Supreme Court Upholds Withdrawal of Customs Notification Levying of Custom Duty on Import of Printing Machinery

Supreme Court Upholds Withdrawal of Customs Notification Levying of Custom Duty on Import of Printing Machinery

The Supreme Court by its division judge’s bench of Justices S. Ravindra Bhat and Dipankar Datta while hearing an appeal against the decision of the Calcutta High Court, upheld the withdrawal of a customs notification which granted customs duty concession to “Rotary Printing Machine” of ‘single width two plate variety,’ on the ground of indigenous angle, i.e., availability of the equipment in India.

The factual matrix of the case is that the assessee, ABP Pvt Ltd, imported a printing machine and claimed exemption from payment of customs duty relying upon Notification No. 86 of 2003 (Cus) Classification 844 311 00, dated 28 May, 2003. The said Notification provided for levy of customs duty on the import of ‘High Speed Cold-Set Web Offset Rotary Printing Machines with a minimum speed of 70,000 copies per hour’ at a concessional rate of 5%.

The assessee alleged that it had paid advances to a French supplier through an irrevocable letter of credit for the purchase of the imported machine. The said Notification was subsequently amended by the Central Government through a fresh notification dated 11 February, 2003. The Amended Notification shifted the benefit of the concessional rate to “Rotary Double Width Four Plate Wide Printing Machine.”

On 9 February, 2004, the assessee filed a Bill of Entry claiming the benefit of the concessional rate under the first Notification. The assessee, however, was held to be ineligible to claim the said benefit and was held liable to pay customs duty at 39.2% on the value of the imported machine.

Thereafter, the assessee filed a writ petition before the Calcutta High Court for declaring the Amended Notification ultra vires Section 25(1) of the Customs Act, 1962, and sought its withdrawal.

The Calcutta High Court, set aside the Amended Notification and directed the revenue department to grant concession to the imported machinery of the assessee. The Division Bench in appeal upheld the decision of the single judge.

Aggrieved by the same, the revenue department filed an appeal before the Supreme Court.

It was contended by the department that the ‘single width two plate machines’ were excluded from the concession/ exemption as they were manufactured in the country, and thus there was a rationale to exclude such machines from the scope of concessions.

The department stated that as per Section 21 of the General Clauses Act, 1897, the Union’s power to issue a notification includes the power to withdraw the same.

The Court firstly perused that on 25 March, 2004, the Tax Research Unit of the Revenue Department had issued a letter, justifying the withdrawal of tax exemption on account of the representations received from domestic manufacturers of printing machines.

In the present case, the principal, or rather the sole ground which persuaded the High Court, to set aside the Amended Notification is that withdrawal of the concession could not be said to facilitate indigenous manufacturers, noted the bench.

The Court also noted that, it was held that ‘Indigenous angle therefore was not germane to withdrawal of exemption’ and therefore, ‘public interest which must govern in the case of grant or withdrawal of the grant is lost.’ The third ground was that there was no distinction between the two types of machines as both were having the same technology.

In this regard, the bench observed, “Once it is recognized that it is the executive’s exclusive domain, in fiscal and economic matters to determine the nature of classification, the extent of levy to be imposed, and the factors relevant for either granting, refusing or amending exemptions, the role of the court is confined to decide if its decision is backed by reasons, germane, and not irrelevant to the matter.”

The Court highlighted that judicial scrutiny could also extend to consideration of legality, and bona fides of the decision. The bench held, the wisdom or unwisdom, and the soundness of reasons, or their sufficiency, cannot be proper subject matters of judicial review.

The Court opined, in the present case, the impugned judgment had virtually conducted a merits review of the concerned economic measure and had erred in judging the merits of the reasons which led the executive government to issue the Amended Notification.

The bench was of the considered view that no mala fides or oblique considerations were pleaded or urged before the High Court, therefore, the exercise of the power was in line with the provisions of the Act.

“The indigenous angle, i.e., availability of equipment, cannot be characterized as an irrelevant factor or consideration, since grant of exemption to a class of goods, which are similar to those manufactured within the country, and its likely adverse impact on such manufacturers or producers, is germane and relevant,” the Court ruled.

Accordingly, the Court set aside the decision of the High Court and allowed the appeal.