This case analysis is written by Shobhana Rathore during her internship with Le Droit India.
Court– Bombay High Court
Facts– The contextual facts depict that the petitioners are engaged in the manufacture of passenger cars having their factory at Pune. The cars are manufactured from the completely knocked down kits and parts imported by the petitioners.
After importation of car, while conducting the study and research, it was driven within the factory premises. Further, for the purpose of export, the car was driven from Pune to Mumbai. The car had thus clocked a mileage of 232 Kms. The said car, after conducting studies of various components in India came to be exported on 17.2.1997, under cover of shipping bill for export of goods under claim for draw back.
Issue– 1. Rule returnable forthwith. Shri Rana waives services for the respondents. By consent of parties petition is taken up for final hearing.
2. This petition raises an important question, that whether or not the use of fully built imported car, during the course of study and research, amounts to use of a car after importation thereof into India as contemplated under Section 74(2) of the Customs Act, 1962 (“Act” for short) Contextual facts:
3. For the resolution of the above question, it is necessary to consider contextual facts. Arguments:
Per Contra:
The issue:
4. The substantive issue which needs consideration is whether on the facts and in the circumstances of the case, petitioners are entitled for duty draw back @ 98% of the Customs duty paid at the time of importation?
Arguments
Petitioner Arguments
Petitioners wanted to increase the indigenisation of the components used in the manufacture of car rather than depending on the imported components. Therefore, for conducting study and also for development of the component parts in India, the petitioners imported a fully built car from South Africa in December 1995.
The petitioners on 27.5.1997 filed draw back claim with respondent No. 4 claiming drawback a 98% as provided in Section 74(1) of the Customs Act, 1962 amounting to Rs. 18,85,868.88. On 13.4.2000, the petitioners were granted draw back @ 60% amounting to Rs. 11,52,648/-. in terms of Section 74(2) of the Customs Act, read with Notification No. 19/1995 dated 6.2.1995 issued thereunder, holding that the car was used in India prior to its exportation and hence the petitioners are not entitled for 98% drawback.
Not being satisfied with the grant of duty draw back @ 60% an appeal was preferred by the petitioners, against the aforesaid order dated 23.4.2000 passed by the Assistant Commissioner of Customs, to the Commissioner of Customs (Appeals), Mumbai, who vide its order dated 23.8.2000 had allowed the appeal holding that the car was not used before export and that the petitioners were entitled for duty drawback @ 98%, however, declined to grant interest under Section 27A on delayed payment of duty drawback.
Being aggrieved by the above order dated 18.10.2001 the petitioners as well as Revenue preferred revision applications before the Government of India- the Respondent who, vide its impugned order dated 24.9.2002 allowed both revision applications holding that the car was used prior to export as such, the petitioners were not entitled to duty draw back at the rate of 98 of the duty paid at the same time, petitioners were held entitled for interest on delayed refund of duty drawback.
Dissatisfied with the aforesaid order of the respondent No. 2, holding that petitioners were not entitled to claim duty drawback @ 98% of the duty paid, the petitioners preferred this writ petition under Article 226 of the Constitution of India, contending that the impugned order is unsustainable and suffers from non- application of mind as such liable to be quashed and set aside.
Shri Shreedharan, learned Counsel appearing for the petitioners, based on his well research submissions urged that employment of the word ‘use’ in Section 74(2) of the Act contemplates commercial use of imported goods prior to its export. In his submission, use of car after its importation during the course of study, cannot be said to be ‘use’ of goods as contemplated under Section 74(2) of the Act. According to him, the goods must be used or commercially exploited for the purpose for which it was made. As a extension of the same submission, for the same reason, he submits that if for the purposes of export the car was driven from Mumbai to Pune, it did not amount to use of the car in India after its importation. He further contended that in the present case, car cannot be said to have been used since there is no depreciation in valuation. The car was imported for the purposes of study, on re-export basis. The foreign supplier did not charge the petitioners for the car supplies. After re-export also, the foreign supplier has not charged the petitioners.
According to Shri Shreedharan, under Section 39 of the Motor Vehicles Act, any car prior to its use, must be registered with the authorities specified therein. In other words, car could not have been put to use on road without its registration. The car in question was never used by plying on road after its registration under Motor Vehicles Act. In the instant case, he such
registration was ever obtained since car was to be exported back. He also contended that the car was never meant for use in India. For this reason, also, the car cannot be said to have been
used after importation in India. He placed reliance on the judgment of the Supreme Court in the case of Anwarkhan Mahboob co. v. State of Bombay, and in the case of Kathiawar Industries Ltd. v. Jafarabad Municipality 1979 SCC 56 to contend that the car only be said to have been used, if it is used for the purpose for which it was intended. Therefore, on
the facts of this case, there is he use of car within the meaning of Section 74(2) of the Act as such petitioners are entitled for duty draw back @ 98% of the duty paid by them.
Respondent Argument
Shri Shridharan urged that reliance placed upon the judgment of the Karnataka High Court in Millipore (India) Ltd. (supra) would not apply to the facts of the present case since for the purpose of study, the car has to be driven within the factory to study the functioning of the parts and the same was driven from Pune to Mumbai for export. He thus tried to distinguish the said judgment on the basis of the facts involved in the present case.
Analysis of the law
Relevant Provisions :
15. Before we proceed to resolve the above issue, it is appropriate first to consider the provisions applicable to the present case. Section 74 in general and Sub-section (2) thereof in particular, is relevant for the purposes of deciding the issue raised in the petition. Section 74 of the Act comes into operation when articles are imported and exported, and such articles are easily identifiable. Sub-section (5) of Section 74 provides that the rate of draw back in the case of goods which have been used after importation thereof shall be as notified by the Government. Relevant portion of Section 74(2) reads as under:
“Notwithstanding anything contained in Sub-section (1), the rate of drawback in the case of goods which have been used after the importation thereof shall be such as the Central Government, having regard to the duration of use, depreciation in value and other relevant circumstances, may, by notification in the Official Gazette, fix.”
The aforesaid Sub-section (2) of Section 74 provides that the rate of drawback shall be such as may be fixed by the Central Government by Notification issued in that behalf. Notification No. 19/95-Cus. dated 6.2.1995 has been issued by the Government of India, in supersession of the notification of the Government of India, Ministry of Finance, (Department of Revenue), Customs No. 48, dated 1st February 1963. The Central Government fixed the rate as mentioned in column 2 of the table reproduced hereinbelow, as the rates at which drawback of import duty is to be allowed in respect of goods used which have been out of Customs control for the period mentioned therein, the details of which are as under:
Length of period between of clearance for home consumption and the date when the goods are placed under Customs control for export.
Percentage of import duty to be paid as drawback.
Not more than 6 months 85% More than 6 months but not more than 12 months 70% More than 12 months but not more than 18 months 60% More than 18 months but not more than 24 months.
50% More than 24 months but not more than 30 months.
40% More than 30 months but not more than 36 months.
30% More than 36 months.
Nil.
Analysis of submissions:
Having heard the rival parties at length, it appears that Sub-section (2) of Section 74 allows duty drawback in respect of used goods subject to Central Government’s notification in this regard. If one turns to text of Section 74(2) of the Act, use of the duration of the goods decides the extent of refund of duty draw back. The basis question needs to be answered is what do you mean by the word “use” employed in the Sub-section (2) in question. In order to answer this question one has to turn to the basis fact as to under which scheme of the import policy the import of the car was made by the petitioners, keeping in mind the policy under which the import of the car was made the question or issue raised herein will have to be answered. The Hand Book of Procedure (Vol.I) for the period 1st April 1992 to 31st March 1997 issued by the Ministry of Commerce, Government of India, vide its Clause (98) provides for certain concession for the importability for certain category of imports not involving foreign exchange remittances. The relevant Sub-clause (xiii) of Clause (98) reads as under:
(xii) “Import of prototypes and samples and exceeding 5 in number in a year by Actual Users, industrial or recognised research and development institutions already engaged in the production of or research in the item for which prototype/sample is sought for product development or research, as the case may be, upon a self-declaration to that effect to the satisfaction of the Customs authorities. Import of prototypes/samples may also be made on payment by the Actual Uses, industrial or research and development institutions as per the above-mentioned terms and conditions.
Let us examine the ordinary meaning of the word ‘use. In Shorter Oxford Dictionary the word ‘use’ as a verb has been given a large number of meanings, the most appropriate of which so far as we are concerned, is “to make use” Black’s Law Dictionary has defined the word ‘use’ as a verb, to mean ” to make use of to convert into one’s service, to avail one’s self of, to employ.” It will, therefore, be noticed that the word ‘use’ carries a very wide meaning. Thus, applying the dictionary meaning, one has to reach to the conclusion whether the use of the car was made after its import, for the purpose for which it was imported. It was utilised for the purpose of study for which import was permitted or allowed. Having acted upon the import policy or the Government of India; having taken advantage of importability not involving foreign remittance, having used the goods/Car for research for which it was
imported, can it be said that car was not used for the purpose for which import was made. The answer, in our opinion should be in the negative.
Legal Interpretation:
* The crux of the case lies in interpreting what constitutes ‘use’ under Section 74(2).
* The court must evaluate whether ‘use’ is limited to commercial activities or includes non commercial activities such as research and development.
* Precedents and case law relevant to this interpretation will play a crucial role in guiding the court’s decision.
Considerations for Judgment:
1. Intent of Legislation: The court must consider the legislative intent behind Section 74, which aims to promote exports while protecting government revenue.
2. Nature of Use: Distinguishing between commercial and non-commercial use may be essential. If research and development are deemed non-commercial, it could favor the petitioners.
3. Precedent: Previous rulings on similar cases should be examined to ensure consistency in legal interpretations and outcomes.
4. Broader Implications: The ruling could set a precedent that impacts future cases regarding duty drawbacks and the definition of ‘use,’ potentially influencing how businesses approach the import-export process.
Conclusion:
The outcome of this case hinges on the court’s interpretation of ‘use’ under Section 74(2) of the Customs Act. If the court finds that the petitioners’ activities do not constitute commercial use, they may be entitled to reclaim a higher duty drawback. Conversely, if the court adopts a broader definition of ‘use,’ it may deny the petitioners’ claim, thereby reinforcing strict adherence to customs regulations. The decision will have significant implications for exporters and importers navigating similar circumstances in the future.
