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2015 (11) TMI 313 - HC - CustomsExemption from levy of additional duty (CVD) where the manufactured goods are exempted from duty of excise - Amendments to nullify the decision of Apex Court - Notification No.30/2004-CE, dated 9.7.2004 provides the exemption subject to no cenvat credit - Apex Court in the case of Aidek Tourism Services Private Limited v. Commissioner of Customs 2015 (3) TMI 690 - SUPREME COURT , and S.R.F. Limited v. Commissioner of Customs 2015 (4) TMI 561 - SUPREME COURT , the Supreme Court held that the benefit of the said exemption Notification was available to importers of the goods described in the table under the Notification and that the proviso to the Notification may not have any application to importers, as they could not in any case, avail CENVAT credit. Petitioners seek the declaration that the words and not the buyer of such goods incorporated in the original Notification No. 30/2004 dated 9.7.2004, through the amending Notification No.34/2015 dated 17.07.2015 is null and void in the light of Section 3(1) of the Customs Tariff Act, 1975 and Section 5A of the Central Excise Act, 1944 - Request of release the goods covered by 6 Bills of Lading, by extending the total exemption from payment of additional duty in terms of the original exemption Notification dated 9.7.2004. Held that - Wherever the Notifications prescribed conditions, which were merely procedural in nature, but did not involve the payment of any duty of excise on the inputs, the Court interpreted the Notifications in favour of the assessee, in view of the fact that an importer could not comply with those procedural formalities. But, wherever the Notifications imposed either (i) a condition that the input used for the manufacture of the exempted goods, should have suffered a duty or (ii) a condition that duty ought to have been paid and CENVAT credit not claimed, the Court interpreted such Notifications in favour of the Revenue (except perhaps in the case of AIDEK and SRF). A Notification such as the one bearing No.030/2004 dated 9.7.2004, which merely stipulates a condition that no CENVAT credit ought to have been availed in respect of the duties paid on the inputs, is in no way different from a Notification, which stipulates a condition that the inputs ought to have suffered a duty and no CENVAT credit should have been claimed on the same - Only restriction imposed upon a contracting party is that they should not subject the importer to internal tax in excess of those applied to like domestic products. The principle behind Article III of GATT 1947 is what is incorporated in Section 3 of the Customs Tariff Act 1975. We have no quarrel with the proportion that an importer cannot be subjected to a tax which is in excess of those imposed upon like domestic products. - denial of the benefit of the exemption notification to the importer does not put him to a disadvantageous position than the domestic manufacturer, neither Section 3 nor the provisions of GATT would stand breached. Therefore, we have no hesitation in rejecting the arguments on the basis of Article III of GATT. Merely because an organization representing the interests of domestic manufacturers made a representation to the Government, the amendments issued to the exemption notification cannot be said to be a malafide exercise of power. As a matter of fact by the impugned amendment notifications dated 17.07.2015 and 21.07.2015, the Government had done something that may hit some of the domestic manufacturers also. A domestic manufacturer who would have otherwise been entitled to the benefit of the exemption notification dated 9.7.2004, may not any more be entitled to the benefit of the notification, unless he satisfies the newly incorporated proviso and the Explanation. Therefore, the amendments cannot be seen in isolation. It can be found from the chart that certain exemptions could be absolute and unconditional. If an exemption notification is absolute and unconditional, all domestic manufacturers, will be entitled to the benefit of the same. As a consequence, the importers will also be entitled to the benefit of the same. - in cases where the exemption is only conditional, it is only those domestic manufacturers who fulfill the conditions, who will be entitled to the benefit of the exemption notification. A domestic manufacturer who does not fulfill the condition prescribed in the exemption notification, will not be entitled to the benefit of exemption. Since he is manufacturing goods outside the country, he would not have paid Duty of Excise to the Government of India on the inputs used in his product. Nevertheless he would equate himself with a person who has not claimed CENVAT credit and avail the benefit of the exemption notification. The result is that a domestic manufacturer pays an extra amount of ₹ 100/-, in the example given above, while the importer does not pay anything. Neither Section 3 of the Customs Tariff Act, 1975, nor Article III of GATT required that an importer should be placed in a more advantageous position than the domestic manufacturer. The only requirement under GATT and even under Section 3 of the Customs Tariff Act is that the importer should not be put to a disadvantageous position than the domestic manufacturer. But what the petitioners want is to place the importer in an advantageous position. This is not permissible. The exemption notifications dated 17.07.2015 and 21.07.2015 are issued in exercise of the power conferred by Section 5A. Section 5A(1) itself empowers the Central Government to grant exemption either absolutely or subject to such conditions as they may stipulate. If the Central Government has the power to grant exemption subject to certain conditions, they have the power even to modify the conditions. This is why neither the source of power nor the method of exercise of such power is questioned by the writ petitioners. The impugned amendments are not in excess of the delegated power conferred under Section 5A(1). Therefore, at the outset, the amendments are not ultra vires Section 5A(1). The amendments are not ultra vires Section 3 since the importers are not placed in a more disadvantageous position than that of the domestic manufacturers. By prescribing certain conditions for availing the benefit of exemption, the impugned amendments treat even the domestic manufacturers differently. Placing the importers on par with those domestic manufacturers who do not get the benefit of the exemption notification, does not strike at the root of Section 3. Therefore, the notifications do not offend Section 3. The petitioners cannot even assail the impugned notifications on the strength of Article 14 of the Constitution. If the domestic manufacturers themselves are classified into two categories depending upon the nature of the conditions imposed, the classification is reasonable and it has a nexus with the object sought to be achieved by the notification. It must be remembered that the notifications do not seek to differentiate between the importers and domestic manufacturers. They actually seek to discriminate one set of domestic manufacturers from another set of domestic manufacturers. A decision as to the category into which an importer will fall cannot therefore be taken to be discriminatory offending Article 14 of the Constitution. In respect of the exemption notifications that are absolute and unconditional, all domestic manufacturers will be entitled to the benefit of the exemption notification. Therefore, the importers will also be entitled. But, insofar as exemption notifications that are conditional in nature, the respondents will have to see whether all domestic manufacturers will automatically get exemption or some of them may not get exemption due to non fulfillment of the conditions prescribed in the notification. If some of them are not entitled, due to non fulfillment of the conditions, the importers, for whom it is impossible of complying with those conditions, are also not entitled to the benefit. It is this position that is sought to be clarified by the impugned amendment notifications dated 17.7.2015 and 21.7.2015. Hence, there are no merits in the writ petitions. - Decided against assessee.
Issues Involved:
1. Validity of the amending Notifications dated 17.07.2015 and 21.07.2015. 2. Interpretation of the conditions in the exemption Notifications. 3. Compliance with Section 3 of the Customs Tariff Act, 1975. 4. Compliance with Article III of the General Agreement on Tariffs and Trade (GATT) 1947. 5. Alleged mala fide exercise of power in issuing the amending Notifications. 6. Impact on the "Make in India" policy. Detailed Analysis: 1. Validity of the Amending Notifications: The court examined the validity of the amending Notifications dated 17.07.2015 and 21.07.2015, which replaced and added conditions to the original Notification No.30/2004 dated 9.7.2004. The new proviso required that the excisable goods must be manufactured from inputs on which appropriate duty of excise or additional duty of customs has been paid, and no credit of such duties has been taken by the manufacturer. The court found that these amendments were within the powers conferred by Section 5A(1) of the Central Excise Act, 1944, and did not exceed the delegated power, thus they were not ultra vires. 2. Interpretation of Conditions in Exemption Notifications: The court discussed various judicial pronouncements to interpret the conditions in exemption Notifications. It emphasized that conditions related to the payment of duty on inputs and the non-availment of CENVAT credit are crucial. The court noted that the interpretation of such conditions must ensure that importers are not placed in a more advantageous position than domestic manufacturers. The court held that the amending Notifications aimed to ensure that some element of duty is paid on the inputs used in the manufacture of exempted goods, aligning with the legislative intent. 3. Compliance with Section 3 of the Customs Tariff Act, 1975: Section 3(1) of the Customs Tariff Act, 1975, aims to provide a level playing field between imported goods and domestically manufactured goods by imposing additional duty equivalent to the excise duty on domestic goods. The court found that the amending Notifications did not place importers at a disadvantage compared to domestic manufacturers. Instead, they ensured that importers would not enjoy undue benefits that domestic manufacturers could not avail due to the conditions imposed. 4. Compliance with Article III of GATT 1947: The petitioners argued that the amending Notifications violated Article III of GATT 1947, which prevents contracting parties from subjecting imported products to internal taxes exceeding those on like domestic products. The court rejected this argument, stating that the Notifications did not place importers at a disadvantage. The court emphasized that the goal was to prevent importers from being in a more advantageous position than domestic manufacturers, which aligns with the principles of GATT 1947. 5. Alleged Mala Fide Exercise of Power: The petitioners contended that the amending Notifications were issued under external pressure, particularly from domestic manufacturers' associations. The court examined the representation made by the Manufacturers' Association for Information Technology (MAIT) and found that the government did not fully concede to their demands. The court concluded that the issuance of the amending Notifications was not a mala fide exercise of power but a legitimate response to judicial pronouncements and policy considerations. 6. Impact on the "Make in India" Policy: The court acknowledged that the Central Government issued the amending Notifications partly to support the "Make in India" policy by ensuring that domestic manufacturers are not disadvantaged compared to importers. The court found that the Notifications aimed to create a fair competitive environment for domestic manufacturers, aligning with the policy's objectives. Conclusion: The court dismissed the writ petitions, upholding the validity of the amending Notifications dated 17.07.2015 and 21.07.2015. It held that these Notifications were within the powers conferred by Section 5A(1) of the Central Excise Act, 1944, and did not violate Section 3 of the Customs Tariff Act, 1975, or Article III of GATT 1947. The court also rejected the argument of mala fide exercise of power and found that the Notifications supported the "Make in India" policy by ensuring a level playing field for domestic manufacturers.
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