By TIOL News Service

AHMEDABAD, SEPT 12, 2014: THE Gujarat High Court has virtually struck down Tariff Heading 8908 of the Central Excise Tariff - Vessels and other floating structures for breaking up.

The petitioners have prayed for appropriate writ, order and/or direction striking down heading No.89.08 of the Central Excise Tariff Act, 1985 (5 of 1986) as unconstitutional and ultra vires Entry No.84 of the Union List of the Seventh Schedule to the Constitution of India and also ultra vires Articles 14 and 19 of the Constitution of India.

It is also prayed for appropriate writ of prohibition completely and permanently prohibiting the respondents, their servants and agents from levying and collecting Additional Customs Duty from the petitioners as per the rates prescribed under heading No.89.08 of the Central Excise Tariff Act, 1985.

The High Court noted that:

1. In the present case, as such, it is not the case of the department that the vessels and other floating structures imported for breaking up are produced and/or manufactured in India and/or even outside India.

2. It is also not the case on behalf of the department that any article is produced or manufactured in India and/or outside the India.

3. If vessels or other floating structures which are plyable are imported, in that case, no additional duty is leviable.

4. Even vessels and other floating structures manufactured in India ( plyable ) are non- exciseable.

5. It is not the case of the department that any excise duty is leviable on manufacture of vessels and other floating structures imported for breaking up.

Considering the above facts and circumstances of the case, the controversy raised in the present Special Civil Applications is required to be considered.

The High Court further noted that:

1. The department has heavily relied upon the decision of the Supreme Court in the case of Khandelwal Metal & Engineering Works - 2002-TIOL-372-SC- CUS -LB.

2. It is further submitted that though the decision of the Supreme Court in the case of Khandelwal Metal & Engineering Works has been referred to the Larger Bench, decision of Khandelwal Metal & Engineering Works would be applicable as the said judgement stands.

3. However, the decision of the Supreme Court in the case of Khandelwal Metal & Engineering Works upon which the department has relied upon, has been partly overruled by the Supreme Court in the case of Hyderabad Industries Ltd. Versus Union of India, reported in - 2002-TIOL-369-SC-CUS-CB, to the extent holding that additional duty of customs is leviable merely on the import of the article even if it is not manufactured or produced in India.

4. Therefore, as such the controversy raised in the present Special Civil Application is squarely covered by the decision of the Supreme Court in the case of Hyderabad Industries Ltd. Versus Union of India, reported in - 2002-TIOL-369-SC- CUS -CB.

The High Court noted that identical question was considered by the Supreme Court in Hyderabad Industries Ltd. Versus Union of India, reported in- 2002-TIOL-369-SC-CUS-CB , and it was held:

The observation in Khandelwal Metal & Engineering Works case which seems to suggest that even if no process of manufacture or production has taken place the imported articles can still be subjected to the levy of additional duty does not appear to be correct inasmuch as the measure for levy of additional duty is the quantum of excise duty leviable on a similar article under the Excise Act. Duty under the Excise Act can be levied, as has been held earlier, if the article has come into existence as a result of production or manufacture. In other words when articles which are not produced or manufactured cannot be subjected to levy of excise duty then on the import of like articles no additional duty can be levied under the Customs Tariff Act. The levy of additional duty being with a view to provide for counter balancing the excise duty leviable, we are clearly of the opinion that additional duty can be levied only if on a like article excise duty could be levied.

The High Court observed,

"Thus, in the aforesaid decision of Hyderabad Industries Ltd ., the Hon'ble Supreme Court has held that decision the case of Khandelwal Metal & Engineering Works goes to the effect that additional duty of customs is leviable merely on the import of the article even if it is not manufactured or produced in India, does not appear to be correct inasmuch as the said conclusion is based on the premise that section 12 of the Customs Act, and not section 3(1) of the Tariff Act, is the charging section. It is further observed and held by the Hon'ble Supreme Court that on a correct interpretation of the relevant provisions of the two Acts , additional duty which is leviable under section 3(1) of the Tariff Act is independent of the Customs Duty which is leviable under section 12 of the Customs Act. It is further observed and held that the observations in Khandelwal Metal & Engineering Works (supra) seems to suggest that even no process of manufacture or production has taken place the imported articles can still be subjected to the levy of additional duty, does not appear to be correct inasmuch as the measure for levy of additional duty is the quantum of excise duty leviable on a similar article under the Excise Act. It is further observed that duty under the Excise Act can be levied, as has been held earlier, if the article has come into existence as a result of production or manufacture. It is further observed that in other words when articles which are not produced or manufactured cannot be subjected to levy of excise duty, then on the import of like article no additional duty can be levied under the Customs Tariff Act. It is further observed and held by the Hon'ble Supreme Court that levy of additional duty being with a view to provide for counter balancing the excise duty leviable, we are clearly of the opinion that additional duty can be levied only if on the like article excise duty could be levied."

Applying the ratio of Hyderabad Industries , to the facts of the case on hand, and with respect to the additional duty sought to be levied under heading No.8908 on the vessels and other floating structures for breaking up which are not manufactured in India and therefore, no excise duty is leviable on "vessels and other floating structures for breaking up", the High Court held that No additional duty can be levied under section 3(1) of the Tariff Act on the "vessels and other floating structures for breaking up".

Under the circumstances, the heading 89.08 which provides levy of additional duty at 15% on the vessels and other floating structures for breaking up would be contrary to and/or ultra vires to section 3(1) of the Tariff Act and therefore, the vessels and other floating structures imported into India for breaking up, additional duty under section 3(1) of the Customs Tariff Act is not liable to be levied.

Held : no additional duty is leviable on the vessels and other floating structures imported into India for breaking up, under section 3(1) of the Customs Tariff Act, 1975, as per the rate prescribed under heading No.89.08 of the Central Excise Tariff Act, 1985. Consequently, demand, if any, of such additional duty with respect to respective Bills of Entry is hereby quashed and set aside.

(See 2014-TIOL-1563-HC-AHM-CUS)