Holding

The auxiliary duty must be levied at the rate corresponding to the higher of the effective basic duty rates applicable to the article, even if one rate is nil, making the 40% payment correct and the refund claim untenable.

Summary

The Collector of Customs appealed against a Customs Tribunal order that had allowed Western India Plywood Mfg. Co. Ltd. to obtain a refund of auxiliary duty paid on timber imports from Burma. Under the Customs Tariff Act, 1975 timber attracted a basic duty of 60%, but a notification under Section 25 of the Customs Act exempted timber from certain countries, rendering the effective basic duty nil for such imports. The importer paid an auxiliary duty of 40% based on the notification, later claiming that only 30% was payable because the effective basic duty was nil. The Supreme Court examined the wording of Notification No. 126 of 1984 and its explanation, which stipulates that when two or more effective basic duty rates apply to an article due to its country of origin, the higher rate governs the auxiliary duty. The Court held that the explanation applies even when one of the rates is nil, so the higher rate (60%) determines the auxiliary duty at 40%. Consequently, the refund claim was dismissed and the Collector's appeal was allowed.

Issues considered

Whether the explanation to Notification No. 126 of 1984 applies only when multiple notifications grant differing basic duty rates or also when the differentiation arises from the First Schedule versus a concession notification.
How the auxiliary duty should be calculated when the effective basic duty is nil for imports from exempted countries but a higher basic duty rate exists for the same article from other countries.
Whether the importer is entitled to a refund of the auxiliary duty paid at 40% on the ground that the effective basic duty was nil.

Legislation cited

Customs Act, 1962s. 14, s. 25(1)
Customs Tariff Act, 1975s. Schedule Heading No. 44.01

Subjects

customs dutyauxiliary dutyeffective basic dutynotification interpretationrefund of dutytimber importexemptioncountry of origin differentiation

Judgment

COLLECTOR OF CUSTOMS, BANGALORE A
v.
WESTERN INDIA PLYWOOD MFG. CO. LTD. AND ANR.

OCTOBER 26, 1989

[S. RANGANATHAN AND KULDIP SINGH, JJ.] B

Customs Tariff Act, 1975: Schedule Heading No. 44.01 and
Notification No. 126 of 1984-Timber imported from country specified
in Notifications under Section 25 of Customs Act, 1962 exempted from
effective basic duty-Rate of auxiliary duty-Determination of.

Under Heading No. 44.01 of Schedule to the Customs Tariff Act,
c
1975, timber was chargeable to customs duty (basic effective duty) at
60%. However, under a Notification issued by the Government under
Section 25(1) of the Customs Act, 1962, timber imported from certain
countries was exempted, but an additional duty (auxiliary duty) was
payable on such imports in terms of Notification No. 265 dated D
1.12.1982 and its successor Notifications No. 53 of 1983 and 126 of
1984.

The assessee imported logs of timber from an exempted country,
and as it was not liable to pay the basic duty, it cleared the goods by
paying the auxiliary duty at 40%, with reference to the effective basic E
duty at 60%, as prescribed under Notification No. 126 of 1984. Subse-
quently, however, the assessee felt that it should have paid an auxiliary
duty of only 30%, and not 40% since no basic effective duty was payable
on the goods imported. It, therefore, applied to the respondent for
refund of the excess duty paid by it. This claim was rejected by the
' Assistant Collector. On appeal, the Collector of Customs (Appeals) held F
that the assessee was entitled to the refund claimed. This order was
confirmed by the Customs Excise and Gold (Control) Appellate Tri-
bunal (CEGAT), on the view that the explanation would come into
operation only if there was more than one notification granting conces-
sion or exemption, in respect of basic duty, providing for different rates
in respect of articles imported from different countries. Hence, the· G
appeals hy the Department. '

Allowing the appeals, this Court,

HELD: I. The Tribunal has erred in its interpretation of the
Notification No.· 126 of 1984. The assessee's case is clearly covered by H

779
780 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

A the explanation in the notification. The auxiliary duty paid by the
assssee was perfectly in order and its refund applications are not
maintainable. l7830; 785E]

2.1 The notification and the explanation make it clear that the
auxiliary duty has to be paid with reference to each article based on the
B effective basic duty applicable to such article in terms of the First
Schedule read with any relevant notification under Section 25. 17850]

2.2 No doubt, the main part of Notification No. 126 of 1984 pro- '
vides for auxiliary duty at 40o/c where rate of effective basic duty is 60%
or above i.e. rates set out in First Schedule read with any relevant
notification and at 30% where such effectiv~ rate is nil or less than 60%.
c However, the explanation to the notification has made an inroad into
this simple rule by providing that where two or more effective basic
rates are applicable in respect of any article, and the differentiation in
rates is referable to the country of origin, then the auxiliary duty _pay-
able will be the higher of the two, or higl)est of the rates. [W3E-G I
D
2.3 In the instant case, when timber is imported from the
countries specified in the notification or notifications under Section
25(1), the rate of basic duty is nil, but if the goods are imported from
other countries, the notification does not apply and a basic duty of 60%
would be Ieviable under the entry in the First Schedule. Thus, when the
E' rates specified in the First Schedule are read along with the relevant
notifications, it is found that the effective basic duty is leviable on it at
two rates and this differentiation in rates is attributable to the country
of origin in regard to the import. Hence, the explanation squarely
comes into operation and the auxiliary duty will have to be paid by
reference to the higher of the two rates of the effective basic duty,
F namely,60%.1783G-H; 784A]

2.4 The differentiation referred to in the explanation need not
arise on account of the existence of more than one notification, altering
the basic duty set out in the Schednle. It does not matter whether the
difference in the rates is because the First Schednle applies in certain
G cases and a concession notification in other cases. If there is no notifica-
tion the rate specified in the First Schedule has to ~e taken into account
for purpose of the notification in question. [7840-E]

2.5 A person will have to pay an auxiliary duty even thongh the
effective basic duty is nil. That is the clear intention of the statutory !
H ins_trument and the explanation is based on good reason. It is equitable
-. COLLCT. OF CUSTOMS v. WESTERN(I) PLYWOOD [RANGANATHAN, J.] 781

that all importers should pay the additional duty at the same rate and A
that they should have no advantage or disadvantage inter se. A grant of
concession in the matter of auxiliary duty as well would result in widen-
ing the gulf between one importer and another and also that between
such an importer and the local trader. [784F; 785.A]

CIVIL APPELLATE JURISDICTION: Civil Appeals No. 2644- B
2648 of 1987.

From the Judgment and Order dated 7.5.1987 passed by the
Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi,
in Order No. 377 to 381/1987-D in Appeal Nos. CD/SA/A Nos. 2451,
1989 to 1991 & 1992/86-D.
c
V.C. Mahajan R.P. Srivastava and P. Parmeswaran for the
Appellant.

T.A. Ramachandran and Mrs. J. Ramachandran for the
Respondents. D

The Judgment of the Court was delivered by

RANGANATHAN, J. These are four appeals by the Collector of
Customs in the cases of M/s. Western India Plywood Mfg. Co. Ltd.
and Kanara Wood & Plywood Industries Ltd. (hereinafter referred to E
as 'the assessee'). A very short common point is involved in these
appeals.

The assessee imported logs of timber from Burma. Under the
Customs Tariff Act, 1975, timber is chargeable to customs duty at
60%. (This we shall call the basic customs duty.) The relevant entry in F
the Schedule to the Customs Tariff Act is under heading No. 44.01
which includes "wood and timber".

The Government had, however, issued a notification under sec-
tion 25( 1) of the Customs Act exempting timber imported from certain
countries of which Burma is one. The result was that the basic customs G
duty payable by the assessee in respect of its imports-we shall call this
the effective basic duty-was nil. The assessee, however, was liable to
pay an additional duty of customs in respect of its imports. This addi-
~ional duty may be referred to as the auxiliary duty of customs. The
"levy of this duty is governed by the terms of notification No. 265 dated
8.12.1982 and its successor notifications Nos. 59 of 1983 and 126 of 1984. H
782 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R. .
The last of these reads as follows:
A
TABLE

S. No. Description of goods Rate
( 1) (2) (3)
B
1 Goods in re~ect of which Forty *per cent
the rate of duty of customs of the value of
specified in the said First the goods as
Schedule, read with any determined in
relevant notification of the accordance with
Government of India for the the provisions
a time being in force is 60 per of Section 14
cent ad valorem or more. of the Customs
Act, 1962
(52 of 1962).

0 2. Goods in respect of which the Thirty * per cent
rate of duty of customs of the value of
specified in the said First goods as deter-
Schedule, read with any relevant mined in accord- '
·notification of the Government anc.e with the
of India forthe time being in provisions of
R force is nil or less than 60 per Section 14 of
cent ad valorem; the Customs Act,
1962.
(52 of 1962)

* These percentage are 30% and 20% in the notification
F of 1982 and 35% and 25~ in the notification of 1983. The
terms of the notifications are otherwise identical. r

Explanation: For the purpose of SI. Nos. 1 and 2 in the
above Table, the expression "the rate of duty of customs
specified in the said First Schedule, read with any relevant
Q notification of the Government of India for the time being
in force", in relation to any article liable to two or more
different rares of duty by reason of the country of origin of
that article, means that rate of duty which is the highest of
those rates."

H T.he assessee cleared the goods by paying an auxiliary duty at
~
COLLCT. OF CUSTOMS v. WESTERN(!) PLYWOOD [RANGANATHAN,J.] 783

40%. Subsequently, however, the assessee seems to have felt that its
A
case falls under S. No. 2 of the above notification and that it should
have paid an auxiliary duty of only 30% and not 40%. It, therefore,
applied to the respondent for a refund of the excess duty allegedly paid
by it. This claim was rejected by the Assistant Collector. However, on
appeal, the Collector of Customs (Appeals) held that the assessee was
entitled to the refund claimed and this order has also been confirmed B
by the Customs, Excise and Gold Control (Appellate) Tribunal
( CEGAT). The Collector of Customs has preferred these appeals.

The order of the Tribunal in the appeals preferred by the l)'re-
sent respondent was a very short order in which the Tribunal followed
its earlier decision in the case of M/s. Indian Plywood Company
Limited, Bombay. We have been taken through the decision ef the
c
Tribunal in the said case which is reported in (1987) 29 ELT page 559.
We have, therefore, had the benefit of the full reasoning of the Tri-
bunal for reaching its conclusion.

We are of opinion that the Tribunal has erred in its interpreta- D
tion of the notification set out above and that the assessee's case is
clearly coverecl__by the explanation in the notification. It is true that the
• main part of the notification provides for an auxiliary duty at 40% in
'
cases where the-effective rate of basic duty (i.e. the rates set out in the
First Schedule read with any relevant notification) is 60% or above
and an auxiliary duty at 30% in cases where such effective basic rate is : E
nil or less than 60%. If the notification had stopped here, the assessee
would have been perfectly within its rights to claim that the auxiliary
duty payable by it would only be 30% because the effective basic rate
in its case is nil.

However, the explanation has made an inroad into this simple F
rule. It has provided that where there are two (or more) effective basic
rates applicable in respect of any article and the differentiation in rates
is attributable to the country of origin of the goods imported, then the
auxiliary duty payable will be the higher of the two (or the highest of
the) rates. In the present case, when timber is imported from Burma
and the other countries specified in the notification or notifications G
under section 25(1), the rate of basic duty is nil but if the goods are
·imported frdm other countries, the notification does not apply and a
b11sic duty 'of 60% would be leviable under the entry in the First
Schedule. The result, therefore, is that when we read the rates
specified in the First Schedule along with the relevant notifications in
' re~pect of a particular article, namely, timber, we find tha.t the effec- H
784 SUPREME COURT REPORTS [1989] Supp. I S.C.R.

tive basic duty is leviable on it at two rates and this differentiation in
A
rate> is attributable to the country of origin in regard to the import.
Hence the explanation squarely comes into operation and the assessee
will have to pay auxiliary duty by reference to the higher of the two
rates of the effective basic duty, namely, 60%.

B The contention on behalf of the respondent-and this is also the
view taken by the Tribunal-appears to be that the explanation comes
into operation only if there is more than one notification granting
concession or exemption in respect of basic duty providing for diffe-
rent rates in respect of articles imported from different countries. We
are unable to see any warrant for reading any such restriction into the
terms of the explanation. As we see it, the terms of the explanation are
c perfectly clear. It is this: that if, in respect of any article, there are two
or more effective basic duties in operation and the difference is referr-
able to the country from which the article is imported, then the highest
of the effective rates will govern the levy of auxiliary duty. It does not
matter whether the difference in the rates is because the First
D Schedule applies in certain cases and a concession notification applies
in other cases. Clearly, the use of the wmds "rate ..... specified in
the First Schedule, read with any relevant notification" does not
necessarily require that there should be such a notification; they mean: r
"the rates specified in the First schedule read with the relevant notifi-
cation, if any". If there is no notification the rate specified in the First
E Schedule has obviously to be taken into account for purpose of the
notification we are now concerned with. It is. therefore, not necessary
that the differentiation referred to in the explanation should arise on
account of the existence of more than one notification altering the
basic duty set out in the Schedule.

F Sri Ramachandran contended that the construction sought to be
placed by us would lead to this anomaly that a person will have to pay
an auxiliary duty even though the effective basic duty is nil. This
.argument is without force for two reasons. In the first place that is the
direct result of the explanation and, therefore, if that is the clear
intention of the statutory instrument, the anomaly cannot be helped. The
G second and perhaps more appropriate answer to Sri Ramachandran's
contention is that the explanation is based on good reason. It will be
seen that in a case of this type as well as in cases governed by more
than one notification, which make a distinction in the rate of duty
based on the country of origin, there will be different importers
importing goods but paying basic duty at different rates. The intention
H of the statute could well be that while for purposes of basic duty a )-
•\ COLLCT. OF CUSTOMS v. WESTERN(!) PLYWOOD [RANGANATilAN, J.] 785

differentiation in rates may be justified depending upon the country of
origin that consideration would be totally irrelevant in the context of A
auxiliary duty. In the context of auxiliary duty, it is equitable ihat all
importers should pay the additional duty at the same rate and that they
should have no advantage or disadvantage inter se. A grant of conces-'
sion in the matter of auxiliary duty as well would result in widemng the
gulf between one importer and another and also that between such an B
importer and the local trader. The provision, therefore, seems to have
been deliberately enacted to achieve this result which is not really an
anomaly as described l!y Sri Ramachandran.

Sri Ramachandran sought to make same point on the use of the
word 'article' in the notification. We do not, however, see any signi-
ficance in the use of this word which has any relevance to the point at c
issue. The word 'article'-is used because though a number of articles
may be included in one item in the First Schedule, the relevant notifi-
cation may not govern all of them and it may be restricted. only to some
out of the many articles mentioned in the Schedule. Th,e notification
and the explanation, therefore, make it clear that the auxiliary duty D
has to be calculated with reference to each article based on the effec-
tive basic rates of duty applicable to such article in terms of the Frist
Schedule read with any relevant notification under section 25.

For the reasons mentioned above, we are of opinion that the
auxiliary duty paid by the assessee was prefectly in order and that its E
refund applications are not maintainl\ble. We, therefore, set aside the
order of the Tribunal and the Collector (Appeals) and restore the
order of the Assistant Collector refusing refund to the assessee. The
appeals are, therefore, allowed. In the circumstances of the case, we
make no·order as to costs.

N.P.V. Appeals allowed.