Important Case Law

under Customs
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 Important Case laws Under Customs

1. Tirupati Udyog Ltd. v. UOI 2011 (272) ELT 209 (AP)

Are the clearance of goods from DTA to Special Economic Zone chargeable to export duty under the
SEZ Act, 2005 or the Customs Act, 1962?

High Court’s Observations and Decision: The High Court, on the basis of the following observations,
inferred that the clearance of goods from DTA to Special Economic Zone is not liable to export
duty either under the SEZ Act, 2005 or under the Customs Act, 1962:-

• A charging section has to be construed strictly. If a person has not been brought within the
ambit of the charging section by clear words, he cannot be taxed at all.

• SEZ Act does not contain any provision for levy and collection of export duty for goods
supplied by a DTA unit to a Unit in a Special Economic Zone for its authorised
operations. In the absence of a charging provision in the SEZ Act providing for the levy of
customs duty on such goods, export duty cannot be levied on the DTA supplier by
implication.

• With regard to the Customs Act, 1962, a conjoint reading of section 12(1) with sections 2(18),
2(23) and 2(27) of the Customs Act, 1962 makes it clear that customs duty can be levied
only on goods imported into or exported beyond the territorial waters of India. Since both the
SEZ unit and the DTA unit are located within the territorial waters of India, section 12(1)
of the Customs Act 1962 (which is the charging section for levy of customs duty) is not
attracted for supplies made by a DTA unit to a unit located within the Special Economic
Zone.

2. Gira Enterprises v. CCus. 2014 (307) ELT 209 (SC)

Can the value of imported goods be increased if Department fails to provide to the importer, evidence
of import of identical goods at higher prices?

Facts of the Case: The appellant imported some goods from China. On the basis of certain
information obtained through a computer printout from the Customs House, Department alleged that
during the period in question, large number of such goods were imported at a much higher price
than the price declared by the appellant. Therefore, Department valued such goods on the basis
of transaction value of identical goods as per erstwhile rule 5 [now rule 4 of the Customs Valuation

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 (Determination of Value of Imported Goods) Rules, 2007] and demanded the differential duty along
with penalty and interest from the appellant. However, Department did not provide these printouts
to the appellant.

The appellant contended that Department’s demand was without any basis in law, without any
legally admissible evidence and opposed to the principles of natural justice as the computer printout
which formed the basis of such demand had not been supplied to them. Resultantly, the appellant
had no means of knowing as to whether any imports of comparable nature were made at the
relevant point of time.

Supreme Court’s Observations: Supreme Court observed that since Revenue did not supply the copy
of computer printout, which formed the basis of the conclusion that the appellants under-valued the
imported goods, the appellants obviously could not and did not have any opportunity to demonstrate
that the transactions relied upon by the Revenue were not comparable transactions.

Supreme Court’s Decision: The Supreme Court held that mere existence of alleged computer
printout was not proof of existence of comparable imports. Even if assumed that such printout
did exist and content thereof were true, such printout must have been supplied to the appellant and
it should have been given reasonable opportunity to establish that the import transactions were not
comparable. Thus, in the given case, the value of imported goods could not be enhanced on the
basis of value of identical goods as Department was not able to provide evidence of import of
identical goods at higher prices.

3. ABC India v. Union of India 1992 (61) E.L.T. 205 (Del.) [maintained by Supreme Court]

Summary of Case Law: There is distinction between section 74 and 75 of the Customs Act-
section 74 of the Customs Act comes into operation when articles are imported and therupon
exported, such articles being easily identifiable; and section 75 comes into operation when imported
materials are used in the manufacture of goods which are exported.

4. Parimal Ray v. CCus. 2015 (318) ELT 379 (Cal.)

Is limitation period of one year applicable for claiming the refund of amount paid on account
of wrong classification of the imported goods ?

Facts of the Case: The petitioners imported tunnel boring machines which were otherwise fully
exempt from customs duty. However, owing to erroneous classification of such machines, they paid

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 large amount of customs duty. After expiry of more than 3 years, the petitioners filed a writ petition
claiming the refund of the amount so paid. The said refund claim was rejected on the ground that
the petitioners failed to make a proper application of refund under section 27 of the Customs Act,
1962 within the stipulated period of 1 year of payment of duty.

High Court’s Observations and Decision: The High Court observed that the provisions of section 27
apply only when there is over payment of duty or interest under the Customs Act, 1962. When the
petitioners’ case is that tunnel boring machines imported by it were not exigible to any duty, any
sum paid into the exchequer by them was not duty or excess duty but simply money paid into the
Government account. The Government could not have claimed or appropriated any part of this as duty
or interest. Therefore, there was no question of refund of any duty by the Government. The money
received by Government could more appropriately be called money paid by mistake by one person to
another, which the other person is under obligation to repay under section 72 of the Indian Contract
Act, 1872.
A person to whom money has been paid by mistake by another person becomes at common law a
trustee for that other person with an obligation to repay the sum received. This is the equitable
principle on which section 72 of the Contract Act, 1872 has been enacted. Therefore, the person
who is entitled to the money is the beneficiary or cesti qui trust*. When the said amount was paid
by mistake by the petitioner to the Government of India, the latter instantly became a trustee to
repay that amount to the petitioner. The obligation was a continuing obligation. When a wrong is
continuing there is no limitation for instituting a suit complaining about it. The High Court, therefore,
allowed the writ application and directed the respondents (Department) to refund the said sum to
the petitioner.

5. CC v .Hewlett Packard India Sales (p) Ltd. 2007 (215) E.L.T. 484 (S.C.)

In this case the assessee was engaged in the manufacture of, and trading in, computers including
Laptops (otherwise called ‘Notebooks’) falling under Heading 84.71 of the CTA Schedule. They
imported Notebooks (Laptops) with Hard Disc Drivers (Hard Discs, for short) preloaded with
Operating Software like Windows XP, XP Home etc. These computers were also accompanied by
separate Compact Discs (CDs) containing the same software, which were intended to be used in
the event of Hard Disc failure.

The assessee classified the software separately and claimed exemption. The court held that
without operating system like windows, the laptop cannot work. Therefore, the laptop along
with software has to be classified as laptop and valuation to be made as one unit.

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6. State of Punjab v. Nokia India Private Limited 2015 (315) ELT 162 (SC)

Whether the mobile battery charger is classifiable as an accessory of the cell phone or as an
integral part of the same ?

In this case, the assessee classified the mobile battery charger as an integral part of the main product
i.e. Nokia mobile phone. It contended that cell phone could not be operated without the charger.
Further, mobile battery chargers were provided free with the cell phone in a composite package.
Therefore, it applied the concessional rate of tax on the mobile battery charger also, as applicable on
the mobile phone. However, it also admitted that whenever it sold the chargers separately, tax was
not charged at the concessional rate.

According to Department, a battery charger was not a part of the cell phone but merely an accessory
thereof. Thus, concessional rate of tax applicable on cell phones was not applicable to the mobile
battery chargers

Supreme Court’s Observations: The Supreme Court decided the case in favour of Revenue and
against the assessee holding that the battery charger is not a part of the mobile/cell phone
but an accessory to it, on the basis of the following observations:

I. Had the charger been a part of cell phone, cell phone could not have been operated without
using the battery charger. However, as a matter of fact, it is not required at the time of
operation. Further, the battery in the cell phone can be charged directly from the other
means also like laptop without employing the battery charger, implying thereby, that it is
nothing but an accessory to the mobile phone.
II. As per the information available on the website of the assessee, it had invariably put the
mobile battery charger in the category of an accessory which means that in the common
parlance also, the mobile battery charger is understood as an accessory.
III. A particular model of Nokia make battery charger was compatible with many models of
Nokia mobile phones and also many models of Nokia make battery chargers are
compatible with a particular model of Nokia mobile phone, imparting various levels of
effectiveness and convenience to the users.
IV. Rule 3(b) of the General Rules for Interpretation of the First Schedule of the Customs
Tariff Act, 1975 can also not be applied in the assessee’s case as merely making a composite
package of cell phone and mobile battery charger will not make it composite goods for the
purpose of interpretation of the provisions.
Decision: The Apex Court held that mobile battery charger is an accessory to mobile
phone and not an integral part of it. Further, battery charger cannot be held to be a
composite part of the cell phone, but is an independent product which can be sold separately
without selling the cell phone.

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7. M/s CPS Textiles P Ltd. v. Joint Secretary 2010 (255) ELT 228 (Mad.)

Will the description of the goods as per the documents submitted along with the Shipping Bill
be a relevant criterion for the purpose of classification, if not otherwise disputed on the basis of
any technical opinion or test?

(ii) Whether a separate notice is required to be issued for payment of interest which is mandatory
and automatically applies for recovery of excess drawback?

High Court’s Decision: The High Court held that the description of the goods as per the
documents submitted along with the Shipping Bill would be a relevant criterion for the
purpose of classification, if not otherwise disputed on the basis of any technical opinion
or test. The petitioner could not plead that the exported goods should be classified under
different headings contrary to the description given in the invoice and the Shipping Bill which
had been assessed and cleared for export.
Further, the Court, while interpreting section 75A(2) of the Customs Act, 1962, noted that
when the claimant is liable to pay the excess amount of drawback, he is liable to pay
interest as well. The section provides for payment of interest automatically along with excess
drawback. No notice for the payment of interest need be issued separately as the payment of
interest becomes automatic, once it is held that excess drawback has to be repaid.

8. Mangalore Refinery & Petrochemicals Ltd v. CCus. 2015 (323) ELT 433 (SC)

In case of import of crude oil, whether customs duty is payable on the basis of the quantity of
oil shown in the bill of lading or on the actual quantity received into shore tanks in India?

Facts of the Case: The assessee imported crude oil. On account of ocean loss, the quantity of
crude oil shown in the bill of lading was higher than the actual quantity received into the
shore tanks in India. The assessee paid the customs duty on the actual quantity received into the
shore tanks.

Point of Dispute: The Department contended that the quantity of crude oil mentioned in the
various bills of lading should be the basis for payment of duty, and not the quantity actually
received into the shore tanks in India. This was stated on the basis that duty was levied on an ad
valorem basis and not on a specific rate. The assessee contended that it makes no difference as to
whether the basis for customs duty is at a specific rate or is ad valorem, in as much as the
quantity of goods at the time of import alone is to be looked at.

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 Tribunal’s Observations: The Tribunal accepted the Department’s contentions on the basis of
the following reasons:
(i) Duty ought to be levied on the total payment made by the assessee irrespective of the quantity
received.
(ii) An ad valorem duty would necessarily lead to this result but duty levied at the specific rate would
not. The quantity of goods to be considered in the latter case will only be the quantity of crude
oil received in the shore tank.
(iii) Section 14 of the Customs Act, 1962 kicks in when the duty is on an ad valorem basis and sections
13 and 23 of the Act do not stand in the way because it is not the question of demanding duty on
goods not received, but it is the demand of duty on the transaction value. In spite of the “ocean
loss”, the assessee has to make payment on the basis of the bill of lading quantity.

Supreme Court’s Observations: The assessee raised the issue before the Supreme Court. The
Apex Court noted the following:

(i) The levy of customs duty under section 12 of the Act is only on goods imported into India. Goods
are said to be imported into India when they are brought into India from a place outside India. Unless
such goods are brought into India, the act of importation which triggers the levy does not take place.
If the goods are pilfered after they are unloaded or lost or destroyed at any time before
clearance for home consumption or deposit in a warehouse, the importer is not liable to pay the
duty leviable on such goods. This is for the reason that the import of goods does not take place
until they become part of the land mass of India and until the act of importation is complete which
under sections 13 and 23 happen only after an order for clearance for home consumption is made
and/or an order permitting the deposit of goods in a warehouse is made.

(iii) Under section 23(2), the owner of the imported goods may also at any time before such orders
have been made relinquish his title to the goods and shall not be liable to pay any duty thereon.
In short, he may abandon the said goods even after they have physically landed at any port in India
but before any of the aforesaid orders have been made. This again is for the good reason that the
act of importation gets complete when goods are in the hands of the importer after they have been
cleared either for home consumption or for deposit in a warehouse.
(iv) Further, as per section 47 of the Customs Act, the importer has to pay import duty only on goods
that are entered for home consumption. Obviously, the quantity of goods imported will be the
quantity of goods at the time they are entered for home consumption.
The Supreme Court stated that Tribunal’s reasoning for concluding that the bill of lading quantity
alone should be considered for the purpose of valuing the imported goods is incorrect in law. The
Apex Court examined each of the reasons given by the Tribunal as under:

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• The Tribunal lost sight of the fact that a levy in the context of import duty can only be on imported
goods, that is, on goods brought into India from a place outside of India. Till that is done, there is no
charge to tax.
• The taxable event in the case of imported goods is “import”. The taxable event in the case of a
purchase tax is the purchase of goods. The quantity of goods stated in a bill of lading would perhaps
reflect the quantity of goods in the purchase transaction between the parties, but would not reflect
the quantity of goods at the time and place of importation. A bill of lading quantity, therefore, could
only be validly looked at in the case of a purchase tax but not in the case of an import duty.
• The quantity of goods stated in a bill of lading would perhaps reflect the quantity of goods in the
purchase transaction between the parties, but would not reflect the quantity of goods at the time
and place of importation. A bill of lading quantity, therefore, could only be validly looked at in the
case of a purchase tax but not in the case of an import duty.
• The basis of the judgment of the Tribunal is on a complete misreading of section 14 of the Customs
Act. First and foremost, the said section is a section which affords the measure for the levy of
customs duty which is to be found in section 12 of the said Act. Even when the measure talks of
value of imported goods, it does so at the time and place of importation, which again is lost sight of
by the Tribunal.
• The Tribunal's reasoning that somehow when customs duty is ad valorem the basis for arriving at the
quantity of goods imported changes, is wholly unsustainable. Whether customs duty is at a specific
rate or is ad valorem does not make the least difference to the statutory scheme. Customs duty
whether at a specific rate or ad valorem is not leviable on goods that are pilfered, lost or destroyed
until a bill of entry for home consumption is made or an order to warehouse the goods is made. This
is for the reason that the import is not complete until what has been stated above has happened.

Supreme Court’s Decision: The Supreme Court set aside the Tribunal’s judgment and declared that
the quantity of crude oil actually received into a shore tank in a port in India should be the
basis for payment of customs duty.

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