TMI Blog2013 (11) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... or the reason that deduction or exemption is available strictly in accordance with the statutory provisions. No one has any fundamental right for deduction or to ask for deletion or modification of the conditions so as to qualify for exemption or deduction. - Decided against the assessee. Retrospectivity - Held that:- the amendment in Section 80HHC made by the Taxation Laws ( Amendment) Act, 2005 with retrospective effect from 1.4.1998, does not suffer from the vice of unconstitutionality. The amendment so made with retrospective effect is accordingly held to be valid. - Decided against the assessee. Classification & Article 14 - issue of discrimination - Held that:- classification of exporters on the basis of turn over of less than Rs. 10 crores and more than Rs. 10 crores is a valid classification based on intelligible differentia. The exporters having export turn-over not exceeding Rs. 10 crores referable to the 2nd Proviso of Section 80HHC(3) fall under one group while the exporter having export turn-over exceeding Rs. 10 crores referable to 3rd and 4th proviso of Section 80HHC(3) fall under another group. Thus, the classification so made is founded on an intelligible d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sarwani,JJ. For the Petitioner : Krishn Mohan Tripathi, K. B. Tripathi, Ravi Kant For the Respondent : S. C.,A. N. Mahajan, Ashok Kumar, Bharatji Agarwal, D. Awasthi, G. Krishna, R. K. Upadhyaya, S. Chopra JUDGMENT (Delivered by Hon'ble Surya Prakash Kesarwani,J ) 1. In this bunch of writ petitions, the petitioners have challenged the constitutional validity of amendments in Section 80 HHC(3) of the Income Tax Act, 1961 brought by the Taxation Laws (Amendment) Act, 2005 as well as the validity of the impugned notices/orders. Facts of the Case 2. The facts involved in these writ petitions are similar and as such the facts of the Writ Petition No. 523 of 2006 are noted in detail and this writ petition is being taken up as a leading writ petition. The facts of the rest of the writ petitions are being noted in brief. 3. In Writ Petition No. 523 of 2006 the petitioner is a limited company engaged in manufacturing of Mentha Oil, Menthol Powder, Menthol crystal, Dementholized Oil, Peppermint oil and Di-hydromyrcenol and their bye-products. The petitioner's factory is situate in district Rampur established in the year 1997. It is stated in paragraph nos. 10 and 11 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 HHC, subject to the condition that only those assessee shall be eligible for this deduction whose export is less than Rs.10 crores without any further condition to be complied with. While assessees having export turnover of more than Rs.10 crores have to comply with two conditions, namely, that he has an option to choose either the duty draw back or the DEPB scheme and secondly the rate of draw back credit attributable to the custom duty was higher than the rate of credit allowable under DEPB scheme. This is wholly unreasonable restriction on fundamental rights guarantee under Article 19(1)(g) of the Constitution of India. (iii) The retrospective amendment levying tax on items which was not profit or gain in business is oppressive and unreasonable. (iv) The amendment has been made to overrule the judgment of the Tribunal. The legislature is not competent to overrule the binding verdict of the Tribunal. (v) The option given in the 3rd proviso to Section 80 HHC (3) of the Act is sham and total nonexistent inasmuch as the incentive under DEPB and DFRC was more attractive than duty draw back and as such business would certainly opt a more attractive scheme. Thus the levy is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The assessee's export turnover was admittedly more than Rs.10 crores. 4 829 of 2006 Validity of Sections 3 4 of the Taxation Laws ( Amendment) Act, 2005 has been challenged. The challenge has been made on the ground that the amendment seeks to impose burden retrospectively on the assessees having export turnover exceeding Rs.10 crores. 5 901 of 2006 Validity of Sections 3 4 of the Taxation Laws ( Amendment) Act, 2005 has been challenged whereby Sections 28 and 80 HHC of the Act has been amended. The challenge has been made on the ground that the amendment seeks to impose burden retrospectively on the assessees having export turnover exceeding Rs.10 crores. Besides this the demand notice dated 16.3.2006 ( Annexure No.6) has also been challenged. In paragraph 4(d), it has been stated that the petitioner has preferred an appeal against the assessment order and the demand notices. 6 902 of 2006 Validity of Sections 3 4 of the Taxation Laws ( Amendment) Act, 2005 has been challenged whereby Sections 28 and 80 HHC of the Act has been amended. The challenge has been made on the ground that the amendment seeks to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee computed benefit under Section 80 HHC by taking export incentive including income on sale of import licence and the deduction was wrongly allowed to the extent of 50% of 90 % of the sale amount of import licence. 12 36 of 2007 Validity of the Taxation Laws (Amendment) Act, 2005 inserting 3rd and 4th Proviso in Section 80HHC and amendment in Section 28 of the Act as well as the demand notice and assessment order dated 7.8.2006 ( Annexure No. 5) have been challenged. In paragraph no. 6(s), the petitioner has stated that he has preferred an appeal against the impugned assessment order and demand notice. 13 37 of 2007 Validity of the Taxation Laws (Amendment) Act, 2005 inserting 3rd and 4th Proviso in Section 80HHC and amendment in Section 28 of the Act as well as the demand notice and assessment order dated 18.10.2006 ( Annexure No. 4) have been challenged. In paragraph no. 6(r), the petitioner has stated that he has preferred an appeal against the impugned assessment order and demand notice. 14 39 of 2007 Validity of amendment in Section 80 HHC(3) of the Act as well as assessment order dated 27.11.2006 ( Annexure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The provision of Section 80HHC is not available for deduction after A.Y.2004-05. 6. We have heard Shri Ravi Kant, learned Senior Counsel assisted by Shri Suyash Agarwal for the petitioners and Shri Bharat Ji Agarwal, Senior Counsel assisted by Shri Dhananjai Awasthi for respondents-Income Tax Department. Submissions on behalf of Petitioners 7. Shri Ravi Kant submits that the retrospective amendment in Section 80HHC(3) of the Act by inserting 3rd and 4th proviso is wholly arbitrary and such retrospectivity is wholly impermissible. He submits that in the case of Avani Exports and others Versus Commissioner of Income Tax and others (2012) 348 ITR 391 (Gujrat)), the Gujrat High Court has decided the bunch of writ petitions including the writ petitions transferred by the order of Hon'ble Supreme Court which were pending before various High Courts. He submits that in Avani Exports (supra) the Gujrat High Court has held the retrospectivity to be unconstitutional. He has also drawn the attention of the Court towards a judgment of Bombay High Court in the case of Vijaya Silk House ( Bangalore) Ltd. Vs. Union of India and others ) ((2012) 349 ITR 566 (Bom)), which has followed the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 at 559 and 560 ( National Agricultural Cooperative Marketing Federation of India Ltd. another Vs. Union of India Others) (e) (2005) 7 SCC, 725 para 21 ( R.C. Tobacco (P) Ltd. another Vs. Union of India Another. (f) AIR 1961 SC 1534 para 15 ( J.K. Jute Mills Company Ltd. Vs. State of U.P. (g) AIR 1973 SC 1034 ( M/s Heera Lal Ratan Lal Vs. The Sales Tax Officer ). (h) AIR 1964 SC 1581 ( Epari Chinna Krishna Moorthy Vs. State of Orissa). (i) (1996) 7 SCC, 637 para 56(8) ( Indian Aluminium Company Others Vs. State of Kerala Others ). (j) (1999) 7 SCC, 77 para 25 ( Additional Commissioner Legal another Vs. Jyoti Traders Another. (III) The classification on the basis of turnover is valid. The assessees having export turnover up to Rs. 10 Crore and those having export turnover above Rs.10 Crore fall in separate classes. The classification based on turnover has been held valid by Hon'ble Supreme Court in the following judgments : (a) AIR 1953 SC 252 para 29 ( State of Bombay Vs. United Motors ( India) Ltd.) (b) AIR 1990 SC 913 paras 8, 24, 26 and 34 ( Kerala Hotel and Restaurant Association Vs. State of Kerala). (c) AIR 1974 SC 2272 paras 16 and 17 ( S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said certificate bears to the total export turnover of the assessee in respect of such trading goods]. (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, [a deduction to the extent of profits, referred to in sub-section (1B),] derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House.] [(1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of the profits shall be an amount equal to-- (i) eighty per cent thereof for an assessment year beginning on the 1st day of April, 2001; [(ii) seventy per cent thereof for an assessment year beginning on the 1st day of April, 2002; (iii) fifty per cent thereof for an assessment year beginning on the 1st day of April, 2003; (iv) thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oportion 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 merchandise manufactured [or processed] by the assessee and of trading goods, the profits derived from such export shall,-- (i) in respect of the goods or merchandise manufactured [or processed] by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee ; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty drawback or the Duty Free Replenishment Certificate, being 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 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 Certificate, being the Duty Remission Scheme calculated in the manner as may be notified by the Central Government:] [Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent of-- (a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or (b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.] Explanation.--F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the deduction has been correctly claimed on the basis of the [profits] of the supporting manufacturer in respect of his sale of goods or merchandise to the Export House or Trading House ; and (b) a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section : Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts of the Export House or Trading House under the provisions of this Act or under any other law.] (4B) For the purposes of computing the total income under sub-section (1) or sub-section (1A), any inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India ;] [(c)] "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 economic zone" shall have the meaning assigned to it in clause (viii) of the Explanation 2 to section 10A.] Profits and gains of business or profession. Section 28:- The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",-- [(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t "Taxes on Income other than Agricultural Income" falls in Entry 82 of List I. A provision of deduction or exemption presupposes levy of tax on the items, event or persons in respect of which exemption or deduction has been provided. The impugned amendments in Section 80HHC of the Act by the Taxation Laws (Amendment) Act, 2005 granting certain deductions in respect of profits retained for the export business is well within the legislative competence of Parliament. We thus hold that the amendment in Section 80HHC of the Act made by the Taxation Laws (Amendment) Act, 2005 does not suffer from lack of legislative competence of Parliament to legislate on the subject. Issue No. (ii)- Entitlement under amended / unamended Section 80HHC 12. From the plain language of Section 80HHC(i) it is clear that the deduction under Section 80HHC(1) was available subject to the following conditions : (i) The assessee should be an Indian Company or a person resident in India, (ii) It should be engaged in the business of export out of India of any goods or merchandise to which this Section applies, (iii) Deduction is in accordance with and subject to provision of this Section to be allowed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PB scrips are issued by DGFT authority valid for twelve months for a certain amount of DEPB credit and can be utilised for adjusting customs duties against import of any products into India, without the necessity of any co relation between the export product and the import goods. The DEPB and or the items imported against it are freely transferable. Duty Draw Back is not allowed when export is made under DEPB Scheme. 18. As per Clause 3(A) of Chapter 22 of the above mentioned CBEC's instructions the DFRC Scheme is also an export promotion scheme, under which DFRC licence are issued to merchant exporter or manufacturer exporter permitting duty free import of inputs which were used in the manufacture of export product on post-export basis as replenishment. DFRC liscences are issued for import of inputs, as per SION, having same quality, technical characteristics and specifications as those used in the export products and as indicated in the shipping bills. 19. From the above, it is clear that Duty Draw Back is not the same scheme as the DEPB and DFRC Scheme. 20. When goods are not actually imported under DEPB by the exporters who has earned the credit but he sells DEPB credit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to anyone. Let us look at the objective facts. DEPB came into force in the financial year 1997-98. The first assessment year in respect of a return, in which a DEPB credit sale is claimed, is assessment year 1998-99 beginning on the 1 April, 1998. So, prior to 1 April, 1998, this question did not arise. Section 80-HHC is a section which deals with deductible profits. If you come under section 80HHC, the profits are not taxable. That section was phased out by the previous Government and the last date for operation of that section was 31.3.2005. Therefore, this situation does not arise after 1.4.2005. I hope, I am making myself clear to the Hon' Members. We are now dealing with only the period 1.4.1998 to 31.3.2005. This is a period of about seven years. This problem did not arise before 1.4.1998. This problem does not arise after 1.4.2005. In this period of seven years, the relevant sections - I am not getting into an exposition of the law- are section 28 and section 80HHC. These are the two sections which are relevant. Now, the Department's interpretation is that DEPB credit sale - I will explain what it is - is not export profit. What is a DEPB credit sale ? A DEPB credit sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a minimum of ten years to settle this issue which arises - please remember - only between 1.4.1998 and 31.3.2005. It is today an academic issue. We are only dealing with seven assessment years. I could have waited for ten years. Thousands of rupees would have been spent by everybody fighting litigation at every level - before the Assessing Officer, before the Appellate Commissioner, before the ITAT, before the High Court and before the Supreme Court. So, we have said ; "All right. We will look into this matter. We will try to find a solution which does not affect the revenue and which tries to give some relief to the exporter." Exporters, of course, have only argued what Shri Kashiram Rana argued today very articulately saying "give exemption to all the exporters." Naturally, the Department says ; "Do not give exemption to any exporter. We must collect the revenue." Therefore, we have decided that this is not a matter where we can give up revenues completely. At the same time, we must be sympathetic to small exporters. Anyway, we did not take a view. We have referred it to Dr. Rangarajan's Economic Advisory Council. The Economic Advisory Council heard exporters, heard everyone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrounding circumstances in relation to the statute and the evil which the statute sought the remedy. Reference in this regard may be made to the law laid down by Hon'ble Supreme Court in the judgments reported in AIR 1958 SC 578 para 173 (Express Newspaper (private) Ltd. and Others Vs. The Union of India and others), AIR 1969 SC 530 para 2 (M/s Sanghvi Jeevraj Ghewar Chand and others Vs. Secretary, Madras Chillies, Grains and Kirana Merchants Workers Union and another), AIR 1972 SC 828 para 4 (Danthuluri Ramaraju and others Vs. The State of Andra Pradesh and another), AIR 1972 SC 614 para 26 ( The State of Madhya Pradesh and another Vs. Dadabho's New Chirimiri Ponri Hill Colliery Co. Pvt. Ltd. and another etc., AIR 1973 SC 1227 para 29 (The Workmen of M/s Firestone Ture Rubber Col. of India P. Ltd. Vs. The Management and others), AIR 1973 SC 1034 para 10 (M/s Hiralal Ratan Lal Vs. The Sales Tax Officer, Section III, Kanpur and another), AIR 1979 SC 1803 para 48 (Organo Chemical Industries and another Vs. Union of India and others), AIR 1989 SC 509 para 6 (The Secretary, Regional Transport Authority, Bangalore and another Vs. D.P. Sharma and another), AIR 1992 SC 1277 para 77 (Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other for grant of exemption. In the case of Sri Sathya Sai Institution High Medi, Services Vs. Union of India ((2003) 158 ELT 675 SC para 4 Hon'ble Supreme Court held that grant of exemption is prerogative of the Government. Hence, it is for the Government to impose appropriate conditions. In the case of Orient Traders Versus CTO Tirupati (2009) 237 ELT 447 SC para 18 and Union of India Others Vs. Wood Papers Ltd. (1990) 47 ELT 500 SC para 2 Hon'ble Supreme Court has laid down the law that exemption is freedom from tax liability. It is to be construed strictly either because of legislative intention or on economic justification of inequitable burden at state revenue. When question is whether a subject falls in the notification or exemption clause then it is construed strictly and against the subject but if subject falls in the notification then full play should be given to it. In M/s Sanghvi Reconditioners Pvt. Ltd. Versus Union of India Others (2010) 261 ELT 03 SC para 17, Saraswati Sugar Mills Vs. Commissioner of C. Ex.Delhi-II, (2011)270 ELT 465 SC para 7 and Sri Niwas Cable Components Vs. State of M.P. (2012 279 ELT 166 para 7 Hon'ble Supreme Court held that exemption n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso. The petitioners do not have any right to be aggrieved for the reason that deduction or exemption is available strictly in accordance with the statutory provisions. No one has any fundamental right for deduction or to ask for deletion or modification of the conditions so as to qualify for exemption or deduction. Issue No. (iii), (iv) and (v)- Retrospectivity 28. The argument raised by the petitioners against the restrospectivity of the impugned provisions also deserves to be rejected, in view of the fact that there is no challenge to the legislative competence of Parliament to enact the impugned provisions. A competent legislature having competence to enact a law has the power to enact it prospectively as well as retrospectively. 29. In Tata Iron and Steel Company Ltd. v. State of Bihar, 1958 (9) STC 267 the Hon'ble Supreme Court held that a legislature acting within its own legislative field, has the powers of sovereign legislature, and could make its law prospectively as well as retrospectively. 30. In J.K. Jute Mills Company Ltd. v. State of U.P., AIR 1961 SC 1534 the Supreme Court held that where the legislature has power to enact a law with reference to a topic, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly." 31. In Rai Ram Krishna v. State of Bihar, AIR 1963 SC 1667, the Supreme Court held in para 20 as follows:- "20. In this connection, it would be relevant to refer to another fact which appears on the record. Along with the appellants, 18 other bus owners had filed writ petitions challenging the validity of the Act. These petitioners have not appealed to this Court presumably because their cases fall under the provisions of Section 23(a) of the Act. It is likely that they had paid the amounts, and since the amounts paid under the provisions of the earlier Act are now deemed to have been paid under the provisions of this Act, they did not think it worthwhile to come to this Court against the decision of the High Court. Apart from that, it is not unlikely that other bus owners may have made similar payments and the appellants have, therefore, come to this Court because they have made no payments and so, their cases do not fall under S. 23(a) or may be, their cases fall under Section 23(b). The position therefore, is that the retrospective operation of Section 23(a) and (b) covers respectively cases of payments actually made under the provisions of the earlier Act, and cases pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a challenge to the validity of a statute passed under Art. 304(b), the court has to consider whether the restrictions imposed by the statute are reasonable and are required in the public interest. The impact of the restrictions on the individual's right has to be judged in one case, whereas the impact of the restrictions on the freedom of trade has to be judged in the other; but basically, it is the invasion of a guaranteed right whose validity is being examined in either case; and so, if the law can be retrospective in one case, there is no reason why it cannot be retrospective in the other. We are, therefore, satisfied that there is no substance in the plea raised by Mr. Pathak that the Act is invalid solely because it operates retrospectively. 30. It is then faintly suggested that the retrospective operation of S. 3, in substance, changes the character of the tax. The argument is that the proviso to S. 3(2) enables the producer to recover the tax from the purchaser in case the goods are sold to a purchaser before they are carried, whereas such a provision did not exist in the past and in that sense, the retrospective operation changes the character of the tax. We have already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artisans for that purpose. We do not see how any question of legislative incompetence can come in the present discussion. And, if the State Government was given the power either to grant or withdraw the exemption, that cannot possibly affect the legislature's competence to make any provision in that behalf either prospectively or retrospectively. Therefore, there is no substance in the argument that the retrospective operation of S. 2 of the impugned Act is invalid." 34. In M/s Heera Lal Ratan Lal v. The Sales Tax Officer, AIR 1973 SC 1034 the Supreme Court held that where the tax is levied on the dealer; the fact that he has allowed to pass on the burden of such tax to the consumers or he is generally in a position to pass on the same to the consumer has no relevance. When the Court has to consider the legislative competence to enact an Act, which validates levy retrospectively, the challenge to the retrospective levy on the ground that it was in violation of Article 19 (1) (f) and (g) was repelled. 35. In Empire Industries Ltd. v. Union of India, AIR 1986 SC 662, the Supreme Court after noticing that the petitioners have already paid excise duty demanded from them from time t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 65 and 66 as follows:- "65. There is really no substance in the grievance that the retroactivity imparted to the amendments is violative of Article 19(l)(g). A competent legislature can always validate a law which has been declared by Courts to be invalid, provided the infirmities and vitiating infactors noticed in the declaratory-judgment are removed or cured. Such a validating law can also be made retrospective. If in the light of such validating and curative exercise made by the Legislature - granting legislative competence - the earlier judgment becomes irrelevant and unenforceable, that cannot be called an impermissible legislative overruling of the judicial decision. All that the legislature does is to usher in a valid law with retrospective effect in the light of which earlier judgment becomes irrelevant. (See Sri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1970) 1 SCR 388 : (AIR 1970 SC 192). 66. Such legislative expedience of validation of laws is of particular significance and utility and is quite often applied, in taxing statutes. It is necessary that the legislature should be able to cure defects in statutes. No individual can acquire a vested r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure must possess the power to impose the tax, for, if it does not, the action must ever remain ineffective and illegal. The Constitution Bench held :- AIR 1970 SC 192 At P. 195, Para 4 of AIR 1970 SC 192 "Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A Court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a Court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions which were declared to be unconstitutional. The Legislature cannot assume power of adjudicating a case by virtue of its enactment of the law without leaving it to the judiciary to decide it with reference to the law in force. The Legislature also is incompetent to overrule the decision of a Court without properly removing the base on which the judgment is founded. The Court on a review of judicial opinion, proceeded to lay down the following principles among others so as to maintain the delicate balance in the exercise of the sovereign powers by the Legislature, Executive and Judiciary :- AIR 1996 SC 1431 : 1996 AIR SCW 1051 "(i) in order that rule of law permeates to fulfil constitutional objectives of establishing an egalitarian social order, the respective sovereign functionaries need free play in their joints so that the march of social progress and order remains unimpeded; (ii) in its anxiety to safeguard judicial power, it is unnecessary to be overzealous and conjure up incursion into the judicial preserve invalidating the valid law competently made; (iii) the Court, therefore, needs to carefully scan the law to find out; (a) whether the vice pointed out by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out in the judgment in question, as well as alteration or substitution of provisions of the enactment on which such judgment is based, with retrospective effect." 38. On the principles of law laid down by Hon'ble Supreme Court in the aforenoted judgments, we are of considered opinion that the amendment in Section 80HHC made by the Taxation Laws ( Amendment) Act, 2005 with retrospective effect from 1.4.1998, does not suffer from the vice of unconstitutionality. The amendment so made with retrospective effect is accordingly held to be valid. Issue No. (vi)-Classification Article 14 39. The Submission of learned counsel appearing for the petitioners that the classification under the 2nd, 3rd and 4th Proviso of Section 80HHC(3) of the Act is wholly impermissible, since all the exporters form one single class, also deserves to be rejected. The 2nd Proviso provides for deduction to exporters having turnover not exceeding Rs.10 crores while 3rd and 4th Proviso provides for deduction to exporters having export turnover exceeding Rs.10 crores. In a taxing statute classification of dealers on the basis of different turnovers for levying varying rates of sales tax is permissible and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 14 has been the subject matter of discussion in numerous decisions of this Court and the propositions applicable to cases arising under that Article have been repeated so many times during the last thirty years that they now sound platitudenous. The latest and most complete exposition of the propositions relating to the applicability of Article 14 as emerging from "the avalanche of cases which have flooded this Court" since the commencement of the Constitution is to be found in the Judgment of one of us (Chandrachud, J. as he then was) in Re: Special Courts Bill It not only contains a lucid statement of the propositions arising under Article 14, but being a decision given by a Bench of seven Judges of this Court, it is binding upon us. That decision sets out several propositions delineating the true scope and ambit of Article 14 but not all of them are relevant for our purpose and hence we shall refer only to those which have a direct bearing on the issue before us. They clearly recognise that classification can be made for the purpose of legislation but lay down that: 1. The classification must not be arbitrary but must be rational, that is to say, it must not only be base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itutional principles. This rule is based on the assumption, judicially recognised and accepted, that the legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation. 8. Another rule of equal importance is that laws relating to economic activies should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrine or straight jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, grea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues." 41. In Shri Krishna Das Versus Town Area Committee,(1990)3 SCC 645 para31, Hon'ble Supreme Court held that it is for the legislature or the taxing authority to determine the question of need, the policy and to select the goods or services for taxation. The courts cannot review these decisions. When taxes are levied on certain articles or services and not on others it cannot be said to discriminatory. In the Union of India Vs.Paliwal Electricals (P)Ltd. (1996) 3 SCC 407 para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erality of its provision and not by crudities or inequities or by the possibility of abuse of any of its provision. The laws relating to economic activities should be viewed with greater latitude than the law touching civil rights such as freedom of speech, religion etc. The legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit solution through any doctrinaire or straight jacket formula in economic matters. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. Hence, self -limitation can be seen to be the path to the judicial wisdom and institutional prestige and stability. 44. In view of the discussions made above, we are of the view that the impugned provisions are not violative of Article 14 of the Constitution of India. The classification as provided in the 2nd, 3rd and 4th proviso are wholly valid and based on intelligible differentia. Issue No. (vii)- Whether the impugned amendment is hit by principles of estoppel :- 45. The next issue is whether the impugned amendment is violative of principles of promissory estoppel. The contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pel does arise at all. Even if it is assumed that such a deduction was available to the petitioners yet the principles of estoppel is not applicable against the legislature. In the case of Vijresins P. Ltd. Vs. State of Jammu and Kashmir, AIR 1989 SC 1629, Hon'ble Supreme Court has held that there is no estoppel against the legislature and the vires of the Act cannot be tested by invoking the said plea but so far as the government was concerned the rule of estoppel did apply. Thus, it is clear that there cannot be any promissory estoppel against the legislature even if on the basis of the representation or promise made certain concessions have been allowed. The legislature is not bound by the principles of promissory estoppel. In view of this settled position of law, we reject the contention of the petitioners that the impugned provision is violative of the principles of promissory estoppel. Presumption of Validity 48. In the case of Charanjit Lal Choudhary Vs. Union of India and others reported in AIR 1951 SC 41 para 10, Hon'ble Supreme Court has held that there is presumption that the legislature understands and correctly appreciates the need of its people. In the case of Uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afore-mentioned two grounds. 83. Power to enact a law is derived by the State Assembly from List II of the Seventh Schedule of the Constitution. Entry 32 confers upon a State Legislature the power to constitute cooperative societies. The State of Maharashtra and the State of Andhra Pradesh both had enacted the MCS Act 1960 and the APCS Act, 1964 in exercise of the power vested in them by Entry 32 of List II of the Seventh Schedule of the Constitution. Power to the enact would include the power to re-enact or validate any provision of law in the State Legislature, provided the same falls in an entry of List II of Seventh Schedule of the Constitution with the restriction that such enactment should not nullify a judgment of a competent court of law. In the appeals / SLPs/petitions filed against the judgment of the Andhra Pradesh High Court, the legislative competence of the State is involved for consideration. Judicial system has an important role to play in our body politic and has a solemn obligation to fulfil. In such circumstances, it is imperative upon the courts while examining the scope of legislative action to be conscious to start with the presumption regarding the constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to start with the presumption of constitutionality. The court should try to sustain its validity to the extent possible. It should strike down the enactment only when it is not possible to sustain it. The court should not approach the enactment with a view to pick holes or to search for defects of drafting, much less inexactitude of language employed. Indeed, any such defects of drafting should be ignored out as part of the attempt to sustain the validity/constitutionality of the enactment. After all, an Act made by the legislature represents the will of the people and that cannot be lightly interfered with. The unconstitutionality must be plainly and clearly established before an enactment is declared as void. The same approach holds good while ascertaining the intent and purpose of an enactment or its scope and application." In the same para, this Court further observed as follows: "The Court must recognize the fundamental nature and importance of legislative process and accord due regard and deference to it, just as the legislature and the executive are expected to show due regard and deference to the judiciary. It cannot also be forgotten that our Constitution recognizes a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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