Delhi HC upholds Legality of Notification withdrawing SAD Exemption on Import of ‘sulphur’ and ‘rock phosphate’ [Read Judgment]

Finance Act - Delhi High Court - taxscan

Recently, Justice S. Muralidhar and Justice Chander Shekhar of Delhi High Court confirmed the Constitutional validity of CBEC Notification withdrawing SAD Exemption on Import of “sulphur’ and ‘rock phosphate’.

The petitioners approached the High Court challenging the Notification No. 23/2002-Cus dated 1.3.2002 issued by the Finance Ministry whereby the Government withdrawn the exemption for import of “sulphur’ and ‘rock phosphate’ from the levy of Special Additional Duty and levied SAD at 4% on these items.

Before the High Court, the petitioners contended that the impugned notification is illegal arbitrary. They claimed that the intent and purpose of SAD was “to afford a level playing field for indigenous manufacturers of goods which were also imported from outside, to protect the indigenous industry.”

The bench discussed the distinction between the grant of exemption from payment of duty and enhancing the rate of duty that was initially fixed at ‘nil’. It pointed out that in the latter case, it cannot be said that the commodity in question is not amenable to the levy of customs duty. “The fact that there is a notification prescribing nil duty means that the goods is otherwise exigible to the levy of customs duty. However, in terms of the policy decision of the Government at the relevant time the rate of duty for those goods was fixed at ‘nil’ rate of duty. This is quite different from exempting any goods from the payment of the whole or part of customs duty.”

The second aspect is the interpretation of Section 3A (1) of the Customs Tariff Act. The words „having regard to‟ occurring in the said Section indicates what the Government is expected to do while fixing the rates of SAD in exercise of its power under Section 3A of the Customs Tariff Act. It has to keep in view the maximum sales tax, local tax and “any other charge for the time being leviable on a like article on its sale or purchase in India.” It is to be interpreted purposively given the context in which the phrase “other charges” occurs. That expression cannot be confined to only charges that are similar to sales tax and local tax. To apply the rule of ejusdem generis to interpret the said expression would unnecessarily and unduly narrow the scope of the expression. In the considered view of the Court such a narrow reading of the expression ‘other charges’ is not warranted by reading Section 3A as a whole.”

Section 3A(2) of the Customs Tariff Act provides that for the purposes of SAD, the value of the imported article shall be the aggregate of (i) the value of the imported article; the customs duty chargeable and any sum chargeable thereon in the same manner as customs duty but does not include countervailing duty, safeguard duty, anti-dumping duty, the SAD etc. the Court held that the word ‘having regard to cannot possibly have a restricted meaning in this context. Likewise, the phrase ‘any other charges for the time being leviable’ cannot be confined only to local tax and sales tax.

Dismissing the petition, the bench observed that “It is not as if in the present case, the impugned notification reflected in Notification No. 23/2002-Cus dated 1st March 2002 has no basis. The counter-affidavit filed by Respondent No. 2 explains the factors that were taken into consideration. The mere fact that the government made a reference to the prevailing rates of customs duty and not to sales tax or local tax and the impact thereof would not per se render the decision contrary to section 3 A CTA. The expression word ‘other charges’ is wide enough to include customs/excise duty which might impact the selling price of a commodity in the domestic market. The idea was to have a gradual change in the rates of customs duty especially in the case of those goods that were subject to ‘nil’ rate of duty. Again, this was not a rigid inflexible decision but obviously reviewable depending on the market conditions. In fact that is what has happened in the following year. The ‘nil’ rates of SAD for both sulphur and rock phosphate were restored. This is another factor which indicates that the decision was not unreasonable or irrational. The mere fact that there might be some inconvenience for a short period on account of the increase or decrease in rates of SAD is not by itself a reason to declare the fixation of the rate of duty as unreasonable or illegal. That decision is essentially a policy one of the government and the judicial review of such a decision is indeed in a narrow compass as already explained.”

Read the full text of the Judgment below.

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