Machinnon Machenzie and Co. Ltd. vs Union of India

This petition under Article 226 of the Constitution questions the legality of treating as excise duty that which was recovered as countervailing duty (CVD) u/s 3 of the Customs Tariff Act, 1975 (CTA).

Petitioners'' vessel M. V. TEESTA was engaged by M/s. Golodetz Ltd. to carry 11,500 tones of bagged sugar from Bombay to Indonesia, Loading of the cargo began on 7th March 1977 and while it was in progress, a fire took place in Hatch No. 4 of the vessel. Water used to stamp out the fire damaged the commodity packed in 7362 bags. This lot in a damages mitigating sale fetched Rs. 19,48,571.20 ps. inclusive of demurrage payable to the Bombay Port Trust (BPT). Petitioners filed a Bill of Entry (B/E) showing the above offloaded and disposed of sugar to be of the value of Rs. 19,69,550/-. On this account petitioners paid Rs. 8,86,297.50 ps. as CVD. Pleading a calculation mistake, a refund of Rs. 2,98,162.00 was claimed. This claim was rejected by Respondent No. 2 on the ground of non-compliance with Section 22 of the Customs Act, 1962 (C.A.). The rejection was set aside in appeal and the matter remanded for a fresh appraisal. Having sustained the claim on 3rd July 1980 and paid the same, Respondent 2 on 20th November 1980 called upon petitioners to refund the said sue contending that the payment was erroneously made. Petitioner disputed the demand and on taking legal advice, laid a fresh claim for the balance of Rs. 5,88,135.20 ps. This application was on the basis that there had been no import to warrant any levy of CVD. The 2nd respondent reaffirmed his earlier view and that view (Ex. N) is assailed in this petition.

Petitioners contend that their submitting a B/E in respect of the off-loaded sugar was due to a mistake in their understanding of the law. Officers like Respondent 2 could not exercise powers provided by the Central Excises and Salt Act, 1944 (CESTA). Their authority was confined to legislation dealing with customs. Respondents were not entitled to demand and/or retain the sum of Rs. 8,26,297.50 ps. No return has been filed by the Respondents. Counsel representing these Respondents defends their actions resorting to Section 12, 22, 23, 28, 41, 46 and 27 of the C.A.

The factual position is virtually that set out in the petition. This means that in respect of the damaged sugar, there was no importation in the sense of the same being brought into India from a place outside this country. In this background the two questions arising would be (i) whether they could be subjected to the levy of CVD under the CTA and if not, (ii) whether Respondent No. 2 had the power to retain and/or try to collect the same as duty payable under the CESTA.

CVD or Additional duty is recoverable u/s 3(1) of the CTA which reads as follows :

"Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being livable on a like article if produced or manufactured in India and if such excise duty on a like article is livable at any percentage of its value, the additional duty of which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article.

Explanation :- In this section, the expression "the excise duty for the time being leviable on a like article if produced or manufactured in India" means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or, if a like article is not so produced or manufactured, which could be leviable on the class or description of articles to which the imported article belongs, and where such duty is livable at different rates, the highest duty."

With the admitted position being what it is, Mr. Bulchandani submits that Section 46(1) of the CA equates the filing of a B/E to an importation. Once a B/E is filed, the goods become dutiable vide Section 12 of the same Act, the rates being those specified under the CTA. If any abatement or remission of duty is sought, the same has to be u/s 22 or 23 of the CA. Petitioners cannot escape liability by claiming to be mere owners of the vessel for Section 41 of the CA fastens certain responsibilities upon them. Assuming the worst, the claims had to be within the period prescribed u/s 27 or 28 of the CA. All this sounds very formidable if one forgets the pivot of the sections aforementioned. The centerpiece of all these sections is the act of importation.

Section 2 of the CA define ''import'' and ''imported goods'' thus :-

"import", with its grammatical variations and cognate expressions, means bringing into India from a place outside India :-

"imported goods" means any goods brought into India from a place outside India but does not include goods which have been cleared for home consumption."

This connotation underlies Section 12, 17, 22, 23 and 46 of the CA. If the sugar has not been imported, the mere presentation of a B/E would not change their character. Counsel submits that a B/E has to be submitted for all goods except those intended for transit or transhipment vide section 46 and therefore goods off-loaded would be outside the excepted category. This is arguing backwards when the relevant part of the section which is worded thus, predicates the reverse :-

"46(1). The importer of any goods, other than goods intended for transit or transhipment, shall make entry thereof by presenting to the proper officer a bill of entry for home consumption or warehousing in the prescribed form :

Provided that if the importer makes and subscribes to a declaration before the proper officer, to the effect that he is unable for want of full information to furnish all the particulars of the goods required under this sub-section, the proper officer may, pending the production of such information, permit him, previous to the entry thereof (a) to examine the goods in the presence of an officer of customs, or (b) to deposit the goods in a public warehouse appointed u/s 57 without warehousing the same."

This aspect settled one need not go into the effect of Section 41 of the CA. Section 3(1) of the CTA, let it be remembered, also envisages levy of CVD on an "article which is imported into India" - not otherwise. As to Section 27 and 28 of the C.A., money paid/recovered under a mistake of law is money received in contravention of the Constitution and cannot be retained or demanded back; if refunded

The 2nd respondent seems to have realised the legal infirmities in the collection and therefore described it as a technical expedient to treat CVD collected as in fact representing excise on diversion of cargo meant for export to actual consumption. Counsel for petitioner argues and rightly so that respondent No. 2 had no jurisdiction to do this for excise duty could be recovered only under Rule 7 of the Central Excise Rules, 1944. This rule is worded as under :-

"Every person who produces, cures or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty or duties livable on such goods, at such time and place and to such person as may be designated, in, or under the authority of these Rules, whether the payment of such duty or duties is secured by bond or otherwise."

Petitioners as owners of the vessel were not "producers, curers or manufactures" of excisable goods viz. the damaged sugar. Therefore, on this ground also the addition additional duty was not legally collectible or retainable.

The result of the foregoing discussion is that petition succeeds. Respondents do refrain from giving effect to Exh. N and do refund unto petitioners a sum of Rs. 5,88,135.20 ps. with interest at Rate 6% per annum from date of petition until payment. Rule in the above terms made absolute with parties left to bear their own costs.