Commissioner of Customs, Mumbai-I v. M/S Seiko Brushware India

Case Details & Bench

Court: High Court
Hon'ble Judges: A. K. Sikri
R. F. Nariman
Judgment Date: 2015-09-04
Court Decision / Holding: We set aside the judgment of CESTAT and restore the Commissioner's order. The appeal is disposed of accordingly.
Final Disposition: Appeal disposed; CESTAT’s judgment set aside; Commissioner's order restored; Exemption Notification No. 34/98-Cus not applicable.

Parties to the Case

Appellants / Petitioners

COMMISSIONER OF CUSTOMS, MUMBAI-I

Respondents

M/S SEIKO BRUSHWARE INDIA

Legal Representation & Advocates

Counsels for Petitioners

• Arijit Prasad
• Baldev
• B. Krishna Prasad
•

Counsels for Respondents

• B Rajesh Kumar

Case Synopsis & Summary

This Civil Appeal concerns the denial of the benefit of Exemption Notification No. 34/98-Cus dated 13 June 1998 for pig hair bristles imported by M/s Seiko Brushware India and sold during 1998–1999 and 1999–2000. The central issue is whether pig hair bristles constitute “tax-free goods” under the Delhi Sales Tax Act, 1975, by virtue of Section 7 read with the Third Schedule, and whether the exemption notification can apply when the sales occur from locations where no sales tax is chargeable. The provisions invoked include the Delhi Sales Tax Act, 1975 (Sections 3, 7 and the Third Schedule), the Customs Tariff Act, 1975 (Section 3A(1) and First Schedule) and the Customs Act, 1962 (Section 68), as well as the import-export framework governing post-import sale. The Commissioner of Customs had held that exemption would amount to rendering the goods non-taxable, and the exemption cannot apply; the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) sided with the assessee, saying the exemption notifications merely deferred tax. The Supreme Court, however, held that no sales tax is charged on the imported pig bristles, so the proviso to the exemption notification is attracted and the exemption cannot apply. Consequently, the Court set aside CESTAT’s decision and restored the Commissioner's order, disposing of the appeal in the Revenue’s favor.

Provisions of Law Cited

Delhi Sales Tax Act, 1975 - Section 3Delhi Sales Tax Act, 1975 - Section 7Delhi Sales Tax Act, 1975 - Third ScheduleCustoms Tariff Act, 1975 - Section 3A(1)Customs Tariff Act, 1975 - First ScheduleCustoms Act, 1962 - Section 68

Submissions & Arguments

Contentions of Appellants / Petitioners

Revenue contends that pig hair bristles imported and sold during 1998–1999 and 1999–2000 are 'tax-free goods' under the Delhi Sales Tax Act, read with Entry 67 of the Third Schedule, and thus no sale tax is chargeable. It relies on Section 3 (charging) and Section 7 (tax-free goods) and on the proviso to Exemption Notification No. 34/98-Cus to argue that exemption should apply when the sale occurs from a location where no tax is chargeable; the exemption cannot apply if the sale happens in a tax-free area only temporarily, and the CESTAT’s broadened interpretation is contrary to the statutory scheme. The Court should uphold the Commissioner’s order denying exemption, reversing the CESTAT decision.

Contentions of Respondents

Respondent/importer argues that exemption notifications do not render goods non-taxable; they provide only a temporary concession and do not create a permanent exemption. CESTAT’s view that exemptions merely defer tax should be maintained; pig bristles are within the Third Schedule and the levy of tax is governed by the Delhi Act and the relevant Customs provisions; the exemption notification is not applicable since the sale occurs from an area where no tax is chargeable. The Respondent seeks to sustain the CESTAT decision and the tax liability on sale.

Extracted Judgment Text

Exact text extracted from official judgment records.

[2015] 9 S.C.R. 395 ## COMMISSIONER.OF CUSTOMS, MUMBAI-I A v. ## M/S SEIKO BRUSHWARE INDIA (Civil Appeal No. 216 of 2007) SEPTEMBER 04, 2015 B **[A.K. SIKRI AND R. F. NARIMAN, JJ]** - - _Delhi Sales Tax Act, 1975 ss._ 7, _3 Customs Tariff Act, 1975-s. 3A(1)-ExemptionNotificationNo. 34198-Cus._ C - _dated 13.06. 1998- Benefit of exemption On facts, sale of_ - _imported pig hair bristles by importer Denial of benefit of e"<emption Notification since the pig hair bristles were sold \vithout any sales tax beir.g paid- Challenge to- Importer's case that pig hair bristles may be exempted from sales tax_ 0 _but that did not mean that they were not chargeable to sales_ - _tax Commissioner held that Exemption Notification exempting pig hair bristles from tax would amount to_ a _case where no tax is chargeable on the sale of goods, thus, the benefit of the Notification would not be available to the_ E _impo11er_ - _However, tribunal held in favour of assessee_ - _On appeal, held: On_ a _reading of ss. 3 and_ 7 _of the 1975 Act, it becomes clear that no sales tax is charged on the imported_ - _item-pig bristles Proviso to the Notification dated 13. 06. 1998 gets attracted and since no tax is chargeable on_ F _the sale of such goods, the Ex£1mption Notification would not_ -- _apply Judgment of tribunal set aside and that of the_ - - _Commissioner restored Notification Exemption Notification No. 34198-Cus. dated 13.06.1998._ G CIVIL.APPELLATE JURISDICTION: Civil Appeal No. 216 of2007. Frorn the Judgment and Order Nos. 260-261/2005 - 395 396 SUPREME COURT REPORTS [2015] 9 S.C.R. - A NB(C) No. 1343 dated 22.02.2005 of the Customs, Excise and Service TaxAppellate Tribunal, New Delhi in Appeals Nos. E/225-226 of 2004- NB(C). - Arijit Prasad, Baldev, B. Krishna Prasad for the Appellant. - B Rajesh Kumar for the Respondent. The Judgment of the Court was delivered by **R. F. NARIMAN, J.** 1. Despite service, nobody appears - C for the respondent. > 2. We have heard Shri Arijit Prasad, learned counsel appearing on behalf of the Revenue. - D 3. The issue in this appeal relates to the denial of the benefit of Exemption Notification No. 34/98-Cus. dated 13.06.1998 which reads as follows:- - "In exercise of the powers conferred by sub-section (1) of Section 3AofCustoms Tariff Act, 1975 (51of1975), the - E Central Government having regard to the maximum sales tax, local tax or any other charges for the time being leviable on the like goods on their sale or purchase in India, hereby specifies the rates of special additional duty as indicated in column (3) in table below in respect of goods, - F when imported into India, specified in corresponding entry in column(2) of the said table and falling within First Schedule to the said Customs Tariff Act:" Against the relevant entry 'Nil' rate has been specified for All goods falling under the said First Schedule which are imported - G for sale as such, other than by way of high sea sale and the importer at the time of importation or at the time of clearances of warehoused goods for home consumption under the provisions of Section 68 of the Customs Act, - H 1962 (no. 52 of 1962), as the case may, makes a 397 COMMNR.OF CUSTOMS, MUMBAI-Iv. SEIKO BRUSHWARE INDIA[R. F. NARIMAN, J.] specified declaration to that effect in the Bill of Entry in the A manner specified below. Provided that rate specified therein shall not apply if the importer sells the said imported' goods from a place located in an area where no tax is chargeable on sale or B purchase of goods." 4. A reading of this Notification would sh0w that exemption is granted only in respect of such goods which the importer sells post importation from a place located in an area where c no tax is chargeable on sale of goods. 5. The facts of the present case are that pig hair bristles that were imported were sold in the years 1998-1999 and 19992000. Revenue issued a show cause notice dated 26.03.2003 0 stating that since these pig hair bristles were, in fact, sold without any sales tax been paid thereon, the benefit of Exemption Notification dated 13.06.1998 would not be available to the importer in the present case. 6. By a reply dated 17 .10.2003, the importer essentially E contended that pig hair bristles may be exempted from sales tax but that did not mean that they were not chargeable to sales tax. 7. In a detailed order dated 31.03.2004, the learned F Commissioner, after setting out the Notification dated 13.06.1998, and after hearing the importer, ultimately came to the conclusion that an Exemption Notification exempting pig hair bristles from tax would amount to a case where no tax is chargeable on the sale of goods and therefore, the benefit of G the said Notification would not be available to the importer in the present case. 8. In an appeal against the said order by the importer/ assessee, the Customs, Excise and Service Tax Appellate H 398 SUPREME COURT REPORTS [2015] 9 S.C.R. - A Tribunal (hereinafter referred to as 'CESTAT') vide its judgment dated 22.02.2005 has held in favour of the assessee as follows: - "We have heard both the sides and in our view, the - B contention raised by the learned counsel deserves to be accepted. We find that the exemption Notification issued by the Sales-tax Department of Delhi and UP state opponent from where goods in question after import without payment of SAD under Notification No. 34/98 detailed - c above, were sold only exempted the payment of tax on the sale and purchase of the goods at that time and but for these exemption notifications, the goods were othe1wise chargeable to Tax. It was only the payment of tax which was deferred/exempted under those notifications - D for the period mentioned therein. The exemption notification did not render the goods non-chargeable to tax, but only allowed concession in the tax by way of exemption for some period. Therefore, the appellants cannot be said to have sold the goods from the places - E where no tax was chargeable on the sale/purchase of the goods and thereby violated the condition contained in the above said exemption Notification No. 34/98-Cus. 9. It was contended by Shri Arijit'Prasad, learned counsel F appearing on behalf of the Revenue, thatthe CESTAT has not taken note of Section 7 of The Delhi Sales Tax Act, 1975 (hereinafter referred to as 'Act') by which pig hair bristles were said to be in the nature of tax free goods. G 10. He further contended that in the present case, the CESTAT was not correct in referring to an Exemption Notification. What was, in fact, notified was the addition of Entry No. 67 to the Third Schedule of the Act vide Notification dated 15.10.1996 which was wrongly referred to as an Exemption H COMMNR.OF CUSTOMS, MUMBAI-Iv. SEIKO BRUSHWARE INDIA[R. F. NARIMAN, J.] 399 Notification. A 11. We find considerable force in the submission of Shri Arijit Prasad. 12. Section 7 of the Delhi Sales Tax Act, 1975 reads as B under:- "7. Tax-free goods.-(1) No tax shall be payable under this Act on the sale of goods specified in the Third Schedule subject to the conditions and exceptions, if any, set out therein. C (2) The lieutenant Governor may by notification in the Official Gazette, add to, or omit from, or otherwise amend, the Third Schedule either retrospectively or prospectively, and thereupon the Third Schedule shall be deemed to be D amended accordingly: Provided that no such amendment shall be made retrospectively if it would have the effect of prejudicially affecting the interests of any dealer." E 13. The imported goods, viz., pig hair bristles, find mention in Entry 67 of the Third Schedule which reads as follows: - "Pig hair bristles and paint brushes made of pig hair F bristles." 14. It will be noticed that the charging Section itself, viz., Section 3 of the Act, speaks of a dealer whose turnover during the year immediately preceding the commencement of this Act exceeds the taxable quantum as also every registered G dealer liable to pay tax under this Act on all sales effected by him on or after such commencement. It will, thus, be seen C.A. No. 216/2007 4"that even the charging Section uses the expression "liable to pay tax". H 400 SUPREME COURT REPORTS [2015] 9 S.C.R. A 15.Correspondingly, Section 7, whose marginal note indicates that the subject matter of the said section is tax free goods, also uses the same expression as is used in Section 3, viz., "no tax shall be payable under this Act". B 16. On a reading of Sections 3 and 7 of the Act, it becomes clear, therefore, that so far as the imported item, viz., pig bristles is concerned, no sales tax, in fact, is charged on the same. This being the case, it is obvious that the proviso to the Notification dated 13.06.1998 gets attracted and since no tax C is chargeable on the sale of such goods, the said Exemption Notification will therefore, not apply. 17. We, accordingly, set aside the judgment of CESTAT and restore that of the Commissioner. The appeal is disposed D of accordingly. NidhiJain Appeal disposed of.