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CASE NO.: Appeal (civil) 863-864  of  1992

PETITIONER: COLLECTOR OF CUSTOMS                                                               APPELLANT

       Vs.

RESPONDENT: M/S. PRESTO INDUSTRIES

DATE OF JUDGMENT:       15/02/2001

BENCH: B.N. Kirpal & Brijesh Kumar.

JUDGMENT:

J  U  D  G  M  E  N  T BRIJESH KUMAR, J. L...I...T.......T.......T.......T.......T.......T.......T..J

   The  question  that  falls for  consideration  in  these appeals  is  as to whether or not, the respondent  has  been rightly  given  benefit of Notification No.  16/83-CE  dated 11.2.1983,  issued by the Central Government under Rule 8(1) of  the Central Excise Rules, 1944, in regard to the payment of  additional custom duty under Section 3(1) of the Customs Tariff  Act,  1975,  on  the waste  and  scrap  of  imported Cellulose Acetate sheets.

   We  have  heard Shri Mukul Rohtagi,  learned  Additional Solicitor   General   for   the   appellant  and   Shri   V. Lakshmikumaran, learned counsel for the respondent.

   The   respondent,  M/s.   Presto   Industries,   is   an industrial  unit manufacturing combs and brushes, in  Kandla Free Trade Zone, from the imported Cellulose Acetate sheets. On  certain  given  conditions, exemption  from  payment  of excise  duty  is admissible to the manufacturer in the  Free Trade  Zone.   So far it relates to the resultant waste  and scrap  of  the  imported  raw  material,  namely,  Cellulose Acetate  sheets, Customs Duty as well as additional duty  is payable  on  the  scrap being cleared for  home  consumption outside   the  Free  Trade   Zone.   Undisputedly,  on   two clearances  of  the scrap, Custom Duty was assessed and  the same  was  paid by the respondent.  It was,  however,  later discovered  during  the  audit   that  while  assessing  the liability,  the respondent had been wrongly given benefit of Notification  No.   16/83-CE dated 11.2.1983 and  additional duty under Section 3 (1) of the Customs Tariff Act, 1975 was not levied.  The duty was found to be short paid.  Thus, two Demand  Notices  under Section 28 of the Customs  Act,  1962 were  issued  in respect of two clearances,  namely,  Demand Notice  No.FIZ/Cus/Demand/87-/7545/73 dated 26.6.1989 for  a sum     of     Rs.60,480/-         and     Demand     Notice No.FIZ/Cus/Demand/85-86/1347  dated 16.10.1989 for a sum  of Rs.8870.40.

   The  aforesaid  two  demands for  additional  duty  were

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confirmed  by the Assistant Collector (Custom), Kandla  Free Trade  Zone  by  order  dated 22.6.1989 for  a  sum  of  Rs. 68076.40  and  by  order dated 16.10.1989 for a sum  of  Rs. 8870.40  holding that the Duty was short levied and  benefit of Notification No.16/83-CE dated 11.2.1983 was wrongly made admissible  to  the respondent.  It was also held  that  the waste and scrap item of Cellulose Acetate sheets was covered under  Tariff Item No.15-A(1), explanation iii© as  provided in  the  foot  note to Item No.15-A of  the  Central  Excise Tariff.   The exemption from payment of Central Excise  Duty was  held  to  be admissible only on fulfilment  of  certain conditions  as  contained  in the  Notification  No.16/83-CE itself.  Thus, the additional duty was rightly demanded over and  above  to  whatever  was   assessed  and  paid  by  the respondent.   The respondent preferred an appeal against the order  of the Assistant Collector (Customs) to the Collector Customs  (Appeals) who by order dated 12.3.1990 allowed  the appeal  holding that the benefit of Notification No.16/83-CE was  admissible  to the respondent.  The Revenue  challenged the  order passed by the Collector Customs (Appeals)  before the  Customs,  Excise and Gold (Control) Appellate  Tribunal (for  short, ‘CEGAT).  The Tribunal dismissed the appeal by order dated 12.7.1991.  Hence the appeals by the Revenue.

   The  Collector  (Appeals) took the view that  the  whole Duty  of  Excise,  leviable under Section 3 of  the  Central Excise  Act,  1944 is exempted in respect of scrap for  home consumption  outside the Free Trade Zone, under Notification No.16/83-CE,  therefore, no additional Duty in the nature of countervailing  duty  was  liable to be paid.  It  was  also found  that the respondent had paid the Customs Duty on  the scrap  as  required  by  Clause (b) to the  Proviso  to  the Notification No.16/83-CE.  The CEGAT upheld the order passed by  the  Collector  of  Customs (Appeals)  finding  that  no additional  duty  of customs would be payable  where  Excise Duty  is exempt under a Notification issued under Rule  8(1) of  the Excise Rules 1944.  It also relied upon the decision in  M.R.F.  Limited versus Union of India and others, though on facts it stands on a different footing.

   The case of the assessee further is that since no Excise Duty  is  payable, no additional duty under Section 3(1)  of the  Customs  Tariff Act, 1975 can be levied  as  additional duty  could  only be equal to the Excise Duty for  the  time being  leviable on a like article if produced in India or in case  it  is not so produced the excise duty which would  be leviable  on  the class or description of articles to  which the imported articles belongs.

   The  main stress on behalf of the appellant is that  the second   condition   as  contained   in   the   Notification No.16/83-CE  has  not  been fulfilled hence  exemption  from Excise  Duty would not be available to the respondent.  That being  the  position,  the additional duty  as  leviable  is liable  to  be  levied and paid under Section 3 (1)  of  the Customs Tariff Act, 1975.

   Before  entering  into  the   discussion,  it  would  be appropriate  to  peruse  the provisions as  contained  under Section  3  of  the  Customs Tariff Act,  1975  as  well  as Notification  No.16/83-CE  issued  under Rule 8 (1)  of  the Excise  Rules,  1944.  Section 3 of the Customs  Tariff  Act reads as under:

   SECTION  3.   Levy of additional duty equal  to  excise

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uty.- (1) 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 leviable on a like article if produced or manufactured  in  India  and if such excise duty on  a  like article  is  leviable  at any percentage of its  value,  the additional  duty  to 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 would  be leviable  on  the class or description of articles to  which the  imported  article  belongs,  and  where  such  duty  is leviable at different rates, the highest duty.

(2) ..

   (3)  If  the  Central Government is  satisfied  that  is necessary  in  the public interest to levy on  any  imported article  [whether  on  such article duty is  leviable  under sub-section  (1)  or  not]  such additional  duty  as  would counter-balance   the  excise  duty   leviable  on  any  raw materials, components and ingredients of the same nature as, or  similar to those, used in the production or  manufacture of  such  article, it may, by notification in  the  Official Gazette,  direct  that  such   imported  article  shall,  in addition,  be liable to an additional duty representing such portion  of the excise duty leviable on such raw  materials, components  and  ingredients  as,  in either  case,  may  be determined  by rules made by the Central Government in  this behalf.

(4) ..

(5) ..

   (6)  The  provisions  of the Customs Act,  1962  (52  of 1962),  and  the  rules  and  regulations  made  thereunder, including those relating to drawbacks, refunds and exemption from  duties,  shall,  so far as may be, apply to  the  duty chargeable  under this section as they apply in relation  to the duties leviable under that Act.

   A  perusal  of Section 3 (1) of the Customs  Tariff  Act quoted  above shows that on any article imported into India, a  duty  in addition may be levied to be called  ‘additional duty  equal to the excise duty for the time being  leviable as  may be in force on an item manufactured in India and  in case  it  is not so manufactured, as may be leviable on  the class  or  description  of articles to  which  the  imported article belong.  It is also clear that the ‘additional duty is in addition to the Customs Duty levied under Customs Act, 1962  on  any  article which is imported  into  India.   The Customs Tariff Act provides for the rates at which duties of Customs are leviable under Customs Act, 1962 as specified in the  two  Schedules.  The additional duty is in addition  to what  is  specified in the first and second schedule of  the Customs  Tariff  Act.   It can be said that  first  part  of Section  3  (1) of the Customs Tariff Act, 1975 is  charging provision  for the purposes of imposition of additional duty

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and  the latter part is in relation to quantification of the additional  duty  equal  to Excise Duty.  In regard  to  the question as to whether Section 3 (1) is a charging provision for  additional  duty or not, it was held by a  Three  Judge Bench  of  this  Court  in the case of  Khandelwal  Metal  & Engineering Works that Section 3 (1) cannot be said to be an independent charging Section.  It was held to be an extended provision  of  Section 12 of the Customs Act, 1962  for  the purposes of additional duty.  Later on however this question again  came  to  be  considered in  the  case  of  Hyderabad Industries  Ltd.  before a Constitution Bench of this  Court and  it  was held that Section 3 of Customs Tariff Act is  a charging  provision  for additional duty.  It has also  been held  that  under Section 3 of the Customs Tariff  Act,  the additional duty is not called a counter-vailing duty, it may though  result  in serving such purpose for manufacturer  of such  articles  in  India.  It is to be  noticed  here  that Sub-section (3) of Section 3 of the Customs Tariff Act makes a   provision  for  levy  of   additional  duty   as   would counter-balance the Excise Duty leviable on any raw material which   may  be  over  and   above  any  duty  levied  under Sub-section  (1).  The said provision viz.  Section 3(3)  of Customs  Tariff  Act  makes  it clear  that  in  the  public interest  an  additional duty under Sub-section (3)  can  be levied  as  would counter-balance the excise duty.  It is  a provision independent of Sub-section (1) of Section 3 of the Customs  Tariff  Act  taking care of  counter  balancing  of Excise Duty.

   We  may  now advert to the Notification  No.16/83-CE  to find  out  whether  conditions  laid in Clause  (b)  of  the Proviso  of the said Notification has been fulfilled or not. The Notification No.16/83-CE provides as under:-

Kandla Free Trade Zone

     In exercise of the powers conferred by sub- rule  (1) of  rule  8  of the Central Excise Rules, 1944  the  Central Government hereby exempts scrap or waste material arising in the  course of production or manufacture of any goods in the Kandla Free Trade Zone, from the whole of the duty of excise leviable  thereon under section 3 of the Central Excise  and Salt Act, 1944 (1 of 1944):

   Provided that:-

   (a)  such  scrap or waste material is out of  any  goods brought into the said zone from a place outside India, and

   (b)  such  scrap or waste material is cleared  for  home consumption  outside  the said zone on payment of duties  of customs leviable thereon under any law for the time being in force."

   The  whole of the excise duty leviable under the Central Excise  & Salt Act, 1944 is liable to be exempted, on  scrap or  waste arising in the course of manufacture of any  goods in  the  Kandla  Free  Trade Zone, which  is  imported  from outside India and it is cleared for home consumption outside the  zone  on payment of duties of customs leviable  thereon under  any  law  for  the  time being  in  force..   So  far condition  provided under clause (a) of the proviso there is no  dispute.  But as it relates to fulfilment of Clause  (b) to  proviso,  it is in dispute.  Admittedly additional  duty leviable  under  Section 3(1) of the Customs Tariff Act  has

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not  been  paid.  Their case is that basic customs duty  has been  paid which fulfils the requirement.  The  Notification however  requires  payment of duties of customs under  any law  for  the  time  being in force.   The  additional  duty leviable  under Sub-section (1) of Section 3 of the  Customs Tariff  Act  is not described or called  as  counter-vailing duty as observed in the case of Hyderabad Industries (supra) as  well  as in the case of Khandelwal Metal  &  Engineering Works  (supra)  despite the purpose whichever it may  serve. There  is  a  specific provision under  Sub-section  (3)  of Section  3 of the Customs Tariff Act, 1975, quoted  earlier, providing  for levy of additional duty, whether on such item additional  duty  under  Sub- section (1) of  Section  3  is leviable  or  not, to counter-balance the Excise Duty.   The clause  (b)  to  the proviso to  the  Notification  16/83-CE provides  for  clearance of all duties of  customs  leviable under  any  law  for the time being in force.  It  does  not confine  to  payment  of  customs duty  leviable  under  the Customs  Act, 1962 alone.  Therefore, additional duty levied under  Section 3(1) of Customs Tariff Act shall also have to be  cleared  before  claiming   benefit  under  Notification No.16/83-CE.   In  the  case of  Hyderabad  Industries  Ltd. (supra),  in  paragraph 14 of the Judgment, it is held  that there  are  different  types of Customs  Duty  levied  under different  Acts  or Rules.  It includes Duty  under  Section 3(1)  of  the  Customs Tariff Act.  The para  14  is  quoted below:-

   14.  There are different types of customs duties levied under different Acts or Rules.  Some of them are:

   (a) a duty of customs chargeable under Section 12 of the Customs Act, 1962;

   (b)  the duty in question, namely, under Section 3(1) of the Customs Tariff Act;

   (c)  additional duty levied on raw materials, components and  ingredients  under Section 3(3) of the  Customs  Tariff Act;  and

   (d)  duty  chargeable under Section 9-A of  the  Customs Tariff Act, 1975.

   The  Customs Act, 1962 and the Customs Tariff Act,  1975 are  two separate independent statutes.  Merely because  the incidence  of tax under Section 3 of the Customs Tariff Act, 1975 arises on the import of the articles into India it does not  necessarily  mean  that the Customs Tariff  Act  cannot provide  for the charging of a duty which is independent  of the customs duty leviable under the Customs Act.

   Since  it  is found that the respondent did not pay  the additional duty as leviable under Sub-section (1) of Section 3  of the Customs Tariff Act, 1975, it failed to comply with the  condition as contained in Clause (b) to the proviso  to the  Notification No.16/83-CE dated 11.2.1983.  The onus  of proof  of  fulfilment  of  condition  subject  to  which  an exemption  may be admissible lies on the assessee or upon  a party  claiming benefit under the Notification as also  held in  the  case of Motiram Tolaram and another .  So  far  the question   of  construing  an   exemption  Notification   is concerned,  such Notifications are to be strictly construed. Where a condition precedent is not fulfilled before claiming any exemption, such benefit would not be admissible.

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   In  the  result it is found that due to  non-payment  of additional  duty as prescribed under Section 3(1) of Customs Tariff  Act,  the respondent would not be entitled  for  the benefit  of  exemption from Excise Duty  under  Notification No.16/83-CE.    It  was  wrongly   made  admissible  to  the respondent.

   In  view  of what has been discussed above, the  appeals are  allowed  and  the  orders passed by  the  Collector  of Customs  (Appeals)  and  CEGAT are set aside and  the  order passed  by the Assistant Collector of Customs are  restored. There would, however, be no order as to costs.

(B.N. Kirpal) (Brijesh Kumar)

   New Delhi     February 15, 2001

1987 (32) E.L.T.  465 (Madras) AIR 1985 SC 1211

1999) 5 SCC 15 (1999) 6 SCC 375 1