Sukumar Mukhopadhyay: Countervailing duty on onion

It has been widely reported in the media that not only the import duty but the countervailing duty has been exempted to facilitate the import of onion into India to check its soaring price. 

Without the briefing by the Ministry of Finance, more specifically the CBEC, the media would not have reported it. The fact is that there is no duty of central excise on onion. In the Central Excise Tariff onion is at the tariff item 07031010 and the rate of duty is nil. So the question of exempting does not arise. Fortunately no exemption notification has been issued by the CBEC.

A more basic and fundamental issue arises here. Why at all the duty of onion should be shown as nil? Only exciseable goods are to be shown in the tariff. If the goods are not excisable , there is no question of showing them in the tariff. On this technical issue my view is the following.

The Schedules in the Customs & Central Excise Tariffs usually indicate positive rates of duty but for several items the rates are Nil, Free or just left blank. In this treatise my proposition is that neither there is any consistency nor any legal basis in this system.

In the Central Excise Tariff, there are Blanks for many items such as live animals (horse, cow, bird etc), wheat, rice, which are unmanufactured items and even for electrical energy which is a manufactured item. Nil occurs for fish, fresh meat (of bovine animal, rabbit, swine etc), milk, butter, honey, human hair, bovine semen, betel leaves, bamboo etc. which are unmanufactured products and on some manufactured products also.

In Customs there are no Blanks nor Nil duties but the entry Free occurs for rye, barley,

raw fur skin, newspapers, journals etc. In Customs it does not matter whether the items are manufactured or unmanufactured. But in Central Excise it makes all the difference. Unmanufactured products, under the  Constitutional provision in the Seventh Schedule-Union List, Entry 84, are not excisable. So when a Nil duty is shown against an entry of items like horse, cat, ass, bird, etc, it gives the meaning that horse and cat are excisable but the rate of duty is Nil. This is misleading and also fundamentally wrong. They are just not excisable goods and they don’t deserve to be mentioned in the Tariff itself. The Supreme Court has held that no excise duty can be charged on unmanufactured goods even if the goods are specifically mentioned in the Tariff1.

Blank means there is a positive Tariff item but the rate of duty is zero. The Additional Notes (c) in Central Excise Tariff makes this clear. There is no Blank entry in Customs. Ultimately, there is no difference that one can make between Blank, Nil and Free. So this superfluous entry has created litigation2. Being superfluous, it deserves to be done away with.

Historically speaking the old Tariff before 1986, which was itemwise and not based on Brussels Trade Nomenclature (BTN) or Customs Cooperation Council Nomenclature (CCCN) was a very logical and legally correct tariff. There were only 68 specific classes of goods and there was no place for unmanufactured goods like horse, cat or mango. When it was converted into BTN mode, it was felt (wrongly) that the Central Excise and Customs Tariffs must be harmonized in totality. It was not realized that the process of harmonization cannot be one hundred per cent. It was forgotten that in Customs the duty is charged on all imported goods whether they are manufactured or not. Not so in Excise. To give an example if human blood is imported it has to pay customs duty but it does not attract Excise duty. The taxable event for customs is the act of import or export. But the taxable event for excise is the act of manufacture. There is no question of complete harmonization between the two. Harmonization should have been limited only to those items which should find place in Central Excise Tariff on its own merit. If something cannot find a place legally in the Central Excise Tariff, there is no question of mentioning it in the Central Excise Tariff just for the sake of harmonization. This effort in total harmonization losing the overall perspective has created this legal absurdity.

Now I propose to discuss some judgments which are quoted by some analysts in connection with this issue. They are the following.

In the case of HIND RUBBER FACTORY vs. UOI, 1990 (48) ELT 363 (P&H) the High Court observed that excisable goods do not cease to be excisable on full exemption being granted. The significance of the expression “subject to a duty of excise” in the definition of excisable goods was only that this portion was disjunctive so that it referred only to the rate of duty. Even if there was no duty when the duty column showed nil, it was excisable goods. The High Court observed, “… except the High Courts of Madhya Pradesh and Allahabad, a large majority of the other High Courts had taken the view that excisable goods do not cease to be excisable goods on exemption being granted under Rule 8 of the Rules. In support of the same conclusion, we may add some more reasons. The definition of the expression “excisable goods” consists of two parts. The first part lays down that such goods are those which are specified in the First Schedule. The second part is that such goods arc subject to a duty of excise. It is significant to note that the two parts of the definition are not disjunctive and, therefore, it cannot be held that being subject to a duty in the context means actual levy of the excise duly. The expression “being subject to” according to Shorter English Oxford Dictionary, means - exposed or open to; prone to or liable to ..... having a tendency prone or disposed of. It follows that the goods mentioned in the Schedule to the Act are liable to attract excise duty. The definition does not mean that the duty must be imposed in order to make the goods excisable goods.” 

We are thus of the considered view that rubber chappals manufactured by the petitioner did not cease to be excisable goods within the meaning of the Act because of the exemption granted under Rule 8 of the Rules.”

Here my observation is that this judgment was given only to prove that nil duty does not make it non-excisable. Yes it is true. But it is excisable if only it is manufactured goods. Manufacture was not an issue here. Here the goods were chappals and they were manufactured. So the HC did not say anything about it. It only says that it is excisable even it is nil duty. The judgment says,” The definition does not mean that the duty must be imposed in order to make the goods excisable goods”.

So imposition of duty is not important but what is important is that it is manufactured which is once again emphasized by the latest SC judgment in the case of CCE Lucknow vs. Wimco, 2007 (217) E.L.T. 3 (S.C.)(Supra)

 A judgment of the Supreme Court in the case of ACC vs CC, 2001(128) 21 (SC) is also often mentioned in this connection.  The goods were imported drawings and designs on which the issue was whether drawings, diskettes, manual, etc., imported are goods on which excise duty could be levied. The Court held that under the Central Excise Act, 1944 in definition of words “excisable goods” under Section 2(d), the very specification or inclusion of goods in the First and Second Schedule of the Central Excise Tariff Act would make them excisable goods subject to duty. Here also the goods were manufactured and so the issue was not determined by the Supreme Court as to what would happen if the goods were not manufactured.

In a recent judgment of the CESTAT in the case of Geetanjali Woolens vs. CCE, 2007 –TIOL-1082-CESTAT-AHM, the goods were rags and the majority decision was that it is excisable even if the duty column just has a blank,. In this context the decision was that it is excisable even if the rate of duty was blank, that is , nil , in effect. The issue was not that it was not manufactured. It was well accepted by all that rags were manufactured. So here also the judgment is not in favour of holding that unmanufactured things can be excisable just because they are mentioned in the Tariff.

So we get the positive indication only from the judgments of the Supreme Court where the goods were not manufactured and the Court held that they are therefore not excisable. These judgments are in the cases of Markfed, Moti Laminates, Hyderabad Industries and Wimco which have been discussed above. 

The conclusion is that (i) all entries in the Excise Tariff which are unmanufactured goods should be removed from the Tariff. (ii)For both Customs and Excise Tariffs the only expression used should be Nil. Free and Blank should never be used. Items like onion should be deleted from the tariff.

1 Moti Laminates vs CCE, 1995 (76) ELT 241 (SC) and CCE, Lucknow versus WIMCO -2007 (217) E.L.T. 3 (S.C.) and many others.

2 Geetanjali Wollens vs. CCE-2007-TIOL-1082-CESTAT-AHM.

Sukumar Mukhopadhyay