2022 (9) TMI 1306 - HC - Customs

Determination of method by which the iron (Fe) content in the iron ore is required to be determined for the purposes of levy of duty on the petitioners' export under the bills - Legality of the General Alert Circular no. 02/2019 dated 12/15th April 2019 (GA Circular), issued by the Directorate of Revenue Intelligence (DRI) - finalization of assessments of the five Shipping Bills under consideration filed by the Petitioner No. 1 - Seeking declaration that no liability of export duty can be imposed upon the exports of Petitioner No. 1 - enforceability of Provisional Duty Bonds and Bank Guarantees furnished by the Petitioner No.1. HELD THAT - The petitioners in the present context are correct in contending that in the process of determination of the appropriate rate of export duty on iron ore, it entails a determination of three issues, firstly, the classification of the iron ore under the Second Schedule of the Tariff Act to be undertaken based on the scheme of classification namely the headings and sub headings under the First Schedule to the Tariff Act, secondly, the classification under the First Schedule would enable determination of the appropriate sub headings of classification, which is based on the percentage of Fe (iron) content in the iron ore. This is the stage where the Wet method would be required to be adopted; thirdly, based on the appropriate classification (headings or sub headings), the appropriate prescribed basis of levy under the Second Schedule to the Tariff Act is required to be determined; and fourthly, it would be required to be examined whether there is applicable exemption notification related to either description of the goods and/or the classification (headings or sub headings) of the goods as regards the levy of export duty on the export of iron ore. There are much substance in the contention as urged on behalf of the petitioners that the Fe (iron) content of the iron ore was required to be determined at the second stage as noted above, to be undertaken on the basis the iron ore as it naturally stood at the time of export, namely, on the Wet method as in such condition the iron ore would contain moisture and other impurities. The respondents thus could not have discarded the wet (WMT) method purporting to co-relate the same to the rate of levy namely, the tariff rate being changed which earlier was on a per ton basis to the ad valorem basis. On a comparison of the tariff headings as it stood earlier and at present which we have already noted above, there is no change whatsoever in the description of the goods except for a minor variation in the percentage of iron ore (Fe) classified in different categories. What has undergone a change is only the rate of the duty which, when the Courts decided in Gangadhar Agarwal's case, it was at a rate per ton basis and which has now been changed to an ad valorem duty. Except for such change, not only the classification but the basis of classification as appearing in the different headings and sub-headings appears to have remained the same - there is a reason for the Revenue to do so inasmuch as when the legislature has found it appropriate that the goods are required to be classified on dry weight basis, it has been accordingly categorically provided for in the relevant schedule under the Tariff Act. This is clear from the fact that the iron ore as categorized under 2601 and the sub headings thereunder, there is no mention whatsoever of any dry weight as being canvassed on behalf of the Revenue. The principles of law as laid down in Gangadhar Agarwal's case 1995 (8) TMI 73 - SUPREME COURT were in regard to classification of the iron ore under heading 2601 for the purpose of determination of export duty on iron ore being on the wet (WMT) method basis and the dry (DMT) method would be applicable with effect from 1 May 2022 by virtue of the Finance Act, 2022. The Assistant Commissioner in passing the impugned orders in accepting the dry method, has acted contrary to the settled principles of law as laid down by the Supreme Court in Gangadhar Agarwal's case - the orders-in-original cannot be sustained being contrary to the basic tenets of law as laid down by the Supreme Court in Gangadhar Agarwal's case. Petition allowed in part.

Summary

Issues Involved:
1. Legality of the General Alert Circular No. 02/2019.
2. Classification of iron ore for export duty purposes.
3. Applicability of Wet Metric Ton (WMT) vs. Dry Metric Ton (DMT) methods for determining iron content.
4. Authority and binding nature of the GA Circular.
5. Applicability of the Supreme Court decision in Gangadhar Agarwal's case.
6. Validity of the orders-in-original passed by the Assistant Commissioner of Customs.
7. Availability of alternate remedy under Section 129-A of the Customs Act.

Issue-wise Detailed Analysis:

1. Legality of the General Alert Circular No. 02/2019:
The petitioners challenged the legality of the GA Circular No. 02/2019 dated 12/15 April 2019 issued by the Directorate of Revenue Intelligence (DRI). They argued that the circular, which mandates the use of the Dry Metric Ton (DMT) method for determining iron content, is contrary to the law laid down by the Supreme Court in Union of India vs. Gangadhar Narsingdas Agarwal. The court observed that the GA Circular is an internal communication, administrative in nature, and not binding on the lower authorities. It was also noted that the GA Circular was not issued under Section 151-A of the Customs Act, and thus, it cannot form the basis of any assessment.

2. Classification of Iron Ore for Export Duty Purposes:
The petitioners classified their iron ore exports under specific tariff items that entitled them to a "Nil" rate of export duty. The dispute arose regarding the method to determine the iron content for classification purposes. The court noted that the classification under the First Schedule to the Tariff Act is based on the percentage of Fe (iron) content, which should be determined using the Wet Metric Ton (WMT) method, as per the Supreme Court's decision in Gangadhar Agarwal's case.

3. Applicability of Wet Metric Ton (WMT) vs. Dry Metric Ton (DMT) Methods:
The court extensively discussed the applicability of the WMT vs. DMT methods. It concluded that the WMT method, which considers the iron ore in its natural form (including moisture and impurities), should be used for determining the iron content for export duty purposes. This conclusion was based on the Supreme Court's decision in Gangadhar Agarwal's case, which emphasized that the iron content should be determined in the condition the goods are presented for export, i.e., in their moist condition.

4. Authority and Binding Nature of the GA Circular:
The court clarified that the GA Circular No. 02/2019, being an internal advisory communication and not issued under Section 151-A of the Customs Act, does not have binding authority on the assessment process. The court also noted that the Revenue had taken a similar position in another case (Vedanta Ltd. vs. Union of India), where it was stated that the assessment would be undertaken without taking recourse to the GA Circular.

5. Applicability of the Supreme Court Decision in Gangadhar Agarwal's Case:
The court reaffirmed the principles laid down by the Supreme Court in Gangadhar Agarwal's case, which mandated the use of the WMT method for determining the iron content in iron ore for export duty purposes. The court rejected the Revenue's contention that the change in the rate of duty from per ton to ad valorem necessitated a shift to the DMT method. The court emphasized that the classification of iron ore should be based on the WMT method, as the goods are exported in their natural form.

6. Validity of the Orders-in-Original Passed by the Assistant Commissioner of Customs:
The court found that the Assistant Commissioner of Customs had incorrectly applied the DMT method in the impugned orders-in-original, contrary to the law laid down by the Supreme Court in Gangadhar Agarwal's case. The court held that the orders-in-original were illegal and unconstitutional, as they did not follow the established principles of law.

7. Availability of Alternate Remedy Under Section 129-A of the Customs Act:
The court addressed the preliminary objection raised by the Revenue regarding the maintainability of the petition, given the availability of an alternate remedy under Section 129-A of the Customs Act. The court decided to entertain the petition, considering the nature of the issues raised, which included the legality and validity of the GA Circular and the impugned orders-in-original.

Conclusion:
The court set aside the impugned orders-in-original dated 17 March 2022 and 31 March 2022 passed by the Assistant Commissioner of Customs. It remanded the matter to the Assistant Commissioner of Customs for a fresh assessment in accordance with the principles laid down in the judgment. The court clarified that the assessments for the period prior to 1 May 2022 should be governed by the WMT method as per the Supreme Court's decision in Gangadhar Agarwal's case. The GA Circular No. 02/2019 was held to be non-binding and irrelevant for assessments prior to 1 May 2022.