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Union of India & Others Versus M/s. N.S. Rathnam & Sons

2015 (8) TMI 97 - SUPREME COURT

Levy of duty of excise on iron and steel scrap which was obtained by breaking the ship - exemption to particular class of assessees - Benefit of exemption Notification 102/87-CE and 103/87-CE - whether the two categories are identical or there is a reasonable classification based on intelligible differentia which has nexus with some objective that is sought to be achieved - Held that:- If the government fails to support its action of classification on the touchstone of the principle whether the .....

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tute for 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 .....

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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 .....

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he benefit of the exemption Notification subject to the condition that the duty already paid by the respondent herein on LDT, would be taken into account and only the balance out of it would be subject to excise duty. - Decided against the revenue. - Civil Appeal No. 1795 of 2005 - Dated:- 29-7-2015 - A. K. Sikri And N. V. Ramana,JJ. For the Appellant : Mr. B. Krishna Prasad, Adv For the Respondent : Mr. Danish Zubair Khan, Adv. For M/s Arputham, Aruna & Co. JUDGMENT A. K. Sikri, J. The resp .....

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per LDT, another class of persons who also paid custom duty under Section 3 of the Customs Tariff Act, 1975, albeit at a lesser rate, was excluded. The respondent who belonged to excluded category, had challenged the said Notification as arbitrary and violative of Article 14 of the Constitution. Though the learned Single Judge dismissed the writ petition, the Division Bench in appeal has accepted the aforesaid plea of the respondent and vide judgment dated 18.08.2003 held that the second catego .....

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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-valo .....

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n No.146/86-CE dated 01.03.1986. Upto this point, there is no dispute. The relevant period with which we are concerned is from 08.08.1986 to 27.07.1987. During this period, the following materials were cleared: 09.08.1986 to 26.03.1987 - 3058.49 MT 27.03.1987 to 30.06.1987 - 1249.715 MT 01.07.1987 to 27.07.1987 - 408.180 MT 4. There are certain exemption Notifications issued by the Government of India under sub-rule (1) of Rule 8 of the Central Excise Rules, 1944. The details of these Notificati .....

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illed to avail the benefit of this Notification. This proviso reads as under: Provided that the said goods have been obtained from breaking of ships, boats and other floating structures- (i) On which duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) has been paid at the rate of ₹ 1,400/- per Light Displacement tonnage; or (ii) Imported on or before the 28th day of February, 1986 and on which appropriate additional duty leviable thereon u .....

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f Act, 1975 (51 of 1975) has been paid at the rate 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 exempti .....

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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 per Light Displacement Tonnage. 7. On the same day, another Notification No.103/87-CE dated 27.03.1987 was also issued. Vide this Notification, goods were exempted from whole of the duty or excise leviable thereon as specified in the Schedule to the Act falling un .....

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, pertain to same goods, namely, those falling under Headings 72.15 and 73.09 of the said Schedule to the Act. However, vide first Notification No.102/87-CE, if the customs duty leviable on the import of ship for the purpose of breaking is paid at the rate of ₹ 1,035/- per LDT along with additional duty leviable thereon under Section 3 of the Customs Tariff Act, the excise duty payable is at the rate of ₹ 365/- per tonne, exempting the remainder as specified in the Schedule. On the o .....

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entire excise duty, appellant herein issued show cause notice dated 28.07.1987 calling upon the respondent to show cause as to why an amount of ₹ 25,73,487/- towards excise duty be not demanded under Section 11 A of the Central Excise Act. Receipt of the aforesaid show cause notice prompted the respondent to file the writ petition in the High Court of Madras and challenge the validity of Notification dated 27.03.1987 on the ground that by this Notification, total exemption was granted onl .....

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ty 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 ac .....

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the Central Government. Sustenance was drawn from the judgment of this Court in Kasinka Trading and Another v. Union of India and Another (1995) 1 SCC 274 wherein this Court has held that wide discretion is available to the Government in the matter of granting, curtailing, withholding, modifying or repealing the exemptions granted by earlier notifications and the Government was not bound to grant exemption to anyone if it so desires. 11. The respondent preferred writ appeal against the said jud .....

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a choice is given under the said Act and the duty is paid accordingly, merely because the rate of duty arrived at is different would not be rational basis for excluding the other class. This reasoning of the High Court can be found in paras 10 and 11 of the impugned judgment which are reproduced hereinbelow: 10. From the notification or from the Counter Affidavit, we are unable to find any rational basis for treating two categories of persons who have paid the customs duty differently and hence .....

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. It is further seen that the person who had paid the customs duty at the rate of ₹ 1,400/- per Light Displacement Tonnage would have been totally exempted from the payment of excise duty. In the light of 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. Dhanalaks .....

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hat 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. 12. Mr. Panda, learned senior counsel appearing for the appellants, submitted that it was ent .....

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ustoms Tariff Act, 1975 or any other law for the time being in force on the goods imported into India. Section 2 of the Customs Tariff Act, 1975 read with the First and Second Schedules thereto lays down the rates at which duties of customs shall be levied under the Customs Act on various goods imported into India. Section 25 of the Act, with which we are primarily concerned in this batch of appeals, confers powers on the Central Government to grant exemptions from levy of duty in public interes .....

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ty of customs leviable therein. (2) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt from the payment of duty, under circumstances of an exceptional nature to be stated in such order, any goods on which duty is leviable. The power to grant exemption from duty, wholly or in part, on the plain language of Section 25 (supra) is contingent upon the satisfaction of the Government that it would be in public inter .....

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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 .....

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power of exemption granted to the Government under Section 25 of the Act, it follows that the same is with a view to enabling the Government to regulate, control and promote the industries and industrial production in the country. Notification No. 66 of 1979 in our opinion, was not designed or issued to induce the appellants to import PVC resin. Admittedly, the said notification was not even intended as an incentive for import. The notification on the plain language of it was conceived and issu .....

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be an unequivocal promise to the other party intended to create a legal relationship and that it was acted upon as such by the party to whom the same was made. A notification issued under Section 25 of the Act cannot be said to be holding out of any such unequivocal promise by the Government which was intended to create any legal relationship between the Government and the party drawing benefit flowing from of the said notification. It is, therefore, futile to contend that even if the public int .....

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of the respondent was that the duty already paid by the respondent should have been taken into account and only the balance out of it should have been the rate of duty. He, thus, submitted that this aspect has not been taken into consideration by the High Court in the impugned judgment. 14. Learned counsel for the respondent, on the other hand, argued that all those who paid excise duty as per the provisions of the Act constitute one single class and, therefore, by restricting the benefit to on .....

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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, .....

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f the Constitution. Therefore, judicial review of such Notifications is permissible in order to undertake the scrutiny as to whether the Notification results in invidious discrimination between two persons though they belong to the same class. In Aashirwad Films v. Union of India and Others (2007) 6 SCC 624, this aspect has been articulated in the following manner: 9. The State undoubtedly enjoys greater latitude in the matter of a taxing statute. It may impose a tax on a class of people, wherea .....

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d as offending Article 14 is exemplified by such decisions of this Court as Suraj Mall Mohta & Co. v. A.V. Vishvanatha Sastri (AIR 1954 SC 545 : (1955) 1 SCR 448) and Meenakshi Mills Ltd. v. A.V. Visvanatha Sastri (AIR 1955 SC 13 : (1955) 1 SCR 787). In K.T. Moopil Nair v. State of Kerala (AIR 1961 SC 552) the Kerala Land Tax Act was struck down as unconstitutional as violating the freedom guaranteed by Article 14. It also goes without saying that if the imposition of the tax was discriminat .....

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asis 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 .....

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ercise its discretion and make classification. Thus, every classification is in some degree likely to produce some inequality but mere production of inequality is not enough. Article 14 would be treated as violated only when equal protection is denied even when the two persons belong to same class/category. Therefore, the person challenging the act of the State as violative of Article 14 has to show that there is no reasonable basis for the differentiation between the two classes created by the .....

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te in question. If the government fails to support its action of classification on the touchstone of the principle whether the classification is reasonable having an intelligible differentia and a rational basis germane to the purpose, the classification has to be held as arbitrary and discriminatory. In Sube Singh v. State of Haryana (2001) 7 SCC 545, this aspect is highlighted by the Court in the following manner: 10. In the counter and the note of submission filed on behalf of the appellants .....

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in the pleadings of the respondents stating the basis of classification of structures as 'A' 'B' and 'C' class, nor is it stated how the amalgamation of all 'A' class structures was feasible and possible while those of 'B' and 'C' class structures was not possible. It is not the case of the State Government and also not argued before us that there is no policy decision of the Government for excluding the lands having structures thereon from acquisi .....

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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 struc .....

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he side of the State Government to place any architectural plan of different types of structures proposed to be constructed on the land notified for acquisition in support of its contention that the structures which exist on the lands of the appellants could not be amalgamated into the plan. 17. The question, therefore, that arises is as to whether the two categories, one mentioned in Notification No.386/86-CE dated 20.08.1986, which is given the benefit and removal of the second category, which .....

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arlier judgments. This para reads as under: 14. It has been accepted without dispute that taxation laws must also pass the test of Article 14 of the Constitution of India. It has been laid down in a large number of decisions of this Court that a taxation statute for 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 .....

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CC 259 : AIR 2002 SC 2188 and Associated Cement Companies Ltd. v. Govt. of A.P., (2006 ) 1 SCC 597 : AIR 2006 SC 928). 18. In the present 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 .....

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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 who paid the duty on the same goods under the same Act but on the formula which he opted and which is permissible, which rate of duty comes to ₹ 1,035/- pe .....

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espondent was that the purpose behind Notification No.146/86-CE dated 01.03.1986 and Notification No.386/86-CE dated 20.08.1986 was to treat the ships imported on or before 28.02.1986 differently and to avoid double taxation and additional duty equivalent to excise duty. For this reason, exemption Notification became necessary which provided exemption from excise duty. It was argued that the withdrawal of the exemption duty in the cases like that of the respondent amounted to double taxation. Ev .....

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116: To overdo classification is to undo equality. 21. We are also conscious of the principle that in the field of taxation, the Legislature has an extremely wide discretion to classify items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes (See Secretary to Govt. of Madras v. P.R. Sriramulu (1996) 1 SCC 345 ). However, at the same time, when a substantive unreasonableness is to be found in a taxing statute/notification, it may .....

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ut 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 m .....

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m taxation, a sought of classification is to be made. Certainly, this classification cannot be a product of blind approach by the administrative authorities on which the responsibility of delegated legislations is vested by the Constitution. In a nutshell, the notifications issued by the Trade Tax Department of the State of U.P., dated 10.04.1995 and 15.05.1995 lack the sense of reasonability because it is not able to strike a rational balance of classification between the items of the same cate .....

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