9911796707
TMI Blog2012 (7) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... rd and 4th proviso to section 80 HHC (3) of the Income Tax Act, 1961 [the Act, hereafter] are ultra vires Articles 14 and 19 (1) (g) of the Constitution of India. By way of consequential relief, the petitioners have prayed for direction upon the respondents not to give effect to those severable parts of the third and the fourth proviso to section 80 HHC (3) of the Act and for prohibiting them from taking any action by taking aid of those provisos. 2. The facts giving rise to the filing of these matters may be summed up thus: 2.1 In all these matters, the constitutional validity of insertion of conditions in the third and the forth provisos to section 80 HHC (3) of the Act by amendment of Taxation Laws (Second Amendment) Act, 2005 with retrospective effect is challenged. According to the petitioners, the benefit of deduction under section 80 HHC of the Act was available to them from the Assessment Year 1988-99 to the Assessment Year 2004-05. They claim that they have settled their affairs based on availability of the said benefit up to 31st March 2004 and by the amendment challenged in these writ-applications, the respondents seek to take away the benefit retrospectively after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents, it would appear from paragraph 3 of the Statement of Objects and Reasons made while introducing the Taxation Laws (Second Amendment) Bill 2005 that in order to extend certain tax incentive to the export business with effect from the Assessment Year 1998-99, it was proposed that the deductions allowable under section 80 HHC of the Act for export business may be extended to any profit on transfer of the DEPB Scheme or the Duty Free Replenishment Certificate subject to certain specified conditions. 3.1 The respondents further contend that the classification of the assessees on the basis of quantum of export turnover being more or less than Rs.10 Crore is a reasonable classification permitted by Article 14 of the Constitution of India. The respondents contend that the classification in terms of quantum of income or quantum of turnover is embedded all through in the Act as can be seen from Section 44AA(2), 44AB and 139(4A). It is further contended by the respondents that the beneficial nature of the impugned amendments made by the Taxation Laws (Amendment) Act, 2005 in section 80 HHC is further clear from the first proviso to section 80 HHC(3) added by the same amendment A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners, is an absurd condition which no sensible person can ever exercise the option to choose a scheme under which he would get lesser benefit. Moreover, according to the learned advocates for the petitioners, to impose such condition retrospectively and requiring such person to prove that he had such an option in past and he had exercised it to avail lesser benefit is totally arbitrary, capricious, unjust, unfair, discriminatory and violative of both Article 14 & Article 19 (1) (g) of the Constitution. In support of such contention, the learned advocates for the petitioners rely upon the following decisions:- (1) MARADIA CHEMICALS LTD. VS. UNION OF INDIA reported in (2004) 4 SCC 311 : AIR 2004 SC 2371 (2) MALPE VISHWANATH ACHARYA & ORS. Vs. STATE OF MAHARASHTRA & ANR. reported in 1998 (2) SCC 1 : 1998 SC 602. (3) WELFARE ASSOCIATION A.R.P. reported in (2003) 9 SCC 358 : AIR 2003 SC 1266 5.2. The Amendment is violative of Article 14: On the above aspect, the learned counsel for the petitioners submit that the impugned amendment places two assessees of the same class on different footing and the amendment, in fact, seeks to take away the deduction from one retrospective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of drawback is lower; [3]. Exporters eligible for DEPB and not drawback; [4]. Exporter eligible only for drawback and not DEPB. 5.2.1 Learned counsel for the Petitioners further submit that the impugned amendment further classifies the exporter into two classes, first, whose assessments have become final and secondly, whose assessments are pending. Such classification, according to them, is unintelligible and not in consonance with or have no relation with deduction u/s. 80 HHC and therefore, violative of Article 14 of the Constitution. They contend that sub-classification sought to be introduced/resulting due to impugned amendment has no rationale nexus with the object of the amendment and therefore, fails the test of Article 14. They contend that this leads to discrimination between the assessee placed in the same class by giving them unequal treatment and therefore, would be grossly violative of Article 14 of the Constitution of India and thus, the impugned amendment is ultra vires and bad in law. In support of this contention, they rely upon the decision in the case of S. K. DUTTA, ITO & ORS. V/s LAWRENCE SINGH INGTY reported in 68 ITR 272(SC) = AIR 1968 SC 658. 5.3. The am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll settled that only procedural amendments can have retrospective effect and any amendment, which is otherwise substantive in nature, can never have a retrospective effect, unless the same is beneficial to an assessee. They contend that in the facts of the present case, the impugned explanation added to section 80-IA(4) of the Act is a substantive amendment substantially curtailing the right of an assessee to claim the deduction under section 80HHC of the Act, which was otherwise available to it. Thus, according to them, the retrospective amendment is unduly oppressive and confiscatory. 5.6. Promissory Estoppel and Legitimate Expectations: Lastly, the learned advocates for the petitioners submit that it would appear from the history of section 80HHC of the Act that it was given to encourage the exports, and the petitioners, by virtue of the impugned amendment retrospectively cannot be deprived of the incentives / deductions. According to them, such an amendment is against the principle of promissory estoppel. They contend that the assessees have arranged their business affairs in the past when there were no conditions on the statute book, which is now sought to be upturned by mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest, commission, etc. which did not have the element of turnover were included in the profit and loss account. [b]. As per the scheme of section 80HHC, such deduction is given on the profits derived from the export as per sub-section (1) and subsection (3) explains the phrase "profits derived from exports" to mean the amount which bears to the profits of business in the same proportion as the export turnover to the total turnover of the business carried out by the assessee. Thus, the scheme of 80HHC for computing the profits derived from exports is thus first to exclude "independent incomes" and "export incentives" from the profits of business, but since the legislature intended to give deduction under section 80HHC in respect of "export incentives" it provided for the deduction by way of First to Fourth Proviso appended to sub-section (3) of section 80HHC. The rationale of first excluding the export incentives from the "profits of business" and then loading it back for calculating deduction under section 80HHC by way of provisos is attributed to the concept that the export incentives are not strictly to be construed as profits of business as the effective source of these i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since 1998. [c]. The amendment seeks to take away the available benefits retrospectively after the entire period of benefit is over on 31st march 2004 [d]. The amendment granting conditional benefits selectively to certain assessees discriminates between the assessees falling in the same class which is violative of Article 14 of the Constitution. [e]. The conditions stipulated in third and fourth Provisos to sub-section (3) of section 80HHC are arbitrary, capricious, unjust and discriminatory thereby violating both Articles 14 and 19(1)(g) of the Constitution. 6.5 The Revenue contends that the aforesaid averments are incorrect both factually as also legally. In the first place, it is pointed out that prior to the impugned amendments, the Income Tax Act 1961 did not at any stage grant benefit of any kind to the exporters in respect of profits derived by them from the transfer/sale of their DEPB entitlements. This, according to the Revenue, is evident from the provisions of the Act as these existed prior to the impugned amendments. 6.6 The Revenue submits that the Ministry of Commerce, with a view to give boost to the exports, does introduce from time to time certain sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in this backdrop that the proposal to amend the law (IT Act 1961) was moved and passed by Parliament. The amendment sought to: (a) grant unconditional benefit of higher deduction of export profits where the sale of DEPB/DFRC was made by exporters having turnover of less than Rs. 10 crore (small and medium exporters) and (b) grant benefit of such higher deduction subject to fulfillment of certain conditions by such exporters who have export turnover exceeding Rs. 10 Crore. In either case, according to the Revenue, the benefits were given retrospectively from the years when such schemes came into operation. 6.10 In the light of above, the learned Counsel for the Revenue referred to debate/discussion in the House while moving the Bill and contended that the premium is simply a business profit as the income earned is not in foreign exchange but in Indian rupees and does not arise out of export activity or import activity but arises on trading of license. It is also pointed out that reduction in any event was required to be effected as per Explanation (baa) but only with a view to give benefit, Second to Fourth Provisos were inserted. 6.11 Thus, according to the Revenue, it is fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is Rs. 1500/-, i.e. Total turnover is Rs. 2000/-. Say profits from business are purely turnover based and are Rs. 200/-. In such scenario as per the above formula "profits derived from exports"= 200 x 500/2000=50 (II) Now take a case where "profits derived from business" include non turnover based income in it be they from interest, rent, commission or be they from profit on sale of DEPB [in view of the use of the phrase other receipts of such nature used in (baa)] then the scheme of 80HHC becomes UNWORKABLE as seen from the example below: Say export turnover is Rs. 500/-. Say Domestic turnover is Rs. 1500/-, i.e. Total turnover is Rs. 2000/-. Say profits from business are now Rs. 300/- which includes turnover based Rs. 200/- and non turnover based Rs. 100/-. In such scenario as per the above formula "profits derived from exports"= 300 x 500/2000=75. Thus, according to the Revenue, in this manner just by including non turnover based income in it's income under the head "profits from business" an assessee is artificially able to increase it's claim of deduction. It was to overcome this unintended benefit possible due to inclusion of non-turnover based incomes that, according t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le classification based on turnover. If the Legislature, according to the Revenue, has thought it fit to grant the benefit without imposing any conditions to the assessees having turnover less than Rs. 10 crore and imposing certain conditions to be fulfilled by the assessees having turnover of more than Rs. 10 crore, the same cannot be stated to be an unreasonable classification. 6.18 Classification based on turnover, it is pointed out, has been made pursuant to recommendation of Economic Advisory Council, which is based on thorough analysis and also on the opinion rendered by the Ministry of Law and also of Dr.Rangarajan Committee Report. The impugned amendment, according to the Revenue, grants unconditional benefits to the small and medium exporters (2nd Proviso) having export turnover of less than Rs. 10 Crore and conditional benefits to large exporters having turnover of over Rs. 10 Crore ( 3rd and 4th Proviso). This, the Revenue contends, is based on intelligible and reasonable classification widely recognized in matters relating to Direct Tax laws all over the world. Income tax, according to the Revenue, being a progressive levy is based on income classification in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than the face value of the license for the simple reason that he would get credit against the import duty only to the extent of the face value of these entitlements. Why should he pay more for acquiring credit entitlement against import of goods, the Revenue questions, when he can pay the duty in cash of a lesser amount for such imports? The petitioners, according to the Revenue, have not furnished details to show the amount of profits they derived on transfer of DEPB, which, according to them, is being denied the benefit due to the impugned amendments. In the absence of such details, the Revenue contends, the issues raised are merely academic and do not arise out of any real and substantial prejudice to the Petitioners. It is a settled principle, the Revenue submits, that the constitutional validity of an enactment cannot be addressed for academic considerations. 6.22 It is a settled position of law, according to the Revenue, that in taxing statute more laxity is permissible:- (a) AIR 1987 SC 662 [citation seems to be wrong] (b) GOVERNMENT OF ANDHRA PRADESH AND ORS. V. SMT. P. LAXMI DEVI. Reported in AIR 2008 SC 1640 [at Para 68, 69, 76] (c) BHAVESH D. PARISH AND OTHER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CHHOTABHAI JETHABHAI PATEL AND CO. V. UNION OF INDIA AND ANOTHER reported in AIR 1962 SC 1006 [at Para 41] (c) R.C. TOBACCO (P) LTD. vs. UNION OF INDIA reported in (2005) 7 SCC 725. (d) EMPIRE INDUSTRIES LTD. AND OTHERS V. UNION OF INDIA AND OTHERS reported 1985 3 SCC 314 = AIR 1986 SC 662 [at Para 49, 51]. (e) NATIONAL AGRICULTURAL CO-OP. MARKETING FEDERATION vs. UNION OF INDIA reported in [2003] 260 ITR 548 (SC). 7. In order to appreciate the aforesaid questions, it will be profitable to refer first to the Statutory Resolution and Government Bill and the extract from the combined discussion on the statutory resolutions moved by Shri P. Chidambaram, which are quoted below: "STATUTORY RESOLUTION AND GOVERNMENT BILL Extract from the Combined discussion on the statutory Resolution regarding disapproval of taxation laws (Amendment) Ordinance, 2005 (No.4 of 2005) moved by Prof. Rasa Singh Rawat and consideration of the Taxation Laws (Second Amendment) Bill, 2005, moved by Shri P. Chidambaram (Resolution negatived and Bill Passed) SHRI P. CHIDAMBARAM: Now, I come to the sixth amendment. It is the one dealing with DEPB. This is not in the Ordinance. We did not bring it by way of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt items against the credit without paying duty. But you can also sell the credit to another importer. If you actually import it is part of exportimport. If you sell it to another importer and make a profit on that - the premium, it is not export profit. It is a simple business profit because the income you earn is not in foreign exchange, it is in Indian rupees. It does not arise out of export activity or import activity. It arises because you are trading in a "Licence", which has a premium in the market. So, the Department took the view that it does not fall under section 28 read with section 80-HHC. I am not going into the subsections. Therefore this is not to be counted as exempted export profit. This must be added back as taxable profit. The assessees took a different view. Please remember, the first assessment in respect of this was filed only in the assessment year 1998-99. Some exporters paid; some exporters did not pay. Some exporters paid but disputed. Some assessing officers assessed it as taxable profit. Some assessing officers exempted it as exempted profit. That is bound to happen. When so many assessments take place all over the country, there is bound to be differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eading only the recommendations. (1) If the export turn-over was Rs.10 crore or less, the DEPB Credit transfer income may be exempted. (2) If the export turn-over was more than Rs.10 crore, the corresponding income may be exempt provided two conditions are satisfied: one, if an exporter had claimed DEPB credit and also tax exemption for such DEPB credit, the income should be brought to tax without the benefit of exemption. The income should be exempt if the exporter had a choice between draw-back and DEPB and the customs component of the draw back rate was higher than the DEPB rate; (3) No penalty by way of interest or penal interest should be levied; and (4) The arrears of tax, if any, may be collected over a period of two years. I have accepted all the four recommendations with the improvement that the arrears, if any, will be collected not over two years but over five years. What more can I do? ... (Interruptions) SHRI SURESH PRABHAKAR PRABHU Is it with penalty or with interest? SHRI P. CHIDAMBARAM: There will be no penalty and no interest. I read it. I am going to collect the basic arrears over five years. Shri Kashiram Rana asked me two questions. One, he asked: What i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f revenue and the small exporter, we have given the benefit to the small exporter. We have denied it in a limited way to the large exporter. If the large exporter satisfies both conditions he will also get the exemption. But, if he is not able to satisfy both conditions, he would have to pay some tax. There is no interest, no penalty and payment is over a period of five years. I think, Sir, we have struck a balance. Of course, we can always disagree whether the balance is correctly struck or the balance is not correctly struck but that is a judgment which the Government has made. I submit we have come to a reasonable solution to the problem.. (Interruptions) I have explained. I have to protect the interest of the revenue also. I cannot give up revenues. When there is such large expenditure, such large claims for Sarva Siksha Abhiyan, Mid- Day Meal Scheme ...... 8. It will be also profitable to refer to the provisions contained in sections 28 and section 80 HHC of the Act as it stands now which are quoted below:- "Profits and gains of business or profession. 28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing from business or the exercise of a profession; [v] any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm; Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause [b] of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted; [va] any sum, whether received or receivable, in cash or kind, under an agreement for-- [a] not carrying out any activity in relation to any business; or [b] not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-clause[a] shall not apply to-- [i] any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head "Capital gains"; [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issue a certificate referred to in clause (b) sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this subsection 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-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , warehouse or any other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch, office, warehouse, or establishment, then, such transfer shall be deemed to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in sub-section (1) of section 50 of the Customs Act, 1962 (52 of 1962), shall, for the purposes of this section, be deemed to be the sale proceeds thereof. (3) For the purposes of sub-section (1)- (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) where the export out of India is of goods or mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme: Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiie) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that,- (a) he had and option to choose either the duty drawback or the Duty Free Replenishment Certificate, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme. Explanation:- For the purposes of this clause, "rate of credit allowable" means the rate of credit allowable under the Duty Free Replenishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness carried on by the assessee. [4] The deduction under sub-section [1] shall not be admissible unless the assessee furnishes in the prescribed form along with the return of income, the report of an accountant, as defined in the Explanation below sub-section [2] of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section: Provided that in the case of an undertaking referred to in subsection [4C], the assessee shall also furnish along with the return of income, a certificate from the undertaking in the special economic zone containing such particulars as may be prescribed, duly certified by the auditor auditing the accounts of the undertaking in the special economic zone under the provisions of this Act or under any other law for the time being in force. [4A] The deduction under sub-section [1A] shall not be admissible unless the supporting manufacturer furnishes in the prescribed form along with his return of income,-- [a] the report of an accountant, as defined in the Explanation below sub-section [2] of section 288, certifying that this deduction has been correctly claimed on the basis of the profits of the sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 [52 of 1962]; [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 sub 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; [bb] Omitted. [c] "Export House Certificate" or "Trading House Certificate" means a valid Export House Certificate or Trading House Certificate, as the case may be, issued by the Chief Controller of Imports and Exports, Government of India; [d] "supporting manufacturer" means a person being an Indian company or a person [other than a company] resident in India, manufacturing [including processing] goods or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export; [e] "special ec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... burden on different persons may be unequal. Hence, if the Legislature has classified persons of properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. Similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, Art. 14 will not be in the way of such a classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incident of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Art. 14, though the Courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Uttar Pradesh (1980) 1 SCC 223 : (AIR 1980 SC 286), Krishna Iyer, J. speaking for the Constitution Bench held that a classification based, inter alia, on "profits of business and ability to pay tax" is constitutionally valid. Classification permissible in a taxing statute of dealers on the basis of different turnovers for levying varying rates of sales tax was considered by the Constitution Bench in M/ s. S. Kodar v. State of Kerala, (1974) 4 SCC 422: (AIR 1974 SC 2272), and Mathew, J. therein indicated the true perspective as under (at p. 2276 of AIR) : "As we said, a large dealer occupies a position of economic superiority by reason of his volume of business and to make the tax heavier on him both absolutely and relatively is not arbitrary discrimination but an attempt to proportion the payment to capacity to pay and thus arrive in the end at a more genuine equality. The capacity of a dealer, in particular circumstances, to pay tax is not an irrelevant factor in fixing the rate of tax and one index of capacity is the quantum of turnover. The argument that while a dealer beyond certain limit is obliged to pay higher tax, when others bear a less tax, and it is consequently discr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculties of adjustments of conflicting interests. It has to bring to bear a pragmatic approach to the resolution of these conflicts and evolve a fiscal policy it thinks is best suited to the felt needs. The complexity of economic matters and the pragmatic solutions to be found them defy and go beyond conceptual mental models. Social and economic problems of a policy do not accord with preconceived stereotypes so as to be amenable to predetermined solutions........" The lack of perfection in a legislative measure does not necessarily imply its unconstitutionality. It is rightly said that no economic measure has yet been devised which is free from all discriminatory impact and that in such a complex arena in which no perfect alternatives exist, the Court does well not to impose too rigorous a standard of criticism, under the equal protection clause, reviewing fiscal services. In G. K. Krishan v. State of Tamil Nadu (AIR 1975 SC 583) this Court referred to, with approval, the majority view in San Antonio Independent School District v. Rodriguez (1973- 411 US 1) speaking through Justice Stewart : 'No scheme of taxation, whether the tax is imposed on property, income or purchases of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of the felt needs of the times and societal exigencies informed by experience. Classifications based on differences in the value of articles or the economic superiority of the persons of incidence are well recognised. A reasonable classification is one which includes all who are similarly situated and none who are not. In order to ascertain whether persons are similarly placed, one must look beyond the classification and to the purposes of the law." (Emphasis supplied) 29. Thus, it is clear that the test applicable for striking down a taxing provision on this ground is one of 'palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience'; and the courts should not interfere with the legislative wisdom of making the classification unless the classification is found to be invalid by this test." We, therefore, find no substance in the aforesaid contention of the petitioners as regards the legality of the amendment based on turnover. 12. The next question is whether the impugned amendment is violative of Article 14 of the Constitution of India because it is arbitrary. In this connection, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. We fully agree with the submissions made by the learned counsel for the petitioners that the burden was upon the Revenue to prove that the restrictions imposed by the amending Act are reasonable. We find that the Revenue has failed to discharge that burden by pointing out the reason for making classification based on the above two aspects which have no reasonable connection with the object of amendment. 15. The next question is whether the proposed amendment should be declared as ultra vires being violative of the principles of promissory estoppel and legitimate expectation. 16. According to the learned counsel for the petitioners, the benefit of section 80HHC was given to encourage exports and by virtue of the impugned amendment, they are deprived of the incentive which was promised. According to the learned counsel for the petitioners, the assessees have arranged their business affairs in the past when there were no conditions on the statute book, which is now sought to be upturned by making the amendment retrospectively by imposing new conditions and thus, they contend that the principle of promissory estoppel applies in all areas of activities of a State including the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oever stringent these might appear to be, the validity of the impugned amendments cannot be assailed on the grounds of unreasonableness or intelligible classification. 20. After hearing the learned counsel for the parties and after going through the decisions cited at the bar, we are of the view that although in taxing statute laxity is permissible and after giving a benefit to the assessee based on some specific conditions, such benefit can definitely be curtailed but the same must be effective from a future date and not from an earlier point of time. If after inducing a citizen to arrange his business in a manner with a clear stipulation that if the existing statutory conditions are satisfied, in that event, he would get the benefit of taxation and thereafter, the Revenue withdraws such benefit and imposes a new condition which the citizen at that stage is incapable of complying whereas if such promise was not there, the citizen could arrange his affairs in a different way to get similar or at least some benefit, such amendment must be held to be arbitrary and if not, an ingenious artifice opposed to law. In the case before us, the object of the amendment, as it appears from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes the legislature gives its own meaning and interpretation of the law under which the tax was collected and by legislative fiat makes the new meaning binding upon Courts. The legislature may follow any one method or all of them and while it does so it may neutralise the effect of the earlier decision of the Court which becomes ineffective after the change of the law. Whichever method is adopted it must be within the competence of the legislature and legal and adequate to attain the object of validation. If the legislature has the power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit continuing for years has been withdrawn retrospectively. Thus, those four decisions do not help the Revenue in the facts of the present case. 24. So far the case of R. C. Tobacco (p) Ltd. and another vs. Union of India and another (supra), the benefit of notification granting exemption granted by a delegated authority was withdrawn by regular legislation clarifying the mistake of the delegated authority by the competent legislature. Such amendment of the substantive provision with retrospective effect was found to be valid by the Supreme Court. In that context, the Supreme Court made the following observations: "21. A law cannot be held to be unreasonable merely because it operates retrospectively. Indeed even judicial decisions are in a sense retrospective. When a statute is interpreted by a court, the interpretation is, by fiction of law, deemed to be part of the statute from the date of its enactment. The unreasonability must lie in some other additional factors. The retrospective operation of a fiscal statute would have to be found to be unduly oppressive and confiscatory before it can be held to be so unreasonable as to violate constitutional norms: "Where for instanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not effectuate that intent. As it transpired, none of the industrial units manufacturing cigarettes were prepared to contribute to this object and their investment in the manufacture of cigarettes was coextensive with the period of the exemption. The loss of revenue suffered by the Union and the State by the various subsidies and exemptions granted was the quid in return for which the petitioners were not prepared to suffer any quo. With the withdrawal of the exemption, all of them without exception immediately closed down their cigarette manufacturing units and a large majority have shifted out of the State. Clearly, if the grant of the exemption had operated as it was intended to, it would have been unnecessary to enact Section 154. 25. The High Court may have been right in construing the exemption notification as it stood. Yet the respondent can contend that the words should have been used in the exemption so as to provide for sufficient safeguards to ensure that the benefit of exemption was granted only to those industries which would in turn permanently invest in the State. By the retrospective enactment this defective expression of the object of the policy, was rectified. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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