The Hindu Business Line : Pulling the wool out of dyed-in-the-wool thinking

Wool from China was the focus of a recent AAR (Authority for Advance Rulings) decision. Akash Jain, the applicant, had wanted to know from the Authority if he would get the benefits of a Customs notification if he were to import wool from China for a knitting/textile unit in India.

The unit was to be set up in Baddi, Himachal Pradesh, or in Haryana, with an estimated investment of $2 million in machinery, by Uniexcel Ltd of Changning District, Shanghai, China, as a joint venture with Jain. Raw material proposed to be imported was `duty free wool from China from Gunji in Pithoragarh, Uttaranchal, or Village Namgaya Shipkila in Kinnaur District of Himachal Pradesh'.

First, some geography. Gunji (3,500 metres) finds description in a section about `Kailash Mansarovar Yatra Route' on www.startadventure.net. "The district of Pithoragarh was carved out of the district of Almora, Uttar Pradesh, in 1962. Pithorgarh boasts of majestic peaks like Nanda Devi East, Nanda Devi West, Trishul, Hardeol, Nandakhat, Rajrambha, Bambadhura, and the Panchchuli group amongst others," says the site.

"From tomorrow, Nathula — at 14,400 ft above sea level — will become the third border trading point between India and China, the other two being Gunji in Uttaranchal and Namgaya Shipkila in Himachal Pradesh," announced news reports dated July 5.

Shipkila, at the start of National Highway 22, is a charming village, near the Tibet border, says www.india9.com. "The Sutlej enters India at Shipkila. Namgya, situated 13 km away, is the next major settlement near Shipkila. Nearest airport is at Shimla. Kalka Railway Station is the nearest railhead."

Customs exemption notification that Jain wished to benefit from was 38/96, dated July 23, 1996, issued under powers conferred upon the Government by Section 25(1) of the Customs Act, 1962. The notification related to `specified goods imported from Bhutan, Nepal, Bangladesh and China'.

One of entries in the list of exempted goods reads, "Goat skin, sheep skin, horses, goats, sheep, wool, butter, common salt, raw silk, yak tail, yak hair, china clay, borax, szaibelyite and goat cashmere, when imported into India from China through Gunji in Pithoragarh district of Uttar Pradesh along the Gunji Pulan (Tibet) land route or through village Namgaya Shipkila in Kinnaur district of Himachal Pradesh along the Namgaya-Shipkila-Shipki Jui Jiuba land route."

From the Department's side, it was the Commissioner of Customs who submitted before the Authority his view that the notification's benefit was not available to someone who intended to import the wool as raw material for a knitting/textile unit. He said, that as per the MoU (Memorandum of Understanding) signed with China, the border trade is meant only for local residents on both the sides. India's trade with China has been allowed as border trade and is meant only for tribal communities living on either side of the border, and not for the commercial use of a manufacturing concern, said the Commissioner.

The AAR studied the notification and observed that `wool' is one of the specified goods exempted from Customs duty. The condition imposed is of `route'. No other condition has been laid down, said the AAR. "The Central Government has been given the power to issue general exemption by notification under Section 25(1) of the Customs Act if it is satisfied that it is necessary in the public interest so to do."

Importantly, the Authority laid down guidelines on what had to be considered when interpreting and giving effect to exemption notifications:

Exact identity of the goods specified in the notification.

Condition(s), if any, given in the notification which is/are to be fulfilled before or after clearance as may be specified in the notification.

Extent of exemption of duty specified in the notification.

In the case of wool, the subject matter of the application before the Authority, the notification did not stipulate any conditions, except that the import had to be from China and through the notified Land Customs Stations and the land routes. Accordingly, the AAR ruled that Jain was entitled to get exemption from duty when importing wool into India from China, and that there was no `actual user condition after the specified goods are imported'.

No time, therefore, to hold on to rigid opinions, as only the dyed-in-the-wool traditionalists would. Because, we would simply be pulling the wool over our eyes, ignoring the fact that China is the third largest wool producer in the world, after Australia and New Zealand.

Tailpiece

"Ye shall file!"

"Yes, but not through `e', please!"

http://Detaxification.blogspot.com

D. Murali

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