1. The present appeal filed by the Assistant Collector of Customs, Madras, under the directions of the Collector of Customs, Madras, is against the Order-in-appeal No. C3/1014/84, dated 6-11-1984 of the Collector (Appeals), in which he has reversed the Order-in-original No.S. Misc. 137/84ACC, dated 21-5-1984 of the Assistant Collector of Customs. The question is whether the cloves imported by the respondents from Sri Lanka were assessable to a basic Customs duty of Rs. 20/- per kilogram less 7 1/2% ad valorem, as claimed by the respondents or of Rs. 18.50 per kilogram as claimed by the Department. The controversy turns on the interpretation to be given to the words "Rs. 20/- per kilogram less 7 1/2%" occurring in notification No. 431-Cus., dated l-l1-1976, as amended.
2. The Assistant Collector's order is neither a proper speaking order nor an intelligible one, but apparently rejects the contention of the respondents. The Collector (Appeals) has, however, passed a very detailed order in which he has upheld the contention of the respondents. This order has now been challenged before us.
3. In order to appreciate the issue involved, some reference to the background would be helpful. Cloves fell under Item 9(3)(a) of the First Schedule to the Indian Tariff Act, 1934, which was in force prior to the enactment of the Customs Tariff Act, 1975. In the Indian Tariff Act, the nature of duty on cloves was described as "Preferential Revenue". The standard rate of duty was specified as "Rs. 18 per kilogram", and the Preferential rate of duty if the article was the produce or manufacture of a British Colony was specified as "Rs. 18 per kilogram less 7 1/2 per cent ad valorem". This was obviously due to the fact that a preferential margin of 7 1/2 per cent ad valorem had been granted on cloves imported into India from a British Colony, as part of the old scheme of Imperial Preferences.
4. With the coming into force of the Customs Tariff Act, 1975, cloves were placed at sub-heading (3) of heading No. 09.04/10 of the First Schedule to that Act. The standard rate of duty was specified as "Rs. 60 per kilogram" and the rate of duty for goods from "Preferential areas" was specified as "Rs, 60 per kilogram less 7 1/2%". The use of the"%" sign in the Schedule was explained as under, in the "General Explanatory Note" at the beginning of the First Schedule, namely the Import Tariff :- "The abbreviation "%" in any column of this Schedule in relation to the rate of duty indicates that duty on the goods to which the entry relates shall be charged on the basis of the value of the goods as defined in Section 14 of the Customs Act, 1962 (52 of 1962), the duty being equal to such percentage of the value as is indicated in that column." In other words, instead of the cumbersome formula "100 per cent ad valorem", etc., used in the Indian Tariff Act, 1934, the abbreviated form "100%", etc., was used in the Customs Tariff Act, 1975.
5. On the 31st July, 1975, an agreement briefly referred to as the "Bangkok Agreement" was signed at Bangkok by seven countries of the ESCAP Region, including India. The main object of this Agreement, which was preceded by high-level meetings and trade negotiations among the participating Governments, was that "of expanding access on favourable terms for their ('the participating Governments'), goods to each other's markets and of developing trade arrangements which promote the rational and outward-oriented expansion of production and trade". The Agreement expressed the conviction that "the establishment of preferences among the developing countries of ESCAP, complementary to other efforts undertaken in other international forums, could make an important contribution to the development of trade among developing countries". Under Article 3 of the Agreement, each participating State agreed to apply such tariff and non-tariff concessions in favour of the goods originating in all other participating States as are set out in its respective National List of Concessions". These National Lists of Concessions were attached as annex I, which was to be an integral part of the Agreement. The National List of Concessions of India (as amended from time to time) read as follows :-----------------------------------------------------------------No. BTN Product Description Present rate Tariff rate of duty (%) offered12. Ex. 73.18 GI/MS Pipes (Seamless 60% 50% tubes)13. 09.04/10 Cloves Rupees 60/- kg. Rupees 20/- kg.
less 7 1/2% less 7 1/2%16. 40.01/04 Natural rubber 40% 30%---------------------------------------------------------------- 6. In order to implement their commitment to grant tariff preferences to Bangkok Agreement countries in terms of the Bangkok Agreement, the Government of India issued notification No. 431-Cus., dated 1-11-1976, which was amended from time to time. The notification provided that the goods specified in the Table annexed to the notification, when imported into India from Bangladesh or Republic of Korea or Sri Lanka or Laos, which had ratified the Bangkok Agreement, were exempt from basic duty of customs in excess of the rates specified in column (4) of the said Table. The notification also laid down that the goods in respect of which the benefit of the exemption was claimed should comply with the requirements under the Customs Tariff (Determination of Origin of Goods under the Bangkok Agreement) Rules, 1976, which had been simultaneously notified under notification No. 430-Cus., dated 1-11-1976. The goods specified in notification No. 431-Cus., dated 1-11-1976, as amended up to 19-1-1983, and the concessional rates of duty shown against them, were as below :-Description of goods Rate of dutyDried fish 50% Ad. Val.Dessicated coconut 75% Ad. Val.Coconut (copra) oil, refined 105% Ad. Val.Molasses NilCocoa beans, whole or broken, raw or roasted 25% Ad. Val.Natural graphite 40% Ad. Val.Fluorspar (or flourite) 48% Ad. Val.Cinnamon leaf oil 70% Ad. Val.Rubber tyres and inner tubes 80% Ad. Val.Gypsum plaster board 85% Ad. Val.Ferro-silicon 20% Ad. Val.GI/MS pipes (seamless tubes) 50% Ad, Val.Cloves RS. 20 per kg. Less 71/2%Nutmegs and mace 83% Ad. Val.Glycerine 55% Ad. Val.Natural Rubber 30% Ad. Val.
7. It will be seen that the concessional rates of duty on all the goods covered by the preferences except cloves, were expressed in terms of percentages ad valorem. In the case of cloves, where the concessional rate of duty had two components, it was expressed as "Rs. 20 per kg.
less 7 1/2%". It is the wording of this entry which has led to the present controversy. In effect, the respondents contend that the entry should be read as meaning "Rs. 20 per kg. less 7 1/2% ad valorem". The Department contends that it should be read as "Rs. 20 per kg. less 74% thereof".
8. As we have already observed, the Assistant Collector's order is not a speaking order and does not show application of mind. Even his conclusion that "the goods be assessed at the rate of Rs. 20/-per kg.
less 7 1/2%+30% A.V." only begs the question, since it does not say whether the 7 1/2% refers to the value or to Rs. 20/-. (The reference to 30% A.V. may be ignored, as it apparently refers to the auxiliary duty, which is not in issue here). The Assistant Collector's order is therefore of no assistance in dealing with the matter.
9. The Collector (Appeals), after referring to the basis for the conclusion of the Assistant Collector (which however has not been explicitly stated in the Assistant Collector's order) and the arguments put forth by the respondents in their appeal before him, had held in their favour on the following grounds:- (a) In view of the General Explanatory Note to the Schedules to the Customs Tariff Act, the abbreviation "%" can only mean so much per cent ad valorem. Thus, when the preferential rate of duty for cloves in the First Schedule is given as "Rs. 60/- per kilogram less 7 1/2%" it can only mean "Rs. 60/- per kilogram less 7 1/2% of the assessable value" ; (b) The figures and sign "7 1/2%" in notification No. 431-Cus., dated 1-11-1976 issued to implement the Bangkok Agreement should also be interpreted in a similar manner, in the interests of consistency ; (c) if the intention was to make the effective rate as Rs. 20/- per kg. less 7 1/2% thereof, then this would have been directly indicated by the Government as Rs. 18.50 per kg., instead of relying on an indirect method to express a determinable rate. A number of judicial pronouncements relating to the interpretation of statutes, e.g. "that the legislature is deemed not to waste its words or to say anything in vain" were cited in support of this reasoning.
10. We have considered it necessary to set out the background in some detail because, as we observed at the hearing, what is at issue is not merely a dispute between an importer and the Customs Department. The appeal also involves the question of the correct interpretation to be given to an entry in notification No. 431-Cus., dated 1-11-1976. It is clear from the wording of that notification itself, and is agreed by both sides, that the notification Was issued in order to give effect to the commitments assumed by the Government of India in the Agreement entered into by them with the other Participating States to the Bangkok Agreement. As will be seen from the List of Concessions of India, which forms an integral part of the Bangkok Agreement (vide para 5 above), the notification refers to the particular items included in India's List of Concessions and gives effect to those concessions. We are, therefore, concerned to see that the view taken is one which would be in accord with the provisions of the Bangkok Agreement, to which the Government of India are a signatory.
11. It was with this in view that, when the matter first came up on 10-7-1985 we had asked the learned Departmental Representative to file a of the relevant annex to the Bangkok Agreement setting out the commit-ent of the Government of India for preferential treatment to cloves. The matter was twice adjourned to enable the relevant annex to be filed. Ultimately when the matter came up for final hearing on 16-9-1985, the relevant schedule namely India's "Amended National List of Concessions" was filed by Shri Ohri. It is this that has been reproduced in para 5 above.
12 On behalf of the Collector, Shri Ohri submitted that in notification No 431-Cus., dated 1-11-1976, the preferential rate of duty against all items other than cloves was shown as "50% Ad. Val.", etc. Only in the case of cloves the words "Ad. Val." did not appear after "7J%". This would show that the figure of 7 1/2% was not meant to refer to a percentage of the value of the goods, but was to be taken as a percentage of Rs. 20/- per kg.
13 It was put by the Bench to Shri Ohri that if the interpretation canvassed by him was the correct one, the preferential rate of duty could have been straightaway expressed as "Rs. 18.50 per kg.". There appeared to be no reason why an arithmetical calculation should be performed in order to arrive at a pre-determined figure. Shri Ohri replied that the -formula might have been adopted in order to show clearly that a preferential element was involved.
14 It was also put to Shri Ohri that the General Explanatory Note made it very clear that the "%" sign in the Schedule to the Customs Tariff Act referred to an ad valorem percentage. The notification being subordinate and cognate legislation, the same rule in regard to the use of the "%" sign should be applicable to the notification. In this connection, his attention was drawn to the General Clauses Act, Section 20 of which provides thai expressions used in a notification issued under a Central Act shall, unless there is anything repugnant in the subject or context, have the same meaning as in the main Act.
15 Shri Ohri then argued that if the view adopted by the Collector (Appeals) was correct, then in an extreme case 7|% ad valorem could exceed Rs. 20/- per kg., in which case the preferential rate of duty would become negative Such an anomalous result could be avoided if the interpretation advocated by the Department were adopted.
16 Replying for the respondents, Shri Kunhikrishnan submtted that the reasoning of the Collector (Appeals) was correct. The National List of Concessions of India, forming part of the Bangkok Agreement, would show that the interpretation of the "%" sign, which was applicable to all the items in the list, was intended to be uniform.
17 Shri Kunhikrishnan further submitted that even if the words "Ad. Val "after "7 1/2%" had been omitted in the entry against "cloves" in notification No 431-Cus., dated 1-11-197.6, the draftsman of the notification must have Men aware of the General Explanatory Note, according to which "%" meant "% ad valorem", and might have considered it unnecessary to add the words "ad valorem".
18 Shri Kunhikrishnan further submitted that a formula such as "Rs. 20 per kg. less 7 1/2% thereof" would only be used if the first item was a variable, which had to be determined on each occasion, and not a constant, like the figure of "Rs. 20 per kg." in this case.
19. As regards the possible anomaly to which Shri Ohri had referred, and the possibility of the duty becoming negative, Shri Kunhikrishnan stated that this situation could arise only if the value of the cloves exceeded Rs. 267/-per kg. According to him, at the relevant time the value was about Rs. 120/-per kg., and such a situation did not arise.
He submitted that the interpretation of the notification should not be based on a hypothetical and unlikely situation.
20. We have given our very careful consideration to the issue before us and the arguments advanced on both sides. The Collector (Appeals), whose order has been challenged in the appeal, has given several cogent reasons for the conclusion reached by him. As against those reasons, the only arguments in favour of the Department's view are based on (a) omission of the words "Ad. Val." after "7 1/2%" in the notification ; and (b) the "anomaly" of a negative duty if the value of cloves exceeds Rs. 267/- per kg.
21. As regards the first point, we have already referred to the origin of the margin of 7-|%, namely the erstwhile Imperial Preferences. The preferential margin, as seen from the Indian Tariff Act, 1934, was 7 1/2 % ad valorem. That margin has been retained in the Customs Tariff Act. The General Explanatory Note to the Act makes it clear beyond any possibility of doubt that a reference to "7 1/2%" in the Schedule means 7 1/2% ad valorem. The interpretation of "7 1/2%" in the notifications 7 1/2% ad valorem would be consistent with the position under the Customs Tariff Act, the Indian Tariff Act and the scheme of Imperial Preferences. On the other hand, the interpretation of "7 1/2 %" as 7 1/2% of Rs. 20/- per kg. would have no apparent historical or economic basis.
22. Further, the National List of Concessions of India annexed to the Bangkok Agreement (vide para 5 above), lists 16 items and against each of them it shows the "present rate of duty" and "tariff rate offered".
Against every entry percentages are shown. As regards all items other than cloves, it is nobody's case that they do not refer to ad valorem percentages. To interpert only the figure of "7 1/2%" in the entry relating to cloves as meaning not 7 1/2% ad valorem but 7 1/2% of the specific duty, would lead to an inconsistency in interpretation of the National List.
23. The clinching argument is in the entry relating to cloves in the National List. It will be seen that in the - column showing "present rate of duty" against cloves, the rate of duty shown was "Rs. 60/- kg.
less 7 1/2%". This obviously refers to the preferential rate of duty in the absence of the Bangkok Agreement. Now, that rate of duty, as shown against heading 09.04/10(3) of the Customs Tariff Schedule, was and is Rs. 60 per kilogram less 7 1/2%, which, in accordance with the General Explanatory Note, was and is being intepreted as Rs. 60/- per kilogram less 7 1/2% ad valorem. Thus, there can be no doubt that in the National List of Concessions, what was shown as the "present rate of duty" was Rs. 60 per kilogram less 7 1/2% ad valorem. The column for "tariff rate offered" reads as "Rs. 20/kg. less 7 1/2%". Considering that these two columns are side by side, can it at all be supposed that either the Government of India, which offered the preferences, or the other Participating States which were entitled to benefit from them, could read "Rs. 60/- kg. less 7 1/2%" as "Rs. 60/- kg. less 7 1/2% ad.
vol.", but the entry in the next column, viz., "Rs. 20/- kg. less 7 1/2%" as "Rs. 20/- kg. less 7 1/2% thereof" or as "Rs. 18.50 per kg."? We think there can be only one answer to this question, and that is that the "tariff rate offered" on cloves was Rs. 20/- per kg. less 7 1/2% ad valorem. This is the rate to which the Government of India were committed in terms of the Bangkok Agreement. Since the notification was admittedly issued to implement the commitments of the Government of India under the Bangkok Agreement, we have also to assume that this was the rate which the Government of India intended should be effective in terms of the exemption notification.
24. We also find much force in the conclusion of the Collector (Appeals) that, if the Government of India had intended that the preferential rate should be Rs. 18.50 per kg., there was no reason why they could not have said so ; and that the formula which has been used is only applicable to a case where the 7 1/2% was with reference to an unknown quantity, namely the assessable value.
25. Again, as pointed out to Shri Ohri at the hearing, the interpretation adopted by the Collector (Appeals) would lead to harmonious construction of the Customs Tariff Act and the exemption notification (issued under the Customs Act, which is a cognate legislation).
26. As regards the possible anomaly, to which Shri Ohri had referred, we have noted Shri Kunhikrishnan's submission that the preferential duty would become zero only if the value of cloves increased to Rs. 267/- per kg., and that at the material time it was far below this, being about Rs. 120/- per kg. We agree with Shri Kunhikrishnan's submission that a mere hypothetical and unlikely situation should not lead to the rejection of what on all grounds appears to be the correct interpretation. Apart from this, we would point out that the situation of a negative duty can never arise as a result of an exemption notification, because the notification only exempts the goods "from that portion of the duty of customs...as is in excess of the rate specified in the corresponding entry....".
27. It is true that if there is a substantial increase in the assessable value of cloves, it could happen that the preferential duty in terms of the notification falls to a very low level or even to zero.
This, however, does not necessarily mean that the situation is anomalous. As we pointed out to Shri Ohri during the hearing, trading conditions and factors, including prices of commodities, are subject to variations from time to time. No agreement on trade or tariffs or preferences can provide specifically for all possible eventualities.
Offers can only be made with reference to conditions prevailing at the time such agreements are concluded. However, recognizing the uncertainties inherent in such a situation, it is the practice in such agreements to provide for re-negotiations or for emergency action in case circumstances change drastically. Thus, Chapter IV of the Bangkok Agreement comprising Articles 13 to 17, makes various provisions for emergency measures and consultations between the Participating States.
Therefore, if any such anomalous situation were to arise, as a result of which the preferential duty on cloves in terms of the Agreement falls to a very low level or to zero, it would be open to the Government of India to consider appropriate remedial action in terms of the relevant provisions of the Agreement. Therefore, the hypothetical possibility of a zero duty (as we have said, there can be no "negative duty"), in the event of the assessable value of cloves reaching a very high level, need not be seriously considered or stand in the way of our adopting an interpretation which from all angles is the correct one.
28. In the result, we hold that the finding of the Collector (Appeals), namely that the preferential rate of duty on cloves in terms of notification No. 431-Cus., dated 1-11-1976 was Rs. 20/- per kg. less 7 1/2% ad valorem, was the correct view. We accordingly confirm the order of the Collector (Appeals) and reject the appeal of the Collector of Customs, Madras.