1985 (6) TMI 178 - SC - Customs

Nature of the duty leviable on the imported brass scrap - additional duty or countervailing duty - Applicability of Notifications granting exemption from payment of customs duty - Appropriate rate of customs duty payable - concept of a fiscal imposition - classification of Brass Scrap - appellants claim that brass scrap is a master alloy and therefore falls under the notification dated June 25 1977 the contention of the Union Government is that brass scrap is comprehended within the expression copper waste and scrap and therefore falls under the notification dated July 16 1977 - imposition of Excise duty on waste and scrap - HELD THAT - Brass unquestionably is most akin to copper and therefore brass scrap has to be classified as Copper Waste and Scrap . According to Note 4 unless the context otherwise requires any reference in the First Schedule to a base metal is to be taken to include a reference to alloys which by virtue of Note 3 are to be classified as alloys of that metal. Heading No. 74.01/02 of the First Schedule refers to copper waste and scrap. Copper is a base metal. Reference to copper in that Heading would include reference to Brass since by virtue of Note 3 brass has to be classified as an alloy of copper. Therefore copper waste and scrap includes Brass Scrap . Notification No. 156 of July 16 1977 exempts copper waste and scrap from so much of the duty of customs as is in excess of 80 per cent ad valorem. Since brass scrap is includible in the expression copper waste and scrap and since brass scrap is not a Master alloy the appellants case would fall under this Notification. Accordingly they would be entitled to exemption from customs duty to the extent of 20 per cent only. We may sum up our conclusions thus (1) The charging section under which duties of customs are leviable is Section 12 of the Customs Act 1962 read with Section 3(1) of the Customs Tariff Act 1975. (2) Additional duty which is mentioned in Section 3(1) of the Customs Tariff Act 1975 partakes of the same character as the Customs duty since it is in addition to the duty which is leviable under Section 12 of the Customs Act 1962 the rates for which are prescribed by Section 2 of the Tariff Act 1975. The duty mentioned in Section 3(1) of the Tariff Act 1975 is not countervailing duty. (3) Section 3(1) of the Tariff Act 1975 provides a measure of the additional duty which has to be equal to the excise duty leviable on a like article if produced or manufactured in India as defined in the Explanation to that section. The measure of a tax or duty cannot determine its nature or character. (4) The brass scrap which is imported into India by the appellants is liable to the levy of additional duty mentioned in Section 3(1) of the Tariff Act 1975 because the taxable event is the import of the goods into India and not their manufacture. (5) The duty referred to in Section 3(1) of the Tariff Act 1975 is therefore leviable even if the goods imported into India are not capable of being manufactured in India or are not in fact manufactured in India. (6) The expression excise duty for the time being leviable on a like article if produced or manufactured in India which occurs in Section 3(1) of the Tariff Act 1975 means excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or if a like article is not so produced or manufactured which would be leviable on the class or description of articles to which the imported article belongs. (7) Even if the duty referred to in Section 3(1) of the Tariff Act 1975 is regarded as in the nature of a countervailing duty the brass scrap imported by the appellants would still be liable to the levy of that duty. The reason is that scrap or waste is a by-product of manufacture and is an integral part and an inevitable incident of the manufacturing process. Brass scrap is manufactured or happens to be manufactured in India. It is well-known as a marketable commodity both of Indian and foreign origin. The brass scrap produced in India must receive protection by the imposition of a countervailing duty on imported brass scrap. (8) The brass scrap imported by the appellants falls under Exemption Notification No. 97 dated June 25 1977 and not under Exemption Notification No. 156 dated July 16 1977. The reason is twofold one that within the meaning of Heading No. 74.01/02 of the First Schedule to the Tariff Act 1975 brass scrap is not a Master alloy ; and two that it is comprehended within the expression copper waste and scrap in that Heading. The appellants are therefore entitled to exemption from duty of customs to the extent of 20% only and not to the extent of 60%. (9) Clause (1b) of Entry 26A of the First Schedule to the Central Excises and Salt Act 1944 is not ultra vires Section 3(1) of that Act. The reason is that waste and scrap referred to in that Entry is excisable to duty if it is produced or manufactured in India. Waste and scrap are by-products of the process of manufacture and are inevitably incidental to the manufacturing process. (10) The said Entry namely Entry 26A(1b) of the First Schedule to the Act of 1944 is within the legislative competence of the Parliament because the duty of excise is attracted under the Central Excises and Salt Act 1944 only if the goods are produced or manufactured in India. The impugned provision falls within Entry 84 List I of the Seventh Schedule to the Constitution. Even otherwise Parliament would have the legislative competence to pass the law because of the combined operation of Article 248 and Entry 97 List I of the Seventh Schedule. In the result the judgment of the High Court which is marked with care is confirmed and these Appeals and the Special Leave Petitions are dismissed with costs. Writ Petition No. 3761 of 1982 in which Mr. Abdul Khadar appears relates to copper fungicide . That Writ Petition was delinked from the other cases since the pleadings therein are not complete. That Writ Petition and all other cases involving import of copper scrap may be listed for hearing at an early date.

Summary

Issues Involved:
1. Nature of the additional duty under Section 3(1) of the Customs Tariff Act, 1975.
2. Applicability of the additional duty on brass scrap.
3. Appropriate rate of customs duty on brass scrap.
4. Legislative competence concerning the imposition of excise duty on waste and scrap.

Detailed Analysis:

1. Nature of the Additional Duty under Section 3(1) of the Customs Tariff Act, 1975:
The primary issue was whether the additional duty mentioned in Section 3(1) of the Customs Tariff Act, 1975, is a countervailing duty or an extension of customs duty. The court clarified that the charging section is Section 12 of the Customs Act, 1962, and not Section 3(1) of the Tariff Act. Section 3(1) provides a supplementary levy in enhancement of the levy charged by Section 12 of the Customs Act. The court stated, "The additional duty which is mentioned in Section 3(1) of the Tariff Act is not in the nature of countervailing duty." The court rejected the argument that Section 3(1) is an independent charging section, emphasizing that it is an additional customs duty.

2. Applicability of the Additional Duty on Brass Scrap:
The court examined whether brass scrap imported by the appellants is liable for additional duty under Section 3(1) of the Tariff Act. The appellants contended that brass scrap, being damaged articles, is not manufactured and hence not subject to additional duty. The court disagreed, stating, "The assumption has to be that an article imported into India can be produced or manufactured in India and upon that basis, the duty has to be determined under Section 3(1)." The court further explained that the duty is applicable even if the goods are not capable of being manufactured in India, as the measure of the duty is based on the excise duty for a like article if produced or manufactured in India.

3. Appropriate Rate of Customs Duty on Brass Scrap:
The court addressed the dispute regarding the applicable rate of customs duty on brass scrap, which depended on which of the two Notifications (No. 97 and No. 156) was applicable. Notification No. 97 exempted articles other than copper waste and scrap and unwrought copper from duty in excess of 40% ad valorem, while Notification No. 156 exempted copper waste and scrap from duty in excess of 80% ad valorem. The court concluded that brass scrap is not a "master alloy" and falls under the category of "copper waste and scrap." The court stated, "The appellants are, therefore, entitled to exemption from duty of customs to the extent of 20% only and not to the extent of 60%."

4. Legislative Competence Concerning the Imposition of Excise Duty on Waste and Scrap:
The court examined whether the imposition of excise duty on waste and scrap under Entry 26A(1b) of the First Schedule to the Central Excises and Salt Act, 1944, is ultra vires Section 3 of the Act or beyond the legislative competence of Parliament. The court held that waste and scrap are by-products of the manufacturing process and are, therefore, excisable. The court stated, "The production of waste and scrap is a necessary incident of the manufacturing process." The court also affirmed the legislative competence of Parliament to enact the impugned provision under Entry 84, List I, of the Seventh Schedule to the Constitution, and even otherwise, under Article 248 and Entry 97, List I.

Conclusion:
1. The additional duty under Section 3(1) of the Customs Tariff Act, 1975, is not a countervailing duty but an extension of customs duty.
2. Brass scrap imported by the appellants is liable for additional duty under Section 3(1) of the Tariff Act.
3. The appellants are liable to pay customs duty on brass scrap at the rate of 80% ad valorem, with an exemption to the extent of 20% only.
4. The imposition of excise duty on waste and scrap under Entry 26A(1b) of the First Schedule to the Central Excises and Salt Act, 1944, is within the legislative competence of Parliament.

The appeals and special leave petitions were dismissed with costs, and the judgment of the High Court was confirmed.