A very recent circular issued by the Department of Revenue, Ministry of Finance, in regard to computation of value under Section 14 of the Customs Act for levy of export duty announces that “any decision on this issue is essentially a matter of policy on which decision is to be taken by the administrative department”. I am writing to say that this subject is not a matter of policy. Interpretation of a Section of the Customs Act or for any Act for that matter, is not a matter of economic policy.
Export duty on steel at ad valorem rate was imposed in May 2006. A doubt was raised regarding the manner of calculation of export duty particularly in view of the introduction of transaction value under Section 14 in 2007-08 Budget.
The doubt was whether the export duty should be charged simply as a percentage of Free on Board (FOB) price (which is the new law) or whether the FOB price should be taken as the “cum-duty price” which was continuing on the basis of the old law. The previous system was introduced in a circular by the Board in 1966 and therefore has been going on for more than four decades.
However, it was not a transaction value in which the duty was being charged. The export duty was being calculated by taking the FOB price declared by the exporter as the cum-duty price. So the percentage of duty was on a lesser amount than the declared FOB price.
Under the new system, whatever is declared as the FOB price will be taken as the FOB price and the percentage of duty worked out on that basis. So the new system will collect the more revenue. The Board did not introduce it from May, 2008 but proposes to do so from January, 1, 2009. Clearly there is a short levy but it is not practicable to realise the amount by raising demand for the last six months.
But the way out was to declare it as an established practice as given in the Section 28A of the Customs Act. The Sub-section (a) of 28A lays down that if the Central government is satisfied that the practice was generally prevalent regarding levy of duty (including non-levy) on any goods imported or exported then it can by a notification order that the amount need not be collected. This is the proper course of action which should have been resorted to in this case.
On the other hand, the Board has called the “issue” a matter of policy. It is not clear whether the Ministry of Law has said so or it is the Department of Revenue, Ministry of Finance, which has said so. In any case it is not correct. It is not a matter of policy. It is a matter of interpretation of a Section which is not a matter of policy. It is only a matter of interpretation of how transaction value is to be calculated. The concept of transaction value is quite clear and in fact it is defined in the Act. There is no question of any policy about it.
Examples of economic policy are about excessiveness of tax on, say, newsprint, as in the case of Indian Express Newspapers vs UOI , or on machinery as in the case of Pankaj Jain Agencies vs UOI or whether a double taxation can be imposed as in the case of Hind Plastics vs C.C., Mumbai and so on. Interpretation of an Act is not a matter of policy.