Supreme Court Allows Customs Duty Exemption Based on Clarificatory Notification: Granules India Ltd. vs. Union of India (23 January 2020)

Introduction

Date of the Judgment: 23 January 2020
Citation: (2020) INSC 47
Judges: Navin Sinha, J. and Krishna Murari, J.
Can the government deny a customs duty exemption to an importer, who was initially entitled to it, simply because the goods were imported after a temporary withdrawal of the exemption, when a subsequent notification clarifies that the exemption should apply? The Supreme Court of India addressed this question in a recent judgment, focusing on the interplay of notifications and the government’s duty to act fairly. The core issue revolved around whether a clarificatory notification could retroactively grant an exemption, even if the goods were imported during a period when the exemption was temporarily withdrawn. The judgment was delivered by a two-judge bench comprising Justice Navin Sinha and Justice Krishna Murari, with Justice Navin Sinha authoring the opinion.

Case Background

In 1993, M/S. Granules India Ltd. (the appellant) imported 96 tons of “Acetic Anhydride” under three Bills of Entry (Nos. 290, 291, and 300) dated December 1, 1993, December 1, 1993, and December 14, 1993, respectively. These imports were made through the Inland Water Container Depot (ICD), Hyderabad, under the Advance Licence Scheme. The appellant claimed exemption from import duty based on Customs Notifications Nos. 203/1992 and 204/1992, both dated May 19, 1992. These notifications allowed duty-free imports subject to certain conditions. However, Notification No. 183/1993, dated November 25, 1993, amended the previous notifications, making the imports liable for duty by withdrawing the exemption. Subsequently, a clarificatory Notification No. 105/1994, dated March 18, 1994, was issued, which permitted the import of the chemical without customs duty, subject to specific terms and conditions. This clarificatory notification aimed to address the difficulties faced by importers like the appellant, who had imported the chemical under advance licenses issued before the November 25, 1993 amendment.

Initially, the appellant was allowed to clear the consignments without paying duty. However, the respondents later issued a show cause notice under Section 28(1) of the Customs Act, 1962, claiming that the imports were made after November 25, 1993, and were therefore liable for duty. The appellant made a representation on November 20, 1997, seeking exemption, which was granted for three other consignments under different Bills of Entry. Despite this, the appellant was held liable for duty on the consignments under Bills of Entry Nos. 290, 291, and 300. The Commissioner (Appeals) upheld this decision, leading to the filing of a writ petition.

Timeline

Course of Proceedings

The High Court dismissed the writ application, stating that no mandamus for exemption could be issued because the consignments were imported after November 25, 1993, and before the clarificatory notification of March 18, 1994. The High Court found no arbitrariness on the part of the respondents. The appellant then filed a review application, relying on a Division Bench order of the Andhra Pradesh High Court in Shri Krishna Pharmaceuticals Limited vs. Union of India, (2004) 173 ELT 14, which had ruled in favor of the importer in similar circumstances. The High Court rejected the review application, stating that the appellant had not produced the clarificatory notification along with the writ petition, and the respondents were not aware of it.

Legal Framework

The case revolves around the interpretation and application of several notifications issued under the Customs Act, 1962. The key legal provisions and notifications are:

• Section 28(1) of the Customs Act, 1962: This section deals with the recovery of duties not levied or short-levied or erroneously refunded. It was the basis for the show cause notice issued to the appellant.
• Customs Notification Nos. 203/1992 and 204/1992, both dated May 19, 1992: These notifications introduced the Advance Licence Scheme, allowing duty-free import of certain goods subject to specific conditions.
• Customs Notification No. 183/1993, dated November 25, 1993: This notification amended the previous notifications, withdrawing the exemption and making the imports liable for duty.
• Customs Notification No. 105/1994, dated March 18, 1994: This clarificatory notification reinstated the exemption for imports made under advance licenses issued before November 25, 1993, subject to certain conditions.

The interplay of these notifications is central to the dispute. The initial notifications provided an exemption, which was then withdrawn, and subsequently clarified to extend the exemption to certain imports. The Supreme Court had to determine whether the clarificatory notification would apply to the appellant’s case, even though the imports took place during the period when the exemption was withdrawn.

Arguments

Appellant’s Arguments:

• The appellant argued that denying the exemption for consignments imported after November 25, 1993, under an advance license obtained before May 19, 1992, was unsustainable, especially given the clarificatory notification dated March 18, 1994.
• The appellant contended that the Special Leave Petition (Civil) No. 14288 of 2004, which was preferred against the order in Shri Krishna Pharmaceuticals Limited, had been dismissed, reinforcing their position.
• The appellant submitted that the mere failure to enclose a copy of the clarificatory notification should not be a ground for denying relief.
• The appellant asserted that denying the exemption, given the statutory notifications, was arbitrary.

Respondent’s Arguments:

• The respondent supported the High Court’s order, arguing that the consignments were imported after the withdrawal of the exemption and before the issuance of the clarificatory notification.

The core of the appellant’s argument was that the clarificatory notification of 18.03.1994 was meant to address the anomaly created by the withdrawal of exemption by notification dated 25.11.1993. The appellant argued that since they had an advance license prior to the amendment notification, they were entitled to the exemption as clarified by the later notification. The State’s argument was that the exemption was not available at the time of import, and therefore the appellant was liable to pay customs duty.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that emerges from the judgment is:

1. Whether the appellant is entitled to the customs duty exemption based on the clarificatory notification dated March 18, 1994, despite the fact that the goods were imported after the withdrawal of the exemption by the notification dated November 25, 1993.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

The Supreme Court also considered the following legal provisions:

Judgment

The Supreme Court allowed the appeals, setting aside the orders of the High Court. The Court held that the appellant was entitled to the customs duty exemption based on the clarificatory notification dated March 18, 1994.

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

How each authority was viewed by the Court?

• The Supreme Court followed the decision of the Andhra Pradesh High Court in Shri Krishna Pharmaceuticals Limited vs. Union of India, (2004) 173 ELT 14, stating that it was unfortunate that the High Court failed to follow its own orders in a similar matter. The Court agreed with the High Court’s view that the clarificatory notification extended the exemption to imports under the advance license scheme.
• The Supreme Court cited National Insurance Co. Ltd. vs. Jugal Kishore, (1988) 1 SCC 626, emphasizing the duty of the State and its instrumentalities to act fairly and produce all relevant documents to ensure justice. The Court criticized the State for claiming ignorance of its own notification.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The clarificatory notification dated March 18, 1994, was intended to address the difficulties faced by importers who had obtained advance licenses before the amendment notification dated November 25, 1993.
• The entire consignment was imported under one advance license issued before May 19, 1992, and the fact that part of the consignment was imported before and after November 25, 1993, was not relevant in view of the clarificatory notification.
• The State has a solemn duty to assist the court in the dispensation of justice and cannot behave like a private litigant. It cannot claim ignorance of its own notifications.
• The Court emphasized the need for fairness and transparency in the actions of the State and its instrumentalities.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

The Court rejected the argument that the exemption was not applicable because the import was made after the withdrawal of the exemption and before the clarificatory notification. The Court reasoned that the clarificatory notification was meant to address the situation of importers like the appellant, who had obtained advance licenses before the amendment notification. The Court also rejected the High Court’s view that the State authorities were unaware of the clarificatory notification, emphasizing the State’s duty to be aware of its own notifications and act fairly.

The Supreme Court’s reasoning was based on a combination of statutory interpretation and principles of fairness. The Court interpreted the clarificatory notification as extending the benefit of exemption to importers who had advance licenses prior to the amendment notification. The Court also emphasized that the State cannot take advantage of its own errors or omissions and must act fairly and transparently.

The Court observed that the High Court had failed to follow its own order in a similar matter and that the State’s conduct was not in line with its constitutional duty to assist the Court in the dispensation of justice. The Court also quoted from National Insurance Co. Ltd. vs. Jugal Kishore, (1988) 1 SCC 626, emphasizing the duty of the State to act fairly and produce all relevant documents.

The Supreme Court stated:

“The fortuitous circumstance that part of the consignment was actually imported prior to 25.11.1993 and the rest subsequent thereto is hardly relevant in view of the clarificatory notification dated 18.03.1994 that the exemption would continue to apply subject to fulfilment of the specified terms and conditions.”

The Court further observed:

“It is unfortunate that the High Court failed to follow its own orders in a similar matter. The High Court further gravely erred in holding that the authorities of the State were also unaware of the clarificatory notification and neither did the appellant bring it on record.”

The Court also stated:

“In our considered opinion it is absolutely no defence of the State authorities to contend that they were not aware of their own notification dated 18.03.1994. The onus heavily rests on them and a casual statement generating litigation by State apathy cannot be approved.”

Key Takeaways

• A clarificatory notification can extend the benefit of an exemption, even if the goods were imported during a period when the exemption was temporarily withdrawn.
• The State has a duty to act fairly and cannot claim ignorance of its own notifications.
• The State should not behave like a private litigant and must assist the court in the dispensation of justice.
• The burden of proof is not absolute, and the State must produce all relevant documents to ensure justice.

This judgment has significant implications for future cases involving similar issues related to customs duty exemptions and the interpretation of government notifications. It reinforces the principle that the State must act fairly and cannot take advantage of its own errors or omissions.

Directions

The Supreme Court set aside the orders of the High Court and allowed the appeals. No specific directions were given beyond this.

Development of Law

The ratio decidendi of this case is that a clarificatory notification can retroactively grant an exemption from customs duty, even if the goods were imported during a period when the exemption was temporarily withdrawn. This ruling clarifies the interpretation of notifications and the State’s duty to act fairly. This case reinforces the principle that the State cannot act like a private litigant and must assist the court in the dispensation of justice. It also highlights the importance of the State being aware of its own notifications.

Conclusion

In conclusion, the Supreme Court’s decision in M/S. Granules India Ltd. vs. Union of India provides clarity on the application of clarificatory notifications in customs law. The Court held that the appellant was entitled to the customs duty exemption based on the clarificatory notification, despite the temporary withdrawal of the exemption. The judgment underscores the State’s duty to act fairly and transparently and its responsibility to be aware of its own notifications. This ruling has significant implications for future cases involving similar issues related to customs duty exemptions and the interpretation of government notifications.