1. By this petition filed under Article 226 of the Constitution of India, the petitioners are challenging the legality of the show cause notice dated March 15, 1979 issued by the Superintendent, Central Excise, Range Kirkee, calling upon the petitioners to show cause as to why an amount of Rs. 40,66,158.29 should not be recovered from them as countervailing duty.
2. The facts which led to the issuance of this show cause notice, a copy of which is annexed as Ex. 'I' to the petition, are as follows : The Petitioner No. 1 is a Company incorporated under the Companies Act and has its registered office at Calcutta, while the petitioners Nos. 2 and 3 are the President and Secretary respectively of the Company. The Company manufactures at its factory at Bhosari, Pune, nylon/6 Yarn and Polyester yarn. For the purpose of manufacture of nylon yarn, the petitioners imported between May 23, 1978 and September 1978 polyamide chips of spinning grade. The dispute involved in this petition is whether the petitioners are liable to pay countervailing duty in respect of the polyamide chips.
3. A large correspondence took place between the petitioners and the Officers of the Central Excise and ultimately on February 21, 1979, the Assistant Collector, Central Excise, Pune informed the petitioners that since the Ministry of Finance have clarified that the imported polyamide chips are not exempt from countervailing duty, the petitioners should pay the said duty on clearance of imported polyamide chips effected prior to the date of the letter. In pursuance of this letter, the Superintendent, Central Excise served the impugned show cause notice upon the petitioners on March 15, 1979. The notice, inter alia, states that the grounds on which the countervailing duty is proposed to be recovered is the clarification issued by the Ministry of Finance contained in letter, dated February 21, 1979. The petitioners have approached this Court to challenge the legality of the same.
4. It is required to be stated at this juncture that the petitioners made a grievance in the petition about the recovery of excess Customs duty to the tune of Rs. 13,20,188.44 but at the hearing of the petition, Shri Taraporewala, the learned counsel appearing in support of the petition, very fairly stated and, in our judgment, rightly that the question of excess payment of Customs duty cannot be agitated in this petition and the petitioners would have to adopt separate remedies for seeking refund of the same. In view of the statement of Shri Taraporewala, the only question which requires determination is about the claim for recovery of countervailing duty.
5. The respondents, though appeared in this Court, have not chosen to file any return opposing the claim of the petitioners. Shri Taraporewala urged that the proposed recovery of countervailing duty is totally unsupportable in view of the exemption notification dated March 1, 1973 and modified later on September 8, 1973 issued by the Central Government in exercise of the power conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944. The submission of the learned counsel deserves acceptance. The respondents proposed to levy the countervailing duty in exercise of the powers under Section 3 of the Customs Tariff Act, 1975. It is necessary to quote Section 3(1) along with the Explanation to appreciate the submission of the learned counsel :
'3. Levy of additional duty equal to excise duty. - (1) Any article which is imported into India shall, in addition, be liable to a duty (hereinafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article.
Explanation. - In this section, the expression 'the excise duty for the time being leviable on a like article is produced or manufactured in India' means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or, if a like article as not so produced or manufactured, which would be leviable on the class or description of articles to which the imported article belongs, and where such duty is leviable at different rates, the highest duty.'
Sub-section (1) of Section 3 provides for a duty equal to excise duty for the time being leviable on the like article. The explanation clarifies the ambit of the expression 'the excise duty for the time being leviable on a like article if produced or manufactured in India'. It is clear from the explanation that the excise duty means the duty for the time being in force. In other words, the levy of countervailing duty is permissible provided the article which is imported is liable to excise duty if manufactured in India. Shri Taraporewala is right in relying upon the exemption notification which specially provides that the polyamide chips, if used in manufacture of nylon yarn and if such use is only in the factory of production, then manufacture of such polyamide chips is exempted from the payment of excise duty. It is clear that the polyamide chips are totally exempted from the duty of excise leviable thereon by the notification. Shri Taraporewala, therefore, is right in his submission that as the polyamide chips are exempted from the levy of the excise duty, it is not permissible to levy countervailing duty with reference to Section 3 of the Customs Tariff Act, 1975.
6. Shri Govilkar, the learned Counsel appearing on behalf of the Department, has raised three or four contentions to resist the reliefs sought in the petition. The learned counsel argued that the petitioners have approached this Court only against the issuance of the show cause notice and at this premature stage. It was urged that the petitioners could show cause against the proposed levy and the Superintendent, Central Excise, whose exercise in the quasi-judicial powers can determine the claim. We are not inclined to drive the petitioners before the Superintendent, Central Excise, for more than one reason. In the first instance, the proposed duty is entirely unsupportable and it would be futile to ask the petitioners to go back to the Superintendent of Central Excise. Secondly, the petition is pending in this Court for last more than two years and now to drive the petitioners back before the Superintendent, Central Excise, would lead to multiplicity of the proceedings. The other aspect of the matter is that none of the facts set out in the petition are disputed and the short question about the liability of the petitioner could well be determined in this petition. In these circumstances, in our judgment, it would not be fair to deprive the petitioners of the reliefs sought in the petition on a technical consideration.
7. Shri Govilkar then argued that Section 3 of the Customs Tariff Act makes reference to the additional duty and it is something different from the countervailing duty. In our judgment, the submissions only deserve to be stated to be rejected. The learned counsel then argued that the exemption notification on which reliance is placed by the petitioners was issued under the provisions of the Central Excise Rules, 1944 and that cannot be used for claiming the advantage under the provisions of the Customs Tariff Act. The submission is totally devoid of merits. Section 3 enables the department to levy countervailing duty provided the excise duty is leviable on article if manufactured in India. The plain reading of Section 3 makes it clear that countervailing duty under Section 3 cannot be levied on an article imported into India if such article manufactured in India is exempted from the payment of excise duty. The provisions of Section 3 has to be read with the provisions of Central Excise Act and the liability to levy the countervailing duty would depend upon the fact as to whether such an article is liable to pay excise duty. In these circumstance, it is futile to urge that the exemption notification issued under the Central Excise Act can have no bearing to determine liability to pay countervailing duty under the Customs Tariff Act.
8. The last submission urged by the learned counsel is that the exemption notification provides for exemption of whole of the duty on certain condition. It is no doubt true that polyamide chips are exempted from the payment of excise duty provided it is used in the manufacture of nylon yarn and that too at no other place than in the factory of production. The petitioners have stated in paragraph 2 of the petition that the entire material imported is to be used in the factory of the petitioners for manufacture of nylon yarn. The respondents have not cared to file any return to the petition and Shri Taraporewala is right in his submission that the correspondence between the parties leaves no manner of doubt that the respondents do not dispute the accuracy of the statements made in paragraph 2 of the petition. In these circumstances, we are satisfied that the conditions mentioned in the exemption notification are more than satisfied. The impugned show cause notice was entirely misconceived and requires to be struck down.
9. Accordingly, the petition succeeds and the impugned notice dated March 15, 1979 annexed as Ex. I to the Petition and based on letter Ex. G from the Assistant Collector, Central Excise, Pune is quashed and the respondents are restrained from proceeding to levy countervailing duty in respect of import of polyamide chips for the period commencing from May 23, 1978 to September 4, 1978. The petitioners have furnished Bank Guarantee and executed a bond in respect of the amount of countervailing duty mentioned in Ex. I. That Bank guarantee and bond stand discharged. The Petitioners are at liberty to adopt proper proceedings to recover the alleged excess Customs duty paid on the said import. That question in not considered in this Petition. The rule is made absolute accordingly. In the circumstances of the case, there will be no order as to costs.