Customs Duty; M/s Colgate Palmolive (India) Ltd. Vs. Commissioner of Customs, Patna [Supreme Court of India, 24-08-2016]

Customs Act, 1962 – S. 25 – Customs Tariff Act, 1975 – goods imported into India from Nepal – exempting duty – Treaty of Trade with Nepal – Nature of the Treaty and the protocol appended thereto – benefits extended – impact of the two notifications – nature of duty that was exempted – discussed.



[Dipak Misra] and [Prafulla C. Pant] JJ.

August 24, 2016


M/s Colgate Palmolive (India) Ltd. …Appellant(s)


Commissioner of Customs, Patna …Respondent(s)


CIVIL APPEAL NO. OF 2016 (@ SLP (C) NO. 11487 OF 2006)


Dipak Misra, J.

Leave granted in S.L.P. (Civil) No. 11487 of 2006.

2. Keeping in view the need to fortify the traditional connection and strengthen the economic cooperation for the purpose of development and mutual benefit, the Government of India had signed the Treaty of Trade with His Majesty’s Government of Nepal in July, 1996. Articles III, IV and V of the said Treaty read as follows:-

“Article III

Both the contracting parties shall accord unconditionally to each other treatment no less favourable than that accorded to any third country with respect to (a) customs duties and charges of any kind imposed on or in connection with importation and exportation and (b) import regulations including quantitative restrictions.

Article IV

The contracting parties agree, on a reciprocal basis, to exempt from basic customs duty as well as from quantitative restrictions the import of such primary products as may be mutually agreed upon, from each other.

Article V

Notwithstanding the provisions of Article III and subject to such exceptions as may be made after consultation with His Majesty’s Government of Nepal, the government of India agree to promote the industrial development of Nepal through the grant on the basis of non-reciprocity of specially favourable treatment to imports into India of industrial products manufactured in Nepal in respect of customs duty and quantitative restrictions normally applicable to them”.

3. The protocol to the Treaty with reference to Article V stipulated many clauses. With reference to Article V clauses which are relevant are reproduced below:-

“1. The Government of India will provide access to the Indian market free of customs duties and the quantitative restrictions for all articles manufactured in Nepal.

xxxx xxxx xxxx

3. On the basis of a Certificate issued, for each consignment of products manufactured in the small scale units in Nepal, by His Majesty’s Government of Nepal, or by an agency designated by His Majesty’s government of Nepal that the relevant conditions applicable to the products manufactured in similar small scale industrial units in India for relief in the levy of applicable Excise Duty rates are fulfilled for such a parity, Government of India will extend parity in the levy of Additional duty on such Nepalese products equal to the treatment provided in the levy of effective Excise Duty on similar Indian products under the Indian customs and Central Excise Tariff.

4. The “Additional Duty” rates equal to the effective Indian Excise duty rates applicable to similar Indian Products under the Indian Customs & Central Excise Tariff will continue to be levied on the imports into India of products manufactured in the medium and large scale units in Nepal.

4(i) In regard to “additional duty” collected by the Government of India in respect of manufactured articles other than those manufactured in “small” units: Wherever it is established that the cost of production of an articles is higher in Nepal than the cost of production in a corresponding unit in India, a sum representing such difference in the cost of production, but not exceeding 25 percent of the “additional duty” collected by the Government of India, will be paid of His Majesty’s Government of Nepal provided. His Majesty’s Government of Nepal have given assistance to the same extent to the (manufacturers) exporters”.

4. Pursuant to the aforesaid Treaty, the Government of India issued a Notification No. 37 of 1996 dated 23.7.1996, in exercise of powers under

Section 25 of the Customs Act, 1962

(for short, “the Customs Act”) whereby specified goods in the notification when imported into India from Nepal were exempted “from the whole” of the customs duty leviable under the First Schedule to the

Customs Tariff Act, 1975

(for brevity, “the Tariff Act”) subject to the conditions, if any, specified in the corresponding entry in column (3) of the Table to the notification. There is no dispute that the appellant who was importing various dental hygiene products from Nepal was entitled to avail exemption under the notification. As the factual matrix would unveil, it was availing the exemption from the customs duty under the notification.

5. In the year 1998, Section 3A was introduced in the Tariff Act. To appreciate the scheme of the Tariff Act, it is desirable to refer to Section 2 of the Tariff Act, which reads as follows:-

Section 2 : Duties specified in the Schedules to be levied

The “rates at which duties of customs shall be levied under the Customs Act, 1962 (52 of 1962), are specified in the First and Second Schedules.”

Schedule I to the Tariff Act incorporates the duties on the imports and Schedule II on the exports.

6. Section 3 of the Tariff Act specifies about the levy of additional duty equal to excise duty. It is as follows:-

Section 3: Levy of additional duty equal to excise duty

(1) Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the Additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article.

Provided that in case of any alcoholic liquor for human consumption imported into India, the Central Government may, by notification in the Official Gazette, specify the rate of additional duty having regard to the excise duty for the time being leviable on a like alcoholic liquor produced or manufactured in different States, or, if a like alcoholic liquor is not produced or manufactured in any State, then, having regard to the excise duty which would be leviable for the time being in different States on the class or description of alcoholic liquor to which such imported alcoholic liquor belongs.”

7. Section 3A which has been introduced in 1998 provides for imposition of special additional duty. The relevant portion of the said Section reads as follows:-