MRF decision overruled; Larger Bench says Cess is leviable on imported rubber
By TIOL News Service
NEW DELHI, Dec 26, 2005 : THE old order changeth, yielding place to new,
And God fulfils Himself in many ways,
Lest one good custom should corrupt the world. – Alfred, Lord Tennyson.
The Tribunal in the case of MRF Ltd vs. CC, Madras, 1997(96)ELT 198(Tri) held that Cess is leviable on the rubber produced in India and not on Rubber imported, under Section 12 of the Rubber Act, 1947. While arriving at the aforesaid decision, the Tribunal was heavily influenced by the Ministry of Finance letter dated 22.07.1997 communicating thereunder the views of the Ministry of Commerce dated 30.06.1997 clarifying that Cess is levied on rubber produced in India and not on rubber imported.
The aforesaid decision was followed subsequently in a couple of decisions. But the Division Bench of the Tribunal in the present case noted that a serious question of law is involved in the matter and framed the following question on 02.08.2005 for reference to the Larger Bench.
Whether Additional Duty of Customs was leviable under Section 3 of the Customs Tariff Act, 1975 on the imported rubber, as on the date of importation, to the extent equal to the duty of excise levied as cess under Section 12 of the Rubber Act, 1947 on rubber produced/manufactured in India as on the said date?
Beautiful and elaborate arguments were raised before the Larger Bench by the appellants and which appeared to almost snatch the issue in their favour but for the eagle eyes of the President, who while writing for the Bench separated the chaff from the grain in a manner which is characteristic of him and was earlier evident in the case of the earlier Larger Bench of the Tribunal in the case of Mahindra & Mahindra, 2005-TIOL-1215-CESTAT-DEL-LB. No doubt, the Revenue for once was also stronger than ever with its reinforced ammo.
Some of the arguments made by the appellants are sampled below :-
• When something is levied as a cess, the nature and characteristic of that levy changes, that cesses are earmarked for particular purposes unlike duties of excise and other taxes which are not so earmarked.
• Section 3 of the Customs Tariff Act, 1978, contemplated levy of duty of excise under the Central Excise, 1944, and not any duty of excise levied as cess under any other law.
• It is a settled law that excise duty referred to under Section 3 of the Customs Tariff Act refers to only what was payable by the Indian manufacturer under the Central Excise Act, 1944 and explanation in Section 3(1) of the Customs Tariff Act indicated that excise duty referred to in that section related to the duty of excise under the Central Excise Act, 1944.
• Therefore, the provisions contained in the said explanation can only by worked out with reference to the Central Excise Tariff, and not to the Rubber Act.
• Cess was collected under the Rubber Act, and though first credited to the Consolidated Fund of India, it was then paid to the Rubber Board for being utilized for the purposes of the Rubber Act. Thus, it was a tax collected for the allocated purpose i.e. for the benefit of rubber industry to which the taxpayer belonged and benefited by such allocation.
• The levy of cess, therefore, did not constitute any additional burden to the taxpayer like duty of excise, which was not for any allocated purpose of development of the industry to which the taxpayer belonged.
• Revenue was precluded from raising the contention which was contrary to the earlier decisions of the Tribunal relating to the issue referred, since those earlier judgments were accepted by the Revenue by not preferring appeal, and because the appeals filed by the revenue in the earlier case of Vikrant Tyres Ltd. were not pressed upon instructions and dismissed by Hon’ble Supreme Court by order dated 17.2.203.
Amongst others, reliance was placed on the decisions of the Supreme Court in Moti Ram Tolaram Vs. UOI and Hyderabad Industries Ltd to buttress the argument that the measure for levy of additional duty is the quantum of excise duty leviable on similar article manufactured under the Excise Act and that merely because the words duty of excise as used in the Rubber Act, it would not mean that what was charged was Excise duty.
The Revenue also came out strong on the issue and argued :
• Additional duty of Customs is governed by the provisions of Section 3(1) of the Customs Tariff Act, 1975, and not by the Rubber Act, 1947, and that the demand was, therefore, not of cess simplicitor under the Act, but for additional duty of customs which in quantitative extent was to be equal to the cess which was leviable as the duty of excise on like goods produced in India.
• Rubber produced in India and the imported rubber were like goods, and, therefore, whatever excise duty was chargeable on like goods produced in India would be chargeable as additional duty of customs in the case of such imported goods.
• The expression “excise duty” in Section 3(1) of the Customs Tariff Act was not confined only to the central excise duty leviable under the Central Excise Tariff Act, 1985, but included duty of excise leviable under the other laws as well.
• The expression “excise duty for the time being leviable on a like article” occurring in Section 3(1) of the Customs Tariff Act was only as measure of duty leviable on the imported article and did not determine the nature of duty.
• Supreme Court in paragraph 15 of the judgment in Hyderabad Industries, held that the Customs Tariff Act, 1975 was preceded by the Indian Tariff Act, 1934 and in Section 2A of the Tariff Act of 1934, a provision was made for levy of countervailing duty. That section stipulated that any article which was imported into India shall be liable to customs duty equal to the excise duty for the time being leviable on like article if produced or manufactured in India.
• It was apparent from the provisions of section 12 of the Rubber Act that though leviable as cess on the rubber produced in India, it was a duty of excise, and, therefore, by virtue of Section 3(1) of the Customs Tariff Act, additional duty of customs equal to excise duty was leviable. He submitted that when cess was levied as a duty of excise, the method or machinery of collection and the authority administering the same did not affect the nature and character of the levy.
• The Tribunal’s judgment in the case of MRF Ltd. (supra), which was against the revenue, considered the issue only with reference to the Ministry of Finance letter dated 22.7.97, and did not examine the issue on merits and that the said letter was with reference to levy of cess on the rubber produced in India and had no relevance to the additional duty payable under Section 3 of the Customs Tariff Act.
• Subsequent judgments merely followed the MRF judgment and the Ministry of Finance’s letter dated 2.7.97, but did not consider the effect of the Ministry of Finance letters dated 2.9.97 and 29.9.97 thought cited by the department before the Tribunal in the case of TTK-LIG Ltd. and M.M. Rubber Ltd.
• In any case the Ministry of Finance had issued a further clarification by its letter dated 2.9.97 and 29.9.97 to the effect that even though Rubber Act, 1947, did not provide for collection of cess on imports, additional duty of customs is payable on import of rubber by virtue of Section 3 of the Customs Tariff Act.
• The CBEC Circular No. 75/98-Cus. dated 8.10.98 withdrawing the letter dated 22.7.97 reaffirmed the position already clarified vide the Ministry of Finance letters dated 2.9.97 and 29.9.97.
• The contention that the department was precluded from contesting the issue and the Tribunal, therefore, could not consider the same, was rejected by the Division Bench making the reference and having withdrawn the appeal filed against that order before the Supreme Court after some arguments, that question cannot be agitated again before the Larger Bench.
The Larger Bench decision
• Having regard to the rationale underlying the provisions of Section 3(1) of the Customs Tariff Act, which is of providing a level playing field to the Indian producers and manufacturers, and having regard to the nature of the duty of excise, we find no valid reason for confining the operation of Section 3(1) of the Customs Tariff Act only to excise duties leviable under the Central Excise Act, 1944, and ignoring excise duties leviable under the other laws.
• Any such construction would undermine the operational effect intended to be brought about by Section 3(1) of the Customs Tariff Act and would be wholly unwarranted by the provisions of the Act.
• A subsequent allocation by the Central Government to the Rubber Board of such amount for being utilized for the purposes of the Act, if Parliament by appropriation made law in that behalf so provides, can never take away the characteristics of the duty of excise and it remains like any other duty of excise under any law for the time being in force including the one leviable under the Central Excise Act.
• In any event, subsequent allocation of an amount by appropriation will not take away the duty of excise leviable as cess under the Rubber Act from the sweep of the provisions of Section 3(1) of the Customs Tariff Act for the purpose of imposing additional duty of customs equal to the excise duty leviable under Section 12 of the Rubber Act
• The major defect that, in our respectful opinion, occurred while deciding MRF Ltd. (supra) was a total mis-construction of the meaning and effect of the communications of the Government of India issued on 22.7.97 on the basis of the office memorandum by the Ministry of Finance on 30.6.97 which had been reproduced in the order made in MRF Ltd.
• Since these communications dated 2.9.97 and 29.9.97 of the Government of India/Central Board of Excise & Customs and the Circular dated 8.10.98 made it clear that duty of excise was levied as cess on rubber produced in India by virtue of Section 12 of the Rubber Act, additional duty of Customs under Section 3(1) of the Tariff Act would be attracted in respect of imported rubber, since on the like article produced in India duty of excise as cess was leviable.
• It is a sad comment on the processes of adjudication that these important communications should have been overlooked as a result of either the dexterity of some or negligence of others in not highlighting them as a result of which the mis-reading of the earlier communications dated 22.7.97 and 30.6.97 perpetrated.
• The contrary ratio of the decision in MRF Ltd. and other decisions of the Tribunal following it stand overruled.
The wind of change is blowing through this Continent – Harod Macmillan
(See 2005-TIOL-1330-CESTAT-DEL-LB in Customs + 2005-TIOL-1330-CESTAT-DEL-LB in Legal Corner)