2023 (5) TMI 620 - SC - Customs

Validity of withdrawal of a customs notification - Notification No 86 of 2003 amended by fresh notification dated November 11 2003 Notification No 164 of 2003 - ultra vires Section 25(1) of the Customs Act 1962 or not - payment of customs duty at 39.2% on the value of the Imported Machine - the amended notification was set aside on the ground that no intelligible differentia existed for granting concession on one type of machinery and withdrawing concession to other types of machinery - HELD THAT - The court however did not strike down the withdrawal notification but recorded that the government failed to consider the impact of the withdrawal on newspaper publishers and how that would affect the exercise of freedom of speech. Therefore the court required the executive to review the matter after considering all relevant factors. In Dai-Ichi Karkaria 2000 (4) TMI 42 - SUPREME COURT a customs notification which reduced exemption from 75% to 25% for a particular period (30-12-1986 to 10-9-1987) was held unjustified because the executive had not taken into account all the relevant factors while issuing the impugned notifications reducing the exemption to 25% for the aforesaid period and failed to discharge its statutory obligation while issuing the impugned notifications. Justifications offered to say the least is far too naive to be accepted. In Bannari Amman Sugars Ltd. 2004 (11) TMI 320 - SUPREME COURT the court held that there is no vested right as to tax-holding is acquired by a person who is granted concession. If any concession has been given it can be withdrawn at any time and no time-limit should be insisted upon before it was withdrawn. This court also held that promissory estoppel can be invoked only if on the basis of representation made by the Government the industry was established to avail benefit of exemption. The decision in Mahabir Vegetable Oils (P) Ltd. v. State of Haryana 2006 (3) TMI 234 - SUPREME COURT is along the same lines as MRF Ltd. 2006 (9) TMI 278 - SUPREME COURT which is that benefits once granted cannot be divested by a retrospective statute or notification. These decisions in this court s opinion stand on a different footing because they primarily concern exercise of statutory power i.e. withdrawal in a manner that has an extremely prejudicial or unreasonable impact which is retrospective in effect. This court is of the opinion that the High Court by the impugned judgment erred in judging the merits of the reasons which led the executive government to issue the Amended Notification. No mala fides or oblique considerations were pleaded or urged; the exercise of power was in line with the provisions of the Act. The indigenous angle i.e. availability of equipment cannot be characterized as an irrelevant factor or consideration since grant of exemption to a class of goods which are similar to those manufactured within the country and its likely adverse impact on such manufacturers or producers is germane and relevant. Appeal allowed.

Issues Involved:

1. Validity of the withdrawal of a customs notification.
2. Whether the amended notification was ultra vires Section 25(1) of the Customs Act, 1962.
3. Applicability of the principle of promissory estoppel against the government.
4. Judicial scrutiny of the executive's economic policy decisions.

Summary:

Issue 1: Validity of the Withdrawal of a Customs Notification

The case arises from a judgment by the Calcutta High Court, which held the withdrawal of a customs notification invalid. The assessee imported a high-speed cold set web offset printing machine and claimed a concessional duty rate under the First Notification. The First Notification was amended, shifting the concessional rate to a different type of machine, making the assessee ineligible for the benefit. The High Court set aside the amended notification, stating no intelligible differentia existed for the change, and upheld the single judge's decision to grant exemption to the imported machinery.

Issue 2: Ultra Vires Section 25(1) of the Customs Act, 1962

The Union argued that its power to grant exemptions includes the power to modify or withdraw them under Section 25(1) of the Act and Section 21 of the General Clauses Act, 1897. The High Court, however, observed that the withdrawal was not in furtherance of "public interest" as required under Section 25(1) of the Act, citing the lack of an intelligible differentia between the machines and the absence of domestic manufacturing capabilities for the imported machine.

Issue 3: Principle of Promissory Estoppel

The assessee argued that the government could not withdraw the First Notification without justification and relied on the principle of promissory estoppel, given the irrevocable letter of credit issued before the amended notification. The High Court noted that the government must provide a reasonable opportunity to the promisee to restore the status quo ante if it decides to resile from its promise.

Issue 4: Judicial Scrutiny of Economic Policy Decisions

The Union contended that the High Court's decision challenges the government's fundamental powers to issue notifications under Section 25(1), which falls within the policy domain. The Supreme Court held that judicial scrutiny should be limited to examining the legality and bona fides of the decision, not the merits or sufficiency of the reasons. The High Court erred in conducting a merits review of the economic measure, as the executive's decision was backed by relevant reasons, including the indigenous angle and representations from domestic manufacturers.

Conclusion:

The Supreme Court set aside the High Court's judgment, holding that the withdrawal of the concession was within the executive's domain and backed by relevant considerations. The appeal was allowed without any order on costs.

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