By TIOL News Service

NEW DELHI, JULY 30, 2015: THE respondent herein impugned the validity of Notifications Nos.102/87-CE and 103/87-CE, both dated 27.03.1987, whereby whole of the duty of excise was exempted in respect of iron and steel scrap obtained by breaking the ship subject to the condition that customs duty should have been levied at the rate of Rs.1400/- per Light Displacement Tonnage (LDT). With the stipulation of such a condition, giving the exemption of payment of excise duty only to those who had paid customs duty at Rs.1400/- per LDT, another class of persons who also paid custom duty under Section 3 of the Customs Tariff Act, 1975, albeit at a lesser rate, was excluded. The respondent who belonged to excluded category, had challenged the said Notification as arbitrary and violative of Article 14 of the Constitution. Though the Single Judge dismissed the writ petition, the Division Bench in appeal has accepted the plea of the respondent and vide judgment dated 18.08.2003 held that the second category of persons shall also be entitled to the benefit of this Notification.

It is this judgment which is impugned by the Union of India and is the subject matter of the instant appeal.

The respondent herein is engaged in the business of ship breaking activities. It had imported a foreign vessel "M.V. Gonong Mass" for the purpose of breaking it and selling it as scrap. This ship was purchased by the respondent as a successful tenderer for a sum of Rs.61 lakhs and at the time of import, the Collector of Customs, Cochin, assessed the custom duty and additional duty payable under Section 3 of the Customs Tariff Act, 1975 on this ship on ad-valorem basis and customs duty in the sum of Rs.62,16,796.55 was levied on the movable articles in the ship; body of the ship was assessed at 30% and 50% ad-valorem and additional custom duty i.e. countervailing duty at 12% ad-valorem. The respondent also paid a sum of Rs.5,68,660/- as sales tax.

After import of the ship, the same was dismantled and broken from which iron and steel scrap was taken out. This iron and steel scrap is exigible to excise duty. The respondent has registered itself under the Central Excise Act. The aforesaid iron and steel scrap which was obtained by breaking the ship was cleared by the respondent on payment of central excise duty at the rate of Rs.365/- per tonne as per Notification No.146/86-CE dated 01.03.1986. Upto this point, there is no dispute. The relevant period with which we are concerned is from 08.08.1986 to 27.07.1987.

Two notifications were issued on 27.03.1987 exempting iron and steel obtained from breaking up of ships. By the first Notification No.102/87-CE, if the customs duty leviable on the import of ship for the purpose of breaking is paid at the rate of Rs. 1,035/- per LDT along with additional duty leviable thereon under Section 3 of the Customs Tariff Act, the excise duty payable is at the rate of Rs.365/- per tonne, exempting the remainder as specified in the Schedule. On the other hand, as per Notification No.103/87-CE, if the customs duty has been paid at the rate of Rs.1400/- per LDT, the scrap obtained from breaking of such ships is exempted from the entire excise duty.

This was challenged by the assessee as arbitrary, artificial and has no nexus with the object that is sought to be achieved. When customs duty is payable under either of the two methods, it is not understood why exemption is granted only to one set of persons paying customs duty in a particular method of assessment.

The Single Judge was not convinced with the case set up by the assessee. He reasoned that the Court could not direct the Central Government to extend the Notification to a class to whom it has not been extended as that was a matter which was entirely within the discretion of the Central Government.

The assessee preferred writ appeal against the said judgment. The Division Bench vide impugned judgment has reversed the decision of the Single Judge finding sufficient merit in the case set up and pleaded by the respondent. It is held by the Division Bench that when the benefit of concessional right is restored by a notification, there cannot be any discriminatory treatment to some persons who fall in the same category. According to the Division Bench, both the categories of importers paid the duty as leviable under Customs Tariff Act. Once a choice is given under the said Act and the duty is paid accordingly, merely because the rate of duty arrived at is different would not be rational basis for excluding the other class.

Revenue is in appeal before the Supreme Court.

The Supreme Court observed,

The State undoubtedly enjoys greater latitude in the matter of a taxing statute. It may impose a tax on a class of people, whereas it may not do so in respect of the other class.

A taxing statute, however, as is well known, is not beyond the pale of challenge under Article 14 of the Constitution of India.

It is, thus, beyond any pale of doubt that the justiciability of particular Notification can be tested on the touchstone of Article 14 of the Constitution. Article 14, which is treated as basic feature of the Constitution, ensures equality before the law or equal protection of laws. Equal protection means the right to equal treatment in similar circumstances, both in the priviliges conferred and in the liabilities imposed. Therefore, if the two persons or two sets of persons are similarly situated/placed, they have to be treated equally. At the same time, the principle of equality does not mean that every law must have universal application for all persons who are not by nature, attainment or circumstances in the same position. It would mean that the State has the power to classify persons for legitimate purposes.

In the present case the Supreme Court found:

the two Notifications both dated 27.03.1987 pertain to same goods namely those falling under Heading 72.15 and 73.09 of the second Schedule to the Act. Customs duty is leviable on these goods under Section 3 of the Customs Tariff Act. The said duty can be paid under any of the two methods. When two methods are permissible under the statutory scheme itself, obviously option is that of the assessee to choose in all those methods to pay the custom duty. Duty, thus, paid is to be naturally treated as validly paid. Merely because with the adoption of one particular method the duty that becomes payable is lesser would not mean that two such persons belong to different categories. The important factors for the purposes of parity are same in the instant case, viz. the goods are same; they fall under the same Heading and the custom duty is leviable as per the Act which has been paid. Therefore, the impugned Notification giving exemption only to those persons who paid a particular amount of duty, namely Rs. 1,400/- per LDT, would not mean that such persons belong to a different category and would be entitled to exemption and not other persons like the respondent herein who paid the duty on the same goods under the same Act but on the formula which he opted and which is permissible, which rate of duty comes to Rs.1,035/- per LDT.

The Supreme Court upheld the order of the High Court with a minor beneficial (to the assessee) modification.

Revenue Appeal dismissed

(See 2015-TIOL-160-SC-CX)