Case: Union of India and Others Vs. Messrs Jalyan Udyog and Another

vessels but when after plying for a number of years, they are scrapped, pay duty on the supposition that it is imported for breaking-up on the date it is broken-up." * But for the fortuitous - and enormous - increase in the prices of steel worldwide, the roles should have been reversed : what is now contended by the Union of India would have been the contention of the ship-owners - if the Union of India were to take the opposite stand. The said fortuitous circumstance cannot, indubitable, make any difference to the interpretation to be placed upon the notification. We cannot, therefore, agree with the reasoning in the judgment under appeal or in the judgment of the Calcutta High Court in Ramnivas Chaudhury27. Both the learned Additional Solicitor General and the learned counsel for the ship-owners cited certain decisions which may briefly be referred. It must, however, be stated that there is no decision of this Court directly on the point. The only decisions are that of the Bombay High Court in Jalyan Udyog (under appeal) and that of the Calcutta High Court in Ramnivas Chaudhury. In this sense, none of the decisions have a direct bearing on the question at issue. Even so, a few of them may be noticed 28. In Bharat Surfactants (P) Ltd. v. Union of India a Constitution Bench of this Court held that by virtue of the proviso to Section 15(1), the date of entry inwards of the vessel would be the date on which it was given a berth and entry inwards registered by the customs authorities. It was a case where the bill of entry was filed on July 9, 1981 i.e., before the arrival of the vessel. The ship in question arrived at Bombay on July 11, 1981. The port authorities were, however, unable to allot a berth to it. The vessel then left Bombay for Karachi for unloading other cargo intended for that port and then came back to Bombay on July 23, 1981. In the Register of Inward Entry, the date of arrival of the vessel was recorded as July 23, 1981 and entry inward granted and registered as July 31, 1981. The customs authorities imposed duty on the import of edible oil @ 150% which was the rate prevailing on July 31, 1981. The case of the importers, however, was that the rate of duty should be the rate prevailing on July 11, 1981 when the vessel had actually arrived and registered in the port of Bombay. Their contention was that the vessel had actually entered the territorial waters of India on July 11, 1981 and, therefore, that is the date of import of goods relevant for the rate of duty. The mere fact that a berth was not available for it on the earlier occasion on account of which it had to leave the port and come back, they said, is not material. The contention was rejected by this Court. It was held that by virtue of the provisions in Section 15, where the bill of entry is presented before the date of entry inwards of the vessel, it would be deemed to have been presented on the date of such entry inwards. Accordingly, it was held that the rate of import duty and tariff valuation shall be those in force on July 31, 1981 29. In Jain Shudh Vanaspati Ltd. v. Union of India a Division Bench of the Delhi High Court held that the rate of duty shall be the rate in force on the date specified in Section 15 and not the date when the ship entered the territorial waters. To the same effect is the decision of the learned Single Judge of the Kerala High Court in Aluminium Industries Ltd. v. Union of India 30. A Division Bench of the Madras High Court has also taken a similar view in M. Jamal Co. v. Union of India. It held that the chargeability of duty is determined when the goods are imported into the territory of India within the meaning of Section 12(1) of the Act. The Bench expressed certain other views which it is not necessary to notice for the purpose of these appeals 31. The counsel for the ship-owners stated that the principle of the Full Bench decision of the Bombay High Court in Apar ( 1985 (2) ELT 644 (Bom)) is not relevant herein and that they place no reliance thereon. For this reason, we need not refer to the said decision or express any opinion on its correctness 32. In Prakash Cotton Mills Pvt. Ltd. v. B. Sen it was held by this Court that where the goods are imported and stored in warehouse and the rate of duty is increased before the goods are cleared from the warehouse, the duty chargeable would be the one in force on the date of clearance of goods from the warehouse 33. The learned counsel for the ship-owners cited certain decisions holding that the rules must be consistent with and must operate within the four corners of the Act. Since there can be no dispute with the proposition, we do not think it necessary to refer to the decisions cited in that behalf. They also relied upon the decision of this Court in Orient Weaving Mills (P) Ltd. v. Union of India to contend that the power of exemption cannot be employed for changing the character of tax. Since the character of tax cannot be said to have undergone a change in the present case, we do not think it necessary to discuss the said decision in any detail34. The decision of the House of Lords in Chertsey Urban District Council v. Mixnams Properties Ltd. was relied upon in support of the proposition that the conditions imposed by the subordinate legislating authority cannot be ultra vires the Act nor be derogatory to the object of the enactment. While the principle is unexceptionable its applicability to the facts of this case is not

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]We are inclined to agree with him. In the writ petition, it is clearly stated that the second respondent (second writ petitioner) has sold the said ships to and in favour of the first respondent (first writ petitioner) on September 12, 1984. It is not stated that the second respondent has any subsisting or other interest in the matter. It is true that the writ petition was filed by both these persons an both of them are respondents in these appeals but in view of the aforesaid circumstance, we do not think that there can be any valid objection to the hearing of the appeal without effecting service upon the second respondent. So far as other appeals are concerned, there is no such objection; service is completeour opinion, it is couched in simple and clear language. It admits of no ambiguity or doubt. It says thatvessels other than vessels imported to beare exempt from payment of customs duty leviable thereon. It then says that where any suchvessel is subsequentlyit shall be chargeable with the duty which would be payable if it were imported then for beingThe idea behind the notification evidently was to encourage the import ofvessels. The notification also contemplates and provides for the situation where an importedvessel becomes not seaworthy after a few years and thedecides to scrap/break it. It provides that in such a situation it would be deemed as if the ship is imported forwhen it is broken up and the customs duty is charged on that basis. The notification thus creates a fiction viz., the vessel must be deemed to have been imported for beingwhen it is broken up, though as a matter of fact the import was at an earlier point of time. Ordinarily speaking, no doubt, customs duty is levied with reference to the date of actual import but the exemption notification says that if the ship imported is anvessel it shall be exempt from customs duty on the date of its import but in case it is subsequently broken up the duty shall be paid as if it were then imported for beingwhich necessarily means that duty will be levied on the value and at the rate prevailing on the date ofIndeed, in our opinion, the notification was quite clear even before it was amended in 1962; at any rate it has become clearer beyond any doubt after the said amendment. By virtue of the fiction created by the proviso in the notification, the vessel is deemed to have been imported foron the date it isIt is well settled that where a fiction is created by a provision of law, the court must give full effect to the fiction, and as is often said, it should not allow its imagination to be boggled by any other considerations. Fiction must be given its due play; there is to be nostop. According to this notification, therefore, the date relevant for determining the value and rate of the customs duty chargeable in the case of two ships concerned in Jalyan Udyog (Jalyan Udyog v. Union of India, is the date on which they wereWe are, however, of the opinion that since the date ofis an uncertain event and may require an enquiry in each case and also because no ship can beor scrapped except under the prior permission granted by the Director General of Shipping, the date ofcontemplated by the said proviso should be deemed to be the date on which the permission for scrapping/breaking is accorded by the Director General of Shipping. This clarification is made in the interest of certainty and to obviate avoidable controversy. It is with reference to such date that the value and the rate have to be determined. If on such date, any other procedural formalities prescribed by law are to be complied with, they too have to be compliedsubmission is that an exemption notification can merely reduce or waive the customs duty but it cannot alter the basic premises provided by Sections 12, 14 and 15. In other words, the argument is that the power of exemption cannot be employed for changing the date of import or for altering the date with reference to which the value and the rate of duty has to be determined nor is the power of exemption available for enhancing the duty chargeable. We are not prepared to agree. Section 25 has already been set out hereinabove. A proper analysis of(1) of Section 25 shows that the power of exemption can be exercised (a) where the Central Government is satisfied that in the public interest it is necessary to either waive or reduce the duty chargeable on any goods, (b) it can do so by way of a notification published in the Official Gazette, (c) such exemption, however, must be a general one, (d) the exemption granted may be an absolute one or subject to such conditions, as may be specified in the notification and (e) the conditions, if any, specified may be conditions to be fulfilled before the clearance of goods or after the clearance of goods, as the case may be22. The above analysis of(1) shows inter alia that an exemption granted may be an absolute one or subject to such conditions, as may be specified in the notification and further that the conditions specified may relate to a stage before the clearance of goods or to a stage subsequent to the clearance of goods. Section 25(1) is a part of the enactment and must be construed harmoniously with the other provisions of the Act. The power of exemption is variously described as conditional legislation (see Jalan Trading Co. Pvt. Ltd. v. Mill Mazdoor Sabha and Hamdard Dawakhana v. Union of India and also as a species of delegated legislation. Whether it is one or the other, it is a power given to the Central Government to be exercised in public interest. Such a provision has become a standard feature in several enactments and in particular, taxing enactments. It is equally well settled by now that the power of taxation can be used not merely for raising revenue but also to regulate the economy, to encourage or discourage as the situation may call for, the import and export of certain goods as also for serving the social objectives of the State. (Vide Elel Hotels and Investments Ltd. v. Union of India, Sri Srinivasa Theatre v. Government of T.N. and Subhash Photographics v. Union of India Since the Parliament cannot constantly monitor the needs of and the emerging trends in the economy and is in no position to engage itself inregulation and adjustment oftrade accordingly, power is conferred upon the Central Government to provide for exemption from duty of goods, either wholly or partly, and with or without conditions, as may be called for in public interest. We see no warrant for reading any limitation into this power. If the public interest demands that the exemption should be absolute, the Central Government can do so. Similarly, if the public interest demands that exemption should be granted only subject to certain conditions it can provide such conditions. Then again if the public interest demands that conditions specified should relate to a stage subsequent to the date of clearance it can do so. The guiding factor is the public interest. The power given by section 25 to the Central Government to specify conditions which may even relate to a stage subsequent to the clearance of goods clearly shows that the power of exemption can be used even for altering the relevant date prescribed by Section 15. It is this very position which has been clarified by(3) introduced in the year 1983. In our opinion,(3) does not provide anything new. It merely elucidates and makes express what is implicit in(1) and (2).(3) says that a notification under(1) or (2) may provide "for the levy of a duty on such goods at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable". It further says that "any exemption granted in relation to any goods in the manner provided in thisshall have effect subject to the condition that the duty of customs chargeable on such goods shall in no case exceed the statutory duty". The explanation to(3) explains the words "form or method" occurring in theIt says that the form or method in relation to the rate or duty of customs means the basis of duty viz., valuation, weight, number, length, area, volume or other measure with reference to which duty is leviable23. We are equally unable to agree that a legal fiction can be created only by a legislature and not by the executive. Here the Central Government is exercising a power conferred upon it by the Parliament. The provision conferring such power does contemplate and empower the Central Government to create such a fiction, as explained hereinabove.(1) as well as(3) place the matter beyond any doubt. To repeat, the nature of power under Section 25 is conditional legislation or a species of delegated legislation; an exemption notification under Section 25 is not an executive act. No decision has been brought to our notice in support of the said contentionwhich is raised only in the written submission24. For the above reasons, we see no reason to hold that the said notification travels beyond the four corners of Section 25. It is perfectly within the ambit of Section 2525. We are equally unable to agree that by virtue of the fiction contained in the exemption notification, theare being made to pay a higher duty than the statutory duty. By a fortuitous combination of circumstances, it so happens that the value of the ship when it was imported in 1968 as anvessel happens to be less than the value of the ship today when it has become junk and fit only for scrapping/breaking. On account of the steep rise in the prices of steel, such an unusual situation has come about but this circumstance in no way affects the validity of the notification. The notification shifts the date of importin the case of a ship which is imported as anvessel but is subsequentlyfrom the actual date of import to the date ofby creating a legal fiction. Once it is held that it is open to the Central Government to impose such a condition or to create such a fiction, as the case may be, the condition or the fiction has to be given full effect to. It must be deemed that the ship is importedon the date it is(as explained hereinabove) and its value and rate of duty should be determined with reference to such date. By doing this, the duty chargeable by virtue of the exemption notification is not going beyond the be statutory duty payable on such deemed date26. The learned counsel for thesought to construe the proviso in the notification to mean that the duty will be payable as if the ships were imported foron the date of its actual import. In other words, according to the learned counsel, in Jalyan Udyog the ships must be deemed to have been imported forin the year 1968 itself and the value and the rate must be determined on that basis. This is the view taken in the order under appeal and also in a decision of the Calcutta High Court in Union of India v. Sri Ramnivas Chaudhury. We do not think that the plain words of the proviso are capable of any such interpretation apart from the patent incongruity of the said submission. To repeat, the main limb of the notification says thats other than vessels imported to beare exempt from the payment of the customs duty leviable thereon but if such avessel is subsequentlyit shall be chargeable with the duty payable as if it were then imported to beIf the intention behind the notification was to say what the learned counsel for thecontend, the proviso should have read like thisthat any such vessel subsequentlyshall be chargeable with the duty which would have been payable on her if she were imported to beon the date of its import."when the notification was issued the Central Government could not have contemplated that the prices of steel would go up steely in future and that a situation would arise when a junk ship would carry more value than what anvessel cost, say, 15 or 20 years ago. The Government must have presumed that the value ofvessel would necessarily be higher than the vessel which is to beThe notification was thus intended as a concessionan encouragement to the acquisition and import ofvessels. The principle of the notificationduty on import of such vessels but when after plying for a number of years, they are scrapped, pay duty on the supposition that it is imported foron the date it ist for the fortuitousincrease in the prices of steel worldwide, the roles should have been reversed : what is now contended by the Union of India would have been the contention of theif the Union of India were to take the opposite stand. The said fortuitous circumstance cannot, indubitable, make any difference to the interpretation to be placed upon the notification. We cannot, therefore, agree with the reasoning in the judgment under appeal or in the judgment of the Calcutta High Court in Ramnivas Chaudhury27. Both the learned Additional Solicitor General and the learned counsel for thecited certain decisions which may briefly be referred. It must, however, be stated that there is no decision of this Court directly on the point. The only decisions are that of the Bombay High Court in Jalyan Udyog (under appeal) and that of the Calcutta High Court in Ramnivas Chaudhury. In this sense, none of the decisions have a direct bearing on the question at issue. Even so, a few of them may beThe counsel for thestated that the principle of the Full Bench decision of the Bombay High Court in Apar ( 1985 (2) ELT 644 (Bom)) is not relevant herein and that they place no reliance thereon. For this reason, we need not refer to the said decision or express any opinion on itsThe learned counsel for thecited certain decisions holding that the rules must be consistent with and must operate within the four corners of the Act. Since there can be no dispute with the proposition, we do not think it necessary to refer to the decisions cited in that behalf. They also relied upon the decision of this Court in Orient Weaving Mills (P) Ltd. v. Union of India to contend that the power of exemption cannot be employed for changing the character of tax. Since the character of tax cannot be said to have undergone a change in the present case, we do not think it necessary to discuss the said decision in any detail34. The decision of the House of Lords in Chertsey Urban District Council v. Mixnams Properties Ltd. was relied upon in support of the proposition that the conditions imposed by the subordinate legislating authority cannot be ultra vires the Act nor be derogatory to the object of the enactment. While the principle is unexceptionable its applicability to the facts of this case is not