A matter of duty written off

Ketan Modi

Are the words "duty leviable" and "duty payable" synonymous or connote the same meaning,
especially when both have been well defined by the Central Excise, Customs and Gold
Control Tribunal (CEGAT) and the high court’s in several rulings and orders?

There is a marked difference between the two when the question of recovering additional
customs duty is involved.

However, recently it has come to light that the customs staff did not differentiate between the
two meanings leading to writing off of recoverable countervailing duty (CVD) running into
several thousand crores over a decade. According to well-placed sources this was allegedly
being done deliberately by a section of senior officers at the Mumbai Custom House who
were aware of the losses generated due to the wrongful CVD waiver that was allowed in the
last three years.

The complainant has claimed that though the issue was brought to the notice of senior
customs officials they preferred to ignore it allegedly with the blessings of the mandarins in
the Central Board of Excise and Customs (CBEC).Due to this alleged ignorance of the law
the issue that arises now is how to recover the duty that has been foregone wrongly. The
CVD is equivalent to the central excise duty leviable on `like or similar' product produced
domestically and is collected as part of customs duty. This is being done in order to protect
the domestic manufacturers of items that are also imported. CVD on imports is levied under
the provisions of the Customs Tariff Act, 1975 as additional customs duty along with rest of
the import duties, including the auxiliary ones that are collected under the provisions of the
Customs Act, 1962. The issue agitated at present involves the exemptions offered to domestic
manufacturers of like or similar items which attract CVD if imported. Do such exemptions,
either partial or whole, offered by central excise department through specific notifications
also become applicable in case of CVD? It is believed that the customs staff had waived the
CVD wherever an excise exemption notification existed by invoking the provisions of a
customs notification 89/92. The notification provides that CVD or additional customs duty
should be levied on the imports at the same rate as specified in the central excise tariff.

Sources claim that the interpretation of this provision was read by the customs staff wrongly.
They reportedly decided to waive the CVD in case if an exemption notification existed for a
like or similar item in the central excise tariff. Thus, while notification 89/92 provided a
yardstick for levying CVD, the customs arrived at the conclusion that it was recoverable by
them or payable by the importers at the rates that are leviable after invoking the provisions of
a central excise exemption notification and thus the CVD was waived. However, much before
the introduction of notification 89/92, the issue had come to the fore in 1985-86 when in one
of the several judgements by the CEGAT and the various high courts it was upheld that
wherever the CVD equivalent to central excise duty specified in the First Schedule of the
Customs Tariff Act, 1975 is `leviable', the rate of CVD alone is specified. The first ever case
that had come up before the CEGAT around 1986 is between the collector of customs,
Mumbai v/s Parekh Dye-Chem Industries Pvt Ltd wherein the bench had observed while
defining the word `levy' under section 3 of the Customs Tariff Act, 1975 that "the additional
duty `leviable' under section 3 of the CTA, 1975 is the duty leviable in terms of the First
Schedule to the Central Excise and Salt Act, 1944, regardless of any exemption from such
levy." This, in other words, mean that the central excise tariff rates are merely the yardstick
for specifying the rate at which CVD should be recovered. A similar issue was raised again in
1987 by Inarco Ltd before the CEGAT when again the party had sought partial exemption of
additional duty on imported goods from additional duty of customs on the grounds that an
central excise exemption notification allowing like benefits existed. Here too, it was held by
the CEGAT bench that "following the judgements of the Supreme Court and the Karnataka
high court, that appellants could not claim refund of additional duty which was custom duty
based on notification issued under rule 8(1) of the Central Excise Rules, 1944 when the
notification has no reference to customs duty." Besides, a division bench the Mumbai high
court, in the case between Vijay Prataprai Mehta and the Union of India, noted in its ruling
that when the additional duty is equal to excise duty, the latter is only a yardstick to calculate
the additional duty under the Customs Act and the exemption under the Central Excise and
Salt Act, 1944 cannot automatically exempt the additional duty under the Customs Act, 1962.

The court also noted that based on this observation the benefit of notification 89/92 which
was referred to by the petitioner's representative cannot be allowed to the company. The court
observed that `the exemption granted by the central government either fully or partially under
rule 8(1) of the Central Excise Rules, 1944 does not automatically stand extended to
`additional duty' chargeable under section 12 of the Customs Act, 1962 read with section 3(1)
of the Customs Tariff Act, 1975'. It further said that `the exemption notification issued under
the Central Excise and Salt Act, 1944 read with rule 8 of the Central Excise Rule, 1944 will
apply only to exemptions under the Central Excise and Salt Act, 1944 and unless there is
specific notification regarding additional duty under the Customs Act, 1962, the benefit of
central excise notification cannot be allowed for the latter purpose.' This order is in existence
for a long period and departmental staff was required to know. Even the CBEC was required
to issue clarification in this regard asking all the field formations to recover CVD regardless
of the existence of central excise exemption notification. However, some senior officers
arrived at the conclusion that the provision of CTA also specifies that the leviable CVD can
also be exempted if similar exemptions are available to domestic manufacturers of similar
items. This means that if the central excise duty is waived on any article because of a
notification, and the duty payable by the manufacturer became `nil' due to it, the same
standard should be applied for an imported item and the CVD should not be recovered. The
difference is between the definition of words leviable and payable. It was well defined by the
high courts and the CEGAT. Though in the case of Vijay Pratap Rai, the supreme court has
been moved by the concerned party and the case is pending, the apex court has not granted
any interim reliefs there by making the ruling of the Mumbai high court binding. This,
brought to the notice of the Customs authorities three years ago, remained unheeded and the
CVD which needed to be recovered at the rates equivalent to the ones specified in the Central
Excise Tariff was written off.

In fact, it is being written off for well over a decade now and the losses are running into
several thousand crores. The law does not provide for recovery of dues that were wrongfully
forgone in 10 years. It only provides for the recovery of dues that were foregone in the last
six months. Though the issue was raised almost 36 months ago, will the department be able to
recover what was foregone in the last 42 months? If not, then at least now all the imports that
attract CVD are required to be cleared subject to payment of CVD regardless of the existence
of any central excise notification. Besides, the government will be required to fix
responsibility for the lapse which has resulted in huge wrongful losses to the exchequer due
to the wrong interpretation of law by the authorities that were required to implement it rightly