2015 (8) TMI 337 - SC - Customs

Levy of Countervailing Duty Appellant resisted countervailing duty on ground that locally manufactured/produced goods of similar nature, were exempted from payment of excise duty on unbranded goods, such goods produced in India do not incur any liability of payment of excise duty, thus there was no question of payment of additional duty under Section 3 of Customs Tariff Act, 1975 Held that - purpose of additional duty, also known as countervailing duty, was to protect domestic market from unhealthy competition Once there was no excise duty on such goods produced domestically question of levying additional duty in form of giving such protection does not arise at all Therefore, appellant was not liable to pay any additional duty under Section 3 Order of CEGAT accordingly set aside Decided in favour of Appellant.

Summary

Issues:
1. Liability for payment of additional duty under Section 3 of the Customs Tariff Act on imported shawls and scarves.
2. Interpretation of Section 3 of the Customs Tariff Act in relation to countervailing duty.
3. Exemption from payment of additional duty on goods produced domestically without excise duty.

Analysis:
1. The appellant, engaged in importing and exporting shawls and scarves, challenged the liability for additional duty imposed under Section 3 of the Customs Tariff Act on imports from Nepal. The appellant argued that since similar goods produced domestically are exempt from excise duty, there should be no liability for additional duty on imported goods. The authorities upheld the duty based on previous judgments, including Vijay Pratap Rai Mehta v. Union of India and M/s Khandelwal Material & Engineering Works & Anr. v. Union of India & Ors.

2. The judgment in M/s. Khandelwal Material & Engineering Works & Anr. was reconsidered by a Constitution Bench in Hyderabad Industries Limited v. UOI, which overruled the previous view on the interpretation of Section 3. The Bench clarified that Section 3 does not impose countervailing duty but aims to protect domestic manufacturers by levying additional duty on imported articles to counterbalance excise duty on similar domestically produced goods. The Bench emphasized that the additional duty is not a customs duty but a measure to prevent unhealthy competition in the domestic market.

3. The Court, based on the revised interpretation of Section 3, concluded that if there is no excise duty on similar goods produced domestically, there should be no liability for additional duty on imported goods. The Court held that the appellant is not liable to pay any additional duty under Section 3 of the Act and set aside the previous order. The appellant was granted the right to claim a refund of the additional duty paid in accordance with the law.

4. In a subsequent appeal (C.A. 8534/2003), following the decision in C.A. No. 7028/2002, the appellant did not pursue the appeal, leading to its dismissal. The judgment clarified the application of Section 3 of the Customs Tariff Act concerning countervailing duty and the protection of domestic manufacturers from unfair competition in the market.