Chemicals
and Fibres of India Ltd. Vs. Union of India [1991] INSC 31 (11 February 1991)
Rangnathan,
S. Rangnathan, S.
Kasliwal, N.M.
(J) Agrawal, S.C. (J)
CITATION:
1991 SCR (1) 288 1991 SCC (2) 10 JT 1991 (1) 405 1991 SCALE (1)165
ACT:
Central
Excises & Salt Act, 1944 & Custom Act, 1962- Custom and Central Excise
Duties Drawback Rules, 1971- Section 37 and Sec. 75-Rules 3, 4, 6 and 7-Di-
methyl-terephthalate-Import of-Whether assesee entitled to full 'drawback' of
customs duty paid.
HEAD NOTE:
The appellants
are manufacturers of Polyester fibre yarn. They obtained a contract from the
Imperial Chemical Industries, Singapore for
the supply of the said yarn and the said concern had agreed to supply to the
appellants free of cost the di-methyl-terephthalate (DMT) D required for the
manufacture of Polyester staple fibre yarn. The DMT was required to be
converted into polyester fibre, blended with viscose indigenously and shipped
to a customer of the ICI in Sri Lanka. The
appellant assessees obtained customs clearance permits for import of 392 tons
of DMT and also of 178 tons of viscose stable fibre. The appellants also
obtained permission to convert the imported DMT into polyester fibre under
customs bond. The appellants imported the DMT and paid the customs duty in
respect thereof Section 75 of the Customs Act.' 1962 empowers the Central
Government to allow the drawback of the duties of customs chargeable under the
Act on any imported materials of a class or description in the manufacture of
such goods in accordance with and subject to the rules under sub-section (2).
There is an identical provision in section 37 of the Central Excises & Salt
Act, 1944 enabling grant of draw back of the excise duty paid in relation to
such manufacture.
The
Central Government framed the Customs and Central Excise Duties Drawback Rules
1971 enabling drawback being availed of in relation to customs as well as in
relation to duties of central excise. Schedule II to the notification listed
the items the export of which entities an assessee to avail of the drawback
facility. DMT as such was not included in the notification in respect of which
drawback could have been availed of by the assessees.
The assessee
therefore made an application to the Ministry of Finance on 23.3.1977 requesting
that since it had paid customs duty on DMT, it was entitled to its drawback,
more 289 particularly when its request for the manufacture of the polyester fibre
under customs bond had been declined by the customs authorities. The
application filed by the appellants was rejected bY the Central Government on
12.3.1978, though on a representation made by the Members of the Association of
manufacturers of Polyester staple fabric a notification had been issued on
2.8.76 under Section 25 of the Customs Act B exempting DMT from Customs duty.
The appellant thereupon filed writ petition in the Delhi High Court which was
dismissed by the High Court. Hence these appeals.
Dismissing
the appeals, but recommending to the Central Government to consider the case of
the appellants on equitable grounds whether the relief could be granted to it,
this Court,
HELD:
Though Section 75 of the Customs Act, 1962 and Section 37 of the Central
Excises & Salt Act 1944 empower the Government to provide for the repayment
of the customs and excise duties paid by individual manufacturers also, the
rules as framed (rule 3 in particular) provide only for a refund of the
'average amount of duty paid on materials, of any particular class or
description of goods used for the manufacture of export goods of that class or
description by manufacturers generally, except to the extent prescribed under
rule 7. [30OA-B].
The
rules do not envisage a refund of an amount arithmeticaly equal to the customs
duty or central excise duty which may have been actually paid by an individual
importer-cum-manufacturer. If that had been the statutory intendment, it would
have been simple to provide that in all cases where imported raw materials are
fully used in the manufacturers of goods which are exported, the assessee would
be entitled to a draw back of the customs or excise duties paid by him for the
import or on the manufacture.
[300C]
There is no controversy that, in this case, the goods exported fall under item
25. R was sought to be contended that the goods fall under sub-item 2501, but
this is clearly untenable. Sub-item 2501 represents a residuary category which
will not be attracted to the goods which clearly fall under sub-item 2502.
The
notification prescribes different amounts of drawback under this item depending
on the composition of the yarn and the nature of its contents. It specifies an
amount of Rs.43.15 per kg.
as the
relief by way of drawback available against the goods with which we are
concerned which fall under clause (b) of item 2502. [30OH-301B] 290 The High
Court was right in concluding that the rate of drawback in respect of the goods
in question was fixed after taking into consideration the aspect of the customs
duty payable in respect of DMT and that a conscious decision was taken that no
relief in this respect should be granted as DMT was available in the country
itself. It cannot therefore, be said that this is a case where the fixation is
contrary to the terms of rule 3, and that the assessee's application for
determination of a rate in his case should be taken as an application under
rule 6. [303B) Rule 6 is also inapplicable for the reason that an application
under rule 6 should be made before the export of the manufacturer's goods which
does not seem to be the case here. [303C]
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 692 & 693 of 1981.
From
the Judgment and Order dated 19.5.1980 of the Delhi High Court in W.P. Nos. 883
of 1978 and 1079 of 1979.
R.K. Habbu,
R.B. Hathikhanwala and B.R. Aggarwala for the Appellants.
Soli J.
Sorabjee, Attorney General (NP), Kapil Sibal, Additional Solicitor General, Ms.
Indu Malhotra, P. Parmeshwaran and C.V. Subba Rao for the Respondent.
The
Judgment of the Court was delivered by RANGANATHAN J. These two appeals involve
a common question and can be disposed of by a common judgment.
The
question is whether the appellant companies (hereinafter referred to as the 'assessees')
are entitled to full "draw back' of the customs duty which they had paid
on the import of di-methyl-terephthalate (shortly referred to as 'DMT') for
manufacture of polyester staple fibre yarn. The assessees converted the DMT
into polyester staple fibre in their factory at Thane and then sent it to Bhilwara
in Rajasthan where the Rajasthan Spinning and Weaving Mills blended it with
indigenous viscose staple fibre to spin out certain varieties of blended yarn.
It is common ground that the product manufactured by this process was exported
by the assessees to Imperial Chemical Industries Pvt. Ltd. Singapore, who had
supplied the DMT free of charge to the assessees. The answer to the question
revolves around the interpretation of Section 75 of the Customs Act, 1962 read
with the Customs and Central Excise Duty Draw Back Rules, 1971.
291
Section 75 of the Customs Act, 1962 empowers the Central Government, by
notification in the official gazette, to direct, in respect of goods of any
class or description manufactured in India and exported to any place outside India, that draw back should be allowed
of the duties of customs chargeable under the Act on any imported materials of
a class or description used in the manufacture of such goods, in accordance
with and subject to the rules framed under sub-section (2) of the said section.
Sub-section 2, which confers a rule making power, enacts that such rules may,
among other things, provide:
"(a)
for the payment of draw back equal to the amount of duty actually paid on the
imported materials used in the manufacture of the goods or as is specified in
the rules as the average amount of duty paid on the materials of that class or
description used in the manufacture of export goods of that class or
description either by manufacturers generally or by any particular
manufacturer;" There is a similar provision in section 37 of the Central Excises
& Salt Act, 1944 enabling grant of draw back of the excise duty paid in
relation to such manufacture.
The
Central Government framed the Customs and Central Excise Duties Drawback Rules,
1971 (hereinafter referred to as 'the rules'), in exercise of the powers
conferred on it under these two statutes. These are composite rules under the
above two provisions and enable drawback being availed of in relation to
customs duty as well as in relation to duties of central excise. Some relevant
provisions of these rules may be quoted here. Rule 3, in so far as it is
relevant for our present purposes, reads as follows:
Rule
3: Drawback: (1) Subject to the provisions of- (a) the Customs Act, 1962 (52 of
1962) and the rules made thereunder.
(b)
the Central Excises and Salt Act, 1944 (1 of 1944) and the rules made thereunder,
and (c) these rules, (a) drawback may be allowed on the export of goods
specified in Schedule II at such amount, or at such rates, as 292 may be
determined by the Central Government.
xxx xxx
xxx (2) In determining the amount or rate of drawback under this rule, the
Central Government shall have regard to:
(a) the
average quantity or value of each class or description of the materials from
which a particular class of goods is ordinarily produced or manufactured in India.
(b) the
average quantity or value of the imported materials or excisable materials used
for production or manufacture in India of a particular class of goods.
(c) the
average amount of duties paid on imported materials or excisable materials used
in the manufacture of semis, components, and intermediate products which are
used in the manufacture of goods.
(d) the
average amount of duties paid on materials wasted in the process of manufacture
and catalytic agents:
Provided
that if any such waste or catalytic agent is used in any process of manufacture
or is sold, the average amount of duties on the waste or catalytic agent so
used or sold shall also be deducted.
(e) the
average amount of duties paid on imported materials or excisable materials used
for containing or packing the exported goods.
(f) the
average amount of duties of excise paid on the goods specified in Schedule 1:
and (g) any other information which the Central Government may consider
relevant or useful for the purpose.
Rule
4. Revision of rates: The Central Government may revise the amounts or rates
determined under rule 3.
xxx xxx
xxx
6.
Cases where amount or rate of drawback has not been determined:
293 (1)(a)
Where no amount or rate of drawback has been determined in respect of any
goods, any manufacturer or exporter of such goods may, before exporting such
goods, apply in writing to the Central Government for the determination of the
amount or rate of drawback therefor stating all relevant facts including the proportion
in which the materials or components are used in the production or manufacture
of goods and the duties paid on such materials or components.
(b) On
receipt of an application under clause (a) the Central Government shall after
making or causing to be made such inquiry as it deems fit, determine the amount
or rate of drawback in respect of such goods.
7.
Cases where amount or rate of drawback determined is low-(l) Where in respect
of any such goods, the manufacturer or exporter finds that the amount or rate
of drawback determined under rule 3 or, as the case may be, revised under rule
4 for that class of goods is less than three fourths of the duties paid on the
materials or components used in the production or manufacture of the said
goods, he may make an application in writing to the Central Govermment for
fixation of the appropriate amount or rate of drawback stating all relevant
facts including the proportion in which the materials or components are used in
the production or manufacture of the goods and the duties paid on such
materials or components.
(2) On
receipt of the application referred to sub-rule (1) the Central Government may,
after making or causing to be made such inquiry as it deems fit, allow payment
of drawback to such exporter at such amount or at such rate as may be
determined to be appropriate if the amount or rate of drawback determined under
rule 3 or, as the case may be, revised under rule 4, is in fact less than three
fourth of such amount or rate determined under this sub-rule.
Schedule
II to the notification by which the rules were promulgated listed the items the
export of which entitles an assessee to avail of the drawback facility. Item 25
of the list reads thus:
"Synthetic
and regenerated fibre, textile yarn, thread, twines, cords and ropes 294 It is
common ground that the goods exported by the assessees fall under item 25
above. There is also no controversy that the DMT imported by the assessees was
used for the manufacture of the above commodity and that, on the import of the
DMT, the assessees have paid customs duty.
The
rates of drawback available in respect of various goods were notified by the
Central Government in due course.
Against
serial no 25, the notification set out the rates of drawback as follows:
------------------------------------------------------------
Serial Sub Si. Description of Rate of No. No. goods Drawback
------------------------------------------------------------
25.
SYNTHETIC AND REGENERATED FIBRES AND/TEXTILE YARN/ THREAD, TWINES, CORDS AND
ROPES Brand rate to be 2501 Synthetic and regenerated fixed on an fibre and
textile yarn, application from thread, twines, cords and the individual ropes
not elsewhere manufacturer specified. exporter.
2502
(a) Yarn of above 21 BWS Counts or above 14 n.f. counts, spun wholly out of
either viscose rayon fibre or acetate fibre or polyster fibre, polyamide fibre
or acrylic fibre or wool, or from a combination of two and not more than two of
the above mentioned fibres, or a combination of any one of the above mentioned fibres
with either cotton or silk (but excluding yarn spun out of fibres obtained from
fibre wastes, yarn waste or fabric wastes, by gernetting or by any other
process:
(a) Cellulosic
fibre content: Rs. 1.80 (Rupees one and paise eighty only) per kg.
295
(b) Polyester fibre content: Rs.43.15 (Rupees forty three and paise fifteen
only) per kg.
(c)
Acrylic fibre content: Rs.37.75 (Rupees thirty seven and paise seventy five
only) per kg.
(d)
Polyamide fibre content: Rs. 16.40 (Rupees Sixteen and paise forty only) per
kg.
(e)
Wool contents:
(i) in
the worsted yarn of Rs. 18.95 (Rupees Weaving quality made wool Eighteen and paise
top. ninety five only) per kg.
(ii) in
the worsted yarn of Rs. 13.55 (Rupees weaving quality not made from Thirteen
and paise fifty wool top. five only) per kg.
(iii) in
the worsted Hosiery Rs. 16.65 (Rupees Sixteen yarn and worsted hand knitting
and paise sixty five yarn made from wool top. only) per kg.
(iv) in
the worsted hosiery yarn Rs.11.25 (Rupees Eleven and worsted hand knitting yarn
and Paise twenty five not made from wool top. only) per kg.
(v)
Bye content if the yarn is Rs.0.85 (Eighty five dyed paise only) per kg.
xxx xxx
xxx It will be seen from the above table that the assessees are entitled to a
drawback of Rs.43.15 per kg. of the polyester fibre content of the yarn
exported by them. We are informed that this is the rate of central excise duty
payable in respect of the manufacture of yarn having polyester fibre content.
For reasons to be stated presently, the assessees had to pay no central excise
duty for the manufacture and hence there was admittedly no question of the assessee
getting a drawback to this extent.
The
point raised by the assessee is that, having paid customs duty on the DMT , it
was entitled to a drawback in respect of the customs duty paid by it on the
DMT. Since this was not included in the notification of the Central Government,
the assessees made an application to the Ministry of Finance on 23.3.1977
requesting that drawback of the entire customs duty may be sanctioned. This
request, 296 however, was rejected by the Central Government by a communication
dated 12.3.1978. This communication was in the following terms:
"Under
Rule 3 of the Customs and Central Excise Duties Drawback Rules 1971, all
industry rates of drawback on polyester viscose blended yarn have been
determined and announced under serial no. 2502 of the Drawback Schedule. The
said rates have been determined at the material time, after taking into
consideration:
(a) duty
incidence of raw materials used in the manufacture of viscose fibre, plus the
Central Excise duty on viscose fibre and (b) the Central Excise duty on
polyester fibre in respect of polyester yarn. However, no raw material duty for
manufacture of polyester yarn was taken into account, as the same (DMT) is
available indigenously and is exempted from Central Excise Duty. For the rates
determined effective from 18.8.1977 however the duty incidence on DMT has also
been taken into consideration on the basis of weighted average of imported and
indigenous material." The assessees, dissatisfied with this decision of
the Central Government, preferred a writ petition in the Delhi High Court,
which was dismissed by the High Court on 19.5.80. Hence the present appeals.
At
this stage, it may be necessary to outline some facts which may be relevant for
appreciating the background in which the assessees' counsel urged strongly the
equitable, if not also legal, claims of the appellant for the drawback of the
customs duty. Counsel claims that the assessees were almost the first group of
entrepreneurs in India to manufacture polyester fibre
yarn. They had been fortunate enough to obtain a contract from the Imperial
Chemical Industries, Singapore. By a letter dated 2.4.75 this
concern agreed to supply free of cost the DMT required for the manufacture of
blended yarn consisting of 67 per cent polyester and 33 per cent viscose fibre.
The DMT was to be converted in polyester fibre, blended with viscose
indigenously and shipped to a customer of the ICI in Sri Lanka. Thereupon, on
2.6.75, the assessees obtained customs clearance permits for import of 392 tons
of DMT and also of 178 tons of viscose staple fibre. Eventually, however, the
viscose staple fibre was obtained indigenously and the import permit, to this
extent, was not utilised by the assessee. At the 297 time of obtaining this
permit, the assessees also obtained permission to convert the imported DMT into
polyester fibre under customs bond. The condition attached to the Customs
Clearance permit was in the following terms:
"The
firm will convert the imported DMT into polyester fibre under Customs bond. The
firm will then move the polyester fibre so manufactured and the imported
viscose staple fibre under bond to the bonded warehouse of Rajasthan Spinning
and Weaving Mills, Bhilwara- Messrs. Rajasthan Spinning and Weaving Mills will
then manufacture under bond polyester viscose yarn on behalf of the firm. The
polyester viscose fibre yarn will then be exported by the firm to the overseas
buyers who have supplied the DMT and viscose staple fibre on CCP basis or their
nominees.........
If
these conditions had been fulfilled the assessees would have had no problems.
The polyester fibre would have been manufactured under customs bond and this
would have obviated payment of customs duty by the assessees.
So
also, the production of the blended yarn at the Rajasthan Spinning and Weaving
Mills would have been under Central excise supervision and no excise duty would
have been payable on the manufacture. Unfortunately, however, the customs
authorities were not in a position to permit the conversion of the DMT into
polyester fibre under customs bond for reasons which are not at present
relevant and which are not being challenged in these proceedings. The assessees's
request for the manufacture of polyester fibre under:
customs
bond was declined by the customs authorities on 2.4.1976. Perhaps anticipating
this difficulty, the Association of Polyester Staple Fibre Manufacturers at
Bombay made an application to the Central Government on 26.3.1976 praying for
exemption from customs duty on DMT required for the manufacture of polyester
staple fibre. This letter points out:
"Members
of this Association manufacture polyester staple fibre. One of our members has
received an advance licence for the import of DMT, a photostat copy of which we
attach herewith. This DMT is to be used for manufacture in polyester fibre and
the polyester fibre then converted into yarn to be supplied against export
orders. Our members wish to explore possibility of larger export business in
this manner. Indigenous supplies of both DMT and glycol are 298 insufficient to
meet the domestic market requirements and export business can only be done by
import of the two materials. Fulfilling export orders by using advance licences
as the one issued to our member poses certain problems because the licence
stipulated manufacture under Customs Bond.
You
will appreciate the difficulty in manufacturing under bond when the fibre for export
constitutes only a portion of the total manufacture of the factory. If DMT and
glycol could be included in the schedule to the customs Notification GSR 183,
the procedural difficulties in manufacturing under Bond will not apply.
Exports
of yarn made from raw materials obtained against advance licences could earn
considerable foreign exchange because of the value added during processing.
One of
the assessees also made a similar request and, eventually, a notification was
issued on 2nd August,
1976 under s. 25 of
the Customs Act exempting DMT from customs duty. The Government of India also
wrote to one of the present appellants on 9.9.76 drawing attention to the said
notification and stating that with the issue of this notification. The assessees'
problem would appear to have been solved. This, however, was not correct. The
notification exempted future imports of DMT from customs duty but the assessees,
having imported the DMT earlier, had to clear the same after paying customs
duty thereon. Hence their request for a drawback of the customs duty already
paid by them, the refusal of which has led to the present litigation.
On
behalf of the appellants, it is contended that the Customs Act contains
provisions enabling thd Government either to exempt goods under section 25 from
the levy of Customs duty at the time of import or failing this, to permit a
drawback of customs duty paid in the event of the conditions set out in section
75 being fulfilled. In the present case, an exemption under section 25 of the Customs
Act was in fact notified but unfortunately this happened only in August, 1976.
By this time, the assessees had already imported the DMT. This they were
obliged to do because of a time-bound programme for export of the manufactured fibre
to Sri Lanka. Counsel states that, from the very outset, the assessees had
proceeded on the footing that they would be obtaining exemption from customs
and excise duty because, apart from getting some conversion charges from the
ICI, their own margin of profit on the transaction was not substantial. That is
why even at the time of obtaining the customs clearance permit they had sought
for permission to convert DMT into polyester under customs bond. If that had
been 299 done, there would have been no necessity to pay customs duty at all.
Unfortunately, because the department lacked facilities to supervise such an
operation, the attempt of the assessees was only partially successful in that
they were able to get only the production of the blended fibre done under
Central Excise supervision.
The
initial stage of conversion from DMT to polyester fibre could not be done under
customs bond. It is pointed out that the Government of India had exempted DMT
from customs duty only on the basis of the representations made by the assessees
and it is urged that the refusal to grant drawback of customs duty to assessees
is wholly unjustified.
The
object of S. 75 of the Customs Act, read with S. 27 of the Central Excise Act,
is obviously to provide that in cases where certain goods are imported for
complete utilisation in the manufacture of goods which are exported, the
importer should be able to obtain relief in respect of customs and excise
duties. In the present case there is no controversy that the D.M.T. imported by
the assessee was utilised for the manufacture of polyester staple fibre and
that the final product was fully exported to Sri Lanka. The notification made
under the rules framed for this purpose, however, provides only for a drawback
in respect of the excise duty involved in the manufacture of polyester staple fibre
but not the customs duty on the raw material actually imported. Sri Habbu,
learned counsel, contends that this notification, in fact, is contrary to the
provision contained in rule 3 which obliges the Government, in determining the
amount or rate of drawback, to have regard, among other things, to the amount
of duties paid on imported or excisable material used in the manufacture of the
exported goods. He submits that, in so far as the rates prescribed by the Central
Government do not take into account the element of import duty on DMT, the
fixation is not in accordance with the rule. According to him, therefore, this case'falls
under rule 6 which enables an assessee to apply to the Central Government to
determine a drawback where none has been determined. The Central Government, he
submits, was in error in rejecting the assessees' application as one falling
under rule 7 and, therefore not maintainable both in law and equity.
Having
heard the learned counsel for the assessees at some length, we are of opinion
that the High Court was right in rejecting the assessees contentions. We think
that the assessees' arguments are based on a basic misapprehension that, under
the Acts and rules, a manufacturer is automatically entitled to a drawback of
the entire customs and excise duties paid by him if the terms and conditions of
300 S. 75 are fulfilled. Though S. 75 of the Customs Act and S. 37 of the
Central Excises & Salt Act empower the Government to provide for the repayment
of the customs and excise duties paid by individual manufacturers also, the
rules as framed (rule 3 in particular) provides only for a refund of the
"average amount of duty paid on materials" of any particular class or
description of goods used for the manufacture of export goods of that class or
description by manufacturers generally, except to the extent prescribed under
rule 7 (to be noticed presently). The rules do not envisage a refund of an
amount arithmetically equal to the customs duty or central excise duty which
may have been actually paid by an individual importer-cum-manufacturer.
If
that had been the statutory intendment, it would have been simple to provide
that in all cases where imported raw materials are fully used in the
manufacture of goods which are exported, the assessee would be entitled to a
drawback of the customs or excise duties paid by him for the import or on the
manufacture. On the other hand, S. 75(2) requires the amount of drawback to be
determined on a consideration of all the circumstances prevalent in a
particular trade and the fact situation relevant in respect of each of various
classes of goods imported and manufactured. The need for providing an elaborate
process of determination as envisaged in rule 3 is this. There may be different
manufacturers of a particular manufactured item. Some of them may be using
indigenous material and some may be importing some of the raw material.
Similarly, in the process of manufacture also, there may be difference between
manufacturer and manufacturer. That is why the drawback rules provide for a
determination of the drawback after taking into account the "average"
amount in respect of each of the various items specified in rule 3 in relation
to each type of goods listed in Schedule II. The notification issued also
determines the composite drawback available in respect of both customs and
excise duties to importers-cum-manufacturers in respect of various categories
of goods. In other words, the amount of drawback is not intended to be the
amount of the duties that may have been paid by individual manufacturers; it is
to be determined by considering the overall position prevalent in the country
in respect of each of the categories of trade in the goods specified in
Schedule II. We think that, if this basic principle is understood, the decision
of the Govermment would become intelligible and rational.
There
is no controversy that, in this case, the goods exported fall under item 25.
Learned counsel sought to contend that the goods here fall under sub-item 2501
but this is clearly untenable. Sub-item 2501 represents a residuary category
which will not be attracted to the 301 goods here which clearly fall under
sub-item 2502. The notification prescribes different amounts of drawback under this
it@m depending on the composition of the yarn and the nature of its contents.
It specifies an amount of Rs.43.15 per Kg. as the relief by way of drawback
available against the goods with which we are concerned which fall under clause
(b) of item 2502.
This
much indeed, was conceded before the High Court.
Once
we understand the principles on which and the scheme according to which the
rates of drawback are to be and are determined as explained earlier, the plea
of the appellants, that the amount of drawback determined is nothing more than
the excise duty payable on manufacture of blended fibre with polyester fibre,
content and that the notification has erred in overlooking the customs duty
paid on imported DMT, is wholly untenable. We say this for two reasons.
First,
the rates prescribed constitute a composite rate of drawback fixed having
regard to the liabilities under the Customs Act as well as the Central Excises
& Salt Act. It would not be correct, in principle, to bifurcate the amount
so fixed into its two constituents and to say, merely because the amount fixed
is equal to one of the duties, that the other has not been taken into account.
In theory, the drawback determined could have taken into account both sets of
duties in part only.
It
cannot be said to be merely the customs duty drawback or central excise duty
drawback. Though it does appear that the various rates of drawback prescribed
under item 2502 are equal to the rates of excise duty payable on the
manufacture of the various items referred to therein, the nature of exemption
granted is one of relief under both enactments. It is immaterial whether this
quantum of relief benefits the assessee in respect of one or other or both of
the levies which he has to discharge. The attempt to identify and correlate the
rebate granted to the central excise duty paid does not therefore appear to be
correct in principle.
But,
this ground apart, we think there is force in the point made by the learned
counsel for the Union of India and accepted by the High Court that at the time
when these drawback rates were fixed, the Government of India took into account
both the import duty as well as the excise duties which would be payable on the
manufacture of the goods the export of which was intended to be encouraged.
After examining the condition in the trade, it was found that D.M.T. was easily
available in India at that time and that, therefore, it would not be necessary
to grant any relief in respect of drawback of customs duty on the imported
material because that would only result in assessees 302 attempting
unnecessarily to import a raw material which was available in the country
itself. In fact, this is the aspect on which the Delhi High Court has laid
considerable emphasis. Learned counsel for the appeallants contends that this
is factually and that this is clearly shown by the very fact that Government of
India itself, in August, 1976, decided to grant exemption in respect of customs
duty for the import of D.M.T. He submits that if D.M.T. had been easily available
indigenously at that time, the question of granting exemption under S. 25 would
not have appealed to the Government at all. He, therefore, submits that, in
fixing the rate of drawback the Central Government had proceeded on the footing
that no import duty would be payable on the DMT and that it will be sufficient
to grant relief in respect of Central excise duty alone. We find that, on this
aspect, the position is not so simple as submitted by the learned counsel for
the appellants. We have already extracted reply of the Government of India to
the assessees' representation which clearly mentions that DMT is available
indigenously and that, therefore, no duty in manufacture of polyester yarn was
taken into account.
This
is a statement of fact and there is no material placed before us to contradict
the same except for the cor- respondence referred to earlier. If one looks
carefully at the corres-pondence, one will find that it does not support the assessees'
case. For one thing the memorandum submitted by the Association of March 1976
itself proceeds on the footing that DMT is available locally but not sufficient
to meet the domestic market requirments. This, clearly, is a reference to
something which happened after the present appellants had imported their goods
and started the manufacture. Indeed, it is their claim that they were fore-
runners in this field. Fol-lowing up on the assessees' attempt to obtain
imports of DMT and exporting the goods manufactured, other polyester staple fibre
manufacturers also proposed to explore the possibilities of such imports and
exports and what the letter says would only appear to be that the indigenous
supplies of DMT and Glycol may not be enough to meet the domestic market
requirements if the business is so expanded. By the time the notification
fixing the rates was issued, import duty on DMt had been removed and,
therefore, there was no purpose in granting a drawback of customs duty. In
these circumstances, the customs duty was rightly not taken into account in
fixing the rate of drawback. The letter of the Government dated 9.9.76 is only
an answer to the assessees' prayer that its problem may be solved by granting
an exemption for DMT from customs duty and refers only to the position after
the notification of exemption. It is not reply to the assessees' representation
in respect of the past which was filed only much later in 1977. The
correspondence in the case is, therefore, of no 303 help to the assessees. It
may also be pointed out that the assessees appear to have imported DMT not
because it was not locally available but only because it was able to get it
free of cost from the ICI which was a benefit which other manufacturers, if
any, could not have enjoyed. We are, therefore, of opinion that High Court was
right in concluding that the rate of drawback in respect of the goods in ques-tion
was fixed after taking into consideration the aspect of customs duty payable in
respect of DMT and that a conscious decision was taken that no relief in this
respect should be granted as DMT was available in the Country itself. It
cannot, therefore, be said that this is a case where the fixation is contrary
to the terms of rule 3 and that the assessees' application for determination of
a rate in his case should be taken as an application under rule 6.
Rule 6
is also inapplicable for the reason that an application under rule 6 should be
made before the export of the manufactured goods which does not seem to be the
case here. The assessees' reliance on rule 6, therefore, fails.
It is
true the fixation of rates of drawback on the average basis indicated in rule 3
could work hardship in individual cases. Provi-sion for this contingency is
made in rule 7. The assessees' application was rightly treated as one made
under this rule and they could, if at all seek relief only if their case fell
within its terms. This rule, unfortu-nately does not provide for relief in
every case where an individual manufacture has to pay customs and excise duty
to a larger extent than that determined for his class of goods. Relief is
restricted only to cases when the margin of difference is substantial and to
the extent specified in rule 7. The High Court has discussed this point at
length and demonstrated, by giving necessary figures, how the assessees' case does
not fulfill the term of the rule and this conclusion is not, in fact,
challenged by the learned counsel for the appellants. The Government was,
therefore, right in rejecting the appellants' request made under section 7 of
the Drawback Rules.
For
the reasons above mentioned, we agree with the High Court that the order of the
Central Government rejecting the assessees' application was well founded and
cannot be interfered with. Learned counsel for the appellants brings to our
notice a manual published by the Directorate of Publication. Ministry of
Finance, Department of Revenue explaining the scope of the rules as well as two
notifications issued by the Government on 9.6.1978 and 1.2.1982 respectively
and submits that the present case falls within the terms of these notifica-tions.
We are constrained to point out that these are notifications issued subsequent
to the period of the controversy before us: also this 304 is material which was
not placed before the authorities or the High Court. We, therefore, find
ourselves unable to permit the assessee to rely upon them at this late stage.
However,
having regard to the circumstances and the subsequent policy in the above
rules, we think it is a fit case in which the Central Government could consider
whether, on equitable grounds, the assessee can be given relief in respect of
the customs duty on DMT paid by it. In this context, it is worthwhile noting
that the assessee saved foreign exchange for the country by importing DMT free
of cost. The entire manufactured product has also been exported and earned
foreign exchange. The appellants also apparently gave impetus to other
manufacturers for the export of blended fibre on large scale. If only the
appellants had imported the DMT a few months later, they would have been
entitled to exemption from customs duty and would not have suffered the present
handicap. They also did obtain the permission of the Government to convert DMT
into polyester fibre under customs bond but this could not be implemented for
reasons beyond their control. Having regard to all these circumstances, it
would seem only just and fair that the assessees should not be denied a benefit
of which all other persons have since availed of. We, therefore, think that
this is a fit case in which the Government should consider, in case the assessees
make an application within two months from today, whether the assessees could
be granted the relief prayed for, if only on equitable grounds, and pass
appropriate orders on such applications.
With
the above observations, these appeals are dismissed.
But in
the circumstances, we make no order as to costs.
Y. Lal
Appeals dismissed.
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