Section 50 of the NDPS Act. It is, therefore, mandatory for the prosecution to prove that the search and recovery was made from the appellant in the presence of a Magistrate or a Gazetted Officer. 29. Though, the prosecution examined as many as five police officials (PW-1 to PW-5) of the raiding police party but none of them deposed that the search/recovery was made in presence of any Magistrate or a Gazetted Officer.- the prosecution was not able to prove that the search and recovery of the contraband (Charas) made from the appellant was in accordance with the procedure prescribed under Section 50 of the NDPS Act. Since the non-compliance of the mandatory procedure prescribed under Section 50 of the NDPS Act is fatal 16 to the prosecution case and, in this case, we have found that the prosecution has failed to prove the compliance as required in law, the appellant is entitled to claim its benefit to seek his acquittal.

1
 REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 273 OF 2007
Arif Khan @ Agha Khan ... Appellant(s)
Versus
State of Uttarakhand ... Respondent(s)
J U D G M E N T
Abhay Manohar Sapre, J.
1. This appeal is filed by the accused against the
final judgment and order dated 26.06.2006 passed
by the High Court of Uttaranchal at Nainital in
Criminal Appeal No.368 of 2004 whereby the High
Court confirmed the judgment and order dated
09.11.2004 passed by the Additional Sessions
Judge, Fast Track Court II, Udham Singh Nagar in
2
Special Sessions Trial No.20 of 2003 by which the
appellant-accused was convicted for the offence
punishable under Section 20 of the Narcotic Drugs
and Psychotropic Substances Act, 1985 (hereinafter
referred to as “the NDPS Act”) and sentenced him to
undergo rigorous imprisonment for 10 years and a
fine of Rs.1,00,000/-.
2. In order to appreciate the issue involved in the
appeal, few facts need to be mentioned hereinbelow.
3. In short, the case of the prosecution is as
under:
4. On 23.11.2002, a secret information was
received in P.S. Kichha from one unknown
informant that one person is travelling in a
roadways bus carrying with him some contraband
articles. The secret informant also gave information
that the person concerned would get down near the
3
railway crossing from the Bus and would approach
towards a place called “Chowki Pul Bhatta” along
with contraband article.
5. The raiding party headed by SHO-Harish
Mehra, who was on duty at P.S. Kichha along with
the police officials on duty accordingly left for the
place informed by the informant.
6. On reaching the informed place, the raiding
party waited for sometime and thereafter spotted
the person concerned, who was approaching
towards the place informed to them. The raiding
party intercepted the person concerned.
7. Thereafter, the accused was asked by the
police personnel of raiding party as to whether he is
in possession of contraband “Charas”. The accused
admitted that he is in possession of “Charas”. On
apprehending the accused, he was informed by the
4
police personnel that he has a legal right to be
searched in the presence of a Gazetted Officer or a
Magistrate to which the accused replied that he has
a faith on the raiding police party and consented to
be searched by them.
8. The raiding police party accordingly obtained
his consent in writing to be searched by the raiding
police party. The raiding police party then searched
the accused which resulted in seizure of “Charas”
weighing around 2.5 K.G. in quantity from his body.
9. It is this incident, which gave rise to
prosecution of the appellant (accused) for
commission of the offence punishable under Section
20 of the NDPS Act in Special Sessions Trial
No.20/2003. After investigation, the prosecution
filed the charge sheet (Ex- 11) against the appellant
5
and examined 5 witnesses to bring home the charge
levelled against the appellant.
10. By order dated 09.11.2004, the Additional
Sessions Judge/ Fast Track Court II, Udham Singh
Nagar held that the prosecution was able to prove
the case beyond reasonable doubt against the
appellant and accordingly convicted him for the
offences punishable under Section 20 of the NDPS
Act and sentenced him to undergo rigorous
imprisonment for 10 years and a fine of
Rs.1,00,000/-.
11. The accused felt aggrieved and filed appeal in
the High Court at Nainital. By impugned judgment,
the High Court dismissed the appeal and upheld the
order of Additional Sessions Judge, which has given
rise to filing of the present appeal by the accused by
way of special leave in this Court.
6
12. Heard Mr. J.C. Gupta, learned senior counsel
for the appellant (accused) and Mr. Ashutosh
Kumar Sharma, learned counsel for the
respondent-State.
13. Learned counsel for the appellant (accused)
while assailing the legality and correctness of the
impugned judgment contended that both the Courts
below erred in holding the appellant guilty of
commission of the offence in question and thus
erred in convicting him for the alleged offence under
the NDPS Act.
14. Learned counsel contended that the
prosecution has failed to ensure mandatory
compliance of Section 50 of the NDPS Act inasmuch
as the alleged recovery/search of the contraband
(Charas) made by the raiding police party from the
appellant's body was not done in accordance with
7
the procedure prescribed under Section 50 of the
NDPS Act which according to learned counsel is
mandatory as held by this Court in the case of
Vijaysinh Chandubha Jadeja vs. State of Gujarat,
2011(1) SCC 609.
15. Learned counsel urged that the
search/recovery of the alleged contraband from the
appellant ought to have been made only in the
presence of either a Magistrate or a Gazetted Officer
only.
16. It was urged that since admittedly the
prosecution did not make the search/recovery from
the appellant in the presence of a Magistrate or a
Gazetted Officer and, therefore, the alleged recovery
of the contraband “Charas” from the appellant is
rendered illegal being in contravention of
requirements of Section 50 of the NDPS Act thereby
8
entitling the appellant for an acquittal from the
charges.
17. In reply, learned counsel appearing for the
respondent (State) supported the reasoning and
conclusion arrived at in the impugned judgment
and, therefore, prayed for upholding of the
impugned judgment.
18. Having heard the learned counsel for the
parties and on perusal of the record of the case, we
are inclined to allow the appeal and while setting
aside of the impugned judgment acquit the
appellant from the charges in question.
19. The short question which arises for
consideration in the appeal is whether the
search/recovery made by the police officials from
the appellant (accused) of the alleged contraband
(charas) can be held to be in accordance with the
9
procedure prescribed under Section 50 of the NDPS
Act.
20. In other words, the question that arises for
consideration in this appeal is whether the
prosecution was able to prove that the procedure
prescribed under Section 50 of the NDPS Act was
followed by the Police Officials in letter and spirit
while making the search and recovery of the
contraband “Charas” from the appellant (accused).
21. What is the true scope and object of Section 50
of the NDPS Act, what are the duties, obligation and
the powers conferred on the authorities under
Section 50 and whether the compliance of
requirements of Section 50 are mandatory or
directory, remains no more res integra and are now
settled by the two decisions of the Constitution
Bench of this Court in State of Punjab vs. Baldev
10
Singh (1999) 6 SCC 172 and Vijaysinh Chandubha
Jadeja (supra).
22. Indeed, the latter Constitution Bench decision
rendered in the case of Vijaysinh Chandubha
Jadeja (supra) has settled the aforementioned
questions after taking into considerations all
previous case law on the subject.
23. Their Lordships have held in Vijaysinh
Chandubha Jadeja (supra) that the requirements of
Section 50 of the NDPS Act are mandatory and,
therefore, the provisions of Section 50 must be
strictly complied with. It is held that it is imperative
on the part of the Police Officer to apprise the
person intended to be searched of his right under
Section 50 to be searched only before a Gazetted
officer or a Magistrate. It is held that it is equally
mandatory on the part of the authorized officer to
11
make the suspect aware of the existence of his right
to be searched before a Gazetted Officer or a
Magistrate, if so required by him and this requires a
strict compliance. It is ruled that the suspect person
may or may not choose to exercise the right
provided to him under Section 50 of the NDPS Act
but so far as the officer is concerned, an obligation
is cast upon him under Section 50 of the NDPS Act
to apprise the suspect of his right to be searched
before a Gazetted Officer or a Magistrate. (See also
Ashok Kumar Sharma vs. State of Rajasthan,
2013 (2) SCC 67 and Narcotics Control Bureau vs.
Sukh Dev Raj Sodhi, 2011 (6) SCC 392)
24. Keeping in view the aforementioned principle
of law laid down by this Court, we have to examine
the question arising in this case as to whether the
prosecution followed the mandatory procedure
12
prescribed under Section 50 of the NDPS Act while
making search and recovery of the contraband
“Charas” from the appellant and, if so, whether it
was done in the presence of a Magistrate or a
Gazetted Officer so as to make the search and
recovery of contraband “Charas” from the appellant
in conformity with the requirements of Section 50.
25. In our considered view, the evidence adduced
by the prosecution neither suggested and nor
proved that the search and the recovery was made
from the appellant in the presence of either a
Magistrate or a Gazetted Officer.
26. It is the case of the prosecution and which
found acceptance by the two Courts below that
since the appellant (accused) was apprised of his
right to be searched in the presence of either a
Magistrate or a Gazetted Officer but despite telling
13
him about his legal right available to him under
Section 50 in relation to the search, the appellant
(accused) gave his consent in writing to be searched
by the police officials (raiding party), the two Courts
below came to a conclusion that the requirements of
Section 50 stood fully complied with and hence the
appellant was liable to be convicted for the offence
punishable under the NDPS Act.
27. We do not agree to this finding of the two
Courts below as, in our opinion, a search and
recovery made from the appellant of the alleged
contraband “Charas” does not satisfy the mandatory
requirements of Section 50 as held by this Court in
the case of Vijaysinh Chandubha Jadeja (supra).
This we say for the following reasons.
28. First, it is an admitted fact emerging from the
record of the case that the appellant was not
14
produced before any Magistrate or Gazetted Officer;
Second, it is also an admitted fact that due to the
aforementioned first reason, the search and
recovery of the contraband “Charas” was not made
from the appellant in the presence of any Magistrate
or Gazetted Officer; Third, it is also an admitted fact
that none of the police officials of the raiding party,
who recovered the contraband “Charas” from him,
was the Gazetted Officer and nor they could be and,
therefore, they were not empowered to make search
and recovery from the appellant of the contraband
“Charas” as provided under Section 50 of the NDPS
Act except in the presence of either a Magistrate or
a Gazetted Officer; Fourth, in order to make the
search and recovery of the contraband articles from
the body of the suspect, the search and recovery
has to be in conformity with the requirements of
15
Section 50 of the NDPS Act. It is, therefore,
mandatory for the prosecution to prove that the
search and recovery was made from the appellant in
the presence of a Magistrate or a Gazetted Officer.
29. Though, the prosecution examined as many as
five police officials (PW-1 to PW-5) of the raiding
police party but none of them deposed that the
search/recovery was made in presence of any
Magistrate or a Gazetted Officer.
30. For the aforementioned reasons, we are of
the considered opinion that the prosecution was not
able to prove that the search and recovery of the
contraband (Charas) made from the appellant was
in accordance with the procedure prescribed under
Section 50 of the NDPS Act. Since the
non-compliance of the mandatory procedure
prescribed under Section 50 of the NDPS Act is fatal
16
to the prosecution case and, in this case, we have
found that the prosecution has failed to prove the
compliance as required in law, the appellant is
entitled to claim its benefit to seek his acquittal.
31. In the light of the foregoing discussion, the
appeal succeeds and is allowed. Impugned
judgment is set aside. As a consequence thereof, the
appellant's conviction is set aside and he is
acquitted of the charges in question.

………………………………..J
(R.K. AGRAWAL)
 …..………………………………J.
 (ABHAY MANOHAR SAPRE)
New Delhi,
April 27, 2018

Direct the appellant to treat the employees working in the Canteen to be the regular employees of the Chennai Port Trust and accordingly pay them all attendant and monetary 4 benefits at par with the regular employees of the Chennai Port Trust. = when the Management of the Port Trust has control over the functioning of the canteen- all the workers employed in the canteen are entitled for the relief what they claimed =If we see the Indian Petrochemical's case, the similarity of the factual issues is quite startling. In that case – (a) The canteen has been there since the inception of the appellant's factory. (b) The workmen have been employed for long years and despite a change of contractors, the workers have continued to be employed in the canteen. (c) The premises, furniture, fixture, fuel, electricity, utensils etc. have been provided for by the appellant. (d) The wages of the canteen workers have to be reimbursed by the appellant. (e) The supervision and control on the canteen is exercised by the appellant through its authorised officer, as can be seen from the various clauses of the 11 contract between the appellant and the contractor. (f) The contractor is nothing but an agent or a manager of the appellant, who works completely under the supervision, control and directions of the appellant. (g) The workmen have the protection of continuous employment in the establishment. On the basis of the above facts, the Supreme Court arrived at the opinion that the workmen were the workmen of the management and by the same process of reasoning, the learned single Judge also came to the conclusion that the canteen workmen were the workmen of the Port Trust.

1
 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.1381 OF 2010
Chennai Port Trust ….Appellant(s)
VERSUS
The Chennai Port Trust
Industrial Employees Canteen
Workers Welfare Association
And Ors. …Respondent(s)
J U D G M E N T
Abhay Manohar Sapre, J.
1. This appeal is directed against the final
judgment and order dated 21.02.2006 passed by
the High Court of judicature at Madras in Writ
Appeal No.66 of 2006 whereby the Division Bench of
the High Court dismissed the appeal filed by the
appellant herein and affirmed the judgment and
order dated 24.08.2005 passed by the Single Judge
2
of the High Court in Writ Petition No.6872 of 2001
by which the Single Judge allowed the writ petition
filed by respondent No.1 herein.
2. Few relevant facts need to be mentioned
hereinbelow to appreciate the question involved in
the appeal.
3. The appellant is “Chennai Port Trust” at
Chennai. It has been in existence for the last many
decades and has a large administrative and
technical set up to run their multifarious activities
on the Port.
4. Large numbers of workers/employees are
employed by the Port Trust who work round the
clock in shifts to run and maintain the activities of
the Port Trust. These Port Trust
workers/employees are provided with the facility of
canteen. A Co-Operative Society called “Chennai
Port Trust Industrial Employees Co-operative
Canteen Limited” runs the Canteen. It has been
3
running since 1964. This canteen has employed a
large number of employees to run the canteen. The
employees working in the canteen have formed an
Association known as “Chennai Port Trust
Industrial Employees Canteen Workers Welfare
Association” (for short called
“Association”)-respondent No.1 herein.
5. The Association-respondent No.1 herein filed a
writ petition being W.P. No.6872 of 2001 in the High
Court at Madras against the appellant herein
(Chennai Port Trust) espousing the cause of their
members (employees working in the Canteen) and
sought a writ of mandamus against the appellant -
Chennai Port Trust (respondent No.3 in the writ
petition) directing the appellant to treat the
employees working in the Canteen to be the regular
employees of the Chennai Port Trust and
accordingly pay them all attendant and monetary
4
benefits at par with the regular employees of the
Chennai Port Trust.
6. According to the writ petitioner (employees
concerned), they have been working in the Canteen
for decades and regularly catering and fulfilling the
needs of the employees of the Port Trust. According
to the Association, the members of the Association -
employees working in the canteen are entitled to
claim the same benefit and perks which are being
given to the regular permanent employees of the
Chennai Port Trust. The Association also pointed
out the similar instances of other government
organizations wherein the benefits of this nature
were given to the employees working in the
organizations alike the members of the Association
in question.
7. The Chennai Port Trust mainly opposed the
writ petition on two issues. First, the Chennai Port
Trust has no control whatsoever over any of the
5
activities of the Canteen in question including any
control over its employees and second, the question
as to whether the canteen employees are to be
treated as employees of the Chennai Port Trust or
not is a question of fact and, therefore, the writ
petition is not the effective remedy to decide this
question. According to the Chennai Port Trust,
such issues should be raised before the Industrial
Tribunal for its adjudication.
8. The Writ Court (Single Judge) allowed the writ
petition filed by the Association(respondent No.1
herein) and accordingly issued a writ of mandamus
against the appellant (Chennai Port Trust), as
prayed by the writ petitioner in their writ petition. In
other words, the writ Court granted the reliefs
claimed by the writ petitioner in their writ petition.
9. The appellant (Chennai Port Trust) felt
aggrieved and filed intra court appeal before the
Division Bench in the High Court. By impugned
6
judgment, the Division Bench dismissed the appeal
and upheld the order of the Single Judge, which has
given rise to filing of the present appeal by way of
special leave by the Chennai Port Trust.
10. Heard Mr. Keshav Thakur, learned counsel for
the appellant and Mr. Anil Kaushik, Mr. B. Vinodh
Kanna and Mr. Jayanth Muth Raj, learned counsel
for the respondents.
11. Having heard the learned counsel for the
parties and on perusal of the record of the case, we
find no merit in the appeal.
12. In our considered view, the Writ Court (Single
Judge) and the Division Bench were right in their
reasoning and the conclusion.
13. The Division Bench, in our opinion, rightly
relied upon the decision of this Court in Indian
Petrochemicals Corporation Ltd. and Anr. vs
Shramik Sena & Ors., (1999) 6 SCC 439 and
compared the facts of the above case with that of
7
the case at hand and found great similarities in
both for granting relief to the members of the
respondent (Association).
14. The Division Bench in Paras 14 and 15 of the
impugned judgment took note of 20 factors of this
case, which were found identical to the facts
involved in Indian Petrochemicals’s case (supra)
wherein this Court had issued a writ of mandamus
against the main employer in relation to such
employees working in the canteen run for the
benefit of the employer. It is apposite to reproduce
Paras 14 and 15 of the impugned judgment which
read as under:
“14. Even before the learned single Judge,
the Port Trust objected to deciding the
factual issues in proceedings under Article
226 since the appropriate forum is only the
Labour Court or the Tribunal. The learned
single Judge observed that the averments in
the affidavit have not been specifically
denied in the counter affidavit except to
state that the Management of the Port Trust
has no control over the functioning of the
canteen. Therefore, apart from a general
8
denial, the various assertions were not
specifically denied. The learned single Judge
then proceeded to set down the various facts
and circumstances that show the
administrative control exercised by the Port
Trust over the Canteen, and they are as
follows :
(i) The fact that the establishment is
kept open during the entire 24 hours
with employees working in several
shifts is not denied. Thereby, the
necessity of the workmen to have their
food inside the factory itself is
confirmed and that the canteen is
mainly intended only for the workers.
(ii) The fact that the Rules framed by
the Society for running the canteen
shall be subject to the approval of the
Chairman is not denied. This proves
that the ultimate control of the
administration of the canteen is with
the Port Trust.
(iii) It is only the workers belonging to
the Port Trust who are eligible to
become members of the Society and not
others.
(iv) It is only the nominee of the Port
Trust who can act as the Chairman of
the Co-operative Society.
(v) The Port Trust administration has
the right to audit the accounts of the
canteen.
(vi) Electricity and water are supplied
by the Port Trust free of charge. The
premises is also held by the Society
rent free.
9
(vii) As per bye-law 15, the fourth
respondent Society, the President as
well as four other contractors shall be
nominated by the Registrar only in
consultation with the Chairman of the
Chennai Port Trust.
(viii) The Port Trust provides cost of the
staff employed by the canteen,
maintains the building, reimburses
100% of the fuel costs and all the
benefits to the canteen employees.
(ix) The prices of the food stuff are very
cheap and the food is carried in trickles
to the workers in the Marshalling Yard,
ONGC Pipeline, Oil Dock, Diesel Loco
and such other places where a canteen
cannot be established and specifically
intended only for the workers.
(x) The Executive Engineer (Mechanical)
of the Port Trust has been nominated as
the President of the canteen and the
entire canteen affairs are handled and
controlled by the Chief Mechanical
Engineer of the Port Trust.
(xi) The financial matters are controlled
by the Financial Adviser and Chief
Accounts Officer of the Port Trust.
(xii) The President of the fourth
respondent controls all policy matters
concerning the canteen.
(xiii) It is a matter of common
knowledge that at least as far as
Chennai Port Trust is concerned, it is
located in a place that the nearest
restaurant or canteen would be at least
two to three kilometres away from the
entrance of the Port Trust. Therefore,
10
the canteen is a must not only for
employees, but also for the entire staff
at various levels and also visitors
having official and commercial dealings
with the Port Trust. The Port Trust
itself is a very large and sprawling area
from one end to the other. Therefore,
the canteen is an indispensable
necessity to the Port Trust.
The learned single Judge thereafter observed
that none of the aforesaid positive claims of
the writ petitioner are denied by the
respondents. It is only because there was no
dispute on facts that the learned single Judge
proceeded to decide the matter, though the
workmen had directly filed the writ petition
without approaching the Tribunal.
15. If we see the Indian Petrochemical's case,
the similarity of the factual issues is quite
startling. In that case –
(a) The canteen has been there since
the inception of the appellant's factory.
(b) The workmen have been employed
for long years and despite a change of
contractors, the workers have
continued to be employed in the
canteen.
(c) The premises, furniture, fixture,
fuel, electricity, utensils etc. have been
provided for by the appellant.
(d) The wages of the canteen workers
have to be reimbursed by the appellant.
(e) The supervision and control on the
canteen is exercised by the appellant
through its authorised officer, as can be
seen from the various clauses of the
11
contract between the appellant and the
contractor.
(f) The contractor is nothing but an
agent or a manager of the appellant,
who works completely under the
supervision, control and directions of
the appellant.
(g) The workmen have the protection of
continuous employment in the
establishment.
On the basis of the above facts, the Supreme
Court arrived at the opinion that the
workmen were the workmen of the
management and by the same process of
reasoning, the learned single Judge also came
to the conclusion that the canteen workmen
were the workmen of the Port Trust. We see
no error in this reasoning.”
15. We find no fault in the aforementioned findings
recorded by the Division Bench as, in our view,
these findings were recorded on the basis of
undisputed facts and documents on record of the
case. That apart, these findings were recorded
keeping in view the facts involved and law laid down
by this Court in the case of Indian Petrochemicals
(supra)
12
16. Mere perusal of the decision rendered in the
case of Indian Petrochemicals (supra) would go to
show that in that case also, somewhat similar
question, which is the subject matter of this appeal,
had arisen at the instance of the employees working
in canteen. This Court (Three Judge Bench)
elaborately examined the question and took note of
the relevant undisputed facts, which had bearing
over the question, granted the reliefs to the
employees concerned.
17. In our considered opinion, the approach and
the reasoning of the two Courts below (Writ Court
and Division Bench) while deciding the writ petition
and the appeal arising out of the writ petition
keeping in view the law laid down by this Court in
the case of Indian Petrochemicals (supra) is just,
proper and legal.
18. In other words, if on the undisputed facts, this
Court has granted benefit to the canteen workers in
13
the case of Indian Petrochemicals (supra) then
there is no reason that on the same set of
undisputed facts arising in this case, the Court
should not grant the benefit to the
employees/workers in this case. It is more so when
no distinguishable facts are pointed out in this case
qua Indian Petrochemicals’s case(supra).
19. We are, therefore, in agreement with the
approach, reasoning and the conclusion arrived at
by the two Courts below.
20. We are, however, not impressed by the
submission of the learned counsel for the appellant
(Chennai Port Trust) when he contended that the
writ Court should not have entertained the writ
petition and instead the respondent (Writ
Petitioner-Association) should have been granted
liberty to approach the Industrial Tribunal/Labour
Court for adjudication of the dispute raised by them
in the writ petition.
14
21. In the first place, writ Court having entertained
the writ petition and granted relief on merits, this
objection has lost its significance now; Second, the
appellate Court also having gone into the merits of
the case and affirmed the order of the writ Court on
merits, it is too late to entertain such submission,
which is technical in nature; and third, the findings
on merits have been recorded by the two Courts on
the basis of undisputed facts/documents requiring
no trial on facts.
22. It is for these reasons, we are of the view that
the submission of learned counsel for the appellant
has no merit.
23. Though learned counsel for the appellant
argued some more issues but they did not impress
us so as to reverse the findings of the two courts
below and in any case, in the light of the findings
recorded by the two Courts below, which are based
on the law laid down by this Court in the case of
15
Indian Petrochemicals (supra), we need not
entertain his submissions.
24. In the light of the foregoing discussion, we find
no merit in the appeal, which fails and is
accordingly dismissed.


………...................................J.
 [R. K. AGRAWAL]

…...……..................................J.
 [ABHAY MANOHAR SAPRE]
New Delhi;
April 27, 2018 

Section 195(1)(b)(i) of Criminal Procedure Code= The law is clear, “prosecution should be ordered when it is considered expedient in the interest of justice to punish the delinquent…. and there must be prima facie case of deliberate falsehood on the matter of substance and the Court should be satisfied that there is reasonable foundation for the charge”. The election petition itself has been dismissed and considering the entirety of the matter, it would not be expedient to initiate proceedings under Section 340 Cr.P.C. read with Section 195(1)(b)(i) of Cr.P.C. We, therefore, accept the appeal and close the proceedings.

1
Non-Reportable
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 649 OF 2018
(Arising out of S.L.P. (Crl.) No.545 of 2016)
Prof. Chintamani Malviya ……Appellant
Versus
High Court of Madhya Pradesh ..…. Respondent
JUDGMENT
Uday Umesh Lalit, J.
Leave granted.
2. This appeal challenges the Judgment and Order dated 07.10.2015
passed by the High Court of Madhya Pradesh at Indore in M.CR.C No.2526
of 2015 whereby the High Court authorized the Principal Registrar of the
High Court under Section 195(1)(b)(i) of Criminal Procedure Code
(“Cr.P.C”, for short) to file complaint in the concerned court of Magistrate
against the appellant herein.
3. The appellant was elected to Lok Sabha in the elections held in the
year 2014 from Ujjain Lok Sabha Constituency. His election was
challenged vide Election Petition No.33 of 2014 by one Premchand Guddu.
2
On 31.07.2014 notice was issued by the High Court in said election petition
and the same was to be served upon the appellant through the District Judge,
Ujjain. The next date in the petition being 01.09.2014, the notice was said to
have been served upon the appellant on 16.08.2014 by one Mr. Arun
Bhalerao, Process Server.
4. According to the appellant, the aforesaid notice was served on one of
his employees while the appellant was in Delhi and that the appellant came
to know about the pendency of the election petition only on 25.01.2015. On
the other hand according to the election petitioner, the process server had
served the notice on the appellant himself.
5. On the returnable date of hearing, namely, on 01.09.2014, neither the
appellant was present before the High Court nor was he represented by any
counsel. Since the service report presented before the Court showed that the
appellant was duly served on 16.08.2014, the case proceeded ex parte.
6. On 29.01.2015 the appellant moved an application under Order 9 Rule
7 Civil Procedure Code (“CPC”, for short) being I.A. No.927 of 2015 and
submitted inter alia that the process server had served notice and documents
on one of the employees while the appellant was in Delhi and that the
appellant came to know about the election petition only on 25.01.2015.
3
Soon thereafter the original election petitioner filed an application under
Section 340 Cr.P.C. being I.A. No.1303 of 2015 in pending election petition
alleging that the appellant had committed perjury by stating falsely that the
notice in the election petition was given to his employee whereas said notice
was actually served upon the appellant by the process server.
7. By its order dated 24.03.2015, the High Court allowed I.A. No.927 of
2015 preferred by the appellant for setting aside the order for proceedings
ex-parte against the appellant and it allowed the appellant to participate in
the proceedings. Further, by another order of the same date, the High Court
allowed I.A. No.1303 of 2015 preferred by the original election petitioner
and directed the Registry to register a criminal case. The Registrar was also
given directions to conduct appropriate inquiry under Section 340 Cr.P.C. In
compliance of said order, M.Cr.C. No.2526 of 2015 was registered on
27.03.2015 and appropriate show cause notice was issued to the appellant.
In the subsequent proceedings, statement of Mr. Arun Bhalerao, Process
Server was recorded who stated that the requisite notice was served on the
appellant by him.
8. By its order dated 24.09.2015, the High Court accepted the plea taken
by the appellant in his application preferred under Order 7 Rule 11 C.P.C. in
pending election petition and the election petition was dismissed.
4
9. By subsequent order dated 07.10.2015 which is presently under
appeal, the High Court authorized the Principal Registrar of the High Court
under Section 195(1)(b)(i) of Cr.P.C. to file appropriate complaint in the
concerned Court of Magistrate. It was observed:-
“(6) After recording the statements and taking into
consideration the served notice bearing No.1762 dated
12.08.2014 and enclosed hukmnama, it is apparent that notice
was served personally on the respondent while in the affidavit,
he mentioned that notice was served on his staff.
…
(8) It is to be seen whether, it is in the interest of justice to
punish the respondent whether, such lapses on his part are
immaterial and innocent.
(9) Counsel for the respondent argues that it was
unintentional mistake on the part of the respondent and,
therefore, no action should be taken against him.
(10) In my considered opinion, however, more cautious and
responsible approach was expected from the respondent being
representative of people and professor himself. He is expected
to understand the consequences of not appearing before the
Court of law and specially before the High Court. Therefore, in
this case, lenient and sympathetic view is not called for. In this
view of the matter, I find that prosecution for perjury should be
initiated against the respondent.”
10. Appearing for the appellant, Mr. K.V. Vishwanathan, learned Senior
Advocate submitted inter alia ;
(a) It has consistently been laid down by this Court that
prosecution for perjury be sanctioned by Courts only in those cases where
5
perjury appears to be deliberate and on a matter of substance and the
conviction would reasonably be probable. Further, prosecution ought to be
ordered when it would expedient in the interest of justice to punish the
delinquent and not merely because there is some inaccuracy in the statement.
He placed reliance on the decision of this Court in Chajoo Ram v. Radhey
Shyam and Another1 where this Court observed:-
“The prosecution for perjury should be sanctioned by courts
only in those cases where the perjury appears to be deliberate
and conscious and the conviction is reasonably probable or
likely. No doubt giving of false evidence and filing false
affidavits is an evil which must be effectively curbed with a
strong hand but to start prosecution for perjury too readily and
too frequently without due care and caution and on inconclusive
and doubtful material defeats its very purpose. Prosecution
should be ordered when it is considered expedient in the
interests of justice to punish the delinquent and not merely
because there is some inaccuracy in the statement which may
be innocent or immaterial. There must be prima facie case of
deliberate falsehood on a matter of substance and the court
should be satisfied that there is reasonable foundation for the
charge. In the present case we do not think the material brought
to our notice was sufficiently adequate to justify the conclusion
that it is expedient in the interests of justice to file a complaint.
The approach of the High Court seems somewhat mechanical
and superficial: it does not reflect the requisite judicial
deliberation….”
Reliance was also placed on the decision of this Court in K.T.M.S.
Mohd. and Another v. Union of India2
.
1
 (1971) 1 SCC 774
2
 (1992) 3 SCC 178
6
(b) The fact that there was delay of five months in filing the
application under Order 9 Rule 7 from the date of alleged service of notice
on 16.08.2014 indicated that the appellant was not aware of the pendency of
the election petition.
11. Ms. Swarupama Chaturvedi, learned Advocate appearing for the
respondent submitted that for a person to be made liable under Section 191
and 193 of IPC following ingredients would be required :-
(i) Person must be legally bound by an oath or any express
provision of law to state the truth or to make a declaration on any subject.
(ii) He must make the false statement.
(iii) He must know or believe to be false or must not be believed to
be true.
Relying on Baban Singh and Anr v. Jagdish Singh & Ors3
, it was
submitted that the appellant was obliged to state facts correctly. According
to Ms. Chaturvedi the statement of Arun Bhalerao, Process Server clearly
showed that the appellant himself had signed the receipt of notice and yet a
false statement was made.
3
 AIR 1967 SC 68
7
12. Having given our anxious consideration to the entirety of the matter,
in our view, the guiding principle is the one as laid down in Chajoo Ram
(supra). The law is clear, “prosecution should be ordered when it is
considered expedient in the interest of justice to punish the delinquent….
and there must be prima facie case of deliberate falsehood on the matter of
substance and the Court should be satisfied that there is reasonable
foundation for the charge”. The assessment made by the High Court, as
extracted in the paragraph hereinabove, in our considered view, does not
satisfy the parameters and requirements as laid down by this Court.
13. Recently, this Court in Amarsang Nathaji v. Hardik Harshadbhai
Patel and Others4
summed up the legal position as under:
“6. The mere fact that a person has made a contradictory
statement in a judicial proceeding is not by itself always
sufficient to justify a prosecution under Sections 199 and 200 of
the Penal Code, 1860 (45 of 1860) (hereinafter referred to as
“IPC”); but it must be shown that the defendant has
intentionally given a false statement at any stage of the judicial
proceedings or fabricated false evidence for the purpose of
using the same at any stage of the judicial proceedings. Even
after the above position has emerged also, still the court has to
form an opinion that it is expedient in the interests of justice to
initiate an inquiry into the offences of false evidence and
offences against public justice and more specifically referred to
in Section 340(1) CrPC, having regard to the overall factual
matrix as well as the probable consequences of such a
prosecution. (See K.T.M.S. Mohd. v. Union of India). The
4
 (2017) 1 SCC 113
8
court must be satisfied that such an inquiry is required in the
interests of justice and appropriate in the facts of the case.”
14. We are of the considered view that initiation of proceedings in the
present case was not consistent with the parameters laid down by this Court.
The election petition itself has been dismissed and considering the entirety
of the matter, it would not be expedient to initiate proceedings under Section
340 Cr.P.C. read with Section 195(1)(b)(i) of Cr.P.C. We, therefore, accept
the appeal and close the proceedings. The appeal stands allowed and the
judgment and order under appeal is set aside.
…………………..……J.
(Arun Mishra)
…………………..……J.
(Uday Umesh Lalit)
New Delhi,
April 27, 2018

Order 6 Rule 17 of the Code of Civil Procedure,=The object of the rule is that courts should try the merits of the case that come before them and should, consequently, allow all amendments that may be necessary for determining the real question in controversy between the parties provided it does not cause injustice or prejudice to the other side. This Court, in a series of decisions has held that the power to allow the amendment is wide and can be exercised at any stage of the proceeding in the interest of justice. The main purpose of allowing the amendment is to minimise the litigation and the plea that the relief sought by way of amendment was barred by time is to be considered in the light of the facts and circumstances of each case.=The High Court was of the view that Proviso to Order 6 Rule 17 of the Code of Civil Procedure, as duly amended, laid down that once the trial had commenced, no amendment could be allowed unless the court were to come to the conclusion that the party could not have raised the matter before the commencement of the trial despite due diligence.= At the time when the application for amendment was preferred, only two official witnesses were examined. The nature of amendment as proposed neither changes the character and nature of the suit nor does it introduce any fresh ground. The High Court itself was conscious that the amendment would not change the nature of the suit. In the given circumstances, in our view, the amendment ought to have been allowed. In any case it could not have caused any prejudice to the defendants.

1
Non-Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4568 OF 2018
(Arising out of SLP(Civil) Nos.7710 of 2018)
Gurbakhsh Singh and others ……Appellants
VERSUS
Buta Singh and another ..…. Respondents
JUDGMENT
Uday Umesh Lalit, J.
Leave granted
2. Civil Suit No.195 of 1968 filed by respondent No.1 for declaration on
the basis of reversionary rights was decreed ex-parte against the
predecessor-in-interest of the present appellants. After having come to know
about such ex parte decree dated 30.06.1969, present suit was filed by the
appellants for setting aside said decree.
2
3. The appellants pleaded in the suit that the file in respect of Civil Suit
No.195 of 1968 was not traceable in the record room. Issues were framed
and thereafter two official witnesses were examined, at which stage the
appellants preferred an application seeking amendment of the plaint. The
amendment sought by the appellant was as under:
“3-A. That the perusal of the copy of the order/judgment dated
30.06.1969 and decree shows that the defendant No.1 filed that
suit in the year 1968 deliberately without giving all the
particulars of the land at that point of time in the plaint in spite
of the fact that consolidation of holding did take place in the
year 1961-1962 and gave the old numbers before the
consolidation with ulterior motive. Since old numbers were not
in existence at the time of filing of the suit, an ex parte decree
has been procured by suspension of the material facts.
a) Land measuring 48 kanals 7 marlas entered at rect. No.39,
Killa No.19/2, 12, 19/1, 18/2, 10, 23, rect. No.38, killa No.5,
6/1, rect. No.60, killa No.2/1min.
b) Land measuring 36 kanals 16 marlas entered at rect. No.38,
kill No.16/2, 25/1, 14/2, 6/3, 24, 15/1, rect. No. killas
No.14, 15/1.
c) Land measuring 68 kanals entered at rect. No.213, killas
No.16/2, 14, 15, 17/1, 16/2, rect. No.114, killa No.11, 12, 10, 9,
rect. No.212, killa No.21, rect. No.92, killa No.5. It may also
be mentioned here that the suit filed by Buta Singh, defendant
No.1 alone as shown in the copy of the order/judgment and
decree of civil suit No.195 of 1968 without impleading all the
legal heirs of vendor Mehnga Singh and when the 2nd suit was
filed after the death of Mehnga Singh which was pending
before the court of Sh. Rajesh Garg, no detail of the vendees
and their successors in interest has been given in the plaint. At
the most if the decree is not set aside a fact disputed and denied
then too may the defendant No.1 is only at the best can claim
relief to the extent of 1/9th share of the total property and other
3
defendant No.17 to 24 are not legally entitled to any relief in
view of the ex parte decree passed in civil suit No.195 of 1968.
3-B That the prayer clause also requires to be amended. So
before the words “costs of the suit and after the words” during
the pendency of the suit following prayer may also be inserted.
4. The aforesaid application came to be dismissed by the trial court
observing that the appellants had failed to exercise due diligence and that the
facts in question could have been raised before framing of the issues. The
rejection of the application for amendment was challenged by way of Civil
Revision No.5373 of 2014 in the High Court. It was submitted on behalf of
the appellants that there was no change in the nature of the suit except that
specific khasra numbers were sought to be specified by way of amendment.
It was further submitted that the amendment would not prejudice the case of
the defendants.
5. The High Court, however, dismissed said revision petition by its
judgment and order dated 25.07.2017, which is presently under appeal. It
was observed by the High Court:
“No doubt, the amendment would not change the nature of the
suit, however, all amendments which do not change the suit
cannot be allowed particularly after the commencement of the
trial. It has been found by the Court that necessary pleadings
are already in existence in the original plaint.”
4
The High Court was of the view that Proviso to Order 6 Rule 17 of the
Code of Civil Procedure, as duly amended, laid down that once the trial had
commenced, no amendment could be allowed unless the court were to come
to the conclusion that the party could not have raised the matter before the
commencement of the trial despite due diligence.
6. In the present case the record of Civil Suit No.195 of 1968 in which
ex parte decree was passed on 30.06.1969 is not traceable. In the
circumstances, there could possibly be some inability in obtaining correct
particulars well in time on part of the appellants. At the time when the
application for amendment was preferred, only two official witnesses were
examined. The nature of amendment as proposed neither changes the
character and nature of the suit nor does it introduce any fresh ground. The
High Court itself was conscious that the amendment would not change the
nature of the suit. In the given circumstances, in our view, the amendment
ought to have been allowed. In any case it could not have caused any
prejudice to the defendants.
5
7. While allowing amendment of plaint, after amendment of 2002, this
Court in circumstances similar to the present case, in Abdul Rehman and
Anr. vs. Mohd. Ruldu and Ors.1
, had observed:
“11. The original provision was deleted by Amendment Act
46 of 1999, however, it has again been restored by
Amendment Act 22 of 2002 but with an added proviso to
prevent application for amendment being allowed after the
trial has commenced, unless the court comes to the
conclusion that in spite of due diligence, the party could not
have raised the matter before the commencement of trial. The
above proviso, to some extent, curtails absolute discretion to
allow amendment at any stage. At present, if application is
filed after commencement of trial, it has to be shown that in
spite of due diligence, it could not have been sought earlier.
The object of the rule is that courts should try the merits of
the case that come before them and should, consequently,
allow all amendments that may be necessary for determining
the real question in controversy between the parties provided
it does not cause injustice or prejudice to the other side. This
Court, in a series of decisions has held that the power to
allow the amendment is wide and can be exercised at any
stage of the proceeding in the interest of justice. The main
purpose of allowing the amendment is to minimise the
litigation and the plea that the relief sought by way of
amendment was barred by time is to be considered in the
light of the facts and circumstances of each case. The above
principles have been reiterated by this Court in J. Samuel &
Others v. Gattu Mahesh and Others2
 and Rameshkumar
Agarwal v. Rajmala Exports (P) Ltd and Others.3
 Keeping
the above principles in mind, let us consider whether the
appellants have made out a case for amendment.”
1
 (2012) 11 SCC 341
2
 (2012) 2 SCC 300
3
(2012) 5 SCC 337
6
8. We, therefore, allow this appeal and accept the application for
amendment preferred by the appellants. The plaint shall stand amended in
terms of the proposed amendment. The trial court is directed to proceed
with the matter accordingly. There will be no order as costs.
………………………J.
(Arun Mishra)
…………………..……J.
(Uday Umesh Lalit)
New Delhi,
April 27, 2018

“Whether in the light of peculiar facts and circumstances of the instant case, supporting manufacturer who receives export incentives in the form of duty draw back (DDB), Duty Entitlement Pass Book (DEPB) etc. is entitled for deduction under Section 80HHC of the Income Tax Act, 1961?” 16) Accordingly, we refer this batch of appeals to the larger Bench.

 REPORTABLE
 IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4590 OF 2018
(Arising out of Special Leave Petition (C) No. 8368 OF 2009)
Commissioner of Income Tax,
Karnal (Haryana) …..Petitioner(s)
 Versus
M/s Carpet India, Panipat (Haryana) ...…Respondent(s)
WITH
CIVIL APPEAL NO. 4601 OF 2018
(Arising out of Special Leave Petition (C) No. 7331 OF
2017)
CIVIL APPEAL NO. 4602 OF 2018
(Arising out of Special Leave Petition (C) No. 9284 OF
2017)
CIVIL APPEAL NO. 4591 OF 2018
(Arising out of Special Leave Petition (C) No. 19482 OF
2010)
CIVIL APPEAL NO. 4597 OF 2018
(Arising out of Special Leave Petition (C) No. 20408 OF
2013)
CIVIL APPEAL NO. 4599 OF 2018
(Arising out of Special Leave Petition (C) No. 10542 OF
2013)
CIVIL APPEAL NO. 4592 OF 2018
(Arising out of Special Leave Petition (C) No. 20941 OF
2010)
1
CIVIL APPEAL NO.4593 OF 2018
(Arising out of Special Leave Petition (C) No. 23683 OF
2010)
CIVIL APPEAL NO. 4596 OF 2018
(Arising out of Special Leave Petition (C) No. 3133 OF
2012)
CIVIL APPEAL NO. 4594 OF 2018
(Arising out of Special Leave Petition (C) No. 27636 OF
2010)
CIVIL APPEAL NO. 4603 OF 2018
(Arising out of Special Leave Petition (C) No. 27635 OF
2010)
CIVIL APPEAL NO. 4595 OF 2018
(Arising out of Special Leave Petition (C) No. 29783 OF
2011)
CIVIL APPEAL NO. 4598 OF 2018
(Arising out of Special Leave Petition (C) No. 33058 OF
2012)
J U D G M E N T
R.K.Agrawal, J.
1) Leave granted.
2) The above batch of appeals is related to the interpretation
of the provisions contained in Section 80HHC of the Income
Tax Act, 1961 (in short ‘the IT Act’).
3) SLP (C) 8368 of 2009
(a) M/s. Carpet India (P) Ltd.-the assessee is a partnership
firm deriving income from the manufacturing and sale of
2
carpets to M/s. IKEA Trading (India) Ltd. (Export House) as
supporting manufacturer.
(b) The assessee filed a ‘Nil’ return for the Assessment Year
(AY) 2001-2002 on 30.10.2001, inter alia, stating the total
sales amounting to Rs. 6,49,83,432/- with total export
incentives of Rs. 68,82,801/- as Duty Draw Back (DDB) and
claimed deduction under Section 80HHC amounting to Rs.
1,57,68,742/- out of the total profits of Rs. 1,97,10,927/- at
par with the direct exporter.
(c) On scrutiny, the Assessing Officer, vide order dated
25.02.2004, allowed the deduction under Section 80HHC to
the tune of Rs. 1,08,96,505/- instead of 1,57,68,742/- as
claimed by the assessee while arriving at the total income of
Rs. 57,18,040/.
(d) Being aggrieved, the assessee preferred an appeal before
the Commissioner of Income Tax (Appeals) which was allowed
vide order dated 12.08.2004 while holding that the assessee is
entitled to the deduction of export incentives under Section
80HHC at par with the exporter.
(e) The Revenue went in appeal before the Income Tax
Appellate Tribunal (in short ‘the Tribunal’) as well as before
3
the High Court but the same got dismissed vide orders dated
23.02.2007 and 13.05.2008 respectively leaving it to take
recourse of this Court by way of special leave.
(f) Since a common question of law has arisen in these
appeals, it will be disposed of by this common order.
4) Heard learned counsel for the parties and perused the
records.
Point(s) for consideration:-
5) The short but important question of law that arises
before this court is whether in the facts and circumstances of
the present case, supporting manufacturer who receives
export incentives in the form of duty draw back (DDB), Duty
Entitlement Pass Book (DEPB) etc., is entitled for deduction
under Section 80HHC of the IT Act at par with the direct
exporter?
Rival contentions:-
6) At the outset, learned counsel for the Revenue submitted
that the assessee deals in the manufacturing of the carpets
which it usually sells to various entities including M/s IKEA
Trading (India) Ltd. (Export House/Trading House) which, in
turn, further exports the goods manufactured by the assessee.
4
While filing the return, the assessee claimed deduction at par
with the direct exporter under Section 80HHC of the IT Act
since it receives export incentives in the form of duty draw
back (DDB) etc. It was further contended that in view of the
fact that the assessee is working as a supporting
manufacturer and also there is no direct export of the goods to
the foreign constituents by the assessee firm, hence, it is not
entitled to claim the deduction at par with the direct exporter.
However, the High Court erroneously relied on the judgment of
this Court, namely, Commissioner of Income Tax,
Thiruvantanpuram vs. Baby Marine Exports (2007) 290 ITR
323 (SC) and held that the assessee is entitled to claim
deduction at par with the direct exporter which is not
sustainable in the eyes of law since the issues and facts are
distinguishable from the facts and the circumstances of the
instant case.
7) At this juncture, it was also pointed out that the High
Court as well as the Tribunal erred in law while deciding the
issue as they treated the export incentive at par with the
premium paid by the export houses or trading houses to
supporting manufacturer and not appreciated the fact that the
5
ratio of the facts and issues involved in the case of the
assessee-firm are totally different from the case of Baby
Marine Exports (supra). It was pointed out that the said case
dealt with the issue of eligibility of export house premium for
inclusion in the business profit and the turnover of the
assessee firm. Hence, in no circumstances, it could be relied
upon by the High Court.
8) Per contra, the stand of leaned counsel for the assessee
was that the assessee is working as supporting manufacturer,
exporting the goods to the foreign constituents through export
houses, therefore, it is legitimately entitled for the deduction of
export incentives in terms of the Section 80HHC of the IT Act
in a similar way to the benefits available to the direct exporter.
It was submitted that the High Court rightly relied on the
judgment of this court in Baby Marine Exports (supra).
Hence, this special leave to appeal deserves to be dismissed.
Discussion:-
9) Before examining the matter, we deem it apposite to refer
to the relevant provisions of Section 80HHC of the IT Act:
“80HHC. Deduction in respect of profits retained for
export business:- (1) Where an assessee, being an Indian
company or a person (other than a company) resident in
India, is engaged in the business of export out of India of any
goods or merchandise to which this section applies, there
6
shall, in accordance with and subject to the provisions of this
section, be allowed, in computing the total income of the
assessee, a deduction to the extent of profits, referred to in
sub-section (1B), derived by the assessee from the export of
such goods or merchandise:
 Provided that if the assessee, being a holder of an Export
House Certificate or a Trading House Certificate (hereinafter
in this section referred to as an Export House or a Trading
House, as the case may be), issues a certificate referred to in
clause (b) of sub-section (4A), that in respect of the amount of
export turnover specified therein, the deduction under this
sub-section is to be allowed to a supporting manufacturer,
then the amount of deduction in the case of the assessee
shall be reduced by such amount which bears to the total
profits derived by the assessee from the export of trading
goods, the same proportion as the amount of export turnover
specified in the said certificate bears to the total export
turnover of the assessee in respect of such trading goods.
(1A) Where the assessee, being a supporting manufacturer,
has during the previous year, sold goods or merchandise to
any Export House or Trading House in respect of which the
Export House or Trading House has issued a certificate under
the proviso to sub-section (1), there shall, in accordance with
and subject to the provisions of this section, be allowed in
computing the total income of the assessee, a deduction to
the extent of profits, referred to in sub-section (1B), derived
by the assessee from the sale of goods or merchandise to the
Export House or Trading House in respect of which the
certificate has been issued by the Export House or Trading
House.
(1B) xxx
(2) xxx
(3) xxx
(3A) For the purposes of sub-section (1A), profits derived by a
supporting manufacturer from the sale of goods or
merchandise shall be:-
(a) in a case where the business carried on by the supporting
manufacturer consists exclusively of sale of goods or
merchandise to one or more Export Houses or Trading
Houses, the profits of the business;
(b) in a case where the business carried on by the supporting
manufacturer does not consist exclusively of sale of goods or
merchandise to one or more Export Houses or Trading
Houses, the amount which bears to the profits of the
business the same proportion as the turnover in respect of
sale to the respective Export House or Trading House bears
7
to the total turnover of the business carried on by the
assessee.”
(4) xxx
(4A) xxx
(4B) xxx
(4C) xxx
Explanation:- For the purposes of this section:-
(a) “convertible foreign exchange” means foreign
exchange which is for the time being treated by the
Reserve Bank of India as convertible foreign exchange
for the purposes of the Foreign Exchange
Management Act, 1999 (42 of 1999), and any rules
made thereunder;
(aa) “export out of India” shall not include any transaction
by way of sale or otherwise, in a shop, emporium or
any other establishment situate in India, not involving
clearance at any customs station as defined in the
Customs Act 1962 (52 of 1962);
(b) “export turnover” means the sale proceeds received in,
or brought into India by the assessee in convertible
foreign exchange in accordance with clause (a) of
sub-section (2) of any goods or merchandise to which
this section applies and which are exported out of
India, but does not include freight or insurance
attributable to the transport of the goods or
merchandise beyond the customs station as defined
in the Customs Act, 1962;
(ba) “total turnover” shall not include freight or insurance
attributable to the transport of the goods or
merchandise beyond the customs station as defined
in the Customs act, 1962 (52 of 1962):
Provided that in relation to any assessment year
commencing on or after the 1st day of April, 1991, the
expression “total turnover” shall have effect as if it
also excluded any sum referred to in clauses (iiia),
(iiib), (iiic), (iiid) and (iiie) of section 28.”
(baa) “profits of the business” means the profits of the
business as computed under the head “Profits and
gains of business or profession” as reduced by –
 (1) ninety per cent. of any sum referred to in
clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of
section 28 or of any receipts by way of
brokerage, commission, interest, rent, charges
or any other receipt of a similar nature included
in such profits; and
 (2) the profits of any branch, office, warehouse or
any other establishment of the assessee situate
outside India;
(c) xxx
8
(d) xxx
(e) xxx
Clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of Section 28 of IT Act read
as follows:
“28. Profits and gains of business or profession:- The
following income shall be chargeable to income-tax under
the head “Profits and gains of business or profession:-
(i) xxx
(ii) xxx
(iii) xxx
(iiia) profits on sale of a licence granted under the
Imports (Control) Order, 1955, made under the
Imports and Exports (Control) Act, 1947 (18 of
1947);
(iiib) cash assistance (by whatever name called)
received or receivable by any person against
exports under any scheme of the Government of
India;
(iiic) any duty of customs or excise repaid or repayable
as drawback to any person against exports under
the Customs and Central Excise Duties Drawback
Rules, 1971;
(iiid) any profit on the transfer of the Duty Entitlement
Pass Book Scheme, being the Duty Remission
Scheme under the export and import policy
formulated and announced under section 5 of the
Foreign Trade (Development and Regulation) Act,
1992 (22 of 1992);
(iiie) any profit on the transfer of Duty Free
Replenishment Certificate being the Duty
Remission Scheme under the export and import
policy formulated and announced under section 5
of the Foreign Trade (Development and
Regulation) Act, 1992 (22 of 1992).”
10) The very purpose of Section 80HHC of the IT Act is to
promote the export business as well as in order to keep the
domestic products competitive in the global market by
allowing tax deduction on export profits. Since the inception of
Section 80HHC of the IT Act, these benefits were available only
to the direct exporter which later on extended to the
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supporting manufacturer who is selling goods or merchandise
to an Export House/Trading House by inserting sub-Section
(1A) and (3A) in Section 80HHC of the IT Act. The legislature
divided Section 80HHC of the IT Act in two parts for the
purpose of deduction, namely, direct exporter and supporting
manufacturer. Direct exporter, being an Indian company or a
person (other than company) resident in India, who directly
exports the goods to some other country whereas supporting
manufacturer, being an Indian company or a person (other
than company) resident in India, who instead of direct export,
supply the goods to the Export Houses who eventually export
these goods. However, clauses (ba) and (baa) of the
Explanation to Section 80HHC defines “total turnover” and
what items are not included therein and “profits of the
business” to be reduced by ninety percent of any sum referred
to in clauses (iiia) to (iiie) of Section 28 of the IT Act. Clauses
(iiia) to (iiie) of Section 28 specifically refers to profits on sale of
import license, cash assistance received or receivable against
exports, duty drawback against export (Customs & Central
Excise Duty Drawback Rules), any profit on the transfer of
Duty Entitlement Pass Book (Duty Remission Scheme) and
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any profit on the transfer of Duty Free Replenishment
Certificate.
11) It is well known fact that there can be diverse sources of
income. These sources of income are clubbed together in order
to find out the gross total income on which tax can be levied.
However, the IT Act provides for allowing of certain deductions
from the gross total income of the assessee. Broadly speaking,
deductions reduce the taxable income. In the case at hand, it
is evident that the total income of the assessee for the
concerned Assessment Year was Rs 1,97,10,927/- out of
which it claimed deduction to the tune of Rs. 1,57,68,742/-
under Section 80HHC of the IT Act which was partly
disallowed by the Assessing Officer and deduction was allowed
only to the tune of Rs 1,08,96,505/-. However, the assessee
claimed the deduction at par with the direct exporter under
Section 80HHC of the IT Act which has been eventually upheld
by the High Court.
12) In the instant case, the whole issue revolves around the
manner of computation of deduction under section 80HHC of
the IT Act, in the case of supporting manufacturer. On perusal
of various provisions of the IT Act, it is clear that Section
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80HHC of the IT Act provides for deduction in respect of
profits retained from export business and, in particular,
sub-Section (1A) and sub-Section (3A), provides for deduction
in the case of supporting manufacturer. The “total turnover”
has to be determined as per clause (ba) of the Explanation
whereas “Profits of the business” has to be determined as per
clause (baa) of the Explanation. Both these clauses provide
for exclusion and reduction of 90% of certain receipts
mentioned therein respectively. The computation of deduction
in respect of supporting manufacturer, is contemplated by
Section 80HHC (3A), whereas the effect to be given to such
computed deduction is contemplated under Section 80HHC
(1A) of the IT Act. In other words, the machinery to compute
the deduction is provided in Section 80HHC (3A) of the IT Act
and after computing such deduction, such amount of
deduction is required to be deducted from the gross total
income of the assessee in order to arrive at the taxable
income/total income of the assessee, as contemplated by
Section 80HHC (1A) of the IT Act.
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13) In Baby Marine Exports (supra), the question of law
involved was “whether the export house premium received by
the assessee is includible in the “profits of the business” of the
assessee while computing the deduction under Section 80HHC
of the Income Tax Act, 1961?”. The said case mainly dealt with
the issue related with the eligibility of export house premium
for inclusion in the business profit for the purpose of
deduction under Section 80HHC of the IT Act. Whereas in the
instant case, the main point of consideration is whether the
assessee-firm, being a supporting manufacturer, is to be
treated at par with the direct exporter for the purpose of
deduction of export incentives under Section 80HHC of the IT
Act, after having regards to the peculiar facts of the instant
case.
14) While deciding the issue in Baby Marine Exports
(supra), a two Judge Bench of this Court held as under:
“39. On plain construction of Section 80HHC(1-A), the
respondent is clearly entitled to claim deduction of the
premium amount received from the export house in
computing the total income. The export house
premium can be included in the business profit
because it is an integral part of business operation of
the respondent which consists of sale of goods by the
respondent to the export house.”
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The aforesaid decision has been followed by another Bench of
two Judges of this Court in Special Leave to Appeal (Civil) No.
7615 of 2009, Civil Appeal No. 6437 of 2012 and Others,
Commissioner of Income Tax Karnal vs. Sushil Kumar
Gupta decided on September 12, 2012. The question
considered in the aforesaid case is reproduced below:
“3. In these civil appeals the common question which arises
for determination is as follows:
“Whether 90% of export benefits disclaimed in
favour of a supporting manufacturer (assessee
herein) have to be reduced in terms of Explanation
(baa) of Section 80HHC of the Income Tax Act,
1961, while computing deduction admissible to
such supporting manufacturer under Section
80HHC(3A) of the Act?”
4. This question has been answered in favour of the assessee
and against the Department in the case of CIT v. Baby Marine
Exports [2007] 290 ITR 323/160 Taxman 160.
5. The civil appeals filed by the Department are, accordingly,
dismissed.”
Broadly speaking, we are of the view that both these cases are
not identical and cannot be related with the deduction of
export incentives by the supporting manufacturer under
Section 80HHC of the IT Act.
15) However, we are not in the agreement with these
decisions and as Explanation (baa) of Section 80HHC
specifically reduces deduction of 90% of the amount referable
to Section 28 (iiia) to (iiie) of the IT Act, hence, we are of the
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view that these decisions require re-consideration by a larger
Bench since this issue has larger implication in terms of
monetary benefits for both the parties. After giving our
thoughtful consideration, the following substantial question of
law of general importance arises for re-consideration by this
Court:
“Whether in the light of peculiar facts and
circumstances of the instant case, supporting
manufacturer who receives export incentives in
the form of duty draw back (DDB), Duty
Entitlement Pass Book (DEPB) etc. is entitled for
deduction under Section 80HHC of the Income
Tax Act, 1961?”
16) Accordingly, we refer this batch of appeals to the larger
Bench. Let the matters be placed before Hon’ble the Chief
Justice of India for appropriate orders.
…….....…………………………………J.
 (R.K. AGRAWAL)
 …….…………….………………………J.
 (ABHAY MANOHAR SAPRE)
NEW DELHI;
APRIL 27, 2018.
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