PUBLIC INTEREST

[Mr. M. GOVINDARAJAN]

The indirect tax laws give powers to the Central Government to grant exemption from the levy of tax/duty.  The exemption may be for a particular product/service.  The exemption may be either in full or in partial.   The exemption may be either for a particular period or indefinite.  For example, mega exemptions for various services are notified in the service tax regime.   Negative list services are also not liable for service tax permanently.  The exemption may be for a particular area or applicable all over India.  The exemption granted by the Government may be withdrawn at any time or it may be modified or subject to certain conditions.   Generally we can note that in the exemption notification the Government indicates that the exemption is granted in public interest.  Doubt may be arised whether the Government in granting exemption or modifying the exemption or withdraw the exemption has considered the ‘public interest’.  This may be verified in the following case laws:

In ‘Kasinka Trading V. Union of India’ – 1994 (10) TMI 64 - SUPREME COURT OF INDIA the Government of India had issued Notification under Section 25(1) of the Customs Act, 1962 in ‘public interest’ granting exemption from whole of the Customs duty on import of PVC resin.  This Notification was to remain in force till 31.03.1981.  However, even before the said date, by another Notification dated 16.10.1980, the Government withdrew the full exemption from customs duty.   It was reduced to the exemption from customs duty as is in excess of 40% ad valorem.  The importer in this case contended that relying on the exemption notification dated 15.03.1979, it had placed orders for the import of PVC resins on the understanding that the said commodity was totally exempted from customs duty.  The Government must be held bound by the representations contained in the Notification dated 15.03.1979.  The Government was stopped on the basis of promissory estoppels to go back on its promise.   On the other hand the Government had justified the withdrawal of the exemption on the ground that the Government had issued notification dated 15.03.1979 with a view to equalizing sale prices of the indigenous and the imported material and to make the commodity available to the consumer at a uniform price, keeping in view the trends in the supply of the material.  The Government contended that subsequently, it was realized that the international prices of the product were falling and consequently the import prices had become lower than ex-factory prices of the indigenous material.   Hence it was decided in ‘public interest’ to withdraw  the exemption notification.

The Supreme Court held that the reasons given by the Union of India justifying the withdrawal of exemption notification are not relevant to the exercise of the power in the public interest nor are the same shown to be insufficient to support the exercise of that power.  The Court observed that the power to grant exemption from payment of duty flows from the provisions of Section 25(1) of the Customs Act.  The power to exempt, the Supreme Court held, includes the power to modify or withdraw the same.  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 not merely from the language of Section 25 of the Customs Act, but also from the General Clauses Act under which the authority has the power to issue a notification has the undoubted power to rescind or modify the notification in the like manner.

The Supreme Court also examined the case of the petitioner in the present case that relying upon the Notification dated 15.03.1979, they had acted and the government could not be permitted to go back on its assurance otherwise they would be put to huge loss.  For this argument the Court held that the Courts have to balance equities between the parties and indeed the Courts would bind the Government by its promise to prevent manifest injustice or fraud.   The Court also quoted with approval the following observations from ‘Malhotra & Sons V. Union of India’ – AIR 1976 J&K 41 – “The courts will only bind the Government by its promises to prevent manifest injustice or fraud and will not make the Government a slave of its policy for all times to come when the Government acts in its Government, public or sovereign capacity.

In ‘Shrijee Sales Corporation V. Union of India’ – 1996 (12) TMI 61 - SUPREME COURT OF INDIA the notification dated 15.03.1979 was considered.  In this case the appellant petitioners had alleged that they would not imported the PVC resin without the exemption as that would have been unviable and uneconomical and further that many persons took full advantage of the exemption.  The Court held that the facts of the economic situation explained in the judgment rendered by the Supreme Court in ‘Kasinka Trading’ (supra)s case were not contravened nor was it was alleged that public interest did not call for suppression of the exemption notification.  The Court also examined the question whether the fact that the Notification dated 15.03.1979 mentioned the period during which it was to remain in force would make any difference to the situation.  The Court held that once public interest is accepted as the superior equity which can override individual equity, the principles should be applicable even in cases where a period has been indicated.

From the above case law it can be inferred that it cannot be denied that the Government has a right to amend, modify or even rescind a particular scheme.   It is well settled that in complex economic matters every decision is necessarily empiric and it is based on experimentation or what one may call trial and error method and therefore, its validity cannot be tested on any rigid prior considerations or on the application of any straight jacket formula.