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2015 (8) TMI 97

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..... r 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. 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 .....

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..... mpugned by the Union of India and is the subject matter of the instant appeal. 2. 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 ₹ 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 ₹ 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 ₹ 5,68,660/- as sales tax. 3. 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 Exci .....

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..... ate of ₹ 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. 6. 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 ₹ 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 ₹ 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 ₹ 365 p .....

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..... d 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 ₹ 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 ₹ 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 ₹ 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. 10. The learned Single Judge was not convinced with the aforesaid case set up by the respondent. He reasoned that the .....

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..... 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. .....

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..... he 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. .....

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..... hose 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 ₹ 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. 15. 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 exe .....

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..... ate 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. 16. 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 i .....

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..... n 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 e .....

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..... 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 ₹ 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 .....

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..... eld. A statute which provides for civil or evil consequences must conform to the test of reasonableness, fairness and non-arbitrariness. 22. In State of U.P. v. Deepak Fertilizers Petrochemical Corporation Ltd. (2007) 10 SCC 342, 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 l .....

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