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'REPORTABLE' IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 216 OF 2007

COMMISSIONER OF CUSTOMS, MUMBAI-I              ... Appellant VERSUS

M/S SEIKO BRUSHWARE INDIA                      ... Respondent

J U D G M E N T R. F. NARIMAN, J.

Despite service, nobody appears for the respondent.

We  have  heard  Shri  Arijit  Prasad,  learned  counsel appearing on behalf of the Revenue.   

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 3A of Customs Tariff Act, 1975  (51  of  1975),  the  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,  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 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, 1962 (no. 52  of  1962),  as  the  case  may,  makes  a  specified

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declaration to that effect in the Bill of Entry in the 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 purchase of goods.”   

A  reading  of  this  Notification  would  show  that exemption is granted only in respect of such goods which the importer sells post importation from a place located in an area where no tax is chargeable on sale of goods.   

The  facts  of  the  present  case  are  that  pig  hair bristles that were imported were sold in the years 1998-1999 and 1999-2000.  Revenue issued a show cause notice dated 26.03.2003 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.

By a reply dated 17.10.2003, the importer essentially contended that pig hair bristles may be exempted from sales tax but that did not mean that they were not chargeable to sales tax.

In  a  detailed  order  dated  31.03.2004,  the  learned 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

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benefit of the said Notification would not be available to the importer in the present case.  

In  an  appeal  against  the  said  order  by  the importer/assessee,  the  Customs,  Excise  and  Service  Tax Appellate 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 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  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 otherwise chargeable to Tax.   It  was  only  the  payment  of  tax  which  was deferred/exempted  under  those  notifications  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 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.

It was contended by Shri Arijit Prasad, learned counsel appearing on behalf of the Revenue, that the 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.  

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

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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 Notification.

We find considerable force in the submission of Shri Arijit Prasad.

Section 7 of the Delhi Sales Tax Act, 1975 reads as 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. (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  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.”

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 bristles.”

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 dealer liable to pay tax under this Act on all sales effected by him on or after such commencement.  It will, thus, be seen

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that even the charging Section uses the expression “liable to pay tax”.

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”.   

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 is chargeable on the sale of such goods, the said Exemption Notification will therefore, not apply.   

We, accordingly, set aside the judgment of CESTAT and restore that of the Commissioner.  The appeal is disposed of accordingly.

........................., J. [ A.K. SIKRI ]

........................., J. [ ROHINTON FALI NARIMAN ]

New Delhi; September 04, 2015.

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