By TIOL News Service

NEW DELHI, AUGUST 24, 2016: TO fortify the traditional connection and strengthen the economic cooperation for the purpose of development and mutual benefit, the Government of India had signed the Treaty of Trade with His Majesty's Government of Nepal in July 1996.

Pursuant to the aforesaid Treaty, Notification No. 37/1996-Cus dated 23.7.1996 was issued whereby specified goods in the notification, when imported into India from Nepal, were exempted "from the whole" of the customs duty leviable under the First Schedule to the CTA, 1975 subject to the conditions, if any, specified.

In the year 1998, Section 3A was introduced in the Tariff Act providing for imposition of Special Additional Duty.

Later, Notification No. 18/2000-Customs was issued on 01st March 2000 prescribing the rates of special additional duty.

The appellant was asked to pay Special Additional Duty (SAD) and which they paid under protest.

Thereafter, Notification No. 124/2000-Customs was issued on 29.09.2000 amending the Notification No. 37/96-Customs dated 23July 1996. Inasmuch as in the said notification, for the words and figures "from the whole of duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975", the words, figure and letter "from the whole of the duty of customs leviable thereon under the First Schedule to the said Customs Tariff Act, and special additional duty leviable under section 3A of the said Customs Tariff Act "shall be substituted."

The appellant filed an application on 15.01.2001 for refund of Special Additional Duty (SAD) paid in respect of the imports made from Nepal during the period 01.03.2000 to 29.09.2000. Their stand - that the notification is clarificatory in nature, hence retrospective in operation.

This claim was rejected and the matter reached the Tribunal wherein the matter came to be referred to the third Member due to a difference of opinion.

Whereas the Division Bench Member (Judicial) opined that the earlier notification did not even remotely suggest that exemption from basic customs duty also included the exemption from SAD; that the earlier notification exempted from basic custom duty and the latter from the SAD; that the appeal is to be dismissed, the Member (Technical) took the view that once a Treaty had been entered by the Central Government, the issue of notification under the provisions of the Customs Act, 1962 is a ministerial act; that the notification dated 29.09.2000 was a belated response to effectuate the terms of the Treaty; that there was a belated reference and the real intention was to give retrospectivity to the notification.

The third Member (T) on reference came to hold that both the notifications are independent and both would be applicable from the date they had been issued and they do not remotely suggest any retrospectivity. He further opined that there was no ambiguity in the earlier notification or in the subsequent Notification No.124/2000 and both the notifications operate in special fields - one granted exemption from basic customs duty and the other SAD of customs. Being of this view, he agreed with the Member (Judicial) and ultimately, the appeal stood dismissed.

The matter is before the Supreme Court.

The apex Court extracted paragraphs from the Protocol, and the exemption notifications and noted -

+ Section 3A of the Tariff Act was enacted in the year 1998. This was a new provision and had stipulated that in addition to the customs duty and additional customs duty, special additional customs duty would be payable on the goods imported into India, having regard to the maximum sales-tax, local tax or other charges for the time being leviable on the like article on the sale and purchase in India.

+ It is vivid that the protocol to the Treaty of Trade had made a distinction between the "basic customs duty" and "additional customs duty". The basic customs duty was granted exemption. However, in respect of "additional duty" provisions of paragraph 3 or 4 were applicable. But, it is significant that the said protocol did not deal with special additional duty. Thus, per se and ex facie it is not possible to accept the position that "special additional duty" was itself exempted under the protocol. Paragraph 1 would not cover the "special additional duty", which was specific and limited as was clear from the exemption notification dated 23 rd July, 1996. It was restricted to the goods specified in column 2 of the First Schedule from the customs duty leviable under the First Schedule to the Tariff Act.

+ In fact, special additional duty was not leviable and enforced when the Treaty of Trade was signed and the protocol was executed. Under these circumstances, it is not possible to accept the position that Clause 1 of the protocol had included and had embraced the "special additional duty", which was introduced in the form of Section 3A enacted in 1998.

+ The exemption which was granted by notification dated 29 th September, 2000 was, therefore, in the nature of specific and new exemption from payment of special additional duty, which was otherwise payable in view of the introduction of Section 3A to the Tariff Act. It is difficult to appreciate that the exemption granted vide notification dated 20 th September, 2000 to special additional duty was clarificatory or to give effect to the existing protocol. We think so as protocol appended to the Treaty could not have conceived of future levy by way of proposition. In any case, factually it does not. Therefore, the notification of 20 th September 2000 conferred a new benefit which was not earlier stipulated or the subject matter of protocol.

After adverting to the Patna High Court decision in Kaur Sain Traders & distinguishing the decisions cited by the appellant, the Supreme Court concluded -

++ The instant case is not suggestive of any mistake or error or even inadvertence. The plea that there was delay in issue of notification, exempting special additional duty is not acceptable. It is because, what was earlier exempted under the protocol was basic customs duty and also additional customs duty equal to the duty of excise in some cases and on satisfying the conditions stipulated and it did not deal and relate to special additional duty chargeable under Section 3A of the Tariff Act, which had introduced a new duty altogether. Therefore, we repel the submission that the exemption notification issued on 29 th September 2000 is clarificatory. It was intended to be applied prospectively.

++ That apart, it cannot be also said the issue of notification was a formal ministerial act which got delayed for administrative reasons. It was a conscious act and a deliberate decision which came into existence after due deliberation when it was decided to grant exemption under Section 3A of the Tariff Act.

Holding that there is no merit in the appeals preferred by the assessee, the same was dismissed.

(See 2016-TIOL-127-SC-CUS)