Exemption from CVD when Excise Exemption is Conditional - Recent Confusing Notifications validity upheld by HC
IN a recent case of SRF Ltd - , the Supreme Court had allowed the benefit of exemption in CVD on imported goods, based on excise exemptions. In an effort to undo the Supreme Court Judgement, the Government had issued a set of confusing notifications followed by a CBEC circular. DDT 2647 23 07 2015 commented,
Trying to deny exemption to imported goods, the Board ended up denying the benefit to domestic manufacturers and hastily amended the notifications and issued a clarification that the domestically manufactured goods covered under these notifications / entries continue to be exempt from excise duty or subject to concessional rate of excise duty, as the case may be as they were prior to 17th July, 2015.
But will the notifications deny the benefit to the imported goods? The notifications are so badly drafted that they will only strengthen the claim of the imported goods for exemption.
We also covered the issue in DDT 2646 22 07 2015 and DDT 2645 21 07 2015 apart from our articles:
1. Confusion, damage control and now, more confusion
2. Interpreting section 3 of CEA - Who wins and who loses
Recently three importers challenged the Notifications Nos.34/2015-CE and 37/2015 dated 17.07.2015 and 21.07.2015 respectively, in the Madras High Court. Our distinguished contributor of the first of the above articles, appeared for one of the parties.
The Notifications were challenged on the grounds that:
1. under Section 3 of the Customs Tariff Act, 1975, the imported goods can be made to suffer an additional duty of Customs, commonly known as CVD, equivalent only to the duty of Excise leviable on goods manufactured domestically and that therefore if the domestically manufactured goods are exempt from payment of duty of Excise, no additional duty of Customs can be levied on the importers;
2. the impugned amending Notifications have been issued to overreach the decisions of the Supreme Court in Aidek Tourism Private Limited and S.R.F.Limited and hence they are contrary to law;?
3. when for the application of Section 3 of the Customs Tariff Act, 1975, an importer should be imagined to be a domestic manufacturer, the importer should also be taken to be a person who has fulfilled all the conditions precedent that a domestic manufacturer would have complied with before the completion of the manufacturing process and hence the importer cannot be put to any disadvantageous position on the basis of a condition which is impossible of being complied with by him.
But the High Court was not impressed.
The High Court held that the notifications were not ultra vires as:
1. they were issued in exercise of the power conferred by Section 5A. Section 5A(1) itself empowers the Central Government to grant exemption either absolutely or subject to such conditions as they may stipulate. If the Central Government has the power to grant exemption subject to certain conditions, they have the power even to modify the conditions.
2. The amendments are not ultra vires Section 3 since the importers are not placed in a more disadvantageous position than that of the domestic manufacturers.
3. If the domestic manufacturers themselves are classified into two categories depending upon the nature of the conditions imposed, the classification is reasonable and it has a nexus with the object sought to be achieved by the notification.
Impossible conditions? When it is impossible for an importer to fulfill the conditions prescribed in the Central Excise exemption, how can he avail of CVD exemption? He cannot! The High Court observed,
In respect of the exemption notifications that are absolute and unconditional, all domestic manufacturers will be entitled to the benefit of the exemption notification. Therefore, the importers will also be entitled. But, insofar as exemption notifications that are conditional in nature, the respondents will have to see whether all domestic manufacturers will automatically get exemption or some of them may not get exemption due to non fulfillment of the conditions prescribed in the notification. If some of them are not entitled, due to non fulfillment of the conditions, the importers, for whom it is impossible of complying with those conditions, are also not entitled to the benefit. It is this position that is sought to be clarified by the impugned amendment notifications dated 17.7.2015 and 21.7.2015
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