Bombay High Court
Ceat Tyres Of India Ltd. vs Municipal Corpn. Of Greater Bombay on 7 July, 1994
Equivalent citations: 1994ECR656(BOMBAY), 1994(73)ELT39(BOM)
JUDGMENT Pendse, J.
1. The appellant No. 1 is a company registered under the Companies Act and the company inter alia manufactures and sells tyres, tubes and flaps. The company imports diverse raw materials including nylon tyre yarn which forms an integral ingredient for the manufacture of the tyres. The company has a factory in Bhandup, Bombay and another factory at Nasik, in the State of Maharashtra.
Chapter XIX of the Import Export Policy for the period commencing from April 1, 1988 and ending with March 31, 1991 issued by the Government of India deals with Duty Exemption Scheme. Paragraph 219(1) of the said policy provides that the objective of the Duty Exemption Scheme is to make available to registered exporters the necessary inputs for export production at International prices without payment of customs duty so as to make the exports competitive in the international market. The Scheme provides for grant of three categories of licences, one of them being the advance licence. The Government of India published customs notification dated February 19, 1987 exempting goods imported into India against advance licence being materials required to be imported for the purpose of manufacture of products for execution of one or more export orders or for replenishment of the materials used in the manufacture of the resultant products already exported in anticipation of the grant of advance licence. The exemption notification grants total exemption from payment of customs duty.
2. On May 31, 1989 the company obtained an advance licence for import of raw material of the value of Rs. 6.24 crores. The company had agreed to earn foreign exchange equivalent to the amount of export obligation as stipulated in the advance licence amounting to Rs. 7.8 crores. In pursuance of the advance licence, the company placed orders for import of nylon tyre yarn with Nomura Trading Co. Ltd., Japan. 20 MT of nylon tyre yarn was sent by the Japanese company under the invoice dated July 5, 1989 and additional 25.2 MT by invoice dated August 3, 1989. The goods were cleared by the company between August 28, 1989 and September 20, 1989. On September 26, 1989 the company paid octroi duty at the rate of 1% on the value of imported nylon tyre yarn. The company thereafter despatched the imported goods to M/s. Sriram Rayons, Kota for the purpose of conversion of nylon tyre yarn into nylon tyre cord fabric. M/s. Sriram Rayons after conversion, despatched nylon tyre cord fabric to the company on September 28, 1989 and the goods crossed the octroi barrier of Bombay Municipal Corporation on October 2, 1989. The octroi authorities detained the consignment and disputed the value of the consignment as claimed by the company. On October 6, 1989 the octroi officer passed an order determining the value of the consignment by loading the notional amount of customs duty which the company was liable to pay but for the exemption notification. The company paid the duty under protest and thereafter preferred Writ Petition No. 3055 of 1989 under Article 226 of the Constitution before the learned Single Judge sitting on the Original Side of this Court.
3. The company claimed that it is not permissible to load the amount of customs duty while determining the value of the articles where octroi is charged ad valorem. The Corporation sustained loading of the customs duty while determining the value of the article by claiming that the element of customs duty which is either incurred or liable to be incurred is required to be included in the assessable value. The Corporation claimed that under clause 2(7)(a) of the Bombay Municipal Corporation (Levy of Octroi) Rules, 1965, the value of the article for the levy of octroi includes duties which are incurred or liable to be incurred. The Corporation claimed that the exemption notification was conditional on the company fulfilling certain conditions and in case the company commits breach of those conditions, then the customs duty was liable to be recovered and consequently the quantum of customs duty falls within the expression 'liable to be incurred under Rule 2(7)(a) of the Octroi Rules. The contention of the Corporation found favour with the learned Single Judge and by impugned judgment dated July 26, 1993 the petition came to be dismissed. The decision of the learned Single Judge is under challenge.
4. The learned Advocate General appearing on behalf of the appellants submitted that the interpretation of the provisions of Rule 2(7)(a) of the Octroi Rules is not correct. It was urged that it is not open to load the value of the article by taking into consideration the customs duty which was not payable at the time of entry of the article within the octroi limit but was a contingent liability which may arise in case the conditions of the advance licence were not complied with. We find considerable merit in the submission urged on behalf of the company.
Section 139 of the Bombay Municipal Act provides for tax to be imposed under the Act and one of the tax permissible is Octroi. Section 192 of the Act inter alia provides that the tax at rates not exceeding those specified in schedule He shall be levied in respect of the articles mentioned in the Schedule on the entry of the said articles into Greater Bombay for consumption, use or sale therein and the said tax shall be called as octroi. The Corporation has framed rules known as Bombay Municipal Corporation (Levy of Octroi) Rules 1965. Rule 3 provides for levying assessment and collection of octroi on import by sea. Schedule H to the Act sets out the list of articles which are liable to the payment of octroi duty. The rules provide for determination of value of the articles where octroi is charged ad valorem. The expression 'value of articles' is defined under Rule 2(7)(a) and reads as follows :-
"Value of articles' where octroi is charged ad valorem shall mean the value of the articles as ascertained from original invoice plus shipping dues, insurance, custom duties, excise duties, countervailing duty, sales tax, transport fee, vend freight charges, carrier charges and all other incidental charges, excepting octroi incurred or liable to be incurred by the importer till the articles are removed from the place of import."
The plain reading of the definition makes it clear that the value of the article is to be ascertained at the time of occurrence of the taxing event. The liability to pay octroi duty arises when the article crosses the octroi barrier of the Corporation. While determining value of the article, every other duty paid in respect of the article is taken into consideration and the amount of duty or the charges are included in the value of the article. While determining the value of the article, the quantum of customs duty, excise duty, sales tax etc. are also included. It is not in dispute that at the time of the entry into octroi limits of the Corporation, the company was not liable to pay any customs duty in view of the exemption granted by the Government. It is therefore difficult to appreciate how the Corporation can include the amount of customs duty while ascertaining the value of the article. Shri Chandrachud, learned counsel appearing on behalf of the Corporation, submitted that the customs duty is loaded in the value of the article because the company may be liable to pay the customs duty in case the conditions of advance licence are not complied with. In our judgment, it is not permissible for the taxing authority to load the value of the article by including the customs duty because the customs duty was not payable at the time of charging tax. It is not open for the octroi authorities to include the customs duty in the value of the article merely because at some future point of time the company may be liable to pay customs duty in case the company commits a breach of the conditions of the advance licence. Shri Chandrachud submitted that in case such contingency did not occur then the Corporation refunds the excess amount of octroi duty recovered. In our judgment, the Corporation had no authority to recover the excess octroi duty by loading the value of the article by inclusion of customs duty and in the absence of authority to recover, the fact that the Corporation subsequently refunds the excess duty is no answer. Shri Chandrachud also sounded an apprehension that there is a likelihood of some of the importers who will be liable to pay customs duty may subsequently be not available for recovery of additional octroi charges. The difficulty of the Corporation in recovering additional octroi charges in respect of some of the importers is not a ground to assume powers to include the customs duty not payable in the value of the article. In our judgment, the action of the Corporation cannot be sustained.
5. It is possible that the Corporation may secure undertaking or a bond from the importer that in case at any date the Customs duty or any other duties set out under Rules 2(7)(a) become payable, then the importer would undertake to pay the additional octroi charges. It is always open for the Corporation to take action against those who commit default in not paying the amount of additional charges. It is for the Corporation to formulate a scheme for the problems which may arise but such problems cannot be resolved by adding the amount of customs duty in the value of article when such customs duty was not payable at the time of the consignment crossing the octroi barrier. In our judgment, the learned Single Judge was in error in concluding that the customs duty was a charge which was liable to be incurred in future in case the exemption is withdrawn under the Customs Act and therefore the action of the Corporation in including the customs duty while determining value of the article was legal. The learned Single Judge was in error in declining the relevant claim made by the company.
6. Accordingly, appeal is allowed and the impugned judgment dated July 26, 1993 in Writ Petition No. 3055 of 1989 is set aside and the petition is made absolute in terms of prayers (a), (b)(i) and (b)(ii). The Corporation is liable to refund the excess amount of octroi duty recovered by loading the amount of the customs duty while determining the value of the articles imported. The excess duty shall be refunded within a period of four weeks from today. In the circumstances of the case, there will be no order as to costs.