Sri Ramalinga Mills (Cbe) Ltd. And Ors. vs The Assistant Collector Of Customs And ... on 26 May, 1986

Here's a summary of the judgment:

1. Outcome

The High Court allowed the writ appeals, setting aside the decision of the learned Single Judge. It declared that no customs duty was payable on the imported goods, as they were totally exempt from duty at the time the taxable event occurred.

2. Core Issue

The core issue was to determine the "taxable event" for the levy of customs duty under the Customs Act, 1962, specifically when goods are considered "imported into India" for the purpose of applying exemption notifications issued under Section 25(1) of the Act.

3. Key Facts

• Goods: Viscose staple fibre imported from Norway for manufacturing viscose blended yarn.
• Vessel: "M.V. Viswabandhan".
• Arrival at Indian territorial waters/first port: The vessel called at the Port of Bombay on 28th December 1978.
• Intended Port of Discharge: Cochin Port.
• Arrival at Cochin/Discharge: The vessel reached Cochin Port and goods were discharged on 4th January 1979.
• Bill of Entry: Submitted on 21st December 1978 (before arrival at Bombay).
• Exemption Notifications:
  • Notifications providing total exemption from customs duty for viscose staple fibre were in force until 31st December 1978.
  • A further notification extending the exemption came into force on 5th January 1979.
• Disputed Period: The period from 1st January 1979 to 4th January 1979, during which the goods were discharged at Cochin, fell between the expiry of the old exemption and the commencement of the new one.
• Customs Levy: Customs authorities levied 100% customs duty, additional duty, and auxiliary duty, refusing the exemption.

4. Arguments

• Taxpayer (Appellants/Importers):
  • The goods were "imported into India" when the vessel entered the territorial waters of India (Port of Bombay) on 28th December 1978.
  • At that time, the total exemption notification under Section 25(1) of the Customs Act was in force.
  • Therefore, the goods were wholly exempt from duty, and no duty could be levied subsequently, irrespective of the date of discharge at Cochin or the expiry/renewal of the notification.
• Revenue (Assistant Collector of Customs/Single Judge):
  • "Importation" is completed only when the vessel crosses the customs barriers at the intended port of importation (Cochin in this case) and the goods are incorporated into or mixed with the mass of goods in the country.
  • The entry into Bombay was merely a transit stage for goods destined for Cochin.
  • Since the goods were discharged at Cochin on 4th January 1979, after the initial exemption expired and before the extended exemption came into force, they were subject to duty.

5. Court’s Reasoning

1. Definition of "Import" and "India": The Court held that under Section 12 (charging section), duty is levied on goods "imported into India." Section 2(23) defines "import" as "bringing into India from a place outside India," and Section 2(27) defines "India" to include "the territorial waters of India." Therefore, the "taxable event" for customs duty occurs as soon as the goods enter the territorial waters of India.
2. Taxable Event vs. Rate/Valuation: The Court affirmed that the levy of duty (taxable event) need not be contemporaneous with the assessment or determination of the rate of duty. Sections 14 (valuation) and 15 (rate of duty) apply after chargeability has been established under Section 12.
3. Effect of Total Exemption (Section 25(1)): When a notification under Section 25(1) grants total exemption from duty, it means the goods are not "chargeable to duty" at all. In such a scenario, Sections 14 and 15 do not even come into play, as there is no duty to value or rate. The concept of "nil" duty is a "metaphysical concept" that cannot be invoked to subject wholly exempt goods to duty.
4. Rejection of "Mixing with Mass of Goods" Theory: The Court rejected the Single Judge's reliance on the "incorporation into the mass of property" doctrine (derived from Empress Mills and Chief Justice Marshall's Brown v. State of Maryland). It noted that the Supreme Court in Gramophone Co. of India Ltd. v. Birendra Bahadur Pandey clarified that the interpretation in Empress Mills was specific to a "terminal tax" context and had expressly disapproved the "original package doctrine." The Gramophone Co. case, interpreting "import" in the Copyright Act (similarly defined to the Customs Act), confirmed that it means "bringing into India from out of India" and includes transit, not just import for commerce or consumption.
5. Statutory Scheme of Customs Act: The Court found further support in various provisions of the Customs Act:
   • Chapter VIII (Goods in Transit): Sections 53, 54, and 56 provide for goods in transit or for transhipment to other ports without payment of duty. These provisions would be unnecessary if goods only became "imported" upon reaching their final destination or being mixed with goods on the landmass, thereby reinforcing that the charge attaches upon entry into territorial waters.
   • Other Provisions: Sections 13 (pilfered goods), 21 (derelict goods), 22 (damaged goods), 23 (lost/destroyed goods), 31/32 (unloading restrictions), 37 (boarding conveyances), and 48 (disposal of uncleared goods) all treat goods as "imported goods" before their final clearance for home consumption, indicating an earlier point of import.
6. Precedent: The Court expressly agreed with and followed the Full Bench decision of the Bombay High Court in Apar Private Ltd. v. Union of India, which held that the taxable event occurs when goods enter the territorial waters of India.
7. Application: Since the vessel entered Indian territorial waters on 28th December 1978, and a total exemption notification was in force on that date, the goods were wholly exempt from customs duty.

6. Statutory References

• Customs Act, 1962:
  • Sections 2(14), 2(23), 2(25), 2(27), 2(28), 7(b), 12, 13, 14, 15, 21, 22, 23, 25(1), 25(2), 29, 30, 31, 32, 34, 37, 45, 46, 47, 48, 49, 53, 54, 56, 68.
• Customs Tariff Act, 1975
• Finance Act, 1978, Section 32(1)
• Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, Section 5
• Copyright Act, 1957, Sections 51, 53
• C.P. and Berar Municipalities Act, 1922, Section 66(1)(o)

7. Precedents Cited

• Followed/Approved:
  • Guruswamy and Co. v. State of Mysore
  • Jullundur Rubber Goods Manufacturers' Association v. Union of India
  • A.B. Abdul Kadir v. State of Kerala
  • McDowell and Co. Ltd v. Commercial Tax Officer
  • Shawhney v. Sylvania and Laxman 77 Bomb. L.R. 380
  • Apar Private Ltd. v. Union of India 1988 (19) ECR 514 (Bombay High Court Full Bench)
  • Sundaram Textiles Ltd., Madurai v. Assistant Collector of Customs, Madras 1983 E.L.T. 909
  • Gramophone Co. of India Ltd. v. Birendra Bahadur Pandey
  • Province of Madras v. Boddu Paidanna 1942 FCR 90
  • State of Bombay v. F.N. Baisara 1951 SCR 682
  • Burmah Shell v. Commercial Tax Officer (1961) 1 SCR 902
  • Union of India and Ors. v. Bombay Type International C.A. No. 2269/80 (S.C.)
  • Wallace Brother and Co. Ltd. v. Commr. of Income Tax 50 Bom. L.R. 482 (for distinction between chargeability and quantification)
• Distinguished/Disapproved/Overruled (by this judgment or its cited precedents):
  • Ramalinga Mills v. The Assistant Collector of Customs 1982 K.L.J. 314 (Single Judge decision under appeal)
  • Empress Mills v. Municipal Committee, Wardha (Supreme Court, distinguished as context-specific to terminal tax)
  • K.R. Ahmed Shah v. Additional Collector of Customs, Madras 1981 E.L.T. 153
  • Union of India v. Kacherim 1970 Crl. L.J. 417
  • K.R. Ahmed Shah v. Assistant Collector of Customs 1975 L.W. CrJ. 127
  • Shewbuxrai Onkarmall v. Assistant Collector of Customs and Ors. 1981 E.L.T. 298
  • K. Jamal and Company v. Union of India 1981 E.L.T. 162
  • Prabhat Cotton and Silk Mills Ltd. v. Union of India 1982 E.L.T. 203
  • Jain Shudh Vanaspati Ltd. v. Union of India 1983 E.L.T. 1688
  • Brown v. State of Maryland (1827) 12 Wheat 419 (concept of "original package doctrine" relied on by Empress Mills)
  • Synthetic and Chemicals v. S.C. Coutinho 1981 E.L.T. 414 (distinguished for dealing with partial vs. total exemption)
  • Aluminium Industries Ltd. v. Union of India 1984 K.L.T. 599 (discussed and reasoning partly disagreed with)