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KETAN POTTERY WORKS AND 4 Versus UNION OF INDIA AND 2

2016 (2) TMI 484 - GUJARAT HIGH COURT

Unconstitutionality of Explanation Clause (G) to SSI Notification No.8 of 2003 - Exports to Nepal in SSI exemption - notification discriminatory - Held that:- For the purpose of SSI exemption under said notification No.8/2003, however, it would continue to be treated as clearances for home consumption. This will be plainly discriminatory vis-a-vis other SSI units who might be having exports to countries other than Nepal as compared to the SSI units like the petitioners whose substantial exports .....

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n Nepal form a homogeneous class. Both sets of manufacturers are SSI units. Both export their goods to various countries. There cannot be further sub-classification of SSI units exporting to Nepal and those SSI units exporting to the countries other than Nepal since after 01.03.2012 the distinction has been obliterated. This distinction which was prevalent till 01.03.2012 lost its relevance on account of change of the Government of India policy. Continued reference of exports to Nepal in SSI exe .....

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THE PETITIONER : MR PARESH M DAVE, ADVOCATE with MR PARITOSH GUPTA, ADVOCATE FOR THE RESPONDENT : MR RJ OZA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Petitioners have challenged a portion of Notification No.8 of 2003 dated 01.03.2003 (hereinafter to be referred as 'the said notification'). The petitioners have also prayed for a declaration that they would be entitled to full exemption limit of ₹ 150 lakhs in a financial year under the said notification w .....

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e said notification on 01.03.2003 granting exemption to first clearances of specified goods up to the value of ₹ 150 lakhs and full exemption to captive consumption for manufacturers having clearances not exceeding ₹ 4 crores in the preceding financial year. Under such notification, the Government of India exempted clearances specified in column (2) of the Table contained therein for home consumption of excisable goods of the description specified in the annexure appended to the noti .....

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f the Central Excise Act, 1944 (1 of 1944) (hereinafter referred to as the Central Excise Act) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No.8/2002-Central Excise, dated the 1st March, 2002, published in the Gazette of India vide number G.S.R.129(E), dated the 1st March, 2002, the Central Government, being satisfied that it is necessary in the public interest to do so, hereby exempts clearances, specified in column (2) of .....

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e to the said Central Excise Tariff Act, 1985 (hereinafter referred to as the Second Schedule), as is in excess of the amount calculated at the rate specified in the corresponding entry in column (3) of the said Table: Provided that nothing contained in this notification shall apply to a manufacturer who has availed the exemption under notification No.39/2001-Central Excise, dated the 31st July, 2001, published in the Gazette of India vide number G.S.R.565(E), dated the 31st July, 2001, in the s .....

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or further manufacture of any specified goods within the factory of production of the specified goods..... Nil ….. …. …. (3) For the purposes of determining the first clearances up to an aggregate value not exceeding one hundred and fifty lakh rupees made on or after the 1st day of April in any financial year, mentioned against serial No.1 of the said Table, the following clearances shall not be taken into account, namely, - (a) clearances, which are exempt from the whole of .....

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oods...... ….. ….. ….. Explanation,- For the purposes of this notification, ….. ….. ….. (G) Clearances for home consumption , wherever referred to in this notification, shall include clearances for export to Bhutan and Nepal..... In terms of the said notification, thus, an SSI Unit will be exempt from payment of excise duty upto clearances of ₹ 150 lakhs, subject to the conditions mentioned therein. As per para 3 of the said notification, for the p .....

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on shall include clearances for export to Bhutan and Nepal. By implication, thus, the exclusion of clearances for export provided in para 3 of the said notification would not apply in case of the clearances for export to either Bhutan or Nepal. 3. This exclusion had a history, namely, special bilateral trade relations between India and Nepal flowing from various treaties. In particular, our attention was drawn to the Indo-Nepal Treaty of October 2009 in which it was agreed by the two countries t .....

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hat: (I) Such payment shall not exceed the import duties and like charges levied by the Government of Nepal on similar goods imported from any other country, and (ii) the Government of Nepal shall not collect from the importer of the said Indian goods so much of the import duty and like charges as is equal to the payment allowed by the Government of India... 4. Thus, on exports made to Nepal by an Indian manufacturer, the Government of India would collect excise duty and pass on the same to the .....

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ernment to grant rebate of duty paid on such excisable goods or duty paid on materials used in such goods. Rebate would be granted subject to the limits as may be notified. Likewise, Rule 19 of the Central Excise Rules, 2002 pertains to exports without payment of duty and envisages exports on furnishing bonds. 5. The Government of India had issued notification No.19/2004 dated 06.09.2004 laying down the procedure for rebate of duty on export of goods which would cover exports to all countries ex .....

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nferred by sub-rule (3) of Rule 19 of the Central Excise Rules, 2001, the Central Board of Excise and Customs hereby notifies the conditions and procedures for export of all excisable goods, except to Nepal and Bhutan without payment of duty …... . 6. Several similar such notifications issued by the Government of India either under Rule 18 or 19 of the Central Excise Rules have been produced on record. It is not necessary to refer to all of them. The crux of the matter is that correspondi .....

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.Pursuant to Revised Treaty of Trade between Government of India and Government of Nepal, exports to Nepal have been put at par with exports to other countries (except Bhutan). In this regard, six Notification Nos.24/2011-Central Excise (N.T.), 27/2011-Central Excise N.T.), 27/2011-Central Excise (N.T.), 28/2011-Central Excise (N.T.) and 29/2011-Central Excise (N.T.) all dated 6.12.2011 have been issued to amend earlier Notification Nos.19/2004-Central Excise (N.T.) dated 6.9/2004, 42/2001-Centr .....

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ave been made effective from 1st March, 2012.... Date: 04.02.2016 8. It can thus be seen that, in view of the revised treaty of trade between the Government of India and the Government of Nepal, now exports to Nepal would be on par with exports to other countries. It was because of this reason that several notifications issued by the Government of India under Rule 18 or 19 of the said Rules came to be suitably amended. Reference is already made to these notifications in the above noted clarifica .....

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ation number 19/2004-Central Excise (N.T.) dated the 6th September, 2004, namely:- 2. In the said notification, in the opening paragraph, for the words other than Nepal and Bhutan , the words other than Bhutan shall be substituted. 3. This notification shall come into force on 1st March, 2012. 9. As per this notification, therefore, in the earlier notification No.19 of 2004 issued under Rule 18 of the Rules, there would be an amendment by which the expression other than Nepal and Bhutan would be .....

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f 2001 concerning the exports made on furnishing bond. 10. Case of the petitioners is that, by virtue of revised treaty between the Government of India and the Government of Nepal, exports to Nepal would now no longer be treated different from exports to any other country. It was for this reason that earlier notifications issued under Rule 18 or 19 of the said Rules came to be suitably amended and any export to Nepal would now qualify for rebate or would be permissible on furnishing bond. In vie .....

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was attended by Commissioners of Central Excise and Customs across the country in which, in the context of the requirement of amending said SSI notification No.8 of 2003, it was discussed and resolved as under: B.17 Vishakhapatnam Zone - Scope of Exemption - Manufacture under Central Excise - Clearances to Nepal with reference to Exemption Notification No.8/2003-CE: Issue: In terms of SSI notification No.8/2003-C.E.dated 1.3.2003, computation of clearances for home consumption, wherever referred .....

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e export clearances to Nepal are still being considered as home clearances with reference to the limit of exemption available to an SSI under the notification referred. The condition in the notification is restricting the benefit to the Small Scale Manufacturers to the extent of clearances made to Nepal. Clarification is needed in view of the change in the treatment given to Exports to Nepal w.e.f.1.3.2012. Discussion & Decision The conference agreed that it was a valid suggestion and there .....

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the mischief of including exports to Nepal within the exemption limit of ₹ 1.50 crore after changes in bilateral treaties can be remedied. Instead of making suitable changes in the said notification, the Government of India persisted with the original format and would, post 1.3.2012 also, include in the exemption limit of an SSI unit exports made to Nepal. The petitioners had excluded such exports from their limit for claiming exemption. The department, therefore, issued a show cause notic .....

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SI notification No.8/2003 and also prayed for setting aside the Order-in- Original as well as the Appellate Order, 12. Learned counsel for the petitioners submitted that the entire policy of including exports made to Nepal within the limit of home consumption provided in SSI exemption notification No.8/2003 underwent a major change when, due to change in the bilateral treaty, exports to Nepal, which were till now considered local clearances, would now be treated on par with exports to any other .....

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esent form the SSI notification No.8/2003 has been rendered discriminatory and arbitrary insofar as it continues to treat the exports made to Nepal as home consumption. He submitted that this condition would be discriminatory to the SSI units vis-a-vis non-SSI units. He further submitted that other SSI units making exports to the countries other than Nepal would have an advantage over the units like the petitioners whose exports are mainly to Nepal. 14. Learned counsel Mr.R.JOza relied on the af .....

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India would recover excise duty and the same would be surrendered to the Government of Nepal. All exports to Nepal were therefore treated on par with home consumption. However, this regime was dismantled. Exports made to Nepal are now treated on par with exports to any other country. No rebate of excise duty was permitted on such exports, and the facility of export on furnishing bond was available. It was precisely because of this reason that several notifications issued by the Government of Ind .....

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Explanation Clause (G) where clearances for home consumption would include clearances for export to Nepal also. In absence of such amendment, the SSI units exporting goods to Nepal would have to include value of such exports within the exemption limit, though exports to Nepal now stand on the same footing as export to any other country. Continued reference of export to Nepal on the said notification is thus wholly arbitrary. The SSI Notification 8/2003 provides exemption to SSI units from payme .....

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n. Being in the nature of legislative functions, there are limited grounds on which validity thereof can be questioned in a Court of law. However, it is well-settled that such legislation is not immune from challenge to its constitutionality. In Vasu Dev Singh v. Union of India reported in (2006) 12 SCC 753, the Supreme Court observed that, while considering the validity of delegated legislation, the scope of judicial review is limited. The scope and effect has to be considered having regard to .....

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d Sons reported in (2015) 10 SCC 681, the Supreme Court held that, benefit of exemption is to be extended to all similarly situated persons and the Government cannot create sub-classification excluding one subcategory, even when both sub-categories are of the same genus. It was further observed that, judicial review of a notification 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 s .....

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ing, 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 deci .....

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e enshrined in Article 14 of 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 Others4, 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 peo .....

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be impugned 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 .....

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ed 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. 13. 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 ci .....

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etent to exercise 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 crea .....

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ence continues even after 01.03.2012, the situation that would arise is that, for all purposes, export to Nepal would be treated on par with export to any other country. For the purpose of SSI exemption under said notification No.8/2003, however, it would continue to be treated as clearances for home consumption. This will be plainly discriminatory vis-a-vis other SSI units who might be having exports to countries other than Nepal as compared to the SSI units like the petitioners whose substanti .....

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