2022 (2) TMI 24 - HC - Customs

Emergency power of Central Government to increase import duties - Validity of increase in rate of duty from 5% to 10% with effect from 09.01.2002 - challenge on the premise that the circumstances/conditions precedent for exercise of power under Section 8A of the Customs Tariff Act, 1975, have not been set out in the notification - Validity of N/N. 2/2002-Customs dated 08.01.2002 - cotton in transit at the time of issuance of notification - cotton in respect of which orders have been placed with the foreign exporters prior to the issuance of impugned notification - Whether it is permissible to invalidate a notification only on the ground that the notification does not explicitly set out/elaborate the circumstances warranting the exercise of power and what is the relevance and sanctity which ought to be attached to a recital in a notification stating that the pre-requisites for issuance of notification exist? - HELD THAT - On a reading of the impugned notification, it is apparent that it contains a recital showing the satisfaction/existence of the twin conditions which are sine qua non for exercise of power by the Central Government under Section 8A(1) of the Customs Tariff Act, 1975 - a recital in a notification raises a presumption though not conclusive, however, the burden is on the person who assails the recital as not reflecting the true state of affairs, to demonstrate the same by letting in cogent and appropriate material and mere assertion however strong, may not be an adequate discharge of such burden - The impugned notification expressly states that the twin conditions/prerequisites for issuance of notification under Section 8A(1) of the Customs Tariff Act, 1975, exist resulting in raising a presumption as to the correctness thereof and also casting a burden on the respondents challenging the correctness of the said recital. In the light of the view expressed by the Federal Court in EMPEROR VERSUS SIBNATH BANERJEE AND ORS. 1943 (8) TMI 7 - FEDERAL COURT which view has been affirmed by the Supreme Court in SWADESHI COTTON MILLS CO. LTD. VERSUS STATE INDUSTRIAL TRIBUNAL U.P. 1961 (3) TMI 105 - SUPREME COURT and which in turn has been reiterated in NARAYAN GOVIND GAVATE ETC. VERSUS STATE OF MAHARASHTRA 1976 (10) TMI 146 - SUPREME COURT with regard to the relevance and sanctity to be attached to a recital in the subordinate legislation, we are of the view that the notification cannot be said to be invalid, on the premise that the notification itself does not elaborate the circumstances/reasons for issuance of the same. Whether the order of the learned Judge setting aside the notification on the premise that the Central Government is unable to satisfy the Court that there was sufficient material , before the Central Government to satisfy itself that import duty leviable under Section 12 of the Customs Act, 1962 should be increased and circumstances exist rendering it necessary for immediate action under Section 8A(1) of the Customs Tariff Act, 1975, is legal and valid, when viewed in the light of the presumption as to the constitutionality of a subordinate legislation? - HELD THAT - The legislature and its delegate are the sole repositories of the power to decide what policy should be pursued in relation to the matters covered by the Act and there is no scope for interference by the Court unless the particular action impugned before it, can be said to be wholly beyond the scope of the delegate or it being inconsistent with any of the provisions of the parent enactment or in violation of any of the limitations imposed by the Constitution. Thus, it may not be permissible for the Court to look at the adequacy of the material, which necessitated the issuance of a notification. The limitation on the power of judicial review of the subordinate legislation and also the presumption as to its Constitutionality would show that the order of the learned Judge insofar as it examined the validity of the notification on the basis of the sufficiency of reasons/material available with the Central Government warranting exercise of its power in issuing such notification, is erroneous and unsustainable. Whether the order of the learned Judge insofar as it placed reliance on the judgment of the Hon'ble Supreme Court in M.Jhangir Bhatusha v. Union of India 1989 (5) TMI 61 - SUPREME COURT to conclude that the notification itself must set out elaborately the circumstances/reasons which warranted exercise of power under Section 8A(1) of the Customs Tariff Act, 1975, is legal? - HELD THAT - The Hon'ble Supreme Court in the case of M.Jhangir Bhatusha looked into the reasons in the order itself, since Section 25(2) of the Customs Act, 1962, necessitated that the order must set out/state the circumstances warranting exercise of power under Section 25(2) of the Customs Act, 1962. However, Section 8A of the Customs Tariff Act, 1975 which is the enabling provision, does not impose a condition on the delegate to set out /state the circumstances warranting exercise of power under Section 8A(1) of the Customs Tariff Act, 1975 in the notification itself and thus reliance on the decision in M.Jhangir Bhatusha is wholly misplaced. Whether a subordinate legislation can be challenged on the ground of non-compliance of the principles of natural justice? - HELD THAT - It is submitted by the respondents that the notification which has resulted in certain adverse consequences, is bad inasmuch as it was made without affording an opportunity to the parties, who are likely to be adversely affected - The above submission is contrary to the well settled principle that delegated legislation, which is legislative in character, cannot be questioned for violating the principles of natural justice in its making, except where the statute itself provides for that requirement. It is thus clear that the submission of the respondents that the notification is bad for non-compliance of the principles of natural justice, is untenable. Whether the judgment of the Hon'ble Supreme Court in Mohinder Singh Gill AIR 1977 (12) TMI 138 - SUPREME COURT insofar as it holds that a counter cannot be used to improve an order is applicable while deciding the vires/validity of a notification? - HELD THAT - The decision of the Hon'ble Supreme Court in Mohinder Singh Gill holding that an order cannot be improved upon through a counter, may not be relevant, while examining the validity of a notification. The above principle may have relevance only in relation to an administrative or a quasijudicial order, but not to a notification, which is legislative in character. Thus, the reliance on the decision of the Hon'ble Supreme Court in Mohinder Singh Gill case, while deciding the validity of a notification, which is a piece of a subordinate legislation is wholly misplaced and erroneous - the order of the learned Judge in setting aside the notification, is erroneous and contrary to law. Whether the impugned notification should not be made applicable to cotton in transit at the time of issuance of notification and also cotton in respect of which the orders have been placed with the foreign exporters at the time of the impugned notification? - HELD THAT - Perusal of Section 15 of the Customs Act, 1962 would postulate that the rate of duty, which is applicable to any imported goods, shall be the rate in force in the case of goods entered for home consumption under Section 46 of the Customs Act, 1962, on the date of which the bill of entry is presented. Thus, if the bill of entry is presented for home consumption under Section 46 of the Customs Act, 1962 after the issuance of the impugned notification, the imports would be governed by the amended rate prevailing then. In other words, on the date when the bill of entry was presented under Section 46 of the Customs Act, 1962, the rate that was prevailing was 10% - It has been repeatedly held by the Hon'ble Supreme Court that irrespective of the circumstances/contingency the rate of duty that is applicable would be the date in force on the date on which the bill of entry is presented for home consumption under Section 46 of the Customs Act, 1962 (or) in the case of goods cleared from a warehouse under Section 68 of the Customs Act, 1962, the date on which the goods are actually removed from the warehouses (or) on the date of payment of duty. The rate of duty is governed by Section 15 of the Customs Act, 1962 and the same shall be the rate in force- a. In the case of goods entered for home consumption under Section 46 of the Customs Act, 1962 on the date on which bill of entry was presented for home consumption. b. In the case of goods cleared from a warehouse under Section 68 of the Customs Act, 1962 the date on which goods are actually removed from warehouse Substituted by Act 32 of 2003, S.106, for the goods are actually removed from the warehouse (w.e.f. 14-05-2003). (the date on which a bill of entry for home consumption in respect of such goods is presented under that section). c. In the case of any other goods on the date of payment of the duty. d. Provided that if a bill of entry has been presented before the date of entry inwards of the vessel or the arrival of the aircraft on the date of such entry inwards or arrival as the case may be. The fact that the goods were in transit or the orders have been placed at the time when a lower rate of duty prevailed, will have no bearing for the rate of duty that would be applicable, shall be the rate of duty prevailing on the dates mentioned in Section 15 of the Customs Act, 1962 - the contention of the respondents that the enhanced rate leviable by the impugned notification should not be made applicable to cotton in transit at the time of issuance of notification and cotton in respect of which orders were placed with foreign exporters prior to the issuance of impugned notification, cannot be accepted. Appeal allowed - decided in favor of Revenue.

Summary

Issues Involved:

1. Validity of Notification No. 2/2002-Customs dated 08.01.2002 under Section 8A of the Customs Tariff Act, 1975.
2. Applicability of the impugned notification to cotton in transit and pre-existing contracts.

Detailed Analysis:

Issue 1: Validity of Notification No. 2/2002-Customs dated 08.01.2002 under Section 8A of the Customs Tariff Act, 1975

The primary question was whether the impugned notification, which increased the import duty on cotton from 5% to 10%, was valid under Section 8A of the Customs Tariff Act, 1975. Section 8A(1) empowers the Central Government to increase import duties if satisfied that such an increase is necessary and immediate action is required.

Issue No. 1.1: Presumption of Validity Based on Recital in Notification

The court held that a notification containing a recital that the conditions for its issuance were met raises a presumption of validity. This principle is supported by precedents such as King Emperor v. Sibnath Banerjee (AIR 1943 FC 75) and Swadeshi Cotton Mill Co. Ltd. v. State Industrial Tribunal (AIR 1961 SC 1381). The impugned notification explicitly stated that the conditions under Section 8A(1) were satisfied, thereby raising a presumption of validity. The burden of proving otherwise lies on the party challenging the notification.

Issue No. 1.2: Adequacy of Material for Issuance of Notification

The respondents argued that the Central Government failed to provide "sufficient material" justifying the notification. The court disagreed, noting that the government had explained the notification was issued to curb undesired cotton imports and protect domestic farmers. The court emphasized that the adequacy of material is not for judicial review unless the action is wholly beyond the scope of the delegate or inconsistent with the parent enactment. This principle is supported by cases such as Narayan Govind Gavate v. State of Maharashtra (1977) 1 SCC 133.

Issue No. 1.3: Relevance of Judicial Review in Economic Legislation

The court reiterated that economic legislation falls within the exclusive domain of the legislature and its delegate. Courts adopt a "hands-off" approach, focusing on whether the authority acted within its powers rather than the adequacy of the material. This stance is supported by Maharashtra State Board of Secondary and Higher Secondary Education v. Paritosh Bhupeshkumar Sheth (1984) 4 SCC 27.

Issue No. 1.4: Applicability of Mohinder Singh Gill Case

The court clarified that the principle from Mohinder Singh Gill (AIR 1978 SC 851), which states that an order cannot be improved upon through a counter, applies to administrative or quasi-judicial orders, not to legislative notifications. Therefore, the reliance on this case was misplaced.

Issue 2: Applicability of the Impugned Notification to Cotton in Transit and Pre-Existing Contracts

The second question was whether the notification should apply to cotton already in transit or under pre-existing contracts at the time of its issuance.

Issue No. 2.1: Governing Provisions for Rate of Duty

The court referred to Section 15 of the Customs Act, 1962, which stipulates that the rate of duty applicable is the rate in force on the date the bill of entry is presented for home consumption. This principle has been upheld in several Supreme Court cases, including Bharat Surfactants (P) Ltd. v. Union of India (1989) 4 SCC 21 and Union of India v. Apar (P) Ltd. (1999) 6 SCC 117.

Issue No. 2.2: Irrelevance of Transit and Pre-Existing Contracts

The court held that the fact that goods were in transit or under pre-existing contracts does not affect the applicability of the new duty rate. The rate of duty is determined by the date the bill of entry is presented, as per Section 15 of the Customs Act, 1962. This position is supported by multiple Supreme Court decisions, including Dhiraj Lal R. Vohra And Ors. vs Union Of India (1993 Supp (3) SCC 453).

Conclusion:

The court concluded that the impugned notification was valid and complied with Section 8A(1) of the Customs Tariff Act, 1975. The notification applies to all cotton imports for which the bill of entry was presented after its issuance, regardless of whether the goods were in transit or under pre-existing contracts. Consequently, the appeals filed by the Revenue were allowed, and the order of the learned Judge was set aside.