Claiming exemption from Additional Duty of Customs on High Speed Diesel Oil under notification No 21/2002 Cus – Right or wrong? An insight into a DRI case.
Vizag and Kakinada are two important ports in coastal Andhra Pradesh. These two ports are in news recently as DRI has detected a modus operandi adopted for duty evasion in these ports by some importers. The impact of this issue on other ports is also so significant that the DRI has reportedly alerted the customs at other ports.
Vessels, Tugs, Barges and other related Offshore Supply Vessels required for petroleum exploration are imported duty free as per provisions of Notification No. 21/2002 –Cus dt. 1.03.2002. The exemption is also claimed on the HSD on board (at the time of import) and that procured for further use of such vessels in said operations.
However, DRI feels that only BCD and CVD are exempted under the above Notification and Additional Duty of Customs (over and above the BCD and CVD) is payable (along with appropriate education cess), which is not being paid by the importers. This duty was levied on Petrol in Finance Act 1998 and same was extended to HSD as well , vide Section 116 of the Finance Act ,1999 read with the Second Schedule of said Act. The said Additional duty on HSD is leviable w.e.f 28.2.1999 and the initial rate of Re.1 per litre was revised to Rs. 1.50 per litre w.e.f. 28.2.2003 and to Rs.2 per litre w.e.f. 1.03.2005.
But, is the issue so simple? Did the importers involve in the so called Modus Operandi of evasion of Additional Duty of Customs? TIOL Research team have tried to examine the Modus Operandi and our study revealed some interesting facts.
The only question in the entire issue is whether the exemption under Notification No 21/2002 Cus which is available to Basic Customs duty (BCD) and Additional duty of Customs (CVD) is applicable for the Additional duty of Customs levied under Section 116 of the Finance Act 1999. This Additional duty is not levied under the Customs Act or under the Customs Tariff Act, but the levy itself is under the Finance Act, 1999. When such miscellaneous duty is levied under the Finance Act, how is this duty collected? By whom is it collected? What are the machinery provisions available to collect such duty if it is not paid by someone who is liable to pay the duty? Does the Finance Act 1999 have the self contained machinery provisions? To answer the above issues, we need to look into sub-section (3) of Section 116 of the Finance Act 1999. This sub-section reads:
(3) The provisions of the Customs Act, and the rules and regulations made thereunder, including those relating to refunds and exemptions from duties, shall, as far as may be, apply in relation to the levy and collection of the additional duty of customs leviable under this section in respect of any goods as they apply in relation to the levy and collection of the duties of customs on such goods under that Act or those rules and regulations, as the case may be.
So, as per the above sub-section, the provisions of Customs Act, inter alia, in relation to levy and collection are applicable to this additional duty. By the same analogy, can it be viewed that the exemptions given under the Customs Act are also applicable to this additional duty or does it require a separate Notification expressly exempting the additional duty?
In case of M/s Toyota Kirloskar Motor (P) Ltd , an identical issue came up before the Tribunal. The assessee claimed exemption from excise duty under Notification 108/95 CE. NCCD (National Calamity Contingent Duty) is a special duty levied by virtue of Section 136 of the Finance Act 2001. Since Notification 108/95 CE does not exempt NCCD, according to the revenue, the appellant was not entitled for exemption from NCCD inasmuch as the exemption under 108/95 CE is only for the Central Excise duty levied under Section 3 of the Central Excise Act 1944 and Additional duty of excise under Goods of Special Importance Act, 1957. The NCCD duty was not mentioned in the exemption notification nor was exempted expressly under any other exemption notification. Incidentally, Section 136 of the Finance Act 2001 also has a sub-section which reads:
(3) The provisions of the Central Excise Act, 1944 and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty, shall as far as maybe, apply in relation to the levy and collection of the National Calamity duty leviable under this section in respect of the goods specified in the Seventh Schedule as they apply in relation to the levy and collection of the duties of excise on such goods under that Act or those rules, as the case may be.
The CESTAT in Toyota Kirloskar Motor case held:
A close reading of the above (sub-sections) reveals that NCCD is indeed a duty of excise. Further it is seen that the provisions of Central Excise Act 1944 especially with regard to exemptions from duties would be applicable to NCCD leviable under Section 136.
Further, the Tribunal has also referred to CBEC Circular 60/01/06 CX dated 13.1.06 wherein it was clarified that “none of the duties chargeable under any Act of Parliament which provides that in relation to levy and collection of such duty, the provisions of Central Excise Act and the rules made there-under shall as far as may be apply on export of goods under Bond”
The above Circular was issued in 2006 on the issue of export of goods. As per Rule 19 of the Central Excise Rules, any excisable goods may be exported without payment of duty under bond. As per Rule 2(e) of the Central Excise Rules, “ duty” means the duty payable under Section 3 of the Act. So, when the field formations insisted on payment of “ other duties” on goods cleared for export, the Board had issued instructions C.No. 60/01/06 CX dated 13.1.06 under Section 37 B of the Central Excise Act to the effect that:
Apart from the duties chargeable under the Central Excise Act, 1944, certain other duties of excise are chargeable under different Acts of Parliament. The relevant Acts explicitly stipulate that the provisions of the Central Excise Act and the rules made thereunder, including those relating to refunds and exemptions from duties, shall, as far as may be, apply in relation to the levy and collection of such other duties of excise as they apply in relation to the levy and collection of the duties of excise leviable under that Act or those rules, as the case may be.
Accordingly, none of the duties leviable under any such Act of Parliament is required to be paid on export of goods under bond under rule 19 of the Central Excise Rules, 2002 or rule 19 of the Central Excise Rules, 2001 or rule 13 of the Central Excise Rules, 1944.
Objections over non-payment/non-collection of some of the said duties, such as Additional Duty of Excise (AED) and Special Additional Excise Duty (SAED) on Motor Spirit (MS) and High Speed Diesel oil (H.S.D.) and Education Cess and National Calamity Contingent Duty (NCCD) on various goods are still being raised and demands are being issued by the field formations in pursuance thereof or otherwise. To put an end to the uncertainty for the trade and industry and to bring in clarity, the Board, for the purpose of uniformity with respect to levy of duties of excise, hereby orders that as per rule 19 of the Central Excise Rules, 2002, rule 19 of the Central Excise Rules, 2001 and rule 13 of the Central Excise Rules, 1944, none of the duties chargeable under any Act of Parliament which provides that in relation to levy and collection of such duty, the provisions of the Central Excise Act and the rules made thereunder, shall, as far as may be, apply; was/is payable on export of goods under bond.
Apparently, the same ratio would apply to the Additional duty of Customs levied under Sec. 116 of the Finance Act 1999 on HSD and the same stands exempted by virtue of sub-section (3) of Section 116, as per the ratio of the Tribunal’s decision in Toyota Kirloskar case.
If we look at the origin of Section 37 B order by the Board, we find that the same was issued because an audit objection by the CAG. Vide paragraphs 4.3 of 2004 and 8.1 of 2005, the Audit had discovered “allowing exemption to Additional duty on HSD without exemption notification”. Subsequently the Board issued Section 37 B order and the same was also reported in the Audit Report for the year 2008 under ‘impact’ of audit.
When the issue is already settled in the favour of the assessee and even when the Board had issued Section 37 B order, it is strange that still the “Intelligence” agencies book cases and circulate the so called Modus Operandi and ensure that the consultants line up before the Banks. Even if the DRI feels that the 37 B order and the Tribunal’s view are not acceptable to the intelligent officers, they could have referred the issue to the Board for clarification instead of “catching the evaders” and circulating the great achievement.
Assuming for a moment that the duty is payable, yet no penalty can be imposed on the importer for the alleged violation as Sub-section (3) of Section 116 of the Finance Act 1999 does not make the provisions of “ offences and penalty” under the Customs Act to the Additional duty under Sec 116. The words “offence and penalty” were absent in Sub-section (3) of Section 116. This issue stands settled by the Supreme Court in case of Orient Fabrics case in the assessee’s favour. Having realized this mistake, in case of Goods of Special Importance Act, 1957, vide Sec . 63(a) of the Finance Act, 1994 sub-section (3) of Section 3 of the said Act was substituted, which now reads as under :
“Levy and 3. collection of Additional Duties :-
(1) ……
(2) ……
(3) The provisions of the (Central Excise Act, 1944) (1 of 1944), and the rules made thereunder, including those relating to refunds, exemptions from duty, offences and penalties, shall, so far as may be, apply in relation to the levy and collection of the additional duties as they apply in relation to the levy and collection of the duties of excise on the goods specified in sub-section (1).”
Subsequently, in such similarly worded Sections (like sec 136 of the Finance Act 2001) the provisions of penalty are also made applicable but in Section 116 of the FA 1999, there seems to be some copy paste catastrophe and it would be appropriate for the DRI to issue a Modus operandi Circular to the Board to be vigilant while drafting the provisions of the Finance Bill.