Full Judgment Text
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PETITIONER:
CHEMICALS AND FIBRES OF INDIA LTD. ETC.
Vs.
RESPONDENT:
UNION OF INDIA
DATE OF JUDGMENT11/02/1991
BENCH:
RANGNATHAN, S.
BENCH:
RANGNATHAN, S.
KASLIWAL, N.M. (J)
AGRAWAL, S.C. (J)
CITATION:
1991 SCR (1) 288 1991 SCC (2) 10
JT 1991 (1) 405 1991 SCALE (1)165
ACT:
Central Excises & Salt Act, 1944 & Custom Act, 1962-
Custom and Central Excise Duties Drawback Rules, 1971-
Section 37 and Sec. 75-Rules 3, 4, 6 and 7-Di-
methyl-terephthalate-Import of-Whether assesee entitled to
full ’drawback’ of customs duty paid.
HEADNOTE:
The appellants are manufacturers of Polyester fibre
yarn. They obtained a contract from the Imperial Chemical
Industries, Singapore for the supply of the said yarn and
the said concern had agreed to supply to the appellants free
of cost the di-methyl-terephthalate (DMT) D required for the
manufacture of Polyester staple fibre yarn. The DMT was
required to be converted into polyester fibre, blended with
viscose indigenously and shipped to a customer of the ICI in
Sri Lanka. The appellant assessees obtained customs
clearance permits for import of 392 tons of DMT and also of
178 tons of viscose stable fibre. The appellants also
obtained permission to convert the imported DMT into
polyester fibre under customs bond. The appellants imported
the DMT and paid the customs duty in respect thereof Section
75 of the Customs Act.’ 1962 empowers the Central Government
to allow the drawback of the duties of customs chargeable
under the Act on any imported materials of a class or
description in the manufacture of such goods in accordance
with and subject to the rules under sub-section (2). There
is an identical provision in section 37 of the Central
Excises & Salt Act, 1944 enabling grant of draw back of
the excise duty paid in relation to such manufacture.
The Central Government framed the Customs and Central
Excise Duties Drawback Rules 1971 enabling drawback
being availed of in relation to customs as well as in
relation to duties of central excise. Schedule II to
the notification listed the items the export of which
entities an assessee to avail of the drawback facility. DMT
as such was not included in the notification in respect of
which drawback could have been availed of by the assessees.
The assessee therefore made an application to the Ministry
of Finance on 23.3.1977 requesting that since it had paid
customs duty on DMT, it was entitled to its drawback, more
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289
particularly when its request for the manufacture of
the polyester fibre under customs bond had been
declined by the customs authorities. The application
filed by the appellants was rejected bY the Central
Government on 12.3.1978, though on a representation
made by the Members of the Association of
manufacturers of Polyester staple fabric a
notification had been issued on 2.8.76 under Section
25 of the Customs Act B exempting DMT from Customs
duty. The appellant thereupon filed writ petition
in the Delhi High Court which was dismissed by the
High Court. Hence these appeals.
Dismissing the appeals, but recommending to
the Central Government to consider the case of the
appellants on equitable grounds whether the relief could
be granted to it, this Court,
HELD: Though Section 75 of the Customs Act,
1962 and Section 37 of the Central Excises & Salt
Act 1944 empower the Government to provide for the
repayment of the customs and excise duties paid by
individual manufacturers also, the rules as framed (rule
3 in particular) provide only for a refund of the
’average amount of duty paid on materials, of any
particular class or description of goods used for
the manufacture of export goods of that class or description
by manufacturers generally, except to the extent prescribed
under rule 7. [30OA-B].
The rules do not envisage a refund of an
amount arithmeticaly equal to the customs duty or
central excise duty which may have been actually
paid by an individual importer-cum-manufacturer. If
that had been the statutory intendment, it would
have been simple to provide that in all cases where
imported raw materials are fully used in the manufacturers
of goods which are exported, the assessee would
be entitled to a draw back of the customs or excise
duties paid by him for the import or on the manufacture.
[300C]
There is no controversy that, in this case, the
goods exported fall under item 25. R was sought to be
contended that the goods fall under sub-item 2501, but
this is clearly untenable. Sub-item 2501 represents a
residuary category which will not be attracted to
the goods which clearly fall under sub-item 2502.
The notification prescribes different amounts of
drawback under this item depending on the
composition of the yarn and the nature of its
contents. It specifies an amount of Rs.43.15 per kg.
as the relief by way of drawback available against
the goods with which we are concerned which fall under
clause (b) of item 2502. [30OH-301B]
290
The High Court was right in concluding that the rate
of drawback in respect of the goods in question was fixed
after taking into consideration the aspect of the customs
duty payable in respect of DMT and that a conscious decision
was taken that no relief in this respect should be granted
as DMT was available in the country itself. It cannot
therefore, be said that this is a case where the fixation is
contrary to the terms of rule 3, and that the assessee’s
application for determination of a rate in his case should
be taken as an application under rule 6. [303B)
Rule 6 is also inapplicable for the reason that an
application under rule 6 should be made before the export of
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the manufacturer’s goods which does not seem to be the case
here. [303C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 692 &
693 of 1981.
From the Judgment and Order dated 19.5.1980 of the
Delhi High Court in W.P. Nos. 883 of 1978 and 1079 of 1979.
R.K. Habbu, R.B. Hathikhanwala and B.R.
Aggarwala for the Appellants.
Soli J. Sorabjee, Attorney General (NP), Kapil
Sibal, Additional Solicitor General, Ms. Indu
Malhotra, P. Parmeshwaran and C.V.Subba Rao for the
Respondent.
The Judgment of the Court was delivered by
RANGANATHAN J. These two appeals involve a common
question and can be disposed of by a common judgment.
The question is whether the appellant companies
(hereinafter referred to as the ’assessees’) are
entitled to full "draw back’ of the customs duty which
they had paid on the import of di-methyl-terephthalate
(shortly referred to as ’DMT’) for manufacture of
polyester staple fibre yarn. The assessees converted the
DMT into polyester staple fibre in their factory at
Thane and then sent it to Bhilwara in Rajasthan where
the Rajasthan Spinning and Weaving Mills blended it
with indigenous viscose staple fibre to spin out certain
varieties of blended yarn. It is common ground that the
product manufactured by this process was exported by
the assessees to Imperial Chemical Industries Pvt.
Ltd. Singapore, who had supplied the DMT free of charge
to the assessees. The answer to the question revolves
around the interpretation of Section 75 of the
Customs Act, 1962 read with the Customs and
Central Excise Duty Draw Back Rules, 1971.
291
Section 75 of the Customs Act, 1962 empowers
the Central Government, by notification in the official
gazette, to direct, in respect of goods of any class or
description manufactured in India and exported to any
place outside India, that draw back should be allowed
of the duties of customs chargeable under the Act on
any imported materials of a class or description used in
the manufacture of such goods, in accordance with and
subject to the rules framed under sub-section (2) of
the said section. Sub-section 2, which confers a rule
making power, enacts that such rules may, among other
things, provide:
"(a) for the payment of draw back equal to the
amount of duty actually paid on the imported
materials used in the manufacture of the goods
or as is specified in the rules as the average
amount of duty paid on the materials of
that class or description used in the
manufacture of export goods of that class or
description either by manufacturers generally
or by any particular manufacturer;"
There is a similar provision in section 37 of the Central
Excises & Salt Act, 1944 enabling grant of draw back of
the excise duty paid in relation to such manufacture.
The Central Government framed the Customs and Central
Excise Duties Drawback Rules, 1971 (hereinafter
referred to as ’the rules’), in exercise of the powers
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conferred on it under these two statutes. These are
composite rules under the above two provisions and
enable drawback being availed of in relation to
customs duty as well as in relation to duties of central
excise. Some relevant provisions of these rules may be
quoted here. Rule 3, in so far as it is relevant for our
present purposes, reads as follows:
Rule 3: Drawback: (1) Subject to the provisions
of-
(a) the Customs Act, 1962 (52 of 1962) and the
rules made thereunder.
(b) the Central Excises and Salt Act, 1944 (1 of
1944) and the rules made thereunder, and
(c) these rules,
(a) drawback may be allowed on the export of goods
specified in Schedule II at such amount, or at
such rates, as
292
may be determined by the Central Government.
xxx xxx xxx
(2) In determining the amount or rate of drawback
under this rule, the Central Government shall have
regard to:
(a) the average quantity or value of each class
or description of the materials from which a
particular class of goods is ordinarily produced
or manufactured in India.
(b) the average quantity or value of the imported
materials or excisable materials used for
production or manufacture in India of a particular
class of goods.
(c) the average amount of duties paid on imported
materials or excisable materials used in the
manufacture of semis, components, and intermediate
products which are used in the manufacture of
goods.
(d) the average amount of duties paid on materials
wasted in the process of manufacture and catalytic
agents:
Provided that if any such waste or catalytic agent
is used in any process of manufacture or is sold,
the average amount of duties on the waste or
catalytic agent so used or sold shall also be
deducted.
(e) the average amount of duties paid on imported
materials or excisable materials used for
containing or packing the exported goods.
(f) the average amount of duties of excise paid on
the goods specified in Schedule 1: and
(g) any other information which the Central
Government may consider relevant or useful for the
purpose.
Rule 4. Revision of rates: The Central Government
may revise the amounts or rates determined under
rule 3.
xxx xxx xxx
6. Cases where amount or rate of drawback has
not been determined:
293
(1)(a) Where no amount or rate of drawback has
been determined in respect of any goods, any
manufacturer or exporter of such goods may,
before exporting such goods, apply in writing
to the Central Government for the
determination of the amount or rate of
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drawback therefor stating all relevant facts
including the proportion in which the
materials or components are used in the
production or manufacture of goods and the
duties paid on such materials or components.
(b) On receipt of an application under clause
(a) the Central Government shall after
making or causing to be made such inquiry as
it deems fit, determine the amount or rate
of drawback in respect of such goods.
7. Cases where amount or rate of drawback
determined is low-(l) Where in respect of any such
goods, the manufacturer or exporter finds that the
amount or rate of drawback determined under rule 3
or, as the case may be, revised under rule 4 for
that class of goods is less than three fourths of
the duties paid on the materials or components
used in the production or manufacture of the said
goods, he may make an application in writing to
the Central Govermment for fixation of the
appropriate amount or rate of drawback stating all
relevant facts including the proportion in which
the materials or components are used in the
production or manufacture of the goods and the
duties paid on such materials or components.
(2) On receipt of the application referred to
sub-rule (1) the Central Government may, after
making or causing to be made such inquiry as it
deems fit, allow payment of drawback to such
exporter at such amount or at such rate as may be
determined to be appropriate if the amount or rate
of drawback determined under rule 3 or, as the
case may be, revised under rule 4, is in fact less
than three fourth of such amount or rate
determined under this sub-rule.
Schedule II to the notification by which the rules were
promulgated listed the items the export of which entitles an
assessee to avail of the drawback facility. Item 25 of the
list reads thus:
"Synthetic and regenerated fibre, textile yarn,
thread, twines, cords and ropes
294
It is common ground that the goods exported by the assessees
fall under item 25 above. There is also no controversy that
the DMT imported by the assessees was used for the
manufacture of the above commodity and that, on the import
of the DMT, the assessees have paid customs duty.
The rates of drawback available in respect of various goods
were notified by the Central Government in due course.
Against serial no 25, the notification set out the rates of
drawback as follows:
------------------------------------------------------------
Serial Sub Si. Description of Rate of
No. No. goods Drawback
------------------------------------------------------------
25. SYNTHETIC AND REGENERATED
FIBRES AND/TEXTILE YARN/
THREAD, TWINES, CORDS AND
ROPES
Brand rate to be
2501 Synthetic and regenerated fixed on an
fibre and textile yarn, application from
thread, twines, cords and the individual
ropes not elsewhere manufacturer
specified. exporter.
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2502 (a) Yarn of above 21 BWS Counts
or above 14 n.f. counts, spun
wholly out of either viscose rayon
fibre or acetate fibre or polyster
fibre, polyamide fibre or acrylic
fibre or wool, or from a combination
of two and not more than two of the
above mentioned fibres, or a
combination of any one of the above
mentioned fibres with either cotton
or silk (but excluding yarn spun out
of fibres obtained from fibre wastes,
yarn waste or fabric wastes, by
gernetting or by any other process:
(a) Cellulosic fibre content: Rs. 1.80 (Rupees one and
paise eighty only) per kg.
295
(b) Polyester fibre content: Rs.43.15 (Rupees forty
three and paise fifteen
only) per kg.
(c) Acrylic fibre content: Rs.37.75 (Rupees thirty
seven and paise seventy
five only) per kg.
(d) Polyamide fibre content: Rs. 16.40 (Rupees Sixteen
and paise forty only) per
kg.
(e) Wool contents:
(i) in the worsted yarn of Rs. 18.95 (Rupees
Weaving quality made wool Eighteen and paise
top. ninety five only) per
kg.
(ii) in the worsted yarn of Rs. 13.55 (Rupees
weaving quality not made from Thirteen and paise fifty
wool top. five only) per kg.
(iii) in the worsted Hosiery Rs. 16.65 (Rupees Sixteen
yarn and worsted hand knitting and paise sixty five
yarn made from wool top. only) per kg.
(iv) in the worsted hosiery yarn Rs.11.25 (Rupees Eleven
and worsted hand knitting yarn and Paise twenty five
not made from wool top. only) per kg.
(v) Bye content if the yarn is Rs.0.85 (Eighty five
dyed paise only) per kg.
xxx xxx xxx
It will be seen from the above table that the assessees
are entitled to a drawback of Rs.43.15 per kg. of the
polyester fibre content of the yarn exported by them. We
are informed that this is the rate of central excise duty
payable in respect of the manufacture of yarn having
polyester fibre content. For reasons to be stated
presently, the assessees had to pay no central excise duty
for the manufacture and hence there was admittedly no
question of the assessee getting a drawback to this extent.
The point raised by the assessee is that, having paid
customs duty on the DMT , it was entitled to a drawback in
respect of the customs duty paid by it on the DMT. Since
this was not included in the notification of the Central
Government, the assessees made an application to the
Ministry of Finance on 23.3.1977 requesting that drawback of
the entire customs duty may be sanctioned. This request,
296
however, was rejected by the Central Government by a
communication dated 12.3.1978. This communication was in the
following terms:
"Under Rule 3 of the Customs and Central Excise
Duties Drawback Rules 1971, all industry rates of
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drawback on polyester viscose blended yarn have
been determined and announced under serial no. 2502
of the Drawback Schedule. The said rates have been
determined at the material time, after taking into
consideration:
(a) duty incidence of raw materials used in the
manufacture of viscose fibre, plus the Central
Excise duty on viscose fibre and
(b) the Central Excise duty on polyester fibre in
respect of polyester yarn. However, no raw
material duty for manufacture of polyester yarn
was taken into account, as the same (DMT) is
available indigenously and is exempted from Central
Excise Duty. For the rates determined effective
from 18.8.1977 however the duty incidence on DMT
has also been taken into consideration on the basis
of weighted average of imported and indigenous
material."
The assessees, dissatisfied with this decision of the
Central Government, preferred a writ petition in the Delhi
High Court, which was dismissed by the High Court on
19.5.80. Hence the present appeals.
At this stage, it may be necessary to outline some
facts which may be relevant for appreciating the background
in which the assessees’ counsel urged strongly the
equitable, if not also legal, claims of the appellant for
the drawback of the customs duty. Counsel claims that the
assessees were almost the first group of entrepreneurs in
India to manufacture polyester fibre yarn. They had been
fortunate enough to obtain a contract from the Imperial
Chemical Industries, Singapore. By a letter dated 2.4.75
this concern agreed to supply free of cost the DMT required
for the manufacture of blended yarn consisting of 67 per
cent polyester and 33 per cent viscose fibre. The DMT was
to be converted in polyester fibre, blended with viscose
indigenously and shipped to a customer of the ICI in Sri
Lanka. Thereupon, on 2.6.75, the assessees obtained customs
clearance permits for import of 392 tons of DMT and also of
178 tons of viscose staple fibre. Eventually, however, the
viscose staple fibre was obtained indigenously and the
import permit, to this extent, was not utilised by the
assessee. At the
297
time of obtaining this permit, the assessees also obtained
permission to convert the imported DMT into polyester
fibre under customs bond. The condition attached to
the Customs Clearance permit was in the following
terms:
"The firm will convert the imported DMT
into polyester fibre under Customs bond. The
firm will then move the polyester fibre so
manufactured and the imported viscose staple
fibre under bond to the bonded
warehouse of Rajasthan Spinning and Weaving
Mills, Bhilwara- Messrs. Rajasthan Spinning
and Weaving Mills will then manufacture
under bond polyester viscose yarn on behalf
of the firm. The polyester viscose fibre yarn
will then be exported by the firm to the
overseas buyers who have supplied the DMT
and viscose staple fibre on CCP basis
or their nominees.........
If these conditions had been fulfilled the assessees would
have had no problems. The polyester fibre would have
been manufactured under customs bond and this would
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have obviated payment of customs duty by the assessees.
So also, the production of the blended yarn at the
Rajasthan Spinning and Weaving Mills would have been
under Central excise supervision and no excise duty would
have been payable on the manufacture. Unfortunately,
however, the customs authorities were not in a
position to permit the conversion of the DMT into
polyester fibre under customs bond for reasons which are
not at present relevant and which are not being
challenged in these proceedings. The assessees’s
request for the manufacture of polyester fibre under:
customs bond was declined by the customs authorities
on 2.4.1976. Perhaps anticipating this difficulty, the
Association of Polyester Staple Fibre Manufacturers at
Bombay made an application to the Central Government
on 26.3.1976 praying for exemption from customs duty
on DMT required for the manufacture of polyester staple
fibre. This letter points out:
"Members of this Association manufacture
polyester staple fibre. One of our members has
received an advance licence for the import of
DMT, a photostat copy of which we attach
herewith. This DMT is to be used for manufacture
in polyester fibre and the polyester fibre then
converted into yarn to be supplied against
export orders. Our members wish to explore
possibility of larger export business in this
manner. Indigenous supplies of both DMT and glycol
are
298
insufficient to meet the domestic market
requirements and export business can only be done
by import of the two materials. Fulfilling export
orders by using advance licences as the one issued
to our member poses certain problems because the
licence stipulated manufacture under Customs Bond.
You will appreciate the difficulty in
manufacturing under bond when the fibre for export
constitutes only a portion of the total
manufacture of the factory. If DMT and glycol
could be included in the schedule to the customs
Notification GSR 183, the procedural difficulties
in manufacturing under Bond will not apply.
Exports of yarn made from raw materials obtained
against advance licences could earn considerable
foreign exchange because of the value added during
processing.
One of the assessees also made a similar request and,
eventually, a notification was issued on 2nd August, 1976
under s. 25 of the Customs Act exempting DMT from customs
duty. The Government of India also wrote to one of the
present appellants on 9.9.76 drawing attention to the said
notification and stating that with the issue of this
notification. The assessees’ problem would appear to have
been solved. This, however, was not correct. The
notification exempted future imports of DMT from customs
duty but the assessees, having imported the DMT earlier, had
to clear the same after paying customs duty thereon. Hence
their request for a drawback of the customs duty already
paid by them, the refusal of which has led to the present
litigation.
On behalf of the appellants, it is contended that the
Customs Act contains provisions enabling thd Government
either to exempt goods under section 25 from the levy of
Customs duty at the time of import or failing this, to
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permit a drawback of customs duty paid in the event
of the conditions set out in section 75 being
fulfilled. In the present case, an exemption under
section 25 of the Customs Act was in fact notified
but unfortunately this happened only in August,
1976. By this time, the assessees had already
imported the DMT. This they were obliged to do
because of a time-bound programme for export of the
manufactured fibre to Sri Lanka. Counsel states
that, from the very outset, the assessees had
proceeded on the footing that they would be
obtaining exemption from customs and excise duty
because, apart from getting some conversion charges
from the ICI, their own margin of profit on the
transaction was not substantial. That is why even
at the time of obtaining the customs clearance
permit they had sought for permission to convert
DMT into polyester under customs bond. If that had
been
299
done, there would have been no necessity to pay customs
duty at all. Unfortunately, because the department
lacked facilities to supervise such an operation, the
attempt of the assessees was only partially successful
in that they were able to get only the production of
the blended fibre done under Central Excise supervision.
The initial stage of conversion from DMT to polyester
fibre could not be done under customs bond. It is
pointed out that the Government of India had exempted
DMT from customs duty only on the basis of the
representations made by the assessees and it is urged that
the refusal to grant drawback of customs duty to
assessees is wholly unjustified.
The object of S. 75 of the Customs Act, read with S. 27
of the Central Excise Act, is obviously to provide that in
cases where certain goods are imported for complete
utilisation in the manufacture of goods which are
exported, the importer should be able to obtain relief
in respect of customs and excise duties. In the present case
there is no controversy that the D.M.T. imported by the
assessee was utilised for the manufacture of polyester
staple fibre and that the final product was fully
exported to Sri Lanka. The notification made under
the rules framed for this purpose, however, provides
only for a drawback in respect of the excise duty
involved in the manufacture of polyester staple fibre
but not the customs duty on the raw material actually
imported. Sri Habbu, learned counsel, contends that
this notification, in fact, is contrary to the provision
contained in rule 3 which obliges the Government, in
determining the amount or rate of drawback, to have
regard, among other things, to the amount of duties
paid on imported or excisable material used in the
manufacture of the exported goods. He submits that, in
so far as the rates prescribed by the Central
Government do not take into account the element
of import duty on DMT, the fixation is not in accordance
with the rule. According to him, therefore, this
case’falls under rule 6 which enables an assessee to
apply to the Central Government to determine a
drawback where none has been determined. The
Central Government, he submits, was in error in rejecting
the assessees’ application as one falling under rule 7
and, therefore not maintainable both in law and
equity.
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Having heard the learned counsel for the
assessees at some length, we are of opinion that the
High Court was right in rejecting the assessees
contentions. We think that the assessees’ arguments
are based on a basic misapprehension that, under the
Acts and rules, a manufacturer is automatically
entitled to a drawback of the entire customs and
excise duties paid by him if the terms and
conditions of
300
S. 75 are fulfilled. Though S. 75 of the Customs Act and S.
37 of the Central Excises & Salt Act empower the Government
to provide for the repayment of the customs and excise
duties paid by individual manufacturers also, the rules as
framed (rule 3 in particular) provides only for a refund of
the "average amount of duty paid on materials" of any
particular class or description of goods used for the
manufacture of export goods of that class or description by
manufacturers generally, except to the extent prescribed
under rule 7 (to be noticed presently). The rules do not
envisage a refund of an amount arithmetically equal to the
customs duty or central excise duty which may have been
actually paid by an individual importer-cum-manufacturer.
If that had been the statutory intendment, it would have
been simple to provide that in all cases where imported raw
materials are fully used in the manufacture of goods which
are exported, the assessee would be entitled to a drawback
of the customs or excise duties paid by him for the import
or on the manufacture. On the other hand, S. 75(2) requires
the amount of drawback to be determined on a consideration
of all the circumstances prevalent in a particular trade and
the fact situation relevant in respect of each of various
classes of goods imported and manufactured. The need for
providing an elaborate process of determination as envisaged
in rule 3 is this. There may be different manufacturers of
a particular manufactured item. Some of them may be using
indigenous material and some may be importing some of the
raw material. Similarly, in the process of manufacture
also, there may be difference between manufacturer and
manufacturer. That is why the drawback rules provide for a
determination of the drawback after taking into account the
"average" amount in respect of each of the various items
specified in rule 3 in relation to each type of goods listed
in Schedule II. The notification issued also determines the
composite drawback available in respect of both customs and
excise duties to importers-cum-manufacturers in respect of
various categories of goods. In other words, the amount of
drawback is not intended to be the amount of the duties that
may have been paid by individual manufacturers; it is to be
determined by considering the overall position prevalent in
the country in respect of each of the categories of trade in
the goods specified in Schedule II. We think that, if this
basic principle is understood, the decision of the
Govermment would become intelligible and rational.
There is no controversy that, in this case, the goods
exported fall under item 25. Learned counsel sought to
contend that the goods here fall under sub-item 2501 but
this is clearly untenable. Sub-item 2501 represents a
residuary category which will not be attracted to the
301
goods here which clearly fall under sub-item 2502. The
notification prescribes different amounts of drawback
under this it@m depending on the composition of the
yarn and the nature of its contents. It specifies an
amount of Rs.43.15 per Kg. as the relief by way of
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drawback available against the goods with which we
are concerned which fall under clause (b) of item 2502.
This much indeed, was conceded before the High Court.
Once we understand the principles on which and the
scheme according to which the rates of drawback are to be
and are determined as explained earlier, the plea of the
appellants, that the amount of drawback determined is
nothing more than the excise duty payable on
manufacture of blended fibre with polyester fibre, content
and that the notification has erred in overlooking
the customs duty paid on imported DMT, is
wholly untenable. We say this for two reasons.
First, the rates prescribed constitute a composite rate
of drawback fixed having regard to the liabilities under
the Customs Act as well as the Central Excises & Salt
Act. It would not be correct, in principle, to bifurcate
the amount so fixed into its two constituents and to
say, merely because the amount fixed is equal to one of the
duties, that the other has not been taken into
account. In theory, the drawback determined could have
taken into account both sets of duties in part only.
It cannot be said to be merely the customs duty
drawback or central excise duty drawback. Though it does
appear that the various rates of drawback prescribed
under item 2502 are equal to the rates of excise duty
payable on the manufacture of the various items
referred to therein, the nature of exemption granted is one
of relief under both enactments. It is immaterial
whether this quantum of relief benefits the assessee in
respect of one or other or both of the levies which he
has to discharge. The attempt to identify and
correlate the rebate granted to the central excise duty
paid does not therefore appear to be correct in
principle.
But, this ground apart, we think there is force in the
point made by the learned counsel for the Union of India
and accepted by the High Court that at the time when
these drawback rates were fixed, the Government of
India took into account both the import duty as well as
the excise duties which would be payable on the
manufacture of the goods the export of which was
intended to be encouraged. After examining the
condition in the trade, it was found that D.M.T. was
easily available in India at that time and that, therefore,
it would not be necessary to grant any relief in respect
of drawback of customs duty on the imported material
because that would only result in assessees
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attempting unnecessarily to import a raw material which was
available in the country itself. In fact, this is the
aspect on which the Delhi High Court has laid considerable
emphasis. Learned counsel for the appeallants contends
that this is factually and that this is clearly shown by the
very fact that Government of India itself, in August, 1976,
decided to grant exemption in respect of customs duty for
the import of D.M.T. He submits that if D.M.T. had been
easily available indigenously at that time, the question of
granting exemption under S. 25 would not have appealed to
the Government at all. He, therefore, submits that, in
fixing the rate of drawback the Central Government had
proceeded on the footing that no import duty would be
payable on the DMT and that it will be sufficient to grant
relief in respect of Central excise duty alone. We find
that, on this aspect, the position is not so simple as
submitted by the learned counsel for the appellants. We
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have already extracted reply of the Government of India to
the assessees’ representation which clearly mentions that
DMT is available indigenously and that, therefore, no duty
in manufacture of polyester yarn was taken into account.
This is a statement of fact and there is no material placed
before us to contradict the same except for the cor-
respondence referred to earlier. If one looks carefully at
the corres-pondence, one will find that it does not support
the assessees’case. For one thing the memorandum submitted
by the Association of March 1976 itself proceeds on the
footing that DMT is available locally but not sufficient to
meet the domestic market requirments. This, clearly, is a
reference to something which happened after the present
appellants had imported their goods and started the
manufacture. Indeed, it is their claim that they were fore-
runners in this field. Fol-lowing up on the assessees’
attempt to obtain imports of DMT and exporting the goods
manufactured, other polyester staple fibre manufacturers
also proposed to explore the possibilities of such imports
and exports and what the letter says would only appear to be
that the indigenous supplies of DMT and Glycol may not be
enough to meet the domestic market requirements if the
business is so expanded. By the time the notification
fixing the rates was issued, import duty on DMt had been
removed and, therefore, there was no purpose in granting a
drawback of customs duty. In these circumstances, the
customs duty was rightly not taken into account in fixing
the rate of drawback. The letter of the Government dated
9.9.76 is only an answer to the assessees’ prayer that its
problem may be solved by granting an exemption for DMT from
customs duty and refers only to the position after the
notification of exemption. It is not reply to the
assessees’ representation in respect of the past which was
filed only much later in 1977. The correspondence in the
case is, therefore, of no
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help to the assessees. It may also be pointed out that the
assessees appear to have imported DMT not because it was
not locally available but only because it was able to get it
free of cost from the ICI which was a benefit which other
manufacturers, if any, could not have enjoyed. We are,
therefore, of opinion that High Court was right in
concluding that the rate of drawback in respect of the goods
in ques-tion was fixed after taking into consideration the
aspect of customs duty payable in respect of DMT and that a
conscious decision was taken that no relief in this respect
should be granted as DMT was available in the Country
itself. It cannot,therefore, be said that this is a case
where the fixation is contrary to the terms of rule 3 and
that the assessees’ application for determination of a rate
in his case should be taken as an application under rule 6.
Rule 6 is also inapplicable for the reason that an
application under rule 6 should be made before the export of
the manufactured goods which does not seem to be the case
here. The assessees’ reliance on rule 6, therefore, fails.
It is true the fixation of rates of drawback on the
average basis indicated in rule 3 could work hardship in
individual cases. Provi-sion for this contingency is made
in rule 7. The assessees’ application was rightly treated
as one made under this rule and they could, if at all seek
relief only if their case fell within its terms. This
rule, unfortu-nately does not provide for relief in every
case where an individual manufacture has to pay customs and
excise duty to a larger extent than that determined for his
class of goods. Relief is restricted only to cases when the
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margin of difference is substantial and to the extent
specified in rule 7. The High Court has discussed this
point at length and demonstrated, by giving necessary
figures, how the assessees’ case does not fulfill the term
of the rule and this conclusion is not, in fact, challenged
by the learned counsel for the appellants. The
Government was, therefore, right in rejecting the
appellants’ request made under section 7 of the Drawback
Rules.
For the reasons above mentioned, we agree with the
High Court that the order of the Central Government
rejecting the assessees’application was well founded and
cannot be interfered with. Learned counsel for the
appellants brings to our notice a manual published by the
Directorate of Publication. Ministry of Finance, Department
of Revenue explaining the scope of the rules as well as two
notifications issued by the Government on 9.6.1978 and
1.2.1982 respectively and submits that the present case
falls within the terms of these notifica-tions. We are
constrained to point out that these are notifications issued
subsequent to the period of the controversy before us: also
this
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is material which was not placed before the authorities or
the High Court. We, therefore, find ourselves unable to
permit the assessee to rely upon them at this late stage.
However, having regard to the circumstances and the
subsequent policy in the above rules, we think it is a fit
case in which the Central Government could consider whether,
on equitable grounds, the assessee can be given relief in
respect of the customs duty on DMT paid by it. In this
context, it is worthwhile noting that the assessee saved
foreign exchange for the country by importing DMT free of
cost. The entire manufactured product has also been
exported and earned foreign exchange. The appellants also
apparently gave impetus to other manufacturers for the
export of blended fibre on large scale. If only the
appellants had imported the DMT a few months later, they
would have been entitled to exemption from customs duty and
would not have suffered the present handicap. They also did
obtain the permission of the Government to convert DMT into
polyester fibre under customs bond but this could not be
implemented for reasons beyond their control. Having regard
to all these circumstances, it would seem only just and fair
that the assessees should not be denied a benefit of which
all other persons have since availed of. We, therefore,
think that this is a fit case in which the Government should
consider, in case the assessees make an application within
two months from today, whether the assessees could be
granted the relief prayed for, if only on equitable grounds,
and pass appropriate orders on such applications.
With the above observations, these appeals are dismissed.
But in the circumstances, we make no order as to costs.
Y. Lal Appeals dismissed.
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