Mimamsa principles of interpretation to resolve a tax case
October, 07th 2006
"When there is a conflict between the purpose and the material, the purpose is to prevail, because in the absence of the prescribed material a substitute can be used, for the material is subordinate to the purpose."
Ispat Industries Ltd is a regular importer of iron ore pellets. However, 14 consignments, imported between 1996 and 1998, fell into rough weather at the Department. All because of lack of draft; not demand draft, but in the sea.
Draft is "the vertical distance between the waterline and the deepest part of the keel, usually expressed in feet," defines The Dictionary of English Nautical Language on www.seatalk.info. "The draft of a ship determines the minimum depth of water necessary to navigate without grounding."
In the 14 instances, "the mother vessel coming from abroad and carrying the cargo anchored at Bombay Floating Light (BFL)," as narrates the text of the apex court verdict dated September 29. Customs officials examined the cargo on board and provisionally assessed the same to duty. "After payment of this duty, the out of charge order was passed on the Bills of Entry permitting clearing of such goods for home consumption."
Dharamtar was approved as a place for unloading under Section 8(a) of the Customs Act; not BFL, which is only a placing for anchoring the ship. But, due to lack of draft (that is, lack of water depth) the cargo could not be discharged directly from the mother vessel to the Dharamtar Jetty. "It was discharged from the mother ship on to the barges at BFL, which carried the goods to the Dharamtar Jetty."
Ispat filed bills of entry for the imported cargo, in which "assessable value of the iron ore pellets was arrived at by including freight incurred on the imported cargo from the place of export to the port of discharge viz. Mumbai/JNPT/Dharamtar." To this, the taxman took objection.
The Assistant Commissioner of Customs informed Ispat that as per Rule 9 of the Customs Valuation Rules, 1988, "the freight incurred on barges and other associated charges in transportation of the goods from BFL to the Dharamtar jetty has also to be added for determining the correct assessable value for the purpose of calculating duty."
Ispat responded to the Department that transportation charges of iron ore pellets by barges from BFL to Dharamtar jetty is not to be included in the assessable value. Goods in question passed out of Customs control at BFL, which was the `place of importation' in Section 14 of the Customs Act. "Risk and title to the goods changes the moment the cargo is discharged from the mother vessel on to the barges," said Ispat.
At successive levels of appeal, Ispat met with unfavourable decisions, and so the case landed up at the apex court "The short point before is as to whether the transportation charges for the use of barges for carrying the cargo from the mother vessel which anchored at BFL to the Dharmatar jetty where the goods were unloaded are to be added to calculate the assessable value for the purpose of duty under the Customs Act," summarised Justices Ashok Bhan and Markandey Katju, of the Supreme Court.
They studied the provisions of the Customs Act, 1962 which are relevant to the case. Such as, import meaning "bringing into India from a place outside India," as per Section 2(23). And `India' meaning "India includes the territorial water of India," according to Section 2(27).
"The most important provision for the purpose of valuation of the goods for the purpose of assessment is Section 14," said the court. "Section 14(1) states that the value of the imported goods shall be the deemed price at which such or like goods are ordinarily sold or offered for sale, for delivery at the time and place of importation in the course of international trade."
The phrase `ordinarily sold or offered for sale' does not refer to the contract between the supplier and the importer, but to the prevailing price in the market on the date of importation or exportation, is guidance that the court took from Rajkumar Knitting Mills (P) Ltd vs Collector of Customs, Bombay.
The counsel arguing for the Revenue said that according to Rule 9(2)(a) of the Customs Valuation Rules barging charges should be included in the value of the imported goods as they were also transportation charges. "Untenable," said the court. "All the contracts entered into with the foreign sellers are either CIF (cost, insurance and freight) contracts or FOB (free on board) contracts with bills of lading nominating Bombay/JNPT/Dharamtar as the ports of discharge," reasoned the court.
"As such the cost of transport has already been included in the price paid to the seller under the CIF contract or an ascertainable freight determined and paid by the buyer from the foreign port to the Indian port." Therefore, a further addition to the transport charges under Rule 9(2)(a) was clearly impermissible, ruled the court.
Hierarchy of laws
Every legal system has a hierarchy of laws, pointed out the court. "Whenever there is conflict between a norm in a higher layer in this hierarchy and a norm in a lower layer, the norm in the higher layer will prevail." The hierarchy in our country has the Constitution of India right at the top, explained the court. Next comes the statutory law, which may be either Parliamentary law or law made by the State Legislature. Third is delegated or subordinate legislation, which may be in the form of rules and regulations made under the Act. And last in the hierarchy are `administrative orders or executive instructions'.
While the Customs Act falls in the second layer in this hierarchy, the rules made under the Act fall in the third layer. "Hence, if there is any conflict between the provisions of the Act and the provisions of the Rules, the former will prevail," ruled the court. "To uphold the validity of the rule sometimes a strained meaning can be given to it, which may depart from the ordinary meaning, if that is necessary to make the rule in conformity with the provisions of the Act."
Then comes an interesting section in the judgment of Justice Markandey Katju, where he refers to `Gunapradhan Axiom of the Mimansa (also spelt Mimamsa) Principles of Interpretation, which is our indigenous system of interpretation'. Justice Katju rued that lawyers quote Maxwell and Craies, and not the Mimansa principles. "Few people in our country are aware about the great intellectual achievements of our ancestors and the intellectual treasury they have bequeathed us," he observed.
It was Jaimini who laid down the Mimansa rules in 5th Century BC, and his Sutras were explained by Shabar, Kumarila Bhatta, Prabhakar and others, as the text of the apex court verdict informs. "The Mimansa Rules of Interpretation were used in our country for at least 2500 years, whereas Maxwell's First Edition was published only in 1875," pointed out Justice Katju.
"Jaimini is believed to have lived around the 32nd century BC," says Wikipedia, going by which time difference is more than 5,000 years! Jaimini's Purva Mimamsa Sutras contains about 3,000 sutras discussing duty (dharma), and is the foundational text of the Mimamsa school, informs http://en.wikipedia.org. "Though there had been earlier efforts to systematise knowledge by teachers such as Alekhana and Karsnajini (mentioned by Jaimini), their works have not been passed on.
Jaimini's definition of dharma is an act which is endorsed by the Vedas and related scriptures and conducive to human well-being," is further gyan from the Free Encyclopedia. You can find the text of sutras on www.sub.uni-goettingen.de, the site of Goettingen State and University Library, Germany.
`Guna' means subordinate or accessory, while `pradhan' means principal, explained Justice Katju. Accordingly, the gunapradhan axiom is that "if a word or sentence purporting to express a subordinate idea clashes with the principal idea, the former must be adjusted to the latter or must be disregarded altogether." This principle is also expressed by the popular maxim known as matsya nyaya, i.e., `the bigger fish eats the smaller fish', he said.
Primary vs accessory
Sutra 3:3:9 of Jaimini says, "Guna mukhya vyatikramey tadarthatvan mukhyen vedasanyogah." Justice Katju cited Kumarila Bhatta's Tantravartika for the explanation of the sutra: "When the Primary and the accessory belong to two different Vedas, the Vedic characteristic of the Accessory is determined by the Primary, as the Accessory is subservient to the purpose of the primary."
Another sutra of Jaimini, mentioned in the verdict, is 6:3:9, which states: "When there is a conflict between the purpose and the material, the purpose is to prevail, because in the absence of the prescribed material a substitute can be used, for the material is subordinate to the purpose."
Here is an example: "The prescribed Yupa (sacrificial post for tying the sacrificial animal) must be made of Khadir wood. However, Khadir wood is weak while the animal tied may be restive. Hence, the Yupa can be made of Kadar wood, which is strong. Now this substitution is being made despite the fact that the prescribed wood is Khadir, but this prescription is only subordinate or accessory to the performance of the ceremony, which is the main object. Hence if it comes in the way of the ceremony being performed, it can be modified or substituted."
Likewise Rule 9(2) is subservient to Section 14, said Justice Katju. "It is really not necessary to decide whether the place of importation is the jetty or the BFL," he said. "The cost of transportation of the imported goods has already been included for delivery at the Dharamtar jetty and has already been paid to the seller in the CIF or FOB contract. Hence, a further addition to the transport charges in the form of barge charges for the transportation by barges cannot be said to be contemplated by Section 14 of the Act."
One of the few cases where ancient wisdom has been tapped for light on current issues.
"Is paying tax a service?"
"An exempted one, perhaps!"