Shri Ramakrishna Mills Ltd. And Ors. vs Assistant Collector Of Customs on 26 May, 1986

Judgment Summary: Shri Ramakrishna Mills Ltd. And Ors. vs Assistant Collector Of Customs (1986)

1. Outcome

The Division Bench of the High Court allowed the appeals, setting aside the single judge's decision. It declared that no customs duty was payable on the imported goods (viscose staple fibre) as they were totally exempt from duty at the time the taxable event occurred. The court also certified that the case involved a substantial question of law of general importance, warranting a decision by the Supreme Court, due to conflicting views among various High Courts.

2. Core Issue

The core issue was to determine when the "import" of goods is deemed complete under the Customs Act, 1962, for the purpose of levying customs duty and applying exemption notifications. Specifically, if a vessel carrying goods enters the territorial waters of India during a period when a full customs duty exemption is in force, but reaches its intended final port of discharge after that exemption has expired (and before a subsequent extension comes into effect), are the goods liable for duty?

3. Key Facts

• Goods: Viscose staple fibre imported from Norway by textile mill owners (petitioners/appellants).
• Exemption Notifications:
  • Government of India notifications (e.g., Nos. 384 & 385 dated 23-7-1976) granted total exemption from customs duty and additional duty for viscose staple fibre.
  • These exemptions were in force until 31-12-1978.
  • A subsequent notification extended the exemption until 31-12-1979, but it took effect only from 5-1-1979.
  • This created a "time lag" or gap period from 1-1-1979 to 4-1-1979 during which no exemption was in statutory force.
• Vessel's Journey:
  • The steamer "Vishva Bandhan" entered the territorial waters of India and berthed at Bombay Port on 28-12-1978.
  • The vessel subsequently reached Cochin Port (the intended port of destination for the petitioners' goods) on 4-1-1979, and the goods were discharged on the same day.
• Documentation: Bills of entry were submitted at Cochin on 21-12-1978, anticipating the vessel's arrival.
• Customs Action: Customs authorities levied import duty (including basic, additional, and auxiliary duties) on the goods, arguing that the import was complete at Cochin on 4-1-1979, a date within the non-exemption gap period.

4. Arguments

• Taxpayer (Petitioners/Appellants):

  • The act of importation was complete when the vessel entered the territorial waters of India (around Bombay) and berthed at Bombay Port on 28-12-1978.
  • Since a total exemption notification was in full force and effect on 28-12-1978, the goods were exempt from customs duty.
  • The subsequent voyage from Bombay to Cochin and discharge on 4-1-1979, when the exemption was temporarily not in force, should not retrospectively impose duty on goods that had already "earned" exemption.
  • Relied on Bombay High Court precedents which held that the taxable event occurs when goods enter Indian territorial waters.

• Revenue (Assistant Collector of Customs, supported by the Single Judge):

  • "Import" is not complete merely by entering territorial waters or an intermediate port. It requires an intention to unload and integrate the goods into the mass of goods within the country.
  • For the petitioners, the true importation occurred when the goods arrived at the intended port of destination (Cochin) and crossed its customs barriers on 4-1-1979.
  • As no exemption notification was in effect on 4-1-1979, duty was correctly leviable.
  • Cited the Supreme Court's Empress Mills case, which interpreted "import" as incorporating and mixing goods with local property for the purpose of a terminal tax, and other High Court decisions following this view.

5. Court’s Reasoning

The Division Bench reasoned as follows:

• Statutory Definition of "Import" and "India": The Customs Act, 1962, defines "import" in Section 2(23) as "bringing into India from a place outside India" and "India" in Section 2(27) includes "the territorial waters of India." Therefore, the act of importation, for the purposes of the Customs Act, is complete when the vessel carrying goods enters the territorial waters of India.
• Taxable Event vs. Quantification: Section 12 is the charging section, levying duties on "goods imported into... India." The "taxable event" (chargeability to duty) occurs at the moment of import into India's territorial waters. Sections 14 (valuation) and 15 (rate of duty) specify how the duty is to be quantified and the date for determining the applicable rate, but these sections do not redefine or postpone the taxable event itself.
• Effect of Total Exemption (Section 25): Section 12's charge is subject to exceptions "as otherwise provided in this Act." Section 25(1) empowers the Central Government to wholly exempt goods from duty. If such a total exemption is in force when the taxable event (entry into territorial waters) occurs, the goods are simply not chargeable to duty. The idea of a "nil" rate or merely suspending chargeability is rejected. Once goods are totally exempt at the point of import, a subsequent expiry or withdrawal of the notification does not make them dutiable.
• Rejection of "Mixing with Mass of Goods" Doctrine: The court explicitly distinguished and rejected the single judge's reliance on the Empress Mills case and the "original package doctrine" (i.e., import is complete only when goods are mixed with the mass of property in the country or reach their final destination for consumption/sale). The Supreme Court in Gramophone Co. of India Ltd. v. Birendra Bahadur Pandey had already clarified that Empress Mills was confined to the specific context of a "terminal tax" and had disapproved the "original package doctrine" in later decisions. For the Customs Act, the statutory definitions of "import" and "India" are paramount.
• Scheme of the Customs Act: Various provisions within the Customs Act (e.g., Sections 13, 21, 22, 23, 29, 30, 31, 32, 34, 37, 45, 48, and particularly Chapter VIII dealing with goods in transit – Sections 53, 54, 56) implicitly support the interpretation that goods become "imported goods" as soon as they enter Indian territorial waters, well before unloading, clearance, or mixing with the landmass. The existence of specific provisions for goods in transit (exempting them from duty if certain conditions are met) implies that otherwise, they would be considered imported and dutiable upon entry into territorial waters.
• Conclusion: The court concluded that the taxable event occurred on 28-12-1978 when the vessel entered Indian territorial waters. At that time, the goods were wholly exempt from duty under the existing notification. Therefore, no duty was payable, despite the goods being discharged at Cochin on 4-1-1979.

6. Statutory References

• Constitution of India: Article 246, List I, Entry 41 & 83 (Seventh Schedule)
• Customs Act, 1962 (Act 52 of 1962):
  • Sections 2(11), 2(12), 2(13), 2(14), 2(23), 2(25), 2(27), 2(28)
  • Sections 7, 12, 13, 14, 15, 21, 22, 23, 25, 29, 30, 31, 32, 34, 37, 45, 46, 47, 48, 49, 53, 54, 56, 68
• Customs Tariff Act, 1975 (Act 51 of 1975): First Schedule, Section 3
• Finance Act, 1976: Section 32(1)
• Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (Act 80 of 1976): Section 5
• Copyright Act, 1957 (Act 14 of 1957): Sections 51, 53
• C.P. and Berar Municipalities Act, 1922: Section 66(1)(o)

7. Precedents Cited

• Followed/Approved:

  • M.S. Shawhney v. Messrs. Sylvania and Laxman Ltd. (1975) 77 Bom LR 880 (Bombay HC)
  • Synthetics & Chemicals Ltd. v. S.C. Continiho and Ors. 1981 ELT 414 (Bombay HC DB)
  • Apar Private Ltd. v. Union of India [1985] 6 ECC 241 (Bombay HC Full Bench) - Heavily relied upon and followed.
  • Guruswamy & Co. v. State of Mysore (1967) I SCR 548 (SC)
  • Jullundur Rubber Goods Manufacturers' Association v. Union of India (1970) 2 SCR 68 (SC)
  • A.B. Abdul Kadir v. State of Kerala (1975) 2 SCR 690 (SC)
  • Mc Dowell and Co. Ltd. v. Commercial Tax Officer [1985] 59 STC 277 (SC)
  • Sundaram Textiles Ltd., Madurai v. Assistant Collector of Customs, Madras 1983 ELT 909 (Madras HC)
  • Union of India and Ors. v. Bombay Tyre International C.A. No. 2369/80 (SC)
  • Burmah Shell v. Commercial Tax Officer (SC)

• Distinguished/Disapproved/Not Applicable:

  • Brown v. State of Maryland 6 Law Edn. 678 (US Supreme Court)
  • In re: Sea Customs Act Section 20(2), AIR 1963 SC 1760 (SC)
  • The Schooner "Mary" 1 Gallision 206 (US case)
  • Wilson v. Robertson (1855) 24 LJOB 185 (English case)
  • Canada Sugar Refining Co. v. The Queen (1898) AC 735 (Privy Council)
  • Wilson v. Chambers & Co. Pvt. Ltd. (1926) 38 CLR 131 (Australian case)
  • The Queen v. Bull and Ors. (1974) 48 ALJR 232 (Australian HC)
  • Empress Mills v. Municipal Committee, Wardha (SC) - Crucially distinguished by the Division Bench, relying on later SC decisions.
  • K.R. Ahmed Shah v. Additional Collector of Customs, Madras and Ors. 1981 ELT 153 (Madras HC)
  • Union of India v. Eacherim 1970 Crl LJ 417 (Delhi HC)
  • K.R. Ahmed Shah v. Asst. Collector of Customs 1975 LW (Crl), 127 (Madras HC)
  • Shewbuxrai Onkarmall v. Asst. Collector of Customs and Ors. 1981 ELT 298 (Calcutta HC)
  • K. Jamal Co. v. Union of India 1981 ELT 162 (Madras HC)
  • Prakash Cotton Mills (P) Ltd. v. B. Sen and Ors. AIR 1979 SC 673 (SC)
  • Gopal Mayaji v. T.C. Sheth (1959) 60 Bom LR 486 (Bombay HC)
  • Prabhat Cotton and Silk Mills Ltd. v. Union of India 1982 ELT 203 (Gujarat HC)
  • Jain Shudh Vanaspati Ltd. v. Union of India 1983 ELT 1688 (Delhi HC)
  • Gramophone Co. of India Ltd. v. Birendra Bahadur Pandey (SC) - Crucially used by the Division Bench to reinterpret "import" and distinguish Empress Mills.
  • Aluminium Industries Ltd. v. Union of India 1984 KLT 599 (Kerala HC single judge)