Holding

The additional duty levied under Section 3(1) of the Customs Tariff Act, 1975 is a customs duty payable under any law and must be cleared before the exemption under Notification No.16/83‑CE can be claimed; therefore, the respondent was not entitled to the exemption.

Summary

Mis Presto Industries, an industrial unit in the Kandla Free Trade Zone, claimed exemption from excise duty on waste scrap under Notification No.16/83‑CE after paying only basic customs duty on the scrap cleared for home consumption. The Revenue discovered that the additional duty under Section 3(1) of the Customs Tariff Act, 1975 had not been paid and issued demand notices. The Collector of Customs (Appeals) allowed the exemption, but the Revenue challenged this before the CEGAT, which upheld the Collector’s order. The Supreme Court examined whether the condition in the notification requiring payment of "duties of customs leviable under any law" includes the additional duty, and held that it does. Consequently, the non‑payment of the additional duty meant the condition precedent was not satisfied, and the exemption could not be claimed. The Court set aside the Collector (Appeals) and CEGAT orders and restored the Assistant Collector’s demand.

Issues considered

Whether clause (b) of the proviso to Notification No.16/83‑CE, which requires payment of all customs duties under any law, includes the additional duty under Section 3(1) of the Customs Tariff Act, 1975.
Whether failure to pay the additional duty bars the claimant from availing the exemption from excise duty under the notification.
Whether the additional duty under Section 3(1) is to be treated as a counter‑vailing duty or a separate customs duty for the purpose of the notification.
Who bears the onus of proving compliance with the condition precedent to the exemption.

Legislation cited

Subjects

customs dutyadditional dutyexcise duty exemptionfree trade zonenotificationcondition precedentCustoms Tariff ActSection 3onus of prooftax exemption

Judgment

A COLLECTOR OF CUSTOMS
v.
MIS PRESTO INDUSTRIES
"'( -
FEBRUARY 15, 2001

B [B.N. KIRPAL AND BRIJESH KUMAR, JJ.]

_..
Customs Tariff Act, 1975-Section 3 (/)-Industrial Unit located in a
Free Trade Zone-Clearance of waste and scrap ()f imported raw material for
home consumption-Notification granting exemption from excise duty on
c payment of all duties of customs-Customs duty paid but not additional
duty-Held, benefit on notification is not available since Additional duty
under the Customs Tariff Act was not paid-Customs Duty Act, 1962-Section
28-,--Central Excise Rules, 1944-Notification No. 16183-CE dt. I l.2.1983.

Respondent is an industrial unit located in a Free Trade Zone
D
manufacturing combs and brushes from imported raw material Cellulose
Acetate sheets. Payment of excise duty is exempted on fulfilling certain
conditions stated in a Notification dated 11.2.1983 issued by the Central
Government under the Central Excise Rules, 1944. Customs duty and
additional duty under section 3(1) of the Customs Tariff Act, 1975 are payable
E on scrap if they are cleared for home consumption outside the Free Trade
Zone. On clearances of raw material waste and scrap, respondent paid the
customs duty. Additional duty, however, was not paid by the respondent claiming
benefit of the Notification. The Revenue wrongly allowed the benefit of
exemption under the notification. During the routine audit in the Revenue, it
was discovered that the respondent was wrongly given the benefit of the
F
notification since the additional duty was not levied. Demand notices, which
were confirmed by the Assistant Collector (Customs), were issued to the
respondent under Section 28 of the Customs Act, 1962 for payment of the
excise and additional duties. The respondent filed an appeal before the Collector
of Customs (Appeals). He allowed the appeal of the respondent holding that
G the benefit of the notification was admissible to the respondent. The Revenue
unsuccessfully challenged the order of collector (Appeals) before CEGAT.
. "'<
In this appeal, <he Revenue contended that the exemption from excise
duty is available to the respondent only unsatisfying the conditions stated in
the Notification; and that since the second condition of the Notification is not
H 1050
j-

COLL EC. OF CUSTOMS i·. PRESTO INDUS. 1051
, fulfilled by not paying the additional duty, the respondent is not entitled to the· A
-y benefit of the notification.

The respondent contended that since no excise duty is payable under
the Notification, no additional duty under the Customs Tariff Act, 1975 can
be levied since the additional duty is equal to the Excise duty leviable.
B
Allowing the appeals, the Court

HELD : I. I. The Notification requires payment of duties of customs
under any law for the time being in force. The additional duty leviable under
sub-section (I) of Section 3 of the Customs Tariff act, 1975 is not described
or called as counter-vailing duty. Clause (b) to the proviso to the Notification C
provides for clearance of all duties of customs leviable under any law for the
time being in force. It does not confine to payment of customs duty leviable
under the Customs Act, 1962 alone. Therefore, additional duty levied under
Section 3(1) of Customs Tariff Act shall also have to be cleared before claiming
benefit under the Notification. 11056-G-H; 1057-BI D
1.2. Since the respondent did not pay the additional duty as leviable
under Sub-section (I) of Section 3 of the Customs Tariff Act, 1975, it failed
to comply with the condition as contained in clause (b) of the proviso to the
Notification dated I 1.2. I 983. The onus of proof of fulfilment of condition
subject to which an exemption may be admissible lies on the assessee or E
upon a party claiming benefit under the Notification. Due to non-payment of
additional duty as prescribed under Section 3(1) of Customs Tariff Act, the
respondent would not be entitled for the benefit of exemption from excise duty
under the Notification.11057-H; 1058-A-BI

Motiram Tolaram & Anr. v. Union of India, 119991 6 sec 375, relied F
on.

2. An exemption Notification should be strictly construed. Where a
condition precedent is not fulfilled before claiming any exemption, such
benefit would not be admissible.11058-AI
G
Khandelwal Metal & Engineering Works v. Union of India & Ors., AIR
)oio (1985) SC 1211; Hyderabad Industries v. Union of India & Ors., 119991 5
SCC I 5 and M R.F limited v. Union of India & Ors , (1987) 32 EL T 465
Madras, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 863-864 H
1052 SUPREME COURT REPORTS [200 I] I S.C.R.

A of 1992.

From the Judgment and Order dated 12.7.91 of the Customs, Excise and
Gold (Control) Appellate Tribunal, New Delhi in ,\.No. C/2231/90-C in Supp.
A.No. 1536of1991-C.

B Mukul Rohtagi, K. Swami and P. Panneswaran for the Appellant.

V. Lakshmikumaran and Ms. Meenakshi Arora for the Respondent.

The Judgment of the Court was delivered by

C BRIJESH KUMAR, J. The question that falls for consideration in these
appeals is as to whether or not, the respondent has been rightly given benefit
ofNotifkation No. 16/83-CE dated 11.2.1983, issued by the Central Government
under Rule 8( I) of the Central Excise Rules, 1944, in regard to the payment
of additional custom duty under Section 3(1) of the Customs Tariff Act, 1975,
on the waste and scrap of imported Cellulose Acetate sheets.
D
We have heard Shri Mukul Rohtagi, learned Additional Solicitor General
for the appellant and Shri V. Lakshmikumaran, learned counsel for the
respondent.

The respondent, Mis. Presto Industries, is an industrial unit
E manufacturing combs and brushes, in Kandla Free Trade Zone, from the
imported Cellulose Acetate sheets. On certain given conditions, exemption
from payment of excise duty is admissible to the manufacturer in the Free
Trade Zone. So far it relates to the resultant waste and scrap of the imported
raw material, namely, Cellulose Acetate sheets, Customs Duty as well as
additional duty is payable on the scrap being cleared for home consumption
F
outside the Free Trade Zone. Undisputedly, on two clearances of the scrap,
Custom Duty was assessed and the same was paid by the respondent. It was,
however, later discovered during the audit that while assessing the liability,
the respondent had been wrongly given benefit of Notification No. 16/83-CE
dated 11.2.1983 and additional duty under Section 3 (I) of the Customs Tariff
G Act, 1975 was not levied. The duty was found to be short paid. Thus, two
Demand Notices under Section 28 of the Customs Act, 1962 were issued in
respect of two clearances, namely, Demand Notice No. FIZ/Cus/Demand/87- .~ "'f
17545173 dated 26.6.1989 for a sum of Rs. 60,480 and Demand Notice No.FIZ/
Cus/Demand/85-86/1347 dated 16.10.1989 for a sum of Rs. 8870.40.

H The aforesaid two demands for additional duty were confirmed by the
COLLEC. OF CUSTOMS v. PRESTO INDUS. [BRIJESH KUMAR, .l .] ] 053

Assistant Collector (Customs), Kandla Free Trade Zone by order dated A
22.6.1989 for a sum of Rs. 68076.40 and by order dated 16. I 0.1989 for a sum
of Rs. 8870.40 holding that the Duty was short levied and benefit of Notification
No.16/83-CE dated 11.2.1983 was wrongly made admissible to the respondent.
It was also held that the waste and scrap item of Cellulose Acetate sheets
was covered under Tariff Item No.15-A(I), explanation iii (c) as provided in B
the foot note to Item No.15-A of the Central Excise Tariff. The exemption from
payment of Central Excise Duty was held to be admissible only on fulfilment
of certain conditions as contained in the Notification No. 16/83-CE itself.
Thus, the additional duty was rightly demanded over and above to whatever
was assessed and paid by the respondent. The respondent preferred an
appeal against the order of the Assistant Collector (Customs) to the Collector, C
Customs (Appeals) who by order dated 12.3 .1990 allowed the appeal holding
that the benefit of Notification No.16/83-CE was admissible to the respondent.
11<· The Revenue challenged the order passed by the Collector Customs (Appeals)
before the Customs, Excise and Gold (Control) Appellate Tribunal (for short,
'CEGA T'). The Tribunal dismissed the appeal by order dated 12.7 .1991. Hence D
the appeals by the Revenue.

The Collector (Appeals) took the view that the whole Duty of Excise,
leviable under Section 3 of the Central Excise Act, 1944 is exempted in respect
of scrap for home consumption outside the Free Trade Zone, under Notification
No.16/83-CE, therefore, no additional duty in the nature of countervailing E
duty was liable to be paid. It was also found that the respondent had paid
the Customs Duty on the scrap as required by Clause (b) to the Proviso to
the Notification No.16/83-CE. The CEGAT upheld the order passed by the
Collector of Customs (Appeals) finding that no additional duty of customs
would be payable where Excise Duty is exempt under a Notification issued
under Rule 8(1) of the Excise Rules 1944. It also relied upon the decision in F
MR.F. limited v. Union of India and others,' though on facts it stands on
a different footing.

..... The case of the asses see further is that since no Excise Duty is payable,
no additional duty under Section 3(1) of the Customs Tariff Act, 1975 can be G
levied as additional duty could only be equal to the Excise Duty for the time
being leviable on a like article if produced in India or in case it is not so
produced the excise duty which would be leviable on the class or description
of articles to which the imported articles belongs.

I. 1987 (32) ELT. 465 Madras H
1054 SUPREME COURT REPORTS [2001] I S.C.R.

A The main stress on behalf of the appellant is that the ·second condition
as contained in the Notification No.16/83-CE has not been fulfilled hence
exemption from Excise Duty would not be available to the respondent. That
being the position, the additional duty as leviable is liable to be levied and
paid under Section 3 (I) of the Customs Tariff Act, 1975.

B Before entering into the discussion, it would be appropriate to peruse
the provisions as zontained under Section 3 of the Customs Tariff Act, 1975
as well as Notification No.16/83-CE issued under Rule 8 (I) of the Excise
Rules, 1944. Section 3 of the Customs Tariff Act reads as under:

''Section 3. Levy of additional duty equal to excise duty.-( I) Any
c article which is imported into India shall, in addition, be liable to a
duty (hereafter 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
D
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 if 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
E India, or, if a like article is 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.

F (2) ·································································
(3) If the Central Government is satisfied that it is necessary in the
public interest to levy on any imported article [whether on such article

-
duty is leviable under sub-section(!) or not] such additional duty as
would counter-balance the excise duty leviable on any raw materials,
components and ingredients of the same nature as, or similar to those,
G
used in the production or manufacture of such article, it may, by
notification in the Official Gazette, direct that such imported article
shall, in addition, be liable to an additional duty representing such
portion of the excise duty leviable on such raw materials, components
and ingredients as, in either case, may be determined by rules made
H by the Central Government in this behalf.
COLL EC. OF CUSTOMS v. PRESTO INDUS. [BRIJESH KUMAR, J .] ] 055

(4) ....................................................... :........ . A
(5) ·································································

(6) The provisions of the Customs Act, 1962 (52 of 1962), and the
rules and regulations made thereunder, including those relating to
drawbacks, refunds and exemption from duties, shall, so far as may be, B
apply to the duty chargeable under this section as they apply in
relation to the duties leviable under that Act."

A perusal of Section 3 (I) of the Customs Tariff Act quoted above shows that
on any article imported into India, a duty in addition may be levied to be
called 'additional duty' equal to the excise duty for the time being leviable C
as may be in force on an item manufactured in India and in case it is not so
manufactured, as may be leviable on the class or description of articles to
which the imported article belong. It is also clear that the 'additional duty'
'
is in addition to the Customs Duty levied under Customs Act, 1962 on any
article wlilch is imported into India. The Customs Tariff Act provides for the
rates at which duties of Customs are leviable under Customs Act, 1962 as D
specified in the two Schedules. The additional duty is in addition to what is
specified in the first and second schedule of the Customs Tariff Act. It can
be said that first part of Section 3 (I) of the Customs Tariff Act, 1975 is
charging provision for the purposes of imposition of additional duty and the
latter part is in relation to quantification of the additional duty equal to Excise E
Duty. In regard to the question as to whether Section 3 (I) is a charging
provision for additional duty or not. it was held by a Three Judge Bench of
this Court in the case of Khandelwa/ Metal & Engineering Works' that
Section 3 (I) cannot be said to be an independent charging Section. It was

., held to be an extended provision of Section 12 of the Customs Act, 1962 for
the purposes of additional duty. Later on however this question again came
to be considered in the case of Hyderabad Industries ltd. 2 before a
F

Constitution Bench of this Court and it was held that Section 3 of Customs
Tariff Act is a charging provision for additional duty. It has also been held
that under Section 3 of the Customs Tariff Act, the additional duty is not
called a counter-vailing duty, it may though result in serving such purpose G
for manufacturer of such articles in India. It is to be noticed here that Sub-
section (3) of Section 3 of the Customs Tariff Act makes a provision for levy
of additional duty as would counter-balance the Excise Duty leviable on any

l. AIR 1985 SC 1211
2. (1999) 5 sec 15 H
1056 SUPREME COURT REPORTS [2001] I S.C.R.

A raw material which may be over and above any duty levied under Sub-section
(I). The said provision viz. Section 3(3) of Customs Tariff Act makes it clear
that in the public interest an additional duty under Sub-section (3) can be
levied as would counter-balance the excise duty. It is a provision independent
of Sub-section (I) of Section 3 of the Customs Tariff Act taking care of
B counter balancing of Excise Duty.

· We may now advert to the Notification No.16/83-CE to find out whether
conditions laid in Clause (b) of the Proviso of the said Notification has been
fulfilled or not. The Notification No. I 6/83-CE provides as under:-
Kandla Free Trade Zone
c "In exercise of the powers conferred by sub- rule (I) of Rule 8 of the
Central Excise Rules, 1944 the Central Government hereby exempts
scrap or waste material arising in the course of production or
manufacture of any goods in the Kandla Free Trade Zone, from the
whole of the duty of excise leviable thereon under Section 3 of the
·D Central Excise and Salt Act, 1944 (I of 1944 ):
Provided that:-

(a) such scrap or waste material is out of any goods brought into
the said zone from a place outside India, and .)..
E (b) such scrap or waste material is cleared for home consumption
outside the said zone on payment of duties of customs leviable
thereon under any law for the time being in force."

The whole of the excise duty leviable under the Central Excise & Salt Act,
1944 is liable to be exempted, on scrap or waste arising in the course of
F manufacture of any goods in the Kand la Free Trade Zone, which is imported
from outside India and it is cleared for home consumption outside the zone
on payment of duties of customs leviable thereon under any law for the time
being in force. So far condition provided under clause (a) of the proviso there
is no dispute. But as it relates to fulfilment of Clause (b) to proviso, it is in
G dispute. Admittedly additional duty leviable under Section 3(1) of the Customs
Tariff Act has not been paid. Their case is that basic customs duty has been
paid which fulfils the requirement. The Notification however requires payment --r
of "duties" of customs under any law for the time being in force. The
additional duty leviable under Sub-section (I) of Section 3 of the Customs
Tariff Act is not described or called as counter-vailing duty as observed in
H the case of Hyderabad Industries (supra) as well as in the case of Khandelwal
COLLEC. OF CUSTOMS v. PRESTO INDUS. [BRIJESH KUMAR, J.] 1057

Metal & Engineering" Works (supra) despite the purpose whichever it may A
serve. There is a specific provision under Sub-section (3) of Section 3 of the
Customs Tariff Act, 1975, quoted earlier, providing for levy of additional duty,
whether on such item additional duty under Sub- section (1) of Section 3 is
leviable or not, to counter-balance the Excise Duty. The clause (b) to the
proviso to the Notification 16/83-CE provides for clearance of all duties of
customs leviable under any law for the time being in force. It does not confine B
to payment of customs duty leviable tinder the Customs Act, 1962 alone.
Therefore, additional duty levied under Section 3(1) of Customs Tariff Act
shall also have to be cleared before claiming benefit under Notification No.16/
83-CE. In the case of Hyderabad Industries ltd. (supra), in paragraph 14 of
the Judgment, it is held that there are different types of Customs Duty levied C
under different Acts or Rules. It includes Duty under Section 3(1) of the
Customs Tariff Act. The para 14 is quoted below:-

"14. There are different types of customs duties levied under different
Acts or Rules. Some of them are:
D
(a) a duty of customs chargeable under Section 12 of the Customs
Act, 1962;

(b) the duty in question, namely, under Section 3( 1) of the Customs
A_ Tariff Act;

(c) additional duty· levied on raw materials, components and E
ingredients under Section 3(3) of the Customs Tariff Act; and

(d) duty chargeable under Section 9-A of the Customs Tariff Act,

,. 1975.

The Customs Act, 1962 and the Customs Tariff Act, 1975 are
F
two separate independent statutes. Merely because the incidence
of tax under Section 3 of the Cu5toms Tariff Act, 197 5 arises on
the import of the articles into India it does not necessarily mean
that the Customs Tariff Act cannot provide for the charging of
a duty which is independent of the customs duty leviable under
the Customs Act." G
Since it is found that the· respondent did not pay the additional duty
as leviable under Sub-section (I) of Section 3 of the Customs Tariff Act, 1975,
it failed to comply with the condition as contained in Clause (b) to the proviso
to the Notification No.16/83-CE dated 11.2.1983. The onus of proof of fulfilment
of condition subject to which an exemption may be admissible lies on the H
1058 SUPREME COURT REPORTS [2001) 1 S.C.R.

A assessee or upon a party claiming benefit under the Notification as also hdd "fl(
in the case of Motiram Tolaram and another.' So far the question of
construing an exemption Notification is concerned, such Notifications are to
be strictly construed. Where a condition precedent is not fulfilled before
claiming any exemption, such benefit would not be admissible.

B In the result it is found that due to non-payment of additional duty as
prescribed under Section 3(1) of Customs Tariff Act, the respondent would
not be entitled for the benefit of exemption from Excise Duty under Notification
No.16/83-CE. It was wrongly made admissible to the respondent.

C In view of what has been discussed above, the appeals are allowed and
the orders passed by the Collector of Customs (Appeals) and CEGAT are set
aside and the order passed by the Assistant Collector of Customs are restored.
There would, however, be no order as to costs.

B.S. Appeals allowed.

1. ( 1999) 6 sec 375