1985 (9) TMI 189 - AT - Customs

Issues Involved:
1. Interpretation of the preferential rate of duty on cloves under Notification No. 431-Cus., dated 1-11-1976.
2. Validity of the Assistant Collector's order.
3. Consistency with the General Explanatory Note to the Customs Tariff Act.
4. Historical and economic basis for the preferential margin.
5. Potential anomalies in duty calculation.

Detailed Analysis:

1. Interpretation of the Preferential Rate of Duty on Cloves:
The core issue was whether the preferential rate of duty on cloves should be interpreted as "Rs. 20 per kg. less 7 1/2 % ad valorem" or "Rs. 20 per kg. less 7 1/2 % thereof." The respondents contended that it should be read as "Rs. 20 per kg. less 7 1/2 % ad valorem," while the Department argued for "Rs. 20 per kg. less 7 1/2 % thereof."

The Collector (Appeals) supported the respondents' interpretation, stating that the abbreviation "%" in the Customs Tariff Act refers to "ad valorem." The Collector (Appeals) reasoned that if the intention was to make the effective rate Rs. 18.50 per kg., it would have been directly indicated by the Government.

2. Validity of the Assistant Collector's Order:
The Assistant Collector's order was criticized for not being a "proper speaking order" and for lacking intelligibility. It did not clarify whether the 7% referred to the value or to Rs. 20/-. The Collector (Appeals) provided a detailed order, which was challenged by the Department but ultimately upheld by the Tribunal.

3. Consistency with the General Explanatory Note to the Customs Tariff Act:
The General Explanatory Note to the Customs Tariff Act clarified that the "%" sign indicates an ad valorem percentage. The Collector (Appeals) and the Tribunal emphasized that this interpretation should be consistently applied to the notification in question. The Tribunal also referred to the General Clauses Act, which supports the consistent use of expressions in subordinate legislation.

4. Historical and Economic Basis for the Preferential Margin:
The preferential margin of 7 1/2 % originated from the Imperial Preferences scheme and was retained in the Customs Tariff Act. The Tribunal noted that interpreting "7 1/2 %" as ad valorem aligns with the historical and economic context under the Customs Tariff Act and the Indian Tariff Act.

5. Potential Anomalies in Duty Calculation:
The Department argued that interpreting "7 1/2 %" as ad valorem could lead to a negative duty if the value of cloves exceeded Rs. 267 per kg. The Tribunal dismissed this concern, noting that the value of cloves at the relevant time was about Rs. 120 per kg., making such a situation unlikely. The Tribunal also pointed out that exemption notifications cannot result in a negative duty and that any drastic changes in trading conditions could be addressed through re-negotiations under the Bangkok Agreement.

Conclusion:
The Tribunal upheld the Collector (Appeals)'s interpretation that the preferential rate of duty on cloves under Notification No. 431-Cus., dated 1-11-1976, should be "Rs. 20 per kg. less 7 1/2 % ad valorem." The order of the Collector (Appeals) was confirmed, and the appeal of the Collector of Customs, Madras, was rejected.

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