Case BriefsSupreme Court

Supreme Court: In the case where the constitutionality of two Central Government notifications related to levy of Integrated Goods and Services Tax (IGST) was under scanner, the 3-judge bench of Dr. DY Chandrachud*, Surya Kant and Vikram Nath, JJ has held that since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act.

The Court observed that,

“If Indian shipping lines continue to be taxed and not their competitors, namely, the foreign shipping lines, the margins arising out of taxation from GST would not create a level playing field and drive the Indian shipping lines out of business.”

Issue

Whether an Indian importer can be subject to the levy of Integrated Goods and Services Tax (IGST) on the component of ocean freight paid by the foreign seller to a foreign shipping line, on a reverse charge basis?

Discussion

It was argued before the Court that the transaction between the foreign exporter and the respondents is already subject to IGST under Sections 5 of the IGST Act read with Sections 3(7) and 3(8) of the Customs Tariff Act as “supply of goods”. An additional levy of IGST on imported goods, that is on the supply of transportation service, by designating the importer as the recipient would amount to double taxation.

The Court explained that any Ocean Freight transaction involves three parties- the foreign exporter, the Indian importer and the shipping line. The first leg of the transaction involves a CIF contract, wherein the foreign exporter sells the goods to the Indian importer and the cost of insurance and freight are the responsibility of the foreign exporter. In other words, the foreign exporter is liable to ensure that the goods reach their place of destination and the Indian importer pays the transaction value to the exporter. The second leg of the transaction involves an agreement between the foreign exporter and the shipping line (whether foreign or Indian) for providing services for transport of goods to the destination, i.e., in the territory of India.

On the first leg of the transaction, between the foreign exporter and the Indian importer, the latter is liable to pay IGST on the transaction value of goods under Section 5(1) of the IGST Act read with Section 3(7) and 3(8) of the Customs Tariff Act. Although this transaction involves the provision of services such as insurance and freight it falls under the ambit of ‘composite supply’.

The Union Government had, however, submitted that the impugned levy is on the second leg of the transaction, which is a standalone contract between the foreign exporter and the foreign shipping line. Thus, the contract between the foreign exporter and the foreign shipping line- of which the Indian importer is not a party- cannot be deemed to be a part of ‘composite supply’.  The Court, however, refused to agree with the submission and observed,

“The Union of India cannot be heard to urge arguments of convenience – treating the two legs of the transaction as connected when it seeks to identify the Indian importer as a recipient of services while on the other hand, treating the two legs of the transaction as independent when it seeks to tide over the statutory provisions governing composite supply.”

This observation was made in reference to the fact that the Court had agreed to Union of India’s submission to hold that when the place of supply of services is deemed to be the destination of goods under Section 13(9) of the IGST Act, the supply of services would necessarily be “made” to the Indian importer, who would then be considered as a “recipient” under the definition of Section 2(93)(c) of the CGST Act. The supply can thus be construed as being “made” to the Indian importer who becomes the recipient under Section 2(93)(c) of the CGST Act.

Stating that the Court is bound by the confines of the IGST and CGST Act to determine if this is a composite supply, the Court said that it would not be permissible to ignore the text of Section 8 of the CGST Act and treat the two transactions as standalone agreements.

The Court explained that the supply of service of transportation by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the Indian importer, on which the IGST is payable under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act. Hence, to levy the IGST on the supply of the service component of the transaction would contradict the principle enshrined in Section 8 and be in violation of the scheme of the GST legislation.

It was, hence, held that while the impugned notifications are validly issued under Sections 5(3) and 5(4) of the IGST Act, it would be in violation of Section 8 of the CGST Act and the overall scheme of the GST legislation.

Conclusion

(i) The recommendations of the GST Council are not binding on the Union and States for the following reasons:

(a) The deletion of Article 279B and the inclusion of Article 279(1) by the Constitution Amendment Act 2016 indicates that the Parliament intended for the recommendations of the GST Council to only have a persuasive value, particularly when interpreted along with the objective of the GST regime to foster cooperative federalism and harmony between the constituent units;

(b) Neither does Article 279A begin with a non-obstante clause nor does Article 246A state that it is subject to the provisions of Article 279A. The Parliament and the State legislatures possess simultaneous power to legislate on GST. Article 246A does not envisage a repugnancy provision to resolve the inconsistencies between the Central and the State laws on GST. The ‘recommendations’ of the GST Council are the product of a collaborative dialogue involving the Union and States. They are recommendatory in nature. To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST. It is not imperative that one of the federal units must always possess a higher share in the power for the federal units to make decisions. Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion ranging from collaboration to contestation; and

(c) The Government while exercising its rule-making power under the provisions of the CGST Act and IGST Act is bound by the recommendations of the GST Council. However, that does not mean that all the recommendations of the GST Council made by virtue of the power Article 279A (4) are binding on the legislature’s power to enact primary legislations;

(ii) On a conjoint reading of Sections 2(11) and 13(9) of the IGST Act, read with Section 2(93) of the CGST Act, the import of goods by a CIF contract constitutes an “inter-state” supply which can be subject to IGST where the importer of such goods would be the recipient of shipping service;

(iii) The IGST Act and the CGST Act define reverse charge and prescribe the entity that is to be taxed for these purposes. The specification of the recipient – in this case the importer – by Notification 10/2017 is only clarificatory. The Government by notification did not specify a taxable person different from the recipient prescribed in Section 5(3) of the IGST Act for the purposes of reverse charge;

(iv) Section 5(4) of the IGST Act enables the Central Government to specify a class of registered persons as the recipients, thereby conferring the power of creating a deeming fiction on the delegated legislation;

(v) The impugned levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’ enshrined under Section 2(30) read with Section 8 of the CGST Act. Since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act.

[Union of India v. Mohit Minerals Pvt. Ltd., Civil Appeal No. 1390 of 2022, decided on 19.05.2022]


*Judgment by: Justice Dr. DY Chandrachud


Counsels

For UOI: ASG N Venkataraman

For respondent: Senior Advocates V Sridharan, Harish Salve, Arvind Datar, Vikram Nankani and Advocate Uchit Sheth

For intervenors: Advocate Rajesh Kumar Gautam

Experts CornerTarun Jain (Tax Practitioner)

  1. Introduction

It is a well-known fact that there is an innate complexity in fiscal law and policy. It has been commented upon by many Judges, much less the experience of ordinary citizens, that it is not easy to decipher the fine text of the tax law. Such policy choices in fiscal laws, however, are there for specific reasons. Larger underlying objectives and competing priorities are often the reason for the crisscross in tax law and policy. A fairly recent debate upon the scope of appellate remedies under the anti-dumping duty (ADD) law is one such illustration which explains the reasons for controversies in the fiscal space. The issue at hand is an innocuous question regarding the jurisdiction of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) and whether there is a provision to file an appeal in ADD dispute in a particular situation. In order to appreciate the controversy some background is necessary. It relates to the peculiar scheme of how the circumstances warranting the levy (or non-levy) of ADD are appreciated under the administrative and legal framework in India which will also explain the reason for the controversy.

  1. Legal framework for levy of anti-dumping duty in India

ADD is administered under the overall customs law framework in India. The Customs Act, 1962 (1962 Act) provides for the legal framework governing import and export of goods in India. However, the 1962 Act does not carry the rate of tax leviable as customs duty. The classification and rate of tax is provided for under the Customs Tariff Act, 1975 (1975 Act). The 1975 Act is also a repository of a host of other taxes which are imposed at the time of import or export of goods. For illustration, safeguard duty, countervailing duty, etc. are certain other illustrations of taxes imposed under the overall customs law framework. However, conceptually ADD is not a customs duty, the latter being levied upon the act of importation of goods in a particular country. Instead ADD is understood as a trade protection measure which is deployed by the importing country in order to deal with the pernicious activity of dumping of goods by another country in the importing country.

The levy of ADD is now internationally aligned in terms of the legal framework mooted by the World Trade Organisation (WTO), as codified in terms of the “Agreement on Implementation of Article 6 of the General Agreement on Tariffs and Trade 1994[1].” This agreement sets out the international consensus and standards on the ingredients to be satisfied for levy of ADD besides the procedural steps and safeguards which are to be observed by the importing country for the levy of ADD. India as a member of the WTO has adopted this framework on ADD both in letter and spirit. In fact the Supreme Court of India has categorically declared that the levy of ADD under the Indian law must be in due compliance of India’s commitment to agree and abide by the WTO Agreement on ADD.[2]

The legal framework in India relating to ADD is set out in Section 9-A of the 1975 Act. This provision is a standalone code governing the levy of ADD and is supplemented by three other provisions in the 1975 Act; (a) Section 9-AA, which provides for refund of ADD in certain cases; (b) Section 9-B, which specifies certain situations in which ADD is not to be levied; and (c) Section 9-C, which provides for appeal to CESTAT in ADD cases. The present controversy relates to the interpretation of this Section 9-C. However, we shall come back to it after a brief appreciation of the administrative position in which ADD is levied in India.

  1. Administrative scheme for levy of anti-dumping duty in India

The Government of India had adopted a peculiar scheme for levy of ADD. Ordinarily the Ministry of Finance (MoF) is the sole repository for the levy of taxes enacted by the Union Parliament. For illustration, income tax, wealth tax, service tax, central excise duty, customs duty, etc. are the various union taxes which have been implemented and enforced by the MoF. The levy of ADD is also the responsibility of the MoF. However, unlike other taxes where the MoF is this sole Judge and authority on the executive and administrative framework of all union taxes, such is not the case in ADD. Instead, an inquiry as to whether ADD should be levied or not is undertaken by the Ministry of Commerce and Industry (MoC) of the Government of India.

The Directorate General of Trade Remedies (DGTR), as a department of the MoC, undertakes the investigation if there is dumping and whether ADD is required to be levied in a given situation. This investigation is undertaken in terms of the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 (1995 Rules). These 1995 Rules supplement the legal framework for levy of ADD by laying out the detailed procedural framework to be followed by the DGTR during the investigation, including rights and obligations of the affected parties.

What is notable in the aforesaid scheme is that the principal agency empowered to carry out the investigation (i.e. MoC), however, does not have the authority to implement the levy of ADD. The MoC, in a situation in which it considers that levy of ADD is warranted after a technical evaluation of the prescribed variable, can only make a recommendation to the MoF to such effect. It is thereafter the MoF which is the final arbiter as regards the decision whether or not to levy ADD. This is not a mere procedural mechanism whereby the MoC would recommend and the MoF would routinely impose ADD. Instead, it is the MoF which independently evaluates, having regard to other factors which it finds relevant to adjudge the recommendations of the MoC and thereafter arrives at a conclusion whether or not the levy of ADD is warranted. In other words, the MoF can approve or reject the recommendations of MoC. There are multiple illustrations with many such frequent instances, where the MoF disagrees with the MoC and refuses to levy ADD despite a positive recommendation of the MOC to such effect.

  1. Contextualising the issue

It is in the aforesaid legal and administrative framework that the issue arises. Under law as also under the administrative framework, neither any parameter is set out as regards the obligation of MoF while considering the recommendations of MoC nor any enumeration of factors has been made which must be considered by the MoF in order to decide whether or not levy of ADD is warranted in a given fact pattern. Resultantly, the MoF only publishes its conclusion upon review of the recommendations of the MoC. In the event the MoF agrees with the recommendations of the MoC, it will issue a notification under the relevant legal provisions providing for levy of ADD. In such circumstances, the recommendations and the detailed findings of the MoC reflect the rational for the levy of ADD. The affected parties can rely upon such recommendations and findings in order to canvas appropriate legal action in case of prejudice being caused through such levy. In a reverse situation i.e. where the MoF disagrees with the recommendation of the MoC and chooses not to levy any ADD, in such a case the MoF publishes its conclusions regarding the disagreement. However, as a matter of convention, the MoF does not set out the reasons as to why it disagrees with the recommendations and findings of the MoC. It is at this stage that the issue arises because a decision not to levy ADD can also cause prejudice to certain persons.

The precise issue to be answered is whether there is a right of appeal in the event MoF rejects the recommendations of the MoC and decides not to levy ADD.

  1. Appreciating the appellate mechanism for anti-dumping duty

This takes us to legal framework relating to CESTAT as the Appellate Tribunal. Though CESTAT is constituted under the 1962 Act, it is also the Appellate Tribunal for the purposes of ADD. Section 129-B of the 1962 Act provides for the remedy of appeal before the CESTAT in respect of a matters arising in relation to customs law. There is, however, a distinct provision for appeal in relation to ADD. The difference between the scope of two provisions is stark and accordingly warrants a closer review.

Section 129-B of the 1962 Act provides for the appellate remedy against “any order” passed by the specified officer of customs.[3] This is, however, not the case with Section 9-C of the 1975 Act which provides for an appeal remedy before CESTAT in relation to the ADD. In this situation, the appeal provision permits an appeal only “against an order of determination or review” in relation to ADD.[4]

In the aforesaid background, a question has arisen as to whether an appeal can be filed before the CESTAT in a situation where the MoC recommends for levy of ADD but the MoF decides to the contrary and does not levy ADD. Before that, one may ask, why does the issue of filing of appeal even arises when no ADD is levied. This is an interesting question, the response to which lies in appreciating the scheme of ADD. There are multiple interested parties in an ADD contest. As noted above, ADD is a trade protection measure invoked by an importing country the situation of dumping is not conducive to its interests. This is because dumping hurts the domestic industry of the importing country engaged in the manufacture or trade of such goods which have been dumped from abroad. Thus, in a situation where the MoC has concluded and recommended upon the levy of ADD, it implies that there is indeed dumping of goods being carried out in India by the exporters of another country which is creating injury to the domestic industry of India. Thus, in a situation where the MoF disagrees with the recommendation made by the MoC to levy ADD, the view of MoF prejudices the interests of the domestic industry of India insofar as no ADD would be imposed despite the conclusion by the MoC that such ADD is warranted in order to protect the interests of the domestic industry. In such a circumstance, therefore, it is obvious to expect that the domestic industry would be aggrieved by the decision of MoF not to impose ADD and may like to claim legal remedies against the refusal of the MoF to impose ADD. This takes us to the conjoint questions, whether CESTAT has jurisdiction in such a situation and whether the domestic industry (being an aggrieved party) can successfully prosecute an appeal against the MoF’s refusal to levy ADD.

  1. Stock-taking the rival contentions and the current position

There are certain well-settled legal aspects regarding right to appeal; (a) an appeal is a creature of statute; (b) there is no inherent right to file an appeal; (c) a remedy by way of appeal must be specifically provided by law; and (d) no appeal is maintainable in the absence of a specific law providing for an appeal remedy.[5]

Applying this standard, a view has arisen that there is no right of appeal in a situation where the MoF refuses to levy ADD. The proponents of this view indicate two broad reasons to substantiate their position; (a) Section 9-C of the 1975 Act which provides the appellate remedy is limited to a situation where there is an “order of determination or review” in relation to ADD whereas no such order exists in wake of MoF’s refusal to accede to the views of the MoC; and (b) Section 9-C of the 1975 Act, which is specific to ADD, is at contrast with the appeal provision relating to customs duty under the 1962 Act. Under the latter, any person aggrieved has the right to file an appeal against any order passed by the specified customs officer. The contrast between the two provisions is crucial and determinative because this implies that a person being aggrieved is irrelevant under the 1975 Act, and also there is no right of appeal against every order of MoF. Accordingly it is argued that there is no legislative intent to provide for an appeal against MoF’s refusal to impose ADD.

Conversely, those carrying the opposite view contend that the refusal of the MoF to impose ADD despite a positive recommendation of the MoC warrants a judicial review and the appeal mechanism cannot be made defunct by the MoF’s refusal to provide reasons for its disagreement with the detailed findings of the MoC. The proponents of this view highlight that the constitutional scheme neither permits any wing of the Government to act unilaterally or arbitrarily so as to trample upon the legal rights of the citizens nor can the government’s decisions affect the citizens without being substantiated with valid rationale and adequate reasons to support its decision. On this account it is argued that irrespective of the correctness of the view of the MoF that ADD should not be imposed, the MoF does not have an unbridled discretion and it is obliged to give reasons for its decision not to impose ADD. Such reasons it is further contended, must be also subjected to judicial review as non-levy of ADD (particularly when one wing of the Government has concluded and recommended levy of ADD) has serious consequences and severely prejudices the affected domestic industry.

It is crucial to note that the aforesaid discussion and the rival positions are not a hypothetical or mere academic inquiry and in fact have received judicial advertence. In Jindal Poly Film Ltd. v. Designated Authority[6] the Delhi High Court by way of a detailed order rejected a writ petition (as non-maintainable) against refusal of the MoF to levy ADD being of the view that even in such a situation an appeal was maintainable before the CESTAT.[7] This order of the High Court was premised principally upon the conclusion that the refusal of the MoF to levy ADD also constitutes an “order of determination” and thus appeal is indeed maintainable. This order actually reversed the tide as prior to this delineation by the Delhi High Court, the CESTAT was taking a consistent view that no appeal is maintainable when no ADD is levied by the MoF.[8]

The High Court’s exposition of the statutory provisions, however, appears not to have extinguished the debate. For illustration, the Government continues to hold the view that an order of the MoF refusing to levy ADD cannot be subjected to appeal before the Appellate Tribunal. This view of the Government has been noted by the Appellate Tribunal but only to be rejected.[9] However, at this stage, it is not clear if the Government has accepted the position emanating from the legal exposition of the Delhi High Court or would seek the final view by way of appeal to Supreme Court. Thus, as of date, precarious tranquillity prevails on the lis and the aggrieved domestic industry.

  1. Factoring the policy considerations

It is critical to note that the determination whether or not an appeal lies against the MoF’s decision not to levy ADD does not depend only on the interpretation of Section 9-C of the 1975 Act. Instead, there are multiple policy considerations which are relevant in order to arrive at a balanced position. Some of these are enlisted below:

  • The 1995 Rules provide the statutory framework for the levy of ADD. Of these, Rule 18 is relevant for the purpose of our inquiry. It states that “[t]he Central Government may, within three months of the date of publication of final findings by the designated authority under Rule 17, impose by notification in the Official Gazette, … anti-dumping duty ….” Two aspects of this provision are relevant. First, there is no obligation upon the Central Government to impose ADD as Rule 18 states “may”. The contours of this expression are well settled, especially when contrasted from the expression “shall”, which is also frequently employed[10] in the 1995 Rules. Put differently, there is no obligation upon the Government to impose ADD and instead it is the discretion of the Government to impose a tax. Thus, the necessity for judicial review is doubtful. Second, Rule 18 clearly delineates the position of MoC vis-à-vis MoF. The MoC, acting through the DGTR is referred only as the “designated authority” in the 1995 Rules whereas it is the MoF which acts as the “Central Government” in the setting of Rule 18. Thus, the decision to levy or not to levy the ADD is of the MoF and no legal consequences should arise from the determination and recommendations of the MoC alone.
  • In addition to the aforesaid aspect a critical and noteworthy aspect is that ADD is a tax. Under the constitutional scheme, the judiciary is certainly competent to annul a tax liability or even quash the statutory provision levying a tax. However, it is doubtful if the judiciary can direct the Government to issue a particular notification[11] or levy the tax itself. Equally, levy of tax is policy matter where is generally beyond the judicial prowess, especially in the fiscal realm.[12] In fact, in the very context of ADD, there are decisions to support that levy of ADD is a legislative function.[13]
  • The decision of the Gujarat High Court in Alembic[14] provides an added perspective insofar as it highlights the limited role of MoC and the larger balancing rule of MoF in the context of ADD so as to approve the MoF’s exclusive role by enumerating a host of factors which require appreciation. One of these overwhelming reasons assigned by the High Court to approve independent role and overriding authority of the MoF relates to the finer distinction between the role of MoF and the MoC. According to the High Court, the role of MoC is limited and “specific, to ascertain existence, degree and effect of any alleged dumping and various factors connected therewith”. In comparison, the role of MoF is much wider as it needs to appreciate a “[n]umber of other questions of larger public interest such as possible impact of ADD on other industries, on consumption, on supply, etc. of such articles may not possibly be within the purview of designated authority while carrying out investigation envisaged under the rules”. Hence, the statutory provisions should not be interpreted in a manner which renders MoF to “be oblivious of all such factors and once through mathematical exercise, task of ascertaining extent of dumping and causal injury to the domestic industry is completed, necessarily to such extent, ADD must follow. Any such proposition would be putting the Central Government into too straitjacket a situation wherein on a mere ascertainment of dumping and its impact on domestic industry, the Government in all cases invariably be bound to impose duty irrespective of fact that such imposition may for valid reasons found to be not in public interest”.
  • The decision in Alembic[15] is also relevant from the perspective of the wide-ranging non-legal variables which form the MoF’s zone of consideration while evaluating MoC’s recommendations. In this case the MoF defended non-levy of ADD inter alia citing lack of domestic industry’s capacity to address the local demand, which defence was accepted by the High Court. Courts are clearly not the best forums for adjudication of such economic and financial variables.[16]
  • Also relevant is the perspective that there are inherent differences in scope and approach of judicial review between an appeal remedy before the CESTAT versus a writ petition before the High Court. This is because it is well settled that the appellate forum is obliged to examine validity of appeal and all antecedents to it, including review of all aspects relating to the order challenged before it.[17] This scope of appeal is at contrast with the scope of inquiry in a writ petition wherein the High Court generally has a limited scope to address violation of constitutional rights or legal errors without adverting to disputed questions of facts. Thus, pragmatically there is a significant distinction in the standard of judicial review by CESTAT in appeal vis-à-vis High Court in writ petition. Thus, there is added reason to determine the correct forum to address propriety of MoF’s refusal to levy ADD.
  • In any case, the scheme of appeal before the CESTAT in an ADD dispute is also peculiar. Unlike the provision under the 1962 Act which confers wide powers upon the CESTAT, limited powers are vested in the CESTAT under the 1975 Act in respect of ADD disputes. To elaborate, Section 9-C(4) of the 1975 Act states that “the provisions of sub-sections (1), (2), (5) and (6) of Section 129-C of the Customs Act, 1962 shall apply to the Appellate Tribunal in the discharge of its functions under this Act as they apply to it in the discharge of its functions under the Customs Act, 1962”. Section 129-C of the 1962 Act, however, has clauses (1) to (8). Thus, clauses (7) and (8) of Section 129-C of the 1962 Act do not apply to CESTAT while considering ADD appeals under Section 9-C of the 1975 Act. This has a crucial relevance because clause (7) vests the powers of a civil court in the CESTAT thereby authorising it to pass orders for “(a) discovery and inspection; (b) enforcing the attendance of any person and examining him on oath; (c) compelling the production of books of account and other documents; and (d) issuing commissions”. Clause (8) deems “any proceeding before the Appellate Tribunal … to be a judicial proceeding within the meaning of Sections 193 and 228 and for the purpose of Section 196 of the Penal Code”. By exclusion of these clauses (7) and (8), therefore, the 1975 Act has severely restricted the powers and scope of inquiry by the CESTAT. Does this aspect manifest the legislative intent of a limited scope of review by the CESTAT in ADD matters generally?

8. Conclusion

The aforesaid discussion, even though hinged upon the interpretation of statutory provisions governing appeal in ADD matters, reveals the complexities which are inherent in tax policy. Viewed from the judicial perspective, the observations of the Delhi High Court and the CESTAT’s current outlook appear to be a reasonable interpretation to subject MoF’s refusal to levy ADD within the appellate framework. However, examined from the larger policy perspective, many other variables require appreciation in order to arrive at a balanced conclusion which takes into consideration the innate limitations of a judicial review whether to impose a tax, such as the ADD. One would hope that the debate attains a quietude sooner than later, given the larger implications the conclusion has on the role of judiciary in rejudging the government’s decision not to levy a tax.

 


Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics

[1] Available HERE

[2] Commr. of Customs v. G.M. Exports, (2016) 1 SCC 91.

[3] S. 129-B of the Customs Act, 1962, providing for “appeals to the Appellate Tribunal” inter alia states that “any person aggrieved by any of the following orders may appeal to the Appellate Tribunal against such order ….”

[4] S. 9-C(1) of the Customs Tariff Act, 1975, providing for “appeals” states that “an appeal against the order of determination or review thereof shall lie to the Customs, Excise and Service Tax Appellate Tribunal constituted under S. 129 of the Customs Act, 1962 (hereinafter referred to as “the Appellate Tribunal”), in respect of the existence, degree and effect of – (i) any subsidy or dumping in relation to import of any article; or (ii) import of any article into India in such increased quantities and under such condition so as to cause or threatening to cause serious injury to domestic industry requiring imposition of safeguard duty in relation to import of that article”.

[5] See generally, Raj Kumar Shivhare v. Directorate of Enforcement, (2010) 4 SCC 772.

[6] 2018 SCC OnLine Del 11395 : (2018) 362 ELT 994.

[7] 2018 SCC Online Del 11395 : (2018) 362 ELT 994.

[8] For illustration, see SI Group India (P) Ltd. v. Designated Authority Anti-Dumping Appeal No. 50456 of 2017, decided by CESTAT, Delhi on 17-8-2017 vide Final Order No. 56445 of 2017, following Panasonic Energy India Co. Ltd. v. Union of India Anti-Dumping Appeal No. 50452 of 2017 decided by CESTAT, Delhi on 20-7-2017 vide Final Order No. 55305 of 2017.

[9] Jubilant Ingrevia Ltd. v. Union of India, Anti-Dumping Appeal No. 50461 of 021, decided by CESTAT, Delhi on 27-10-2021 vide Final Order No. 51988 of 2021. This final order has been followed subsequently by the CESTAT in Assn. of Chloromethanes Manufacturers REGUS v. Union of India, 2021 SCC OnLine CESTAT 2622 and SI Group India (P) Ltd. v. Union of India, 2021 SCC OnLine CESTAT 2623.

[10] For illustration, Rule 4 states that “[i]t shall be the duty of the designated authority, in accordance with these rules, ….” As another illustration, Rule 5 states, “the designated authority shall initiate an investigation to determine the existence, degree and effect of any alleged dumping only upon receipt of a written application by or on behalf of the domestic industry”.

[11] See generally Mangalam Organics Ltd. v. Union of India, (2017) 7 SCC 221.

[12] See generally, Federation of Railway Officers Assn. v. Union of India, (2003) 4 SCC 289 inter alia observing that “[i]n examining a question of this nature where a policy is evolved by the government judicial review thereof is limited. When policy according to which or the purpose for which discretion is to be exercised is clearly expressed in the statute, it cannot be said to be an unrestricted discretion. On matters affecting policy and requiring technical expertise court would leave the matter for decision of those who are qualified to address the issues. Unless the policy or action is inconsistent with the Constitution and the laws or arbitrary or irrational or abuse of the power, the court will not interfere with such matters”.

[13] This aspect, however, is a debatable proposition. For rival positions, see generally, Haridas Exports v. All India Float Glass Manufacturers’ Assn., (2002) 6 SCC 600 and Reliance Industries Ltd. v. Designated Authority, (2006) 10 SCC 368.

[14] Alembic Ltd. v. Union of India, 2011 SCC OnLine Guj 7686.

[15] 2011 SCC OnLine Guj 7686.

[16] See generally, Manohar Lal Sharma v. Narendra Damodardas Modi, (2019) 3 SCC 25.

[17] Kapurchand Shrimal v. CIT, (1981) 4 SCC 317.

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Dr. DY Chandrachud, Indu Malhotra and KM Joseph, JJ has held that with the change in the manner of publishing gazette notifications from analog to digital, the precise time when the gazette is published in the electronic mode assumes significance and hence, in the scheme of the Customs Act, 1962, the Customs Tariff Act 1975 and the Bill of Entry (Electronic Integrated Declaration and Paperless Processing) Regulations 2018, the time at which the notification under Section 8A is published would indeed have relevance.

BACKGROUND

After the Pulwama terrorist attack on 14 February 2019, the Union Government, on 16 February 2019, issued a notification under Section 8A of the Customs Tariff Act 1975 introducing a tariff entry by which all goods originating in or exported from the Islamic Republic of Pakistan were subjected to an enhanced customs duty of 200%. The precise time at which the notification (Notification 5/2019) was uploaded on the e-Gazette was 20:46:58 hours.

The First respondent, a partnership firm based in Amritsar, engaged in the import of cement, imported a consignment of fourteen hundred bags of cement from Pakistan under an invoice dated 1 February 2019. Here’s the sequence of events that followed:

  • A truck crossed the ‘zero line’ on Saturday, 16 February 2019 with a Pakistan Custom’s Cargo Manifest bearing the time of 4:31 pm.
  • the goods entered Indian territory through the Attari border at Amritsar before 18:00 hours on 16 February 2019;
  • the importers had filed bills of entry under Section 46 of the Customs Act, before the close of working hours, seeking clearance of the goods for home consumption;
  • the value and description of the goods were declared;
  • the importers had self-assessed the goods in terms of the prevailing notifications and had filed the bills of entry in the EDI system;
  • the declarations were subject to verification by the customs department which did not dispute them and generated duty payment TR-6 challans;
  • since 16 February 2019 was a Saturday, the customs’ office was closed after 18:00 hours and was to open on Monday,18 February 2019;
  • some of the importers paid the duty online through TR-6 challans on 16 February 2019 while in the case of others, the payment of duty was in progress;
  • Notification 5/2019 was issued at 20:46:58 hours on 16 February 2019 following the Pulwama terrorist attack as a result of which the rate of duty on goods originating in Pakistan was enhanced to 200 per cent irrespective of the fact that some of the products had hitherto been exempt from customs duty; and
  • the customs authorities refused to release the goods on the basis of the bills of entry which were self-assessed at the pre-existing rate and proceeded to recall them and re-assess the goods to the enhanced rate of duty applicable under notification 5/2019.

SCHEME OF THE CUSTOMS ACT 1962 AND DETERMINATION OF THE RATE UNDER SECTION 15

  • Section 12 specifies that the rates of duty on goods imported and exported are those which are provided in the Customs Tariff Act or in any other law. Section 12 does not indicate when the duties under those enactments will come into being or force. Section 15 specifies the date with reference to which the rate of duty and tariff valuation of imported goods is determined. Clauses (a), (b) and (c) of sub-section (1) of section 15 contain distinct provisions which apply to:
    • goods entered for home consumption under Section 46;
    • goods cleared from a warehouse under Section 68; and
    • other goods.
  • In terms of the provisions of Section 15(1)(a), in the case of goods which are entered for home consumption under Section 46, the date of presentation of the bill of entry determines the rate of duty and tariff valuation.
  • Under Section 47(2)(a), the importer is obliged to pay the import duty on the date of the presentation of the bill of entry in the case of self-assessment. Regulation 4(2) of the Regulations of 2018 categorically stipulates when the presentation of the bill of entry is complete.
  • Once the bill of entry is deemed to have been presented in terms of Regulation 4(2) the rate and valuation in force stand crystalized under Section 15(1)(a).
  • Section 17(4) confers a power of re-assessment on the proper officer where it is found on verification, examination or testing of the goods or otherwise- that the self-assessment has not been done correctly.
  • The provisions of Section 15(1)(a) have to be read in conjunction with the provisions of Section 46 which are referred to in the former provision. Section 46 has incorporated a regime which encompasses the submission of the bill of entry for home consumption or warehousing in an electronic format, on the customs automated system in the manner which is prescribed.
  • The Bill of Entry (Electronic Integrated Declaration and Paperless Processing) Regulations 2018 stipulate the manner in which the bill of entry has to be presented. The deeming fiction in Regulation 4(2) of specifies when presentation of the bill of entry and ‘self-assessment’ are complete. The rate of duty stands crystallized under Section 15(1)(a) once the deeming fiction under Regulation 4(2) comes into existence.

Hence,

“the regulations have to be read together with the statutory provisions contained in Section 15(1)(a) and Section 46, while determining the rate of duty.”

‘DAY’ AND ‘DATE’ – INTERPRETATION OF

ASG K M Natraj submitted before the Court that because notification 5/2019 was issued on 16 February 2019, the court must regardless of the time at which it was uploaded on the e-Gazette treat it as being in existence with effect from midnight or 0000 hours on 16 February 2019.

The Court, however, refused to accept this submission and said.

“The consequence of this interpretation would be to do violence to the language of Section 8A(1) of the Customs Tariff Act, and to disregard the meaning, intent and purpose underlying the adoption of provisions in the Customs Act in regard to the electronic filing of the bill of entry and the completion of self-assessment.”

Noticing that the Regulation 4(2) of the 2018 Regulations provides for a deeming fiction in regard to the filing of the bill of entry and the completion of self-assessment, the Court said that it would do violence to the overall scheme of the statute to interpret the language of Section 15(1)(a) in the manner in which it is sought to be interpreted by the ASG.

EFFECT OF NOTIFICATIONS ISSUED IN E-GAZETTES

With the change in the manner of publishing gazette notifications from analog to digital, the precise time when the gazette is published in the electronic mode assumes significance. Notification 5/2019, which is akin to the exercise of delegated legislative power, under the emergency power to notify and revise tariff duty under Section 8A of the Customs Tariff Act, 1975, cannot operate retrospectively, unless authorized by statute.

It was, hence, held

“In the era of the electronic publication of gazette notifications and electronic filing of bills of entry, the revised rate of import duty under the Notification 5/2019 applies to bills of entry presented for home consumption after the notification was uploaded in the e-Gazette at 20:46:58 hours on 16 February 2019.”

Since, Notification 5/2019 was uploaded in the e-gazette at a specific time and date, it cannot apply to bills of entry which were presented on the customs automated EDI system prior to it, attracting the legal fiction set out in Regulation 4(2) of the 2018 Regulations.

RETROSPECTIVITY

The Court referred to a consistent line of precedents to carve out the distinction between the plenary power which is entrusted to Parliament and the state legislatures to enact legislation with both prospective and retrospective effect, and the power entrusted to a delegate of the legislature to frame subordinate legislation.

In Regional Transport Officer, Chittoor vs. Associated Transport Madras (P), (1980) 4 SCC 597, it was held that the fact that the rules had been framed in pursuance of a resolution passed by the legislature or that they have to be placed on the table of the legislative body would not lead to an inference that the legislature had authorized the framing of subordinate legislation with retrospective effect.

Hence, it was noticed

“This precisely is the principle which applies in construing whether the power which is conferred by Section 8A of the Customs Tariff Act is retrospective. The provisions of sub-sections (3) and (4) of Section 7, which are made applicable by sub-section (2) of Section 8A, are to ensure Parliamentary oversight. But that does not enable the Central Government to exercise the power under section 8A with retrospective effect.”

CONCLUSION

Dr. DY Chandrachud, J for himself and Indu Malhotra, J conclude:

In the present case the twin conditions of Section 15 stood determined prior to the issuance of Notification 5/2019 on 16 February 2019 at 20:46:58 hours. The rate of duty was determined by the presentation of the bills of entry for home consumption in the electronic form under Section 46. Self-assessment was on the basis of rate of duty which was in force on the date and at the time of presentation of the bills of entry for home consumption. This could not have been altered in the purported exercise of the power of re-assessment under Section 17 or at the time of the clearance of the goods for home consumption under Section 47. The subsequent publication of the notification bearing 5/2019 did not furnish a valid basis for re-assessment.

K.M. Joseph, J writing a separate but concurring opinion said

“It is one thing to say that the legislature may have the power to make a law with retrospective effect subject to limitations imposed by the Constitution and quite another to contend that delegated legislation would carry retrospective effect irrespective of power to make such a law conferred by the parent enactment on the delegate. More importantly the scheme of the Customs Act and the Tariff Act and the Regulation 4(2) of the 2018 Regulations rule out the tenability of applying the notification in the manner sought by the appellants.”

Hence, in the scheme of the Customs Act, the Tariff Act and the 2018 Regulations, the time at which the notification under Section 8A is published would indeed have relevance.

[Union of India v. G S Chatha Rice Mills, 2020 SCC OnLine SC 770, decided on 23.09.2020]

Case BriefsCOVID 19High Courts

Delhi High Court: A Division Bench of D.N. Patel, CJ and Prateek Jalan, J., while addressing a Public Interest Litigation, held that,

“fixing of the fare is a complex phenomenon and a decision to be taken by the Government. It is a policy decision and this Court is not inclined to interfere in this policy decision.”

Present Public Interest Litigation was preferred challenging the minimum fares which are fixed by Ministry of Civil Aviation vide its 21st May, 2020 Order.

Petitioners Counsel submitted that the difference in fare prices will lead to fixation of prices by the cartel of the airlines.

Bench while disagreeing with petitioners contention stated that, in the present circumstances when various restrictions have been placed on the airline operations, and maximum limit for air fare is given by the Government, the minimum fare is also prescribed so as to strike a balance between the passengers as well as the airlines agency

Exercise of tariff fixation, and economic matters in general, are issues on which the writ court would generally refrain from exercising jurisdiction, unless found to be totally arbitrary or unreasonable.

Further the Court observed that it ought to be kept in mind that this fixation of minimum and maximum fares is for the journey to be performed only for essential purposes. 

Section 8B(1) of the Aircraft Act, 1934 specifically clothes the Central Government with the power to take necessary measures to minimise the possible danger to public health in the event of outbreak of any dangerous epidemic.

Thus, in view of the COVID19 pandemic, power exercised by respondents cannot be said to be arbitrary or unreasonable.

Ministry of Civil Aviation’s order as mentioned above is only a stop gap arrangement for which present PIL is not tenable.

Lastly the Court concluded it’s  Order by stating that, “problem being faced by everyone during this pandemic situation is such a unique phenomenon that requires experimental solutions. There cannot be any mathematical solution for a problem like this.”

In view of the above observations, petition was disposed of. [Veer Vikrant Chauhan v. UOI, 2020 SCC OnLine Del 627, decided on 04-06-2020]

Case BriefsHigh Courts

Calcutta High Court: Shekhar B. Saraf, J., while allowing the present petition held that,

“Lawyer using a domestic space as his chamber for his livelihood cannot be placed in the commercial category.”

The present writ petition was filed to resolve the issue as to whether a lawyer using a domestic space as his chambers is liable to be charged with a tariff on a commercial basis.

Petitioner who is a practicing lawyer was having a chamber on the ground floor of the multi-storied building where he resided on the third floor. He had made an application for a new electric connection on the ground floor under the category domestic (urban).

CESC Limited had sent the petitioner a quotation for payment of service charges and security deposit on the basis of commercial connection. Later on, receiving the same, the petitioner raised an objection to the said quotation and sought a fresh quotation on the basis of domestic connection.

Aggrieved with the above, the petitioner filed the present petition.

Counsel for the petitioner, Subir Sanyal, submitted that the profession of a lawyer cannot be equated as a commercial activity. Neither the Electricity Act nor any Rules or Regulations framed thereunder define the term “commercial”.

In reference to the above, counsel cited the case — V. Sasidharan v. Peter and Karunakar, (1984) 4 SCC 230, wherein the following was held:

“…under the Shops and Establishment Act, the establishment of a legal practitioner/ firm of lawyers was held not to be a commercial establishment.”

Advocate Rajiv Lall, appearing on behalf of CESC Limited, relied on the Supreme Court decision in,

M.P. Electricity Board v. Shiv Narayan, (2005) 7 SCC 283, to indicate that the activity of a lawyer running an office falls under the category of non-domestic use.

Analysis

High Court on perusal of the Supreme Court decision in M.P. Electricity Board v. Shiv Narayan, (2005) 7 SCC 283, stated that it is evident that the tariff entries in the case before the Supreme Court were of two categories, that is, (a) “domestic purposes” and (b) “commercial and non-domestic purposes”. The Supreme Court after examining held that as the use was not domestic it would fall in the category of “commercial and non-domestic” and further held that running an office is clearly a “non-domestic” use.

“There is a fundamental distinction between a professional activity and an activity of a commercial character, and therefore, it is crystal clear that the legal profession would not fall under the category of ‘Commercial (Urban)’.”

Further, the Court noted that the categorization in the tariff of CESC Ltd. only contains two categories of relevance to the present case:

  • Domestic (Urban)
  • Commercial (Urban)

Thus the Court added that upon reading of the Supreme Court’s decision in M.P. Electricity Board v. Shiv Narayan, (2005) 7 SCC 283,

…it is crystal clear that the legal profession would fall under the category of “non-domestic”

Decision

Hence, the High Court in view of the present case stated that,

 “…space on the ground floor has been taken by the petitioner as an extension of his residence for the use of the space as his legal chamber. The above factual matrix is clearly distinguishable from law firms and proprietorship firms that are having offices in commercial spaces dealing with litigation and non-litigation work.”

Thus, chambers of a litigation lawyer are clearly used for his livelihood, and accordingly, the benefit of doubt is required to be given to such a petitioner placing him in the category of the “Domestic (Urban)”

In view of the above, the writ petition was allowed. [Arup Sarkar v. C.E.S.C. Ltd., 2020 SCC OnLine Cal 295, decided on 11-02-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for Electricity (APTEL): A Division Bench of Manjula Chellur, J. (Member) and S.D. Dubey, (Technical Member) passed an order for implementation of the Tribunal’s order for the payment of the sum of money due with interest.

An application for the implementation of the order was made by the appellant when after a reasonable time the respondent didn’t pay any heed towards the order against them.

Aman Anand, Aman Dixit, counsels for the appellant submitted that the order was received for the payment after increasing the recovery of interim transfer of lignite to 85 percent in place of 70 percent. It was submitted by the appellant that no appeal was pending against the said order. Hence, this application.

R.K. Mehta, Himanshi Andley, P.N. Bhandari, counsels for the respondents, submitted that the matter related to the increase in the tariff was pending in the Commission and that the appellant had rushed to the tribunal prematurely in order to prejudice the pending decision of the Commission.

The Tribunal after submission by the parties held that although the matter is pending in the Commission the payment due is for the previous year and thus the same is to be made by the respondent as per the order of the Tribunal. It was further reiterated that, the said order was passed by this Tribunal at the premise of financial hardship to the generator which was being allowed considerably at less transfer price than they actually claimed. The Court concluded that, the maintenance of judicial discipline is a part of our judicial process. Thus, the order was made for the implementation of the order of the Tribunal in its true spirit.[Barmer Lignite Mining Co. Ltd. v. Rajasthan Electricity Regulatory Commission, 2019 SCC OnLine APTEL 27, decided on 17-05-2019]