, the transformer oil was exempted from excise duty, and hence, additional duty under subsection (1) of section 3 should not be payable.

2. Applicability of Exemption Notification No. 75/84 C.E. Dated 1st March 1984 to Imported Transformer Oil:

The petitioners relied on the exemption notification which granted exemption from excise duty to certain goods, including transformer oil, subject to conditions specified in the notification. The respondents contended that the first petitioner was not entitled to this exemption as they were not manufacturing transformer oil in India. However, the court noted that the additional duty under subsection (1) of section 3 is payable only if the article of that category manufactured in India attracts excise duty. If the like article manufactured in India is exempt from excise duty, then the additional duty on the imported article is not payable.

3. Interpretation of Section 3 of the Customs Tariff Act, 1975:

The court examined section 3 of the Customs Tariff Act, 1975, which imposes an additional duty on imported articles equivalent to the excise duty on like articles if produced or manufactured in India. The court referred to the Supreme Court's interpretation in the case of Khandelwal Metal & Engineering Works v. Union of India, which clarified that section 3(1) does not require the imported article to be capable of being produced or manufactured in India. The duty is determined based on the assumption that the imported article can be manufactured in India.

4. The Legal Basis for the Additional Duty and Its Relation to Excise Duty on Indigenous Goods:

The court emphasized that the purpose of section 3 is to safeguard the interests of Indian manufacturers by counterbalancing the excise duty levied on indigenous goods. If goods of a particular class are exempt from excise duty when manufactured in India, the additional duty under section 3(1) cannot be levied on the import of such goods. The court concluded that since the transformer oil imported by the first petitioner was exempt from excise duty under the notification, the additional duty under section 3(1) was not payable.

Conclusion:

The court granted the prayer of the petitioners to quash and set aside the order of assessment to the extent that it imposed additional duty under subsection (1) of section 3 of the Customs Tariff Act, 1975. The court ordered the cancellation and return of the bank guarantee furnished by the petitioner and ruled in favor of the petitioners, with no costs awarded.