1. This appeal has reference to a notice dated 1.7.77 under Section 131(3) of the Customs Act, 1962, issued by the Central Government, which was the revisional authority under that section at that time. The matter arose out of an importation of "glass fabric" by Messrs.
Hindustan Aeronautics Ltd., (hereinafter referred to as "the importers") in April, 1974. The goods were assessed to basic customs duty, auxiliary duty and also to additional duty of customs at the rate of Rs. 8/-per Kg, The present appeal relates to this levy of additional duty amounting to Rs. 1024/-.
2. The importers filed a claim for refund on three grounds and relating to the three elements of duty referred to above. Their claim on all three grounds was rejected.
3. In appeal, the Appellate Collector of Customs also rejected their claim in regard to the basic customs duty and the auxiliary duty. As regards the additional duty (commonly referred to as "countervailing duty") the Appellate Collector observed that the goods were 100 per cent glass cloth, and that fibre glass cloth was exempt from levy of countervailing duty under Central Excise notifications No. 80/69 and 63/73. He allowed the appeal in so far as it related to the additional duty.
4. Thereafter, the Central Government issued the notice under Section 131(3) referred to above. The notice is not very clearly worded, but the purport of it is that the additional duty with reference to Item 18 of the Central Excise Tariff was collected in terms of Sub-section (2) of Section 2-A of the Indian Tariff Act, 1934, and not under Sub-section (1) ibid; there did not appear to be any exemption from the levy under the said Sub-section (2) and that consequently no refund of the additional duty collected appeared to be due to the importers. For these reasons it was proposed to amend or modify the Appellate Collector's a order dated 17.1.76, and the importers were given an opportunity to make their submissions against the proposed action.
5. In reply to the show-cause notice, the importers, in their letter dated 3.8.77, as amended by their letter dated 23.2.78, submitted that the material in question was a yarn spun wholly out of glass fibre, and that in terms of notification No. 115/73-CE dated 30.4.73, it was assessable duty-free, and that the amount of Rs. 1024/- had been correctly ordered to be refunded to them.
6. It is the above show-cause notice of the Central Government under Section 131(3) Customs Act which, on the constitution of the Tribunal, has been transferred to us to be dealt with as an appeal before us, the Collector of Customs, Madras being taken as the appellant and Messrs.
Hindustan Aeronautics Limited as the respondents.
7. On the matter being called, Shri Chandramouli, appearing for the appellant Collector, invited our attention to the various provisions and notifications cited above. The position as it emerged from his arguments and from our perusal of the relevant provisions is set out below.
8. Section 2-A of the Indian Tariff Act, 1934, which was in force at the relevant time, made provision for the levy of an additional duty of customs (countervailing duty) on articles imported into India.
Sub-section (1) of that section was a general provision under which such an additional duty, equal to the excise duty for the time being leviable on a like article being produced or manufactured in India, was automatically leviable on the imported article. Sub-section (2) was a special provision applicable to cases where Government was satisfied that it was necessary in the public interest to levy on an imported article an additional duty to counter-balance the excise duty leviable on excisable raw materials, components and ingredients used in the production or manufacture of the imported article. In such cases, the Central Government was authorised to direct, by notification in the Official Gazette, that such imported article should, in addition, be liable to an additional duty representing such portion of the excise duty leviable on such raw materials, components and ingredients as might be determined by rules made by the Central Government in this behalf.
9. In the present case, the additional duty was levied at the rate of Rs. 8/- per Kg. The bill of entry does not show whether this levy was with reference to Sub-section (1) or Sub-section (2) of Section 2-A of the Indian Tariff Act. However, there is no dispute on the "point that it was actually relatable to the excise duty leviable on man-made fibres and yarn under Item 18 of the Central Excise Tariff.
10. We have seen the notification Nos. 80/69-CE dated 1.3.69 and 63/73-CE dated 1.3.73, referred to in the Appellate Collector's order, and we find that they are clearly not applicable to the present case.
The first notification grants an exemption from Central Excise duty on impregnated or coated cotton fabrics and rayon and artificial silk fabrics. The second notification exempts laboratory glassware. Neither of them can possibly apply to woven glass fabric. This position was not contested by Shri L.K. Mehra, who represented the importers before us.
Shri Mehra, however, drew our attention to notification No. 115/73 dated 30.4.73, which had been relied upon by the importers in their reply to the show-cause notice. The implications of that notification will be examined. However, it is first necessary to clarify the position regarding the applicability of Sub-section (2) of section 2-A, Tariff Act. Under notification No. 105/69 dated 2.7.69, in terms of Sub-section (2) of Section (2) of Section 2-A, the Government of India directed that "fabrics containing more than 10 per cent by way of synthetic fibre or yarn" shall be liable to such additional duty as may be determined n accordance with the Additional Duty Rules, 1969. Under the said Additional Duty Rules, which were notified through notification No. 104/69, it was provided that the above articles would be subject to an additional duty equal to the excise duty for the time being leviable on 'synthetic fibre and yarn" to the extent that such synthetic fibre and yarn was used in the manufacture of the imported article. From the copy of the invoice filed by the importers, wherein the goods are described as "tyglas woven continuous filament glass fabric", there can be no doubt that the goods satisfied the description of fabrics containing synthetic fibre or yarn. (Prima facie, the content of the glass fibre or yarn should have been substantially in excess of 10 per cent, and Shri Chandramouli, on the basis of the Custom House records, informed us that the content was over 99 per cent. We shall refer to this aspect later). Therefore, in terms of the above mentioned two notifications, the imported articles were liable to an additional duty equal to the excise duty on their content of glass fibre/yarn. This of course was subject to any other exemption which might be applicable.
11. It is in this context that notification No. 115/73-CE dated 30.4.73 becomes relevant. Under this notification exemption in various degrees was granted in respect of various articles of rayon and synthetic fibre yarn falling under Item 18 CET. Only two items covered by the notification are relevant for the present purpose. These are glass staple fibre (including glass tissues), which was exempt from excise duty in excess of Rs. 3/- per Kg., and "yarn spun wholly out of glass fibre", which was wholly exempt from excise duty. From the description of the goods given above, it would be seen that they were made from continuous glass filament, and therefore the exemption for glass staple fibre was not applicable to them. However, yarn spun wholly out of glass fibre was also exempt under the notification. The term "fibre1' was not qualified to indicate that it applied only to glass staple fibre and not to continuous glass filament. Therefore no duty could have been leuied on the fabric with reference to its content of yarn.
The resulting position was that the additional duty in terms of Sub-section (2) of Section 2-A was leviable at the rate applicable to synthetic fibre at the material time, to the extent that synthetic fibre was used in the manufacture of the imported article, namely, the fabric.
12. Both sides accepted our understanding of the position as set out above. In view of that position, it would appear that the Customs authorities were right in levying additional duty at the rate applicable to Item 18 of the Central Excise Tariff. However, there is no indication that they took into account the further qualification contained in the Additional Duty Rules, 1969, that the duty should be levied only to the extent that the material, namely synthetic fibre, was used in the manufacture of the imported article, namely the glass fabric. As already mentioned, Shri Chandramouli stated that the content of glass fibre in the imported article was very nearly 100 per cent, and therefore for all practical purposes the Customs authorities were right in levying the additional duty on the full weight of the imported article. In principle, however, they should have calculated the duty with reference to the content of glass fibre, and to the extent that they did not make allowance for this factor, the importers would be entitled to relief. The Assistant Collector's order was therefore correct, except for this minor modification, and the Appellate Collector's order, to the extent that it held to the contrary, was incorrect.
13. Shri Mehra made a faint attempt to revive the question regarding the correctness of the levy of basic duty (and consequently the auxiliary duty). It was pointed out to him that the importers had not gone in revision against the Appellate Collector's order which held against them on these two aspects. These aspects could not, therefore, be agitated at this stage in the course of the present proceedings, arising out of the Central Government's show-cause notice which related only to the aspect of additional duty.
14. In the result, we modify the direction in the Appellate Collector's order that additional duty levied on the goods should be refunded, and we restore the Assistant Collector's order upholding the levy of additional duty, but subject to the qualification that the additional duty should have been calculated on the basis of the content of glass fibre in the goods imported (and not the total weight of those goods).
The importers shall be entited to the consequential refund, if any.