Customs Duty on Goods from Pakistan: Supreme Court Interprets “Date” of Bill of Entry (23 September 2020)

LEGAL ISSUE: Determination of the applicable customs duty rate on imported goods based on the date of bill of entry presentation versus the date of notification of duty change.

CASE TYPE: Customs Law, Import Duty

Case Name: Union of India & Ors. vs. M/S G S Chatha Rice Mills & Anr.

Judgment Date: 23 September 2020

Date of the Judgment: 23 September 2020

Citation: (2020) INSC 705

Judges: Dr Dhananjaya Y Chandrachud, J, Indu Malhotra, J, K.M. Joseph, J (Concurring)

Following the Pulwama terror attack, the Indian government increased customs duty on goods from Pakistan. But when does this new rate apply? The Supreme Court of India recently addressed this question, focusing on the timing of electronic bill of entry filings and the government’s notification of the duty increase. This case clarifies the interplay between customs law and technology in determining tax liabilities. The judgment was authored by Dr. Dhananjaya Y Chandrachud, J, with a concurring opinion from K.M. Joseph, J, and Indu Malhotra, J, was also on the bench.

Case Background

The case arose after a terrorist attack in Pulwama on 14 February 2019. In response, the Union Government issued a notification on 16 February 2019, increasing customs duty to 200% on all goods originating from or exported from Pakistan. This notification was uploaded to the e-Gazette at 20:46:58 hours. However, several importers had already presented their bills of entry for home consumption before the notification was uploaded. Customs authorities sought to apply the enhanced duty retrospectively, leading to a challenge in the High Court of Punjab and Haryana. The importers argued that the rate of duty should be based on the time of filing the bill of entry, not the time of the notification.

Timeline:

Course of Proceedings

The High Court of Punjab and Haryana allowed the writ petitions filed by the importers, holding that the enhanced rate of duty was not applicable to those who had filed their bills of entry before the notification was issued. The High Court reasoned that the relevant date for determining the duty rate was the date of presentation of the bill of entry, which occurred before the notification. The Union of India then appealed to the Supreme Court, challenging the High Court’s decision.

Legal Framework

The Supreme Court considered several key legal provisions:

• Section 15 of the Customs Act, 1962: This section specifies that the rate of duty applicable to imported goods is the rate in force on the date on which a bill of entry is presented for home consumption. The court noted that this section does not refer to time, but to the date of the presentation of the bill of entry.
• Section 8A of the Customs Tariff Act, 1975: This section grants the Central Government the power to increase import duties in emergency situations by issuing a notification in the Official Gazette.
• Section 46 of the Customs Act, 1962: This section outlines the procedure for the entry of goods on importation, including the electronic presentation of a bill of entry on the customs automated system.
• Section 17 of the Customs Act, 1962: This section deals with the assessment of duty, including self-assessment by the importer and re-assessment by the proper officer.
• Section 47 of the Customs Act, 1962: This section specifies the conditions for the clearance of goods for home consumption, including the payment of import duty.
• Section 5(3) of the General Clauses Act, 1897: This section states that unless the contrary is expressed, a Central Act or Regulation comes into operation immediately on the expiration of the day preceding its commencement.
• Regulation 4(2) of the Bill of Entry (Electronic Integrated Declaration and Paperless Processing) Regulations 2018: This regulation states that a bill of entry is deemed to have been filed and self-assessment completed when a bill of entry number is generated by the Indian Customs Electronic Data Interchange System.

The court also considered the Information Technology Act, 2000, which provides a legal basis for electronic records and digital signatures, and the Information Technology (Electronic Service Delivery) Rules 2011, which mandates time stamps for governmental electronic records.

Arguments

Union of India (Appellants):

• The rate of duty is determined by the date of the bill of entry, not the time.
• Section 15 of the Customs Act refers to the entire 24-hour period of the date of the bill of entry.
• A notification under Section 8A of the Customs Tariff Act is a legislative act that dates back to the commencement of the day.
• The General Clauses Act applies, meaning the notification came into force at the start of the day.
• Customs authorities were entitled to reassess the bills of entry under Section 17(4) of the Customs Act.

Importers (Respondents):

• The rate of duty is fixed at the time of the presentation of the bill of entry, which was before the notification.
• The electronic filing of bills of entry and self-assessment were completed before the notification was issued.
• A notification under Section 8A of the Customs Tariff Act cannot have retrospective effect.
• The purpose of the notification was to discourage future imports, not penalize past ones.
• Reassessment is only allowed if the self-assessment was incorrect, which was not the case here.

The importers also emphasized the importance of the time stamps in the electronic system, arguing that these records should be given due consideration.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues:

1. Whether the amendment to the First Schedule of the Customs Tariff Act, 1975 takes effect from the time at which it is uploaded/notified in the gazette or from the first moment of the day/date on which it was issued/published in the gazette.
2. Whether the notification under Section 8A of the Customs Tariff Act, 1975, is a legislative act.
3. Whether the provisions of the General Clauses Act, 1897, are applicable to a notification issued under Section 8A of the Customs Tariff Act, 1975.
4. Whether the twin requirements of Section 15 of the Customs Act, 1962, are fulfilled in the present case.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Bharat Surfactants (Private) Limited vs. Union of India, (1989) 4 SCC 21: Discussed the relevance of the date of presentation of the bill of entry.
• Priyanka Overseas Pvt. Ltd. vs. Union of India, 1991 Supp (1) SCC 102: Addressed the determination of the rate of duty and tariff valuation.
• Dhiraj Lal H Vohra vs. Union of India, 1993 Supp (3) SCC 453: Clarified that the rate of duty is fixed on the date of entry inwards.
• D.C.M. vs. Union of India, 1995 Supp (3) SCC 223: Explained the option for importers to file for home consumption or warehousing.
• Raj Kumar Yadav vs. Samir Kumar Mahaseth, (2005) 3 SCC 601: Interpreted the word “day” in the context of election law.
• New India Assurance Co. Ltd. vs. Ram Dayal, (1990) 2 SCC 680: Discussed the commencement of insurance policy effectiveness.
• National Insurance Company Limited vs. Geeta Devi, (2010) 15 SCC 670: Distinguished the commencement of insurance policy based on time.
• Ahmadsahab Abdul Mulla (2) Dead by proposed Lrs. vs. Bibijan, (2009) 5 SCC 462: Interpreted the word “date” in the Limitation Act.
• Pashupati Nath Singh vs. Harihar Prasad Singh, (1968) 2 SCR 812: Construed “on the date fixed for scrutiny” in the Representation of the People Act.
• Re Court Fees, ILR (1923) 46 Mad 685: Addressed whether the law disregards fractions of a day.
• M.D. Overseas Industries vs. Union of India, W.P . (C) 7838/2017 (Delhi High Court): Dealt with the enforceability of notifications in the e-gazette.
• Ruchi Soya Industries vs. Union of India, W.P . No. 4533 and 4534 of 2019 (Andhra Pradesh High Court): Discussed the time of publication of notifications in the e-gazette.
• Ruchi Soya Industries vs. Union of India, W.P . No. 21207 of 2018 (Madras High Court): Applied the principles from the Andhra Pradesh High Court decision.
• Union of India vs. Param Industries Limited, (2016) 16 SCC 692: Addressed the enforceability of notifications in physical gazettes.
• Pankaj Jain Agencies vs. Union of India, (1994) 5 SCC 198: Considered the determination of the date when a notification would come into force.
• Union of India vs. Ganesh Das Bhojraj, (2000) 9 SCC 461: Reiterated the principles recognized in Pankaj Jain.
• Kolhapur Canesugar Works Ltd. vs. Union of India (UOI), AIR 2000 SC 811: Discussed whether Rules could be considered a “Central Act”.
• Securities and Exchange Board of India vs. Magnum Equity Services Ltd, (2015) 16 SCC 721: Considered whether the General Clauses Act applies to SEBI regulations.
• Chief Inspector of Mines vs. Lala Karam Chand Thapar, AIR 1961 SC 838: Formulated the principle that rules do not lose their character as subordinate to the Act.
• K I Shepard vs. Union of India, (1987) 4 SCC 431: Held that the power to frame a scheme was not legislative in character.
• New Bank of India Employees’ Union vs. Union of India, (1996) 8 SCC 407: Distinguished a scheme framed under a different Act as legislative.
• Hukum Chand vs. Union of India, (1972) 2 SCC 601: Held that subordinate legislation cannot be retrospective unless authorized by the parent statute.
• Regional Transport Officer, Chittoor vs. Associated Transport Madras (P), (1980) 4 SCC 597: Stated that a delegate cannot exercise the same power as the legislature.
• Federation of Indian Minerals Industries vs. Union of India, (2017) 16 SCC 186: Formulated the principles on the retrospectivity of subordinate legislation.
• State of Rajasthan vs. Basant Agrotech (India) Ltd, (2013) 15 SCC 1: Adopted the same position on retrospectivity.
• Whitney vs. Commissioners of Inland Revenue, (1926) AC 37: Discussed the stages of tax imposition.
• Chatturam v. CIT, Bihar, (1947) FCR 116: Discussed the stages of tax imposition.
• A V Fernandez vs. State of Kerala, 1957 SCR 837: Discussed the stages of tax imposition.
• Deputy CTO vs. Sha Sukraj Peerajee, (1967) 3 SCR 661: Discussed the stages of tax imposition.
• Lester v. Garland, [1808] 15 Ves. 248: Discussed the inclusion or exclusion of a day in time calculations.
• Re. Railways Sleepers Supply Co., (1885) 29 Ch.d. 204: Discussed the calculation of time intervals.
• In Re. North, (1895) 2 Q.B. 264: Discussed the computation of time under bankruptcy law.
• Jasbir Singh vs. Union of India, (1995) ILR 2 Delhi 399: Discussed the computation of time under preventive detention laws.
• Collector of Central Excise v. New Tobacco Company, (1998)144 CTR(SC) 618: Discussed the effective date of a notification.
• Asia Tobacco Company Limited v. Union of India and others, (1985)155 ITR 568 (Mad): Discussed the effective date of a notification.
• Oriental Insurance Company Limited v. Porselvi and Another, 1997 (1) SCC 66: Discussed the commencement of insurance policy.
• Oriental Insurance Company Limited v. Sunita Rathi and Others, 1998(1) SCC 365: Discussed the commencement of insurance policy.
• Johnson v. Sargant & Sons, 1917 1 K.B. 101: Discussed the nature of a statute versus an order.

Legal Provisions:

• Section 15 of the Customs Act, 1962
• Section 8A of the Customs Tariff Act, 1975
• Section 46 of the Customs Act, 1962
• Section 17 of the Customs Act, 1962
• Section 47 of the Customs Act, 1962
• Section 5(3) of the General Clauses Act, 1897
• Regulation 4(2) of the Bill of Entry (Electronic Integrated Declaration and Paperless Processing) Regulations 2018
• Section 2(32) of the Customs Act, 1962
• Section 2(t) of the Information Technology Act, 2000
• Section 6 of the Information Technology Act, 2000
• Section 7 of the Information Technology Act, 2000
• Section 8 of the Information Technology Act, 2000
• Section 13 of the Information Technology Act, 2000
• Rule 5(1) of the Information Technology (Electronic Service Delivery) Rules 2011
• Rule 6(2) of the Information Technology (Electronic Service Delivery) Rules 2011
• Rule 4(4) of the Digital Signature (End entity) Rules 2015
• Rule 4(7) of the Digital Signature (End entity) Rules 2015
• Section 11A of the Customs Tariff Act, 1975
• Section 7(3) of the Customs Tariff Act, 1975
• Section 7(4) of the Customs Tariff Act, 1975
• Section 2 of the Customs Tariff Act, 1975
• Section 3(7) of the General Clauses Act, 1897
• Section 3(50) of the General Clauses Act, 1897
• Section 3(13) of the General Clauses Act, 1897
• Section 9 of the General Clauses Act, 1897
• Section 48 of the Transfer of Property Act, 1882
• Section 47 of the Registration Act, 1908
• Article 265 of the Constitution of India
• Article 13 of the Constitution of India
• Article 245 of the Constitution of India
• Article 246 of the Constitution of India

Judgment

How each submission made by the Parties was treated by the Court?

The Supreme Court dismissed the appeals, upholding the High Court’s decision. The Court held that the relevant date for determining the applicable rate of customs duty was the date and time when the bill of entry was electronically filed and self-assessed, not the date of the notification increasing the duty. The court emphasized that the electronic filing system and time stamps are critical for determining the point at which the rate of duty is fixed. The Court rejected the argument that the notification should be considered to have come into force at the start of the day, emphasizing that the notification came into force at the time of its upload on the e-Gazette. The court also clarified that a notification under Section 8A of the Customs Tariff Act is not a legislative act and does not have retrospective effect.

Ratio Decidendi

The ratio decidendi of the judgment can be summarized as follows:

• The rate of customs duty is determined at the time when the bill of entry is electronically filed and self-assessed, not at the start of the day on which the notification was issued.
• The electronic filing system and time stamps are critical for determining the point at which the rate of duty is fixed.
• A notification under Section 8A of the Customs Tariff Act is not a legislative act and does not have retrospective effect.
• The General Clauses Act does not apply to notifications issued by a delegate of the legislature.
• The twin requirements of Section 15 of the Customs Act are fulfilled when the bill of entry is presented and the goods are present, but the rate of duty is fixed before the notification comes into force.

Concurring Opinion

K.M. Joseph, J, delivered a concurring opinion, agreeing with the main judgment. He emphasized the importance of the electronic filing system and the need for clarity in the law. He highlighted that the electronic system provides a clear record of the time at which a bill of entry is filed and self-assessed. He also noted that the notification was a subordinate piece of legislation and cannot have retrospective effect unless expressly stated. The concurring opinion reinforced the main judgment’s emphasis on the importance of time stamps and the electronic system in determining tax liabilities.

Implications

The Supreme Court’s judgment has significant implications for customs law:

• Importance of Electronic Records: The judgment underscores the importance of electronic records and time stamps in determining tax liabilities. Customs authorities must give due consideration to the time at which a bill of entry is electronically filed and self-assessed.
• Prospective Nature of Notifications: The judgment clarifies that notifications issued under Section 8A of the Customs Tariff Act are prospective in nature and do not have retrospective effect unless expressly stated. This means that the enhanced duty will apply only to bills of entry filed after the notification is uploaded to the e-Gazette.
• Clarity in Law: The judgment emphasizes the need for clarity in the law and the importance of adhering to the principles of natural justice. The court’s interpretation of Section 15 of the Customs Act provides clarity on the point at which the rate of duty is fixed.
• Reassessment: Reassessment of bills of entry is not permitted if the self-assessment was correct at the time of filing the bill of entry. This protects importers from retrospective tax liabilities.
• Technological Advancement: The judgment recognizes the importance of technological advancements in the customs process. The electronic filing system and time stamps are critical for determining the point at which the rate of duty is fixed.

Flowchart of Decision Process