REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1795 OF 2005
|UNION OF INDIA & ORS. |.....APPELLANT(S) |
|VERSUS | |
|M/S N.S. RATHNAM & SONS |.....RESPONDENT(S) |
J U D G M E N T
A.K. SIKRI, J.
The respondent herein impugned the validity of Notifications
Nos.102/87-CE and 103/87-CE, both dated 27.03.1987, whereby whole of the
duty of excise was exempted in respect of iron and steel scrap obtained by
breaking the ship subject to the condition that customs duty should have
been levied at the rate of Rs.1400/- per Light Displacement Tonnage (LDT).
With the stipulation of such a condition, giving the exemption of payment
of excise duty only to those who had paid customs duty at Rs.1400/- per
LDT, another class of persons who also paid custom duty under Section 3 of
the Customs Tariff Act, 1975, albeit at a lesser rate, was excluded. The
respondent who belonged to excluded category, had challenged the said
Notification as arbitrary and violative of Article 14 of the Constitution.
Though the learned Single Judge dismissed the writ petition, the Division
Bench in appeal has accepted the aforesaid plea of the respondent and vide
judgment dated 18.08.2003 held that the second category of persons shall
also be entitled to the benefit of this Notification. It is this judgment
which is impugned by the Union of India and is the subject matter of the
instant appeal.
The facts which are relevant to the aforesaid controversy need to be
traversed at this stage. These are as follows:
The respondent herein is engaged in the business of ship
breaking activities. It had imported a foreign vessel “M.V. Gonong Mass”
for the purpose of breaking it and selling it as scrap. This ship was
purchased by the respondent as a successful tenderer for a sum of Rs.61
lakhs and at the time of import, the Collector of Customs, Cochin, assessed
the custom duty and additional duty payable under Section 3 of the Customs
Tariff Act, 1975 on this ship on ad-valorem basis and customs duty in the
sum of Rs.62,16,796.55 was levied on the movable articles in the ship; body
of the ship was assessed at 30% and 50% ad-valorem and additional custom
duty i.e. countervailing duty at 12% ad-valorem. The respondent also paid
a sum of Rs.5,68,660/- as sales tax.
After import of the ship, the same was dismantled and broken from which
iron and steel scrap was taken out. This iron and steel scrap is exigible
to excise duty. The respondent has registered itself under the Central
Excise Act. The aforesaid iron and steel scrap which was obtained by
breaking the ship was cleared by the respondent on payment of central
excise duty at the rate of Rs.365/- per tonne as per Notification No.146/86-
CE dated 01.03.1986. Upto this point, there is no dispute. The relevant
period with which we are concerned is from 08.08.1986 to 27.07.1987.
During this period, the following materials were cleared:
|09.08.1986 to 26.03.1987 |-|3058.49 MT |
|27.03.1987 to 30.06.1987 |-|1249.715 MT |
|01.07.1987 to 27.07.1987 |-|408.180 MT |
There are certain exemption Notifications issued by the Government of India
under sub-rule (1) of Rule 8 of the Central Excise Rules, 1944. The
details of these Notifications are as under:
Notification No.146/86-CE dated 01.03.1986 which pertains to “iron
and steel from breaking the ship”. It provides for exemption of goods
falling under Heading No.72.15 and 73.09 of the Schedule to the Central
Excise Tariff Act, 1985, from so much of the duty or excise leviable
thereon, which is specified in the said Schedule, as in excess of the
amount calculated at the rate of Rs.305 per tonne. Proviso to the said
Notification lays down the conditions which need to be fulfilled to avail
the benefit of this Notification. This proviso reads as under:
“Provided that the said goods have been obtained from breaking of ships,
boats and other floating structures-
(i) On which duty of customs leviable thereon under the First
Schedule to the Customs Tariff Act, 1975 (51 of 1975) has been paid at the
rate of Rs.1,400/- per Light Displacement tonnage; or
(ii) Imported on or before the 28th day of February, 1986 and on
which appropriate additional duty leviable thereon under Section 3 of the
Customs Tariff Act, 1975 (51 of 1975), has been paid.”
The aforesaid Notification was superseded by another Notification No.386/86-
CE dated 20.08.1986. Under this Notification, whole of the duty of excise
stood exempted on meeting the conditions mentioned in proviso thereto,
provided that the said goods have been obtained from breaking of ships,
boats and other floating structures-
on which duty of customs leviable thereon under the First Schedule to the
Customs Tariff Act, 1975 (51 of 1975) has been paid at the rate of
Rs.1,400/- per LDT; or
(ii) imported on or before the 28th day of February, 1986 and on which
appropriate additional duty leviable thereon under Section 3 of the Customs
Tariff Act, 1975 (51 of 1975), has been paid.
Within few months, another Notification No.102/87-CE dated 27.03.1987 was
issued which superseded Notification No.386/86-CE dated 20.08.1986 as well.
In this Notification, again partial exemption was provided. This
exemption was from so much of the duty of excise leviable thereon, which is
specified in the Schedule to the Central Excise Tariff Act, as in excess of
the amount calculated at the rate of Rs.365 per tonne. However, in the
proviso, the condition that was stipulated which had to be met to avail the
exemption, reads as under:
“Provided that the said goods have been obtained from breaking of ships,
boats and other floating structures on which has been paid the duty of
customs leviable under the First Schedule to the customs Tariff Act, 1975
(51 of 1975) at the rate of Rs.1,035/- per Light Displacement Tonnage and
also the additional duty leviable thereon under Section 3 of the said
Customs Tariff Act at the rate of Rs.365 per Light Displacement Tonnage.”
On the same day, another Notification No.103/87-CE dated 27.03.1987 was
also issued. Vide this Notification, goods were exempted from whole of the
duty or excise leviable thereon as specified in the Schedule to the Act
falling under the same Heading Nos. i.e. 72.15 and 73.09 on the fulfillment
of the condition contained in proviso to this Notification, which reads as
follows:
“Provided that the said goods have been obtained from breaking of ships,
boats and other floating structures on which the duty of customs leviable
thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of
1975) has been paid at the rate of Rs.1,400/- per Light Displacement
Tonnage.”
These two Notifications, both dated 27.03.1987, pertain to same goods,
namely, those falling under Headings 72.15 and 73.09 of the said Schedule
to the Act. However, vide first Notification No.102/87-CE, if the customs
duty leviable on the import of ship for the purpose of breaking is paid at
the rate of Rs.1,035/- per LDT along with additional duty leviable thereon
under Section 3 of the Customs Tariff Act, the excise duty payable is at
the rate of Rs.365/- per tonne, exempting the remainder as specified in the
Schedule. On the other hand, as per Notification No.103/87-CE, if the
customs duty has been paid at the rate of Rs.1400/- per LDT, the scrap
obtained from breaking of such ships is exempted from the entire excise
duty.
The respondent herein had paid the duty at the rate of Rs.1035/- per LDT,
albeit, as leviable under the first Schedule to the Customs Tariff Act.
However, as the respondent had cleared the goods without payment of any
excise duty on the assumption that there was exemption of payment of entire
excise duty, appellant herein issued show cause notice dated 28.07.1987
calling upon the respondent to show cause as to why an amount of
Rs.25,73,487/- towards excise duty be not demanded under Section 11 A of
the Central Excise Act. Receipt of the aforesaid show cause notice
prompted the respondent to file the writ petition in the High Court of
Madras and challenge the validity of Notification dated 27.03.1987 on the
ground that by this Notification, total exemption was granted only to those
persons who had paid customs duty at the rate of Rs.1400/- LDT. It was
pleaded that by a Notification dated 20.08.1986, the whole of the duty of
excise levied was exempted if the two conditions as set out above are
satisfied. The limited exemption in excess of Rs.365/- per tonne was
restored by the third Notification dated 27.03.1987. However, by the
impugned Notifications issued on the very same day, total exemption was
granted only to those persons who have paid customs duty at Rs.1,400/- per
LDT. According to the respondent, it has resulted in a distinction between
two categories of persons who have paid customs duty, viz. one set of
persons who have paid customs duty at the rate of Rs.1,400/- per LDT and
the second set of persons who have paid customs duty of lesser amount
though as per Section 3 of the Customs Tariff Act, 1975. This distinction,
pleaded the respondent, was arbitrary, artificial and has no nexus with the
object that is sought to be achieved. When customs duty is payable under
either of the two methods, it is not understood why exemption is granted
only to one set of persons paying customs duty in a particular method of
assessment.
The learned Single Judge was not convinced with the aforesaid case set up
by the respondent. He reasoned that the Court could not direct the Central
Government to extend the Notification to a class to whom it has not been
extended as that was a matter which was entirely within the discretion of
the Central Government. Sustenance was drawn from the judgment of this
Court in Kasinka Trading and Another v. Union of India and Another[1]
wherein this Court has held that wide discretion is available to the
Government in the matter of granting, curtailing, withholding, modifying or
repealing the exemptions granted by earlier notifications and the
Government was not bound to grant exemption to anyone if it so desires.
The respondent preferred writ appeal against the said judgment. The
Division Bench vide impugned judgment has reversed the decision of the
learned Single Judge finding sufficient merit in the case set up and
pleaded by the respondent. It is held by the Division Bench that when the
benefit of concessional right is restored by a notification, there cannot
be any discriminatory treatment to some persons who fall in the same
category. According to the Division Bench, both the categories of importers
paid the duty as leviable under Customs Tariff Act. Once a choice is given
under the said Act and the duty is paid accordingly, merely because the
rate of duty arrived at is different would not be rational basis for
excluding the other class. This reasoning of the High Court can be found
in paras 10 and 11 of the impugned judgment which are reproduced
hereinbelow:
“10. From the notification or from the Counter Affidavit, we are unable to
find any rational basis for treating two categories of persons who have
paid the customs duty differently and hence, the failure to consider the
duty already paid by the appellants on ad valorem basis, on the face of it,
is illegal and therefore, the impugned notifications, which did not make
any provision for such of those remittance made under the second category,
are clearly arbitrary. As rightly pointed out, the exemption from excise
duty is to avoid double taxation and the withdrawal of exemption would mean
that the persons would be paying additional duty under the Customs Act as
well as the excise duty. It is further seen that the person who had paid
the customs duty at the rate of Rs.1,400/- per Light Displacement Tonnage
would have been totally exempted from the payment of excise duty. In the
light of this clear and palpable discrimination without any rational basis,
we are of the view that the appellants have made out a case and that the
impugned notifications are liable to be quashed in so far as the appellants
is concerned.
11. The Supreme Court, in Government of India Vs. Dhanalakshmi Paper and
Board Mills, Tiruchirappalli, A.I.R. 1989 S.C. 665, has held that the
benefit of concessional right was bestowed upon the entire group of
assesses. The division of two classes without adopting any differentia,
having a rational relation to the object of the notification and the
withdrawal of the benefit to one class, while retaining it in favour of the
other is ultra vires. In Thermax Private Limited Vs. Collector of Customs
(Bombay), A.I.R. 1993 S.C. 1339, the Supreme Court held that if the person
using the goods is entitled to remission, the importer will be entitled to
say that C.V.D. should only be the amount of concessional duty and if he
has paid more, he will be entitled to ask for refund. Section 3(1) of the
Customs Tariff Act, 1975 mandates that the C.A.V. will be equal to the
excise duty for the time being leviable on a like article if produced or
manufactured in India.”
Mr. Panda, learned senior counsel appearing for the appellants, submitted
that it was entirely within the domain of the Government to give exemption
to particular class of assessees and it being a policy decision, it would
not be open to the High Court to tinker with the same. For this purpose,
he relied on the judgment of this Court in Kasinka Trading's case, and in
particular paras 8 and 21 thereof, which are as follows:
8. Section 12 of the Customs Act, which is the charging section, provides
that duties of customs shall be levied at such rates as may be specified
under the Customs Tariff Act, 1975 or any other law for the time being in
force on the goods imported into India. Section 2 of the Customs Tariff
Act, 1975 read with the First and Second Schedules thereto lays down the
rates at which duties of customs shall be levied under the Customs Act on
various goods imported into India. Section 25 of the Act, with which we are
primarily concerned in this batch of appeals, confers powers on the Central
Government to grant exemptions from levy of duty in “public interest”. Sub-
sections (1) and (2) of Section 25 which are relevant for our purposes
provide as under:
“25. Power to grant exemption from duty.— (1) If the Central Government is
satisfied that it is necessary in the public interest so to do it may, by
notification in the Official Gazette, exempt generally either absolutely or
subject to such conditions (to be fulfilled before or after clearance), as
may be specified in the notification goods of any specified description
from the whole or any part of duty of customs leviable therein.
(2) If the Central Government is satisfied that it is necessary in the
public interest so to do, it may, by special order in each case, exempt
from the payment of duty, under circumstances of an exceptional nature to
be stated in such order, any goods on which duty is leviable.”
The power to grant exemption from duty, wholly or in part, on the plain
language of Section 25 (supra) is contingent upon the satisfaction of the
Government that it would be in “public interest” to do so. Thus, “public
interest” is the guiding criterion for exercising the power under Section
25 (supra).
xx xx xx
21. The power to grant exemption from payment of duty, additional duty etc.
under the Act, as already noticed, flows from the provisions of Section
25(1) of the Act. The power to exempt includes the power to modify or
withdraw the same. The liability to pay customs duty or additional duty
under the Act arises when the taxable event occurs. They are then subject
to the payment of duty as prevalent on the date of the entry of the goods.
An exemption notification issued under Section 25 of the Act had the effect
of suspending the collection of customs duty. It does not make items which
are subject to levy of customs duty etc. as items not leviable to such
duty. It only suspends the levy and collection of customs duty, etc.,
wholly or partially and subject to such conditions as may be laid down in
the notification by the Government in “public interest”. Such an exemption
by its very nature is susceptible of being revoked or modified or subjected
to other conditions. The supersession or revocation of an exemption
notification in the “public interest” is an exercise of the statutory power
of the State under the law itself as is obvious from the language of
Section 25 of the Act. Under the General Clauses Act an authority which has
the power to issue a notification has the undoubted power to rescind or
modify the notification in a like manner. From the very nature of power of
exemption granted to the Government under Section 25 of the Act, it follows
that the same is with a view to enabling the Government to regulate,
control and promote the industries and industrial production in the
country. Notification No. 66 of 1979 in our opinion, was not designed or
issued to induce the appellants to import PVC resin. Admittedly, the said
notification was not even intended as an incentive for import. The
notification on the plain language of it was conceived and issued on the
Central Government “being satisfied that it is necessary in the public
interest so to do”. Strictly speaking, therefore, the notification cannot
be said to have extended any ‘representation’ much less a ‘promise’ to a
party getting the benefit of it to enable it to invoke the doctrine of
promissory estoppel against the State. It would bear repetition that in
order to invoke the doctrine of promissory estoppel, it is necessary that
the promise which is sought to be enforced must be shown to be an
unequivocal promise to the other party intended to create a legal
relationship and that it was acted upon as such by the party to whom the
same was made. A notification issued under Section 25 of the Act cannot be
said to be holding out of any such unequivocal promise by the Government
which was intended to create any legal relationship between the Government
and the party drawing benefit flowing from of the said notification. It is,
therefore, futile to contend that even if the public interest so demanded
and the Central Government was satisfied that the exemption did not require
to be extended any further, it could still not withdraw the exemption.
He stated that the principle laid down in the aforesaid judgment is
followed and reiterated in Shrijee Sales Corporation and Another v. Union
of India[2] and Reliance Industries Ltd. v. Pravinbhai Jasbhai Patel and
Others[3].
He also referred to Ground A in the writ petition and submitted that the
plea of the respondent was that the duty already paid by the respondent
should have been taken into account and only the balance out of it should
have been the rate of duty. He, thus, submitted that this aspect has not
been taken into consideration by the High Court in the impugned judgment.
Learned counsel for the respondent, on the other hand, argued that all
those who paid excise duty as per the provisions of the Act constitute one
single class and, therefore, by restricting the benefit to only those who
had paid custom duty at the rate of Rs.1,400/- per LDT and excluding other
sets of persons like appellants amounted to hostile discrimination and,
therefore, the High Court rightly held the Notification to be violative of
Article 14 of the Constitution.
The judgment of this Court in Kasinka Trading's case, no doubt, lays down
the principle that there is wide discretion available to the Government in
the matter of granting, curtailing, withholding, modifying or repealing the
exemptions granted by earlier Notifications. It is also correct that the
Government is not bound to grant exemption to anyone to which it so
desires. When the duty is payable under the provisions of the Act, grant
of exemption from payment of the said duty to particular class of persons
or products etc. is entirely within the discretion of the Government. This
discretion rests on various factors which are to be considered by the
Government as these are policy decisions. In the present case, however, the
issue is not of granting or not granting the exemption. When the exemption
is granted to a particular class of persons, then the benefit thereof is to
be extended to all similarly situated person. The Notification has to
apply to the entire class and the Government cannot create sub-
classification thereby excluding one sub-category, even when both the sub-
categories are of same genus. If that is done, it would be considered as
violating the equality clause enshrined in Article 14 of the Constitution.
Therefore, judicial review of such Notifications is permissible in order to
undertake the scrutiny as to whether the Notification results in invidious
discrimination between two persons though they belong to the same class.
In Aashirwad Films v. Union of India and Others[4], this aspect has been
articulated in the following manner:
9. The State undoubtedly enjoys greater latitude in the matter of a taxing
statute. It may impose a tax on a class of people, whereas it may not do so
in respect of the other class.
10. A taxing statute, however, as is well known, is not beyond the pale of
challenge under Article 14 of the Constitution of India.
11. In Chhotabhai Jethabhai Patel & Co. v. Union of India, AIR 1962 SC 1006
it was stated: (AIR p. 1021, para 37)
“37. But it does not follow that every other article of Part III is
inapplicable to tax laws. Leaving aside Article 31(2) that the provisions
of a tax law within legislative competence could be impugned as offending
Article 14 is exemplified by such decisions of this Court as Suraj Mall
Mohta & Co. v. A.V. Vishvanatha Sastri (AIR 1954 SC 545 : (1955) 1 SCR 448)
and Meenakshi Mills Ltd. v. A.V. Visvanatha Sastri (AIR 1955 SC 13 : (1955)
1 SCR 787). In K.T. Moopil Nair v. State of Kerala (AIR 1961 SC 552) the
Kerala Land Tax Act was struck down as unconstitutional as violating the
freedom guaranteed by Article 14. It also goes without saying that if the
imposition of the tax was discriminatory as contrary to Article 15, the
levy would be invalid.”
12. A taxing statute, however, enjoys a greater latitude. An inference in
regard to contravention of Article 14 would, however, ordinarily be drawn
if it seeks to impose on the same class of persons or occupations similarly
situated or an instance of taxation which leads to inequality. The taxing
event under the Andhra Pradesh State Entertainment Tax Act is on the
entertainment of a person. Rate of entertainment tax is determined on the
basis of the amount collected from the visitor of a cinema theatre in terms
of the entry fee charged from a viewer by the owner thereof.
It is, thus, beyond any pale of doubt that the justiciability of particular
Notification can be tested on the touchstone of Article 14 of the
Constitution. Article 14, which is treated as basic feature of the
Constitution, ensures equality before the law or equal protection of laws.
Equal protection means the right to equal treatment in similar
circumstances, both in the priviliges conferred and in the liabilities
imposed. Therefore, if the two persons or two sets of persons are
similarly situated/placed, they have to be treated equally. At the same
time, the principle of equality does not mean that every law must have
universal application for all persons who are not by nature, attainment or
circumstances in the same position. It would mean that the State has the
power to classify persons for legitimate purposes. The legislature is
competent to exercise its discretion and make classification. Thus, every
classification is in some degree likely to produce some inequality but mere
production of inequality is not enough. Article 14 would be treated as
violated only when equal protection is denied even when the two persons
belong to same class/category. Therefore, the person challenging the act
of the State as violative of Article 14 has to show that there is no
reasonable basis for the differentiation between the two classes created by
the State. Article 14 prohibits class legislation and not reasonable
classification. What follows from the above is that in order to pass the
test of permissible classification two conditions must be fulfilled,
namely, (i) that the classification must be founded on an intelligible
differential which distinguishes persons or things that are grouped
together from others left out of the group and (ii) that, that differential
must have a rational relation to the object sought to be achieved by the
statute in question. If the government fails to support its action of
classification on the touchstone of the principle whether the
classification is reasonable having an intelligible differentia and a
rational basis germane to the purpose, the classification has to be held as
arbitrary and discriminatory. In Sube Singh v. State of Haryana[5], this
aspect is highlighted by the Court in the following manner:
10. In the counter and the note of submission filed on behalf of the
appellants it is averred, inter alia, that the Land Acquisition Collector
on considering the objections filed by the appellants had recommended to
the State Government for exclusion of the properties of appellants 1 and 3
to 6 and the State Government had not accepted such recommendations only on
the ground that the constructions made by the appellants were of 'B' or 'C'
class and could not be easily amalgamated into the developed colony which
was proposed to be built. There is no averment in the pleadings of the
respondents stating the basis of classification of structures as 'A' 'B'
and 'C' class, nor is it stated how the amalgamation of all 'A' class
structures was feasible and possible while those of 'B' and 'C' class
structures was not possible. It is not the case of the State Government and
also not argued before us that there is no policy decision of the
Government for excluding the lands having structures thereon from
acquisition under the Act. Indeed, as noted earlier, in these cases the
State Government has accepted the request of some land owners for exclusion
of their properties on this very ground. It remains to be seen whether the
purported classification of existing structures into 'A', 'B' and 'C' class
is a reasonable classification having an intelligible differential and a
rational basis germane to the purpose. If the State Government fails to
support its action on the touchstone of the above principle then this
decision has to be held as arbitrary and discriminatory. It is relevant to
note here that the acquisition of the lands is for the purpose of planned
development of the area which includes both residential and commercial
purposes. That being the purpose of acquisition it is difficult to accept
the case of the State Government that certain types of structures which
according to its own classification are of 'A' class can be allowed to
remain while other structures situated in close vicinity and being used for
same purposes (residential or commercial) should be demolished. At the cost
of repetition, it may be stated here that no material was placed before us
to show the basis of classification of the existing structures on the land
proposed to be acquired. This assumes importance in view of the specific
contention raised on behalf of the appellants that they have pucca
structures with R.C. roofing, Mozaic flooring etc. No attempt was also made
from the side of the State Government to place any architectural plan of
different types of structures proposed to be constructed on the land
notified for acquisition in support of its contention that the structures
which exist on the lands of the appellants could not be amalgamated into
the plan.
The question, therefore, that arises is as to whether the two categories,
one mentioned in Notification No.386/86-CE dated 20.08.1986, which is
given the benefit and removal of the second category, which was initially
granted same benefit vide Notification No.102/87-CE dated 27.03.1987, is
discriminatory. To put it otherwise, we have to see as to whether the two
categories are identical or there is a reasonable classification based on
intelligible differentia which has nexus with some objective that is sought
to be achieved. The test in this behalf that is to be applied can again be
culled out from the judgment in Aashirwad's case. It is summarized in para
14, after taking note of various earlier judgments. This para reads as
under:
14. It has been accepted without dispute that taxation laws must also pass
the test of Article 14 of the Constitution of India. It has been laid down
in a large number of decisions of this Court that a taxation statute for
the reasons of functional expediency and even otherwise, can pick and
choose to tax some. Importantly, there is a rider operating on this wide
power to tax and even discriminate in taxation that the classification thus
chosen must be reasonable. The extent of reasonability of any taxation
statute lies in its efficiency to achieve the object sought to be achieved
by the statute. Thus, the classification must bear a nexus with the object
sought to be achieved. (See Moopil Nair v. State of Kerala, AIR 1961 SC
552, East India Tobacco Co. v. State of A.P., AIR 1962 SC 1733, N.
Venugopala Ravi Varma Rajah v. Union of India (1969) 1 SCC 681 : AIR 1969
SC 1094, Asstt. Director of Inspection Investigation v. A.B. Shanthi,
(2002) 6 SCC 259 : AIR 2002 SC 2188 and Associated Cement Companies Ltd. v.
Govt. of A.P., (2006 ) 1 SCC 597 : AIR 2006 SC 928).
In the present case, we find that the two Notifications both dated
27.03.1987 pertain to same goods namely those falling under Heading 72.15
and 73.09 of the second Schedule to the Act. Customs duty is leviable on
these goods under Section 3 of the Customs Tariff Act. The said duty can
be paid under any of the two methods. When two methods are permissible
under the statutory scheme itself, obviously option is that of the assessee
to choose in all those methods to pay the custom duty. Duty, thus, paid is
to be naturally treated as validly paid. Merely because with the adoption
of one particular method the duty that becomes payable is lesser would not
mean that two such persons belong to different categories. The important
factors for the purposes of parity are same in the instant case, viz. the
goods are same; they fall under the same Heading and the custom duty is
leviable as per the Act which has been paid. Therefore, the impugned
Notification giving exemption only to those persons who paid a particular
amount of duty, namely Rs.1,400/- per LDT, would not mean that such persons
belong to a different category and would be entitled to exemption and not
other persons like the respondent herein who paid the duty on the same
goods under the same Act but on the formula which he opted and which is
permissible, which rate of duty comes to Rs.1,035/- per LDT.
It is also important to bear in mind that the appellants have not supported
the withdrawal of exemption by any cogent explanation. The High Court has
noted, and rightly so, that Ground C was taken by the respondent in the
writ petition specifically urging that no rational policy is mentioned for
creating two different classes and no reply to this was given by the
appellants even in the counter affidavit filed to the said petition. On the
other hand, the specific case made out by the respondent was that the
purpose behind Notification No.146/86-CE dated 01.03.1986 and Notification
No.386/86-CE dated 20.08.1986 was to treat the ships imported on or before
28.02.1986 differently and to avoid double taxation and additional duty
equivalent to excise duty. For this reason, exemption Notification became
necessary which provided exemption from excise duty. It was argued that
the withdrawal of the exemption duty in the cases like that of the
respondent amounted to double taxation. Even this could not be refuted by
the appellants.
We are conscious of the principle that the difference which will warrant a
reasonable classification need not be great. However, it has to be shown
that the difference is real and substantial and there must be some just and
reasonable relation to the object of legislation or notification.
Classification having regard to microscopic differences is not good. To
borrow the phrase from the judgment in Roopchand Adlakha v. D.D.A.[6]: “To
overdo classification is to undo equality.”
We are also conscious of the principle that in the field of taxation, the
Legislature has an extremely wide discretion to classify items for tax
purposes, so long as it refrains from clear and hostile discrimination
against particular persons or classes (See Secretary to Govt. of Madras v.
P.R. Sriramulu[7]). However, at the same time, when a substantive
unreasonableness is to be found in a taxing statute/notification, it may
have to be declared unconstitutional. Although the Court may not go into
the question of a hardship which may be occasioned to the tax payers but
where a fair procedure has not been laid down, the validity thereof cannot
be upheld. A statute which provides for civil or evil consequences must
conform to the test of reasonableness, fairness and non-arbitrariness.
In State of U.P. v. Deepak Fertilizers & Petrochemical Corporation Ltd.[8],
this aspect is succinctly brought about as is apparent from the following
passages in that judgment:
“15. The learned counsel appearing for the State relying heavily on Kerala
Hotel and Restaurant Assn. v. State of Kerala, (1990) 2 SCC 502, contended
that the State has widest latitude where measures of economic and fiscal
regulation are concerned. There is no dispute on this principle of law as
enumerated in the aforesaid decision of this Court. However, this same law
must not be repugnant to Article 14 of the Constitution i.e. it must not
violate the right to equality of the people of India, and if such
repugnancy prevails then, it shall stand void up to the level of such
repugnancy under Article 13(2) of the Constitution of India. Therefore,
every law has to pass through the test of constitutionality, which is
nothing but a formal name of the test of rationality. We understand that
whenever there is to be made any type of law for the purpose of levying
taxes on a particular commodity or exempting some other commodity from
taxation, a sought of classification is to be made. Certainly, this
classification cannot be a product of blind approach by the administrative
authorities on which the responsibility of delegated legislations is vested
by the Constitution. In a nutshell, the notifications issued by the Trade
Tax Department of the State of U.P., dated 10.04.1995 and 15.05.1995 lack
the sense of reasonability because it is not able to strike a rational
balance of classification between the items of the same category. As a
result of this, NPK 23:23:0 is not given exemption from taxation whereas
all other NPK fertilisers of the same category like that of NPK 20:20:0 are
provided with the exemption from taxation.
16. The reasonableness of this classification must be examined on the
basis, that when the object of the taxing provision is not to tax the sale
of certain chemical fertilisers included in the list, which clearly points
out that all the fertilisers with the similar compositions must be included
without excluding any other chemical fertiliser which has the same elements
and compositions. Thus, there is no reasonable nexus of such classification
among various chemical fertilisers of the same class by the state. This
court in Ayurveda Pharmacy [(1989) 2 SCC 285], held that two items of the
same category cannot be discriminated and where such a distinction is made
between items falling in the same category it should be done on a
reasonable basis, in order to save such a classification being in
contravention of Article 14 of the Constitution of India.”
It was contended by the learned senior counsel for the appellants that
purpose was to give exemption only to those who paid custom duty at
Rs.1,400/- per LDT and since the duty paid by the respondent herein was
lesser in amount, respondent could not ask for exemption. That may be so.
In such a case, the only option to bring parity was to demand duty on
differential amount, which was even contended by the respondent herein.
That provision should have been incorporated to save the impugned
Notification from the vice of arbitrariness. In fact, that would bring
both the sub-categories completely at par. Thus, while upholding the view
taken by the High Court, we modify the same only to the extent that the
respondent herein shall also be entitled to the benefit of the exemption
Notification subject to the condition that the duty already paid by the
respondent herein on LDT, would be taken into account and only the balance
out of it would be subject to excise duty.
The appeal is disposed of in the aforesaid terms without any order as to
cost.
.............................................J.
(A.K. SIKRI)
.............................................J.
(N.V. RAMANA)
NEW DELHI
JULY 29, 2015.
-----------------------
[1] (1995) 1 SCC 274
[2] (1997) 3 SCC 398
[3] (1997) 7 SCC 300
[4] (2007) 6 SCC 624
[5] (2001) 7 SCC 545
[6] (1989) 1 Supp. SCC 116
[7] (1996) 1 SCC 345
[8] (2007) 10 SCC 342
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1795 OF 2005
|UNION OF INDIA & ORS. |.....APPELLANT(S) |
|VERSUS | |
|M/S N.S. RATHNAM & SONS |.....RESPONDENT(S) |
J U D G M E N T
A.K. SIKRI, J.
The respondent herein impugned the validity of Notifications
Nos.102/87-CE and 103/87-CE, both dated 27.03.1987, whereby whole of the
duty of excise was exempted in respect of iron and steel scrap obtained by
breaking the ship subject to the condition that customs duty should have
been levied at the rate of Rs.1400/- per Light Displacement Tonnage (LDT).
With the stipulation of such a condition, giving the exemption of payment
of excise duty only to those who had paid customs duty at Rs.1400/- per
LDT, another class of persons who also paid custom duty under Section 3 of
the Customs Tariff Act, 1975, albeit at a lesser rate, was excluded. The
respondent who belonged to excluded category, had challenged the said
Notification as arbitrary and violative of Article 14 of the Constitution.
Though the learned Single Judge dismissed the writ petition, the Division
Bench in appeal has accepted the aforesaid plea of the respondent and vide
judgment dated 18.08.2003 held that the second category of persons shall
also be entitled to the benefit of this Notification. It is this judgment
which is impugned by the Union of India and is the subject matter of the
instant appeal.
The facts which are relevant to the aforesaid controversy need to be
traversed at this stage. These are as follows:
The respondent herein is engaged in the business of ship
breaking activities. It had imported a foreign vessel “M.V. Gonong Mass”
for the purpose of breaking it and selling it as scrap. This ship was
purchased by the respondent as a successful tenderer for a sum of Rs.61
lakhs and at the time of import, the Collector of Customs, Cochin, assessed
the custom duty and additional duty payable under Section 3 of the Customs
Tariff Act, 1975 on this ship on ad-valorem basis and customs duty in the
sum of Rs.62,16,796.55 was levied on the movable articles in the ship; body
of the ship was assessed at 30% and 50% ad-valorem and additional custom
duty i.e. countervailing duty at 12% ad-valorem. The respondent also paid
a sum of Rs.5,68,660/- as sales tax.
After import of the ship, the same was dismantled and broken from which
iron and steel scrap was taken out. This iron and steel scrap is exigible
to excise duty. The respondent has registered itself under the Central
Excise Act. The aforesaid iron and steel scrap which was obtained by
breaking the ship was cleared by the respondent on payment of central
excise duty at the rate of Rs.365/- per tonne as per Notification No.146/86-
CE dated 01.03.1986. Upto this point, there is no dispute. The relevant
period with which we are concerned is from 08.08.1986 to 27.07.1987.
During this period, the following materials were cleared:
|09.08.1986 to 26.03.1987 |-|3058.49 MT |
|27.03.1987 to 30.06.1987 |-|1249.715 MT |
|01.07.1987 to 27.07.1987 |-|408.180 MT |
There are certain exemption Notifications issued by the Government of India
under sub-rule (1) of Rule 8 of the Central Excise Rules, 1944. The
details of these Notifications are as under:
Notification No.146/86-CE dated 01.03.1986 which pertains to “iron
and steel from breaking the ship”. It provides for exemption of goods
falling under Heading No.72.15 and 73.09 of the Schedule to the Central
Excise Tariff Act, 1985, from so much of the duty or excise leviable
thereon, which is specified in the said Schedule, as in excess of the
amount calculated at the rate of Rs.305 per tonne. Proviso to the said
Notification lays down the conditions which need to be fulfilled to avail
the benefit of this Notification. This proviso reads as under:
“Provided that the said goods have been obtained from breaking of ships,
boats and other floating structures-
(i) On which duty of customs leviable thereon under the First
Schedule to the Customs Tariff Act, 1975 (51 of 1975) has been paid at the
rate of Rs.1,400/- per Light Displacement tonnage; or
(ii) Imported on or before the 28th day of February, 1986 and on
which appropriate additional duty leviable thereon under Section 3 of the
Customs Tariff Act, 1975 (51 of 1975), has been paid.”
The aforesaid Notification was superseded by another Notification No.386/86-
CE dated 20.08.1986. Under this Notification, whole of the duty of excise
stood exempted on meeting the conditions mentioned in proviso thereto,
provided that the said goods have been obtained from breaking of ships,
boats and other floating structures-
on which duty of customs leviable thereon under the First Schedule to the
Customs Tariff Act, 1975 (51 of 1975) has been paid at the rate of
Rs.1,400/- per LDT; or
(ii) imported on or before the 28th day of February, 1986 and on which
appropriate additional duty leviable thereon under Section 3 of the Customs
Tariff Act, 1975 (51 of 1975), has been paid.
Within few months, another Notification No.102/87-CE dated 27.03.1987 was
issued which superseded Notification No.386/86-CE dated 20.08.1986 as well.
In this Notification, again partial exemption was provided. This
exemption was from so much of the duty of excise leviable thereon, which is
specified in the Schedule to the Central Excise Tariff Act, as in excess of
the amount calculated at the rate of Rs.365 per tonne. However, in the
proviso, the condition that was stipulated which had to be met to avail the
exemption, reads as under:
“Provided that the said goods have been obtained from breaking of ships,
boats and other floating structures on which has been paid the duty of
customs leviable under the First Schedule to the customs Tariff Act, 1975
(51 of 1975) at the rate of Rs.1,035/- per Light Displacement Tonnage and
also the additional duty leviable thereon under Section 3 of the said
Customs Tariff Act at the rate of Rs.365 per Light Displacement Tonnage.”
On the same day, another Notification No.103/87-CE dated 27.03.1987 was
also issued. Vide this Notification, goods were exempted from whole of the
duty or excise leviable thereon as specified in the Schedule to the Act
falling under the same Heading Nos. i.e. 72.15 and 73.09 on the fulfillment
of the condition contained in proviso to this Notification, which reads as
follows:
“Provided that the said goods have been obtained from breaking of ships,
boats and other floating structures on which the duty of customs leviable
thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of
1975) has been paid at the rate of Rs.1,400/- per Light Displacement
Tonnage.”
These two Notifications, both dated 27.03.1987, pertain to same goods,
namely, those falling under Headings 72.15 and 73.09 of the said Schedule
to the Act. However, vide first Notification No.102/87-CE, if the customs
duty leviable on the import of ship for the purpose of breaking is paid at
the rate of Rs.1,035/- per LDT along with additional duty leviable thereon
under Section 3 of the Customs Tariff Act, the excise duty payable is at
the rate of Rs.365/- per tonne, exempting the remainder as specified in the
Schedule. On the other hand, as per Notification No.103/87-CE, if the
customs duty has been paid at the rate of Rs.1400/- per LDT, the scrap
obtained from breaking of such ships is exempted from the entire excise
duty.
The respondent herein had paid the duty at the rate of Rs.1035/- per LDT,
albeit, as leviable under the first Schedule to the Customs Tariff Act.
However, as the respondent had cleared the goods without payment of any
excise duty on the assumption that there was exemption of payment of entire
excise duty, appellant herein issued show cause notice dated 28.07.1987
calling upon the respondent to show cause as to why an amount of
Rs.25,73,487/- towards excise duty be not demanded under Section 11 A of
the Central Excise Act. Receipt of the aforesaid show cause notice
prompted the respondent to file the writ petition in the High Court of
Madras and challenge the validity of Notification dated 27.03.1987 on the
ground that by this Notification, total exemption was granted only to those
persons who had paid customs duty at the rate of Rs.1400/- LDT. It was
pleaded that by a Notification dated 20.08.1986, the whole of the duty of
excise levied was exempted if the two conditions as set out above are
satisfied. The limited exemption in excess of Rs.365/- per tonne was
restored by the third Notification dated 27.03.1987. However, by the
impugned Notifications issued on the very same day, total exemption was
granted only to those persons who have paid customs duty at Rs.1,400/- per
LDT. According to the respondent, it has resulted in a distinction between
two categories of persons who have paid customs duty, viz. one set of
persons who have paid customs duty at the rate of Rs.1,400/- per LDT and
the second set of persons who have paid customs duty of lesser amount
though as per Section 3 of the Customs Tariff Act, 1975. This distinction,
pleaded the respondent, was arbitrary, artificial and has no nexus with the
object that is sought to be achieved. When customs duty is payable under
either of the two methods, it is not understood why exemption is granted
only to one set of persons paying customs duty in a particular method of
assessment.
The learned Single Judge was not convinced with the aforesaid case set up
by the respondent. He reasoned that the Court could not direct the Central
Government to extend the Notification to a class to whom it has not been
extended as that was a matter which was entirely within the discretion of
the Central Government. Sustenance was drawn from the judgment of this
Court in Kasinka Trading and Another v. Union of India and Another[1]
wherein this Court has held that wide discretion is available to the
Government in the matter of granting, curtailing, withholding, modifying or
repealing the exemptions granted by earlier notifications and the
Government was not bound to grant exemption to anyone if it so desires.
The respondent preferred writ appeal against the said judgment. The
Division Bench vide impugned judgment has reversed the decision of the
learned Single Judge finding sufficient merit in the case set up and
pleaded by the respondent. It is held by the Division Bench that when the
benefit of concessional right is restored by a notification, there cannot
be any discriminatory treatment to some persons who fall in the same
category. According to the Division Bench, both the categories of importers
paid the duty as leviable under Customs Tariff Act. Once a choice is given
under the said Act and the duty is paid accordingly, merely because the
rate of duty arrived at is different would not be rational basis for
excluding the other class. This reasoning of the High Court can be found
in paras 10 and 11 of the impugned judgment which are reproduced
hereinbelow:
“10. From the notification or from the Counter Affidavit, we are unable to
find any rational basis for treating two categories of persons who have
paid the customs duty differently and hence, the failure to consider the
duty already paid by the appellants on ad valorem basis, on the face of it,
is illegal and therefore, the impugned notifications, which did not make
any provision for such of those remittance made under the second category,
are clearly arbitrary. As rightly pointed out, the exemption from excise
duty is to avoid double taxation and the withdrawal of exemption would mean
that the persons would be paying additional duty under the Customs Act as
well as the excise duty. It is further seen that the person who had paid
the customs duty at the rate of Rs.1,400/- per Light Displacement Tonnage
would have been totally exempted from the payment of excise duty. In the
light of this clear and palpable discrimination without any rational basis,
we are of the view that the appellants have made out a case and that the
impugned notifications are liable to be quashed in so far as the appellants
is concerned.
11. The Supreme Court, in Government of India Vs. Dhanalakshmi Paper and
Board Mills, Tiruchirappalli, A.I.R. 1989 S.C. 665, has held that the
benefit of concessional right was bestowed upon the entire group of
assesses. The division of two classes without adopting any differentia,
having a rational relation to the object of the notification and the
withdrawal of the benefit to one class, while retaining it in favour of the
other is ultra vires. In Thermax Private Limited Vs. Collector of Customs
(Bombay), A.I.R. 1993 S.C. 1339, the Supreme Court held that if the person
using the goods is entitled to remission, the importer will be entitled to
say that C.V.D. should only be the amount of concessional duty and if he
has paid more, he will be entitled to ask for refund. Section 3(1) of the
Customs Tariff Act, 1975 mandates that the C.A.V. will be equal to the
excise duty for the time being leviable on a like article if produced or
manufactured in India.”
Mr. Panda, learned senior counsel appearing for the appellants, submitted
that it was entirely within the domain of the Government to give exemption
to particular class of assessees and it being a policy decision, it would
not be open to the High Court to tinker with the same. For this purpose,
he relied on the judgment of this Court in Kasinka Trading's case, and in
particular paras 8 and 21 thereof, which are as follows:
8. Section 12 of the Customs Act, which is the charging section, provides
that duties of customs shall be levied at such rates as may be specified
under the Customs Tariff Act, 1975 or any other law for the time being in
force on the goods imported into India. Section 2 of the Customs Tariff
Act, 1975 read with the First and Second Schedules thereto lays down the
rates at which duties of customs shall be levied under the Customs Act on
various goods imported into India. Section 25 of the Act, with which we are
primarily concerned in this batch of appeals, confers powers on the Central
Government to grant exemptions from levy of duty in “public interest”. Sub-
sections (1) and (2) of Section 25 which are relevant for our purposes
provide as under:
“25. Power to grant exemption from duty.— (1) If the Central Government is
satisfied that it is necessary in the public interest so to do it may, by
notification in the Official Gazette, exempt generally either absolutely or
subject to such conditions (to be fulfilled before or after clearance), as
may be specified in the notification goods of any specified description
from the whole or any part of duty of customs leviable therein.
(2) If the Central Government is satisfied that it is necessary in the
public interest so to do, it may, by special order in each case, exempt
from the payment of duty, under circumstances of an exceptional nature to
be stated in such order, any goods on which duty is leviable.”
The power to grant exemption from duty, wholly or in part, on the plain
language of Section 25 (supra) is contingent upon the satisfaction of the
Government that it would be in “public interest” to do so. Thus, “public
interest” is the guiding criterion for exercising the power under Section
25 (supra).
xx xx xx
21. The power to grant exemption from payment of duty, additional duty etc.
under the Act, as already noticed, flows from the provisions of Section
25(1) of the Act. The power to exempt includes the power to modify or
withdraw the same. The liability to pay customs duty or additional duty
under the Act arises when the taxable event occurs. They are then subject
to the payment of duty as prevalent on the date of the entry of the goods.
An exemption notification issued under Section 25 of the Act had the effect
of suspending the collection of customs duty. It does not make items which
are subject to levy of customs duty etc. as items not leviable to such
duty. It only suspends the levy and collection of customs duty, etc.,
wholly or partially and subject to such conditions as may be laid down in
the notification by the Government in “public interest”. Such an exemption
by its very nature is susceptible of being revoked or modified or subjected
to other conditions. The supersession or revocation of an exemption
notification in the “public interest” is an exercise of the statutory power
of the State under the law itself as is obvious from the language of
Section 25 of the Act. Under the General Clauses Act an authority which has
the power to issue a notification has the undoubted power to rescind or
modify the notification in a like manner. From the very nature of power of
exemption granted to the Government under Section 25 of the Act, it follows
that the same is with a view to enabling the Government to regulate,
control and promote the industries and industrial production in the
country. Notification No. 66 of 1979 in our opinion, was not designed or
issued to induce the appellants to import PVC resin. Admittedly, the said
notification was not even intended as an incentive for import. The
notification on the plain language of it was conceived and issued on the
Central Government “being satisfied that it is necessary in the public
interest so to do”. Strictly speaking, therefore, the notification cannot
be said to have extended any ‘representation’ much less a ‘promise’ to a
party getting the benefit of it to enable it to invoke the doctrine of
promissory estoppel against the State. It would bear repetition that in
order to invoke the doctrine of promissory estoppel, it is necessary that
the promise which is sought to be enforced must be shown to be an
unequivocal promise to the other party intended to create a legal
relationship and that it was acted upon as such by the party to whom the
same was made. A notification issued under Section 25 of the Act cannot be
said to be holding out of any such unequivocal promise by the Government
which was intended to create any legal relationship between the Government
and the party drawing benefit flowing from of the said notification. It is,
therefore, futile to contend that even if the public interest so demanded
and the Central Government was satisfied that the exemption did not require
to be extended any further, it could still not withdraw the exemption.
He stated that the principle laid down in the aforesaid judgment is
followed and reiterated in Shrijee Sales Corporation and Another v. Union
of India[2] and Reliance Industries Ltd. v. Pravinbhai Jasbhai Patel and
Others[3].
He also referred to Ground A in the writ petition and submitted that the
plea of the respondent was that the duty already paid by the respondent
should have been taken into account and only the balance out of it should
have been the rate of duty. He, thus, submitted that this aspect has not
been taken into consideration by the High Court in the impugned judgment.
Learned counsel for the respondent, on the other hand, argued that all
those who paid excise duty as per the provisions of the Act constitute one
single class and, therefore, by restricting the benefit to only those who
had paid custom duty at the rate of Rs.1,400/- per LDT and excluding other
sets of persons like appellants amounted to hostile discrimination and,
therefore, the High Court rightly held the Notification to be violative of
Article 14 of the Constitution.
The judgment of this Court in Kasinka Trading's case, no doubt, lays down
the principle that there is wide discretion available to the Government in
the matter of granting, curtailing, withholding, modifying or repealing the
exemptions granted by earlier Notifications. It is also correct that the
Government is not bound to grant exemption to anyone to which it so
desires. When the duty is payable under the provisions of the Act, grant
of exemption from payment of the said duty to particular class of persons
or products etc. is entirely within the discretion of the Government. This
discretion rests on various factors which are to be considered by the
Government as these are policy decisions. In the present case, however, the
issue is not of granting or not granting the exemption. When the exemption
is granted to a particular class of persons, then the benefit thereof is to
be extended to all similarly situated person. The Notification has to
apply to the entire class and the Government cannot create sub-
classification thereby excluding one sub-category, even when both the sub-
categories are of same genus. If that is done, it would be considered as
violating the equality clause enshrined in Article 14 of the Constitution.
Therefore, judicial review of such Notifications is permissible in order to
undertake the scrutiny as to whether the Notification results in invidious
discrimination between two persons though they belong to the same class.
In Aashirwad Films v. Union of India and Others[4], this aspect has been
articulated in the following manner:
9. The State undoubtedly enjoys greater latitude in the matter of a taxing
statute. It may impose a tax on a class of people, whereas it may not do so
in respect of the other class.
10. A taxing statute, however, as is well known, is not beyond the pale of
challenge under Article 14 of the Constitution of India.
11. In Chhotabhai Jethabhai Patel & Co. v. Union of India, AIR 1962 SC 1006
it was stated: (AIR p. 1021, para 37)
“37. But it does not follow that every other article of Part III is
inapplicable to tax laws. Leaving aside Article 31(2) that the provisions
of a tax law within legislative competence could be impugned as offending
Article 14 is exemplified by such decisions of this Court as Suraj Mall
Mohta & Co. v. A.V. Vishvanatha Sastri (AIR 1954 SC 545 : (1955) 1 SCR 448)
and Meenakshi Mills Ltd. v. A.V. Visvanatha Sastri (AIR 1955 SC 13 : (1955)
1 SCR 787). In K.T. Moopil Nair v. State of Kerala (AIR 1961 SC 552) the
Kerala Land Tax Act was struck down as unconstitutional as violating the
freedom guaranteed by Article 14. It also goes without saying that if the
imposition of the tax was discriminatory as contrary to Article 15, the
levy would be invalid.”
12. A taxing statute, however, enjoys a greater latitude. An inference in
regard to contravention of Article 14 would, however, ordinarily be drawn
if it seeks to impose on the same class of persons or occupations similarly
situated or an instance of taxation which leads to inequality. The taxing
event under the Andhra Pradesh State Entertainment Tax Act is on the
entertainment of a person. Rate of entertainment tax is determined on the
basis of the amount collected from the visitor of a cinema theatre in terms
of the entry fee charged from a viewer by the owner thereof.
It is, thus, beyond any pale of doubt that the justiciability of particular
Notification can be tested on the touchstone of Article 14 of the
Constitution. Article 14, which is treated as basic feature of the
Constitution, ensures equality before the law or equal protection of laws.
Equal protection means the right to equal treatment in similar
circumstances, both in the priviliges conferred and in the liabilities
imposed. Therefore, if the two persons or two sets of persons are
similarly situated/placed, they have to be treated equally. At the same
time, the principle of equality does not mean that every law must have
universal application for all persons who are not by nature, attainment or
circumstances in the same position. It would mean that the State has the
power to classify persons for legitimate purposes. The legislature is
competent to exercise its discretion and make classification. Thus, every
classification is in some degree likely to produce some inequality but mere
production of inequality is not enough. Article 14 would be treated as
violated only when equal protection is denied even when the two persons
belong to same class/category. Therefore, the person challenging the act
of the State as violative of Article 14 has to show that there is no
reasonable basis for the differentiation between the two classes created by
the State. Article 14 prohibits class legislation and not reasonable
classification. What follows from the above is that in order to pass the
test of permissible classification two conditions must be fulfilled,
namely, (i) that the classification must be founded on an intelligible
differential which distinguishes persons or things that are grouped
together from others left out of the group and (ii) that, that differential
must have a rational relation to the object sought to be achieved by the
statute in question. If the government fails to support its action of
classification on the touchstone of the principle whether the
classification is reasonable having an intelligible differentia and a
rational basis germane to the purpose, the classification has to be held as
arbitrary and discriminatory. In Sube Singh v. State of Haryana[5], this
aspect is highlighted by the Court in the following manner:
10. In the counter and the note of submission filed on behalf of the
appellants it is averred, inter alia, that the Land Acquisition Collector
on considering the objections filed by the appellants had recommended to
the State Government for exclusion of the properties of appellants 1 and 3
to 6 and the State Government had not accepted such recommendations only on
the ground that the constructions made by the appellants were of 'B' or 'C'
class and could not be easily amalgamated into the developed colony which
was proposed to be built. There is no averment in the pleadings of the
respondents stating the basis of classification of structures as 'A' 'B'
and 'C' class, nor is it stated how the amalgamation of all 'A' class
structures was feasible and possible while those of 'B' and 'C' class
structures was not possible. It is not the case of the State Government and
also not argued before us that there is no policy decision of the
Government for excluding the lands having structures thereon from
acquisition under the Act. Indeed, as noted earlier, in these cases the
State Government has accepted the request of some land owners for exclusion
of their properties on this very ground. It remains to be seen whether the
purported classification of existing structures into 'A', 'B' and 'C' class
is a reasonable classification having an intelligible differential and a
rational basis germane to the purpose. If the State Government fails to
support its action on the touchstone of the above principle then this
decision has to be held as arbitrary and discriminatory. It is relevant to
note here that the acquisition of the lands is for the purpose of planned
development of the area which includes both residential and commercial
purposes. That being the purpose of acquisition it is difficult to accept
the case of the State Government that certain types of structures which
according to its own classification are of 'A' class can be allowed to
remain while other structures situated in close vicinity and being used for
same purposes (residential or commercial) should be demolished. At the cost
of repetition, it may be stated here that no material was placed before us
to show the basis of classification of the existing structures on the land
proposed to be acquired. This assumes importance in view of the specific
contention raised on behalf of the appellants that they have pucca
structures with R.C. roofing, Mozaic flooring etc. No attempt was also made
from the side of the State Government to place any architectural plan of
different types of structures proposed to be constructed on the land
notified for acquisition in support of its contention that the structures
which exist on the lands of the appellants could not be amalgamated into
the plan.
The question, therefore, that arises is as to whether the two categories,
one mentioned in Notification No.386/86-CE dated 20.08.1986, which is
given the benefit and removal of the second category, which was initially
granted same benefit vide Notification No.102/87-CE dated 27.03.1987, is
discriminatory. To put it otherwise, we have to see as to whether the two
categories are identical or there is a reasonable classification based on
intelligible differentia which has nexus with some objective that is sought
to be achieved. The test in this behalf that is to be applied can again be
culled out from the judgment in Aashirwad's case. It is summarized in para
14, after taking note of various earlier judgments. This para reads as
under:
14. It has been accepted without dispute that taxation laws must also pass
the test of Article 14 of the Constitution of India. It has been laid down
in a large number of decisions of this Court that a taxation statute for
the reasons of functional expediency and even otherwise, can pick and
choose to tax some. Importantly, there is a rider operating on this wide
power to tax and even discriminate in taxation that the classification thus
chosen must be reasonable. The extent of reasonability of any taxation
statute lies in its efficiency to achieve the object sought to be achieved
by the statute. Thus, the classification must bear a nexus with the object
sought to be achieved. (See Moopil Nair v. State of Kerala, AIR 1961 SC
552, East India Tobacco Co. v. State of A.P., AIR 1962 SC 1733, N.
Venugopala Ravi Varma Rajah v. Union of India (1969) 1 SCC 681 : AIR 1969
SC 1094, Asstt. Director of Inspection Investigation v. A.B. Shanthi,
(2002) 6 SCC 259 : AIR 2002 SC 2188 and Associated Cement Companies Ltd. v.
Govt. of A.P., (2006 ) 1 SCC 597 : AIR 2006 SC 928).
In the present case, we find that the two Notifications both dated
27.03.1987 pertain to same goods namely those falling under Heading 72.15
and 73.09 of the second Schedule to the Act. Customs duty is leviable on
these goods under Section 3 of the Customs Tariff Act. The said duty can
be paid under any of the two methods. When two methods are permissible
under the statutory scheme itself, obviously option is that of the assessee
to choose in all those methods to pay the custom duty. Duty, thus, paid is
to be naturally treated as validly paid. Merely because with the adoption
of one particular method the duty that becomes payable is lesser would not
mean that two such persons belong to different categories. The important
factors for the purposes of parity are same in the instant case, viz. the
goods are same; they fall under the same Heading and the custom duty is
leviable as per the Act which has been paid. Therefore, the impugned
Notification giving exemption only to those persons who paid a particular
amount of duty, namely Rs.1,400/- per LDT, would not mean that such persons
belong to a different category and would be entitled to exemption and not
other persons like the respondent herein who paid the duty on the same
goods under the same Act but on the formula which he opted and which is
permissible, which rate of duty comes to Rs.1,035/- per LDT.
It is also important to bear in mind that the appellants have not supported
the withdrawal of exemption by any cogent explanation. The High Court has
noted, and rightly so, that Ground C was taken by the respondent in the
writ petition specifically urging that no rational policy is mentioned for
creating two different classes and no reply to this was given by the
appellants even in the counter affidavit filed to the said petition. On the
other hand, the specific case made out by the respondent was that the
purpose behind Notification No.146/86-CE dated 01.03.1986 and Notification
No.386/86-CE dated 20.08.1986 was to treat the ships imported on or before
28.02.1986 differently and to avoid double taxation and additional duty
equivalent to excise duty. For this reason, exemption Notification became
necessary which provided exemption from excise duty. It was argued that
the withdrawal of the exemption duty in the cases like that of the
respondent amounted to double taxation. Even this could not be refuted by
the appellants.
We are conscious of the principle that the difference which will warrant a
reasonable classification need not be great. However, it has to be shown
that the difference is real and substantial and there must be some just and
reasonable relation to the object of legislation or notification.
Classification having regard to microscopic differences is not good. To
borrow the phrase from the judgment in Roopchand Adlakha v. D.D.A.[6]: “To
overdo classification is to undo equality.”
We are also conscious of the principle that in the field of taxation, the
Legislature has an extremely wide discretion to classify items for tax
purposes, so long as it refrains from clear and hostile discrimination
against particular persons or classes (See Secretary to Govt. of Madras v.
P.R. Sriramulu[7]). However, at the same time, when a substantive
unreasonableness is to be found in a taxing statute/notification, it may
have to be declared unconstitutional. Although the Court may not go into
the question of a hardship which may be occasioned to the tax payers but
where a fair procedure has not been laid down, the validity thereof cannot
be upheld. A statute which provides for civil or evil consequences must
conform to the test of reasonableness, fairness and non-arbitrariness.
In State of U.P. v. Deepak Fertilizers & Petrochemical Corporation Ltd.[8],
this aspect is succinctly brought about as is apparent from the following
passages in that judgment:
“15. The learned counsel appearing for the State relying heavily on Kerala
Hotel and Restaurant Assn. v. State of Kerala, (1990) 2 SCC 502, contended
that the State has widest latitude where measures of economic and fiscal
regulation are concerned. There is no dispute on this principle of law as
enumerated in the aforesaid decision of this Court. However, this same law
must not be repugnant to Article 14 of the Constitution i.e. it must not
violate the right to equality of the people of India, and if such
repugnancy prevails then, it shall stand void up to the level of such
repugnancy under Article 13(2) of the Constitution of India. Therefore,
every law has to pass through the test of constitutionality, which is
nothing but a formal name of the test of rationality. We understand that
whenever there is to be made any type of law for the purpose of levying
taxes on a particular commodity or exempting some other commodity from
taxation, a sought of classification is to be made. Certainly, this
classification cannot be a product of blind approach by the administrative
authorities on which the responsibility of delegated legislations is vested
by the Constitution. In a nutshell, the notifications issued by the Trade
Tax Department of the State of U.P., dated 10.04.1995 and 15.05.1995 lack
the sense of reasonability because it is not able to strike a rational
balance of classification between the items of the same category. As a
result of this, NPK 23:23:0 is not given exemption from taxation whereas
all other NPK fertilisers of the same category like that of NPK 20:20:0 are
provided with the exemption from taxation.
16. The reasonableness of this classification must be examined on the
basis, that when the object of the taxing provision is not to tax the sale
of certain chemical fertilisers included in the list, which clearly points
out that all the fertilisers with the similar compositions must be included
without excluding any other chemical fertiliser which has the same elements
and compositions. Thus, there is no reasonable nexus of such classification
among various chemical fertilisers of the same class by the state. This
court in Ayurveda Pharmacy [(1989) 2 SCC 285], held that two items of the
same category cannot be discriminated and where such a distinction is made
between items falling in the same category it should be done on a
reasonable basis, in order to save such a classification being in
contravention of Article 14 of the Constitution of India.”
It was contended by the learned senior counsel for the appellants that
purpose was to give exemption only to those who paid custom duty at
Rs.1,400/- per LDT and since the duty paid by the respondent herein was
lesser in amount, respondent could not ask for exemption. That may be so.
In such a case, the only option to bring parity was to demand duty on
differential amount, which was even contended by the respondent herein.
That provision should have been incorporated to save the impugned
Notification from the vice of arbitrariness. In fact, that would bring
both the sub-categories completely at par. Thus, while upholding the view
taken by the High Court, we modify the same only to the extent that the
respondent herein shall also be entitled to the benefit of the exemption
Notification subject to the condition that the duty already paid by the
respondent herein on LDT, would be taken into account and only the balance
out of it would be subject to excise duty.
The appeal is disposed of in the aforesaid terms without any order as to
cost.
.............................................J.
(A.K. SIKRI)
.............................................J.
(N.V. RAMANA)
NEW DELHI
JULY 29, 2015.
-----------------------
[1] (1995) 1 SCC 274
[2] (1997) 3 SCC 398
[3] (1997) 7 SCC 300
[4] (2007) 6 SCC 624
[5] (2001) 7 SCC 545
[6] (1989) 1 Supp. SCC 116
[7] (1996) 1 SCC 345
[8] (2007) 10 SCC 342
