Tobacco Pvt. Ltd. & Anr Etc. Vs. Union
of India & Ors  Insc 496 (19 September 2005)
Pal & Tarun Chatterjee
WITH C.A. Nos. 881-896/2004 TC) Nos.23- 26 of 2004, 28-36 of
2004, TP) No. 151 of 2004 RUMA PAL, J.
dispute in these matters arises out of an exemption which had been granted by
the Central Government to new industries by Notification No. 32/99-CE dated 8th
July 1999 issued under Section 5A of the Central Excise Act, 1944 (referred to
hereafter as 'the Act'). The parties in the various proceedings which are being
disposed of by this judgment, represent industries manufacturing cigarettes on
the one hand (whom we will refer to as "the petitioners") and the
Union of India and the excise authorities on the other (who are described as
"the respondents"). Almost all the petitioners are job workers for
large tobacco companies. They set up their units under agreements with the
large tobacco companies and admittedly produced the cigarettes with the brand
names of those companies. The few exceptions to this are noted subsequently.
December, 1997 the Government of India had announced a separate industrial
policy for the North Eastern Region of the country which proposed to stimulate
'synergetic' development of industries in the region by giving a package of
incentives which included exemption from excise duties, transport subsidies,
capital investment subsidies, interest subsidies and other benefits.
to this policy, a number of notifications were issued by the concerned
Ministries in the Government, the relevant ones for our purpose being the
Excise Notifications Nos. 32/99 and 33/99 dated 8th July 1999 by which diverse benefits were given. Briefly stated, under
the first notification all excisable goods were exempt from duty under the Act
if the goods were produced by new industrial units which commenced their
commercial production on or after 24th December 1997 and were located in defined areas
specified in the annexure to the notification. The benefit was given for a
period of 10 years from the date of publication of the notification or from the
date of the commencement of commercial production whichever was later. The
second notification exempted goods produced in specified industries located in
areas outside the growth centres. The procedure envisaged for obtaining the
exemption under both notifications was that the manufacturer of goods in such
industrial units would have to pay excise duty and subsequently claim refund
from the excise authorities.
notification was issued on 31st December 1999, being Notification No. 45 of 1999 withdrawing the excise exemption to
cigarettes. However, the exemption was re-introduced on 17th January 2000 by Notification No. 1 of 2001.
petitioners set up units in a specified growth centre and claimed the benefit
of Notification No. 32/99. This was allowed to them initially for the first few
months. However, from July to October 2000 although some of the petitioners
made payment of the excise duty, they were not refunded the amount.
aggrieved, the petitioners filed writ petitions before the Gauhati High Court.
An interim order was passed by the High Court on 19.1.2001 directing the
provisional refund of the excise duty by the respondents to the petitioners.
Although the exemption was finally withdrawn in respect of cigarettes by
Notification No. 1/2001 dated 22nd January 2001,
the respondents' prayer for vacating the interim order was rejected by the High
Court by its order dated 8.2.2001. While extending the time for the respondents
to comply with the interim order, the High Court directed that in verifying the
claims for refund, the State Government could not interfere with the exercise
of powers of the excise authorities but made it clear that:
is not to say that the concerned Assistant Commissioner or the Deputy
Commissioner of Central Excise Department cannot take in to account any
material furnished by the State Govt. authorities in deciding as to whether
exemption is due to a manufacturer claiming refund under the said Notification.
He may consider such material but the judgment will be that of the Assistant
Commissioner or the Deputy Commissioner of Central Excise Department on the
question as to whether the amount claimed by the manufacturer under the said
Notification is entitled to exemption and refund under the Notification".
on these observations separate orders were passed by the Assistant Commissioner
rejecting the claims for refund of the petitioners for the months of July 2000
to January 2001 and also ordering recovery of the amounts already refunded
during April to June 2000 forthwith.
found that no unit without a Permanent Registration Certificate (PMT) issued by
the Directorate of Industries & Commerce, Government of Assam could
"legally" go into commercial production and that the earlier order of
refund passed "on the basis of such misinformation & misrepresentation
of fact with regard to the date of commercial commencement of production would
also be unjust/incorrect and devoid of 'legal sanction".
pending writ petitions were amended to incorporate a challenge to this order.
The writ petitions were allowed by the learned Single Judge on 17th May 2002
who held that the petitioners were entitled to refund of excise duty on the
cigarettes manufactured from the date of commercial production till the date
the benefit was withdrawn by the Central Government in January 2001. The
judgment was affirmed on 4th
April 2003 by the
Division Bench in the writ appeal filed by the Union of India. The Union of
India has challenged the decision before us in the above noted appeals.
after the decision of the Division Bench of the Gauhati High Court, Section 154
of the Finance Act, 2003 was enacted by Parliament. The section reads as
of notifications issued under Section 5-A of the Central Excise Act.-
The notifications of the Government of India in the Ministry of Finance
(Department of Revenue)Nos.G.S.R.508(E), dated the 8th July, 1999 and
G.S.R.509(E), dated the 8th July, 1999, issued under sub-section (1) of Section
5-A of the Central Excise Act read with sub-section (3) of Section 3 of the
Additional Duties of Excise (Goods of Special importance)Act, 1957 and
sub-section (3) of Section 3 of the Additional Duties of Excise (Textiles and
Textile Articles) Act, 1978, by the Central Government shall stand amended and
shall be deemed to have been amended in the manner as specified against each of
them in column (3) of the Ninth Schedule, on and from the corresponding date
specified in column (4) of that Schedule retrospectively, and accordingly,
notwithstanding anything contained in any judgment, decree or order of any
Court, Tribunal or other authority, any action taken or anything done or
purported to have been taken or done under the said notifications, shall be
deemed to be and always to have been, for all purposes, as validly and
effectively taken or done as if the notifications as amended by this
sub-section had been in force at all material times."
For the purposes of sub-section (1), the Central Government shall have and
shall be deemed to have the power to amend the notifications referred to in the
said sub-section with retrospective effect as if the Central Government had the
power to amend the said notifications under sub-section (1) of Section 5A of
the Central Excise Act read with sub- section (3) of Section 3 of the
Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of
1957) and sub-section (3) of Section 3 of the Additional Duties of Excise (Textiles
and Textile Articles) Act, 1978 (40 of 1978), retrospectively at all material
suit or other proceedings shall be maintained or continued in any court,
tribunal or other authority for any action taken or anything done or omitted to
be done, in respect of any goods under the said notifications, and no
enforcement shall be made by any court, tribunal or other authority of any
decree or order relating to such action taken or anything done or omitted to be
done as if the amendments made by sub-section (1) had been in force at all
Recovery shall be made of all amounts of duty or interest or other charges
which have not been collected or, as the case may be, which have been refunded
but which would have been collected or, as the case may be, which would have
not been refunded if the provisions of this section had been in force at all
material times, within a period of thirty days from the day on which the
Finance Bill, 2003 receives the assent of the President, and in the event of
nonpayment of duty or interest or other charges so recoverable, interest at the
rate of fifteen per cent, per annum shall be payable from the date immediately
after the expiry of the said period of thirty days till the date of payment.
Explanation. - For the removal of doubts, it is
hereby declared that no act or omission on the part of any person shall be
punishable as an offence which would not have been so punishable if the
notifications referred to in sub- section (1) had not been amended retrospectively
by that sub-section.
Ninth Schedule referred to in Section 154(1) insofar as it is relevant seeks to
amend Notification No. 32/99 dated 8th July 1999 with effect from 8th July 1999 by excluding cigarettes falling
under Chapter 24 of the First Schedule or the Second Schedule to the Central
Excise Tariff Act, 1985. In other words, the exemptions available to the
manufacturers of cigarettes from 1999 upto 27th January, 2001 (except for a
short period between 31st December 1999 and 17th January 2000 during which it
was not available), was rescinded retrospectively. This meant that the excise
duties already refunded to the petitioners would be liable to be recovered, no
further refund would be made and that the petitioners would be liable to pay the
excise duties not paid when the exemption was in force i.e. between 8th July 1999 and 27th January 2001.
second batch of writ petitions were filed by the petitioners before the High
Court challenging Section 154 as being unconstitutional. They were transferred
to this Court at the instance of the Union of India and listed for hearing
along with the appeals and are also being disposed of by this judgment.
challenge to the retrospective operation of Section 154 is rejected by us, any
decision on the Union of India's appeals from the judgment of the High Court
would necessarily be rendered infructuous. The petitioners challenge to Section
154, therefore, is considered at the outset.
N. Salve appeared for M/s R.C. Tobacco Pvt. Ltd. (referred to briefly as 'RCT')
in Transfer Case No. 27 of 2004. RCT manufacturers cigarettes as a job worker
under an agreement with M/s Godfrey Philips India Ltd. Mr. Salve said that
there was no dispute that RCT was a new industrial unit within the meaning of Notification
No. 32 of 1999. It was also submitted that the exemption was granted without
any condition attached except that the unit must be a new unit and must be
located in one of the growth centres etc. It is said that the High Court had
correctly held that RCT fulfilled all the pre-requisites for grant of the
refund. It is said that the inclusion of tobacco as an exempted industry was
not by accident. In fact, when the exemption was withdrawn in December 2000, it
was consciously re-introduced in January 2001. Mr. Salve conceded the
legislative competence of Parliament to enact laws that have retrospective
effect. However, it is contended the retrospectivity particularly of
subordinate legislation must be subjected to greater scrutiny. No reasons were
given for retrospectively removing a benefit consciously granted. He says that
where the retrospective legislation is unreasonable it would violate Article 14
and 19 of the Constitution and would have to be struck down as
unconstitutional. It is submitted that a change in policy, which is sought to
be given a retrospective effect and which seeks to unsettle settled rights and
to deprive people of benefits already enjoyed and causes financial burdens
would clearly be unreasonable and arbitrary. The unreasonableness was evident
from the 'flip-flop' of the Union of India in issuing notifications granting,
then withdrawing, again granting, before finally withdrawing the benefit in
respect of cigarettes in the short space of about a year and a half. The final
withdrawal of the exemption effected by Section 154 was also followed by the
re-grant of exemptions from duties above 8% to tobacco products other than
cigarettes. This erratic behaviour was, according to Mr. Salve, the ground on
which this Court in Tata Motors v. Maharashtra (2004) 5 SCC 783 struck down retrospective legislation as arbitrary and
unconstitutional. It was further submitted that although promissory estoppel
operates only against the executive and not against statute, when the
legislature violates promises and representations made by the government, it is
a facet of unreasonableness that must be taken into account in evaluating the
constitutionality of the law under Articles 14 and 19. It is argued that if the
Government subsequently goes back on the representations made in a tax
exemption Notification by causing Parliament to enact a law with retrospective
effect to reclaim the benefits so conferred, then the reasonableness of the law
must certainly be judged in the light of the representations made by the
Nariman appearing on behalf of Kreesna Industries P. Ltd in Transfer Case No.
32 of 2004 has supported Mr. Salve and adopted his arguments. His client
manufactures cigarettes under an agreement with ITC Limited. Mr. Nariman's submission
is that the fact that the industrial units were set up by job workers under an
agreement was an irrelevant consideration as far as the industrial policy as
declared by the Central Government and the Notification No. 32 of 1999 were
concerned. This was the concurrent finding of both the courts below. It is said
that the Union of India had full knowledge of the circumstances under which his
client set up the industrial unit and gave the industry the benefit of the
notification after being satisfied that all pre-requisites under the
notification had been fulfilled. As far as the retrospective denial of the
exemption is concerned, it is said that it stands on a different footing from a
validating act. The former amounted to an imposition of tax for the first time
whereas the latter merely rectified a defect in the statute by which the assessee
was, from the outset, intended to be made liable. Reliance has been placed on
the observations of Beg, CJ in Madan Mohan Pathak v. Union of India 1978 (3)
SCR 334 at 344 as well as the dissenting view of AN Sen, J in Lohia Machines
Ltd. v. Union of India (1985) 2 SCC 197. It is submitted that in the present case
the retrospectivity was harsh and excessive since there is in fact a
retrospective imposition of excise duty. It is contended that the justification
for such retrospective imposition of a tax must be overwhelming. No such
overriding consideration had been disclosed. Furthermore, the unit would be
crippled if it were asked to pay the excise duty now. In any event, it is
submitted that after the enactment of Section 154, a demand was made for the
amount refunded and for payment of excise duty for the remaining period.
According to Mr. Nariman, the demand which was raised cannot be sustained as it
was made without issuing any show cause notice and in contravention of Section
11A of Central Excise Act, 1944. He has relied on the decisions in East India
Commercial Co. Ltd. vs. The Collector of Customs, Calcutta 1963 (3) SCR 338 as well as M/s.
J.K. Cotton Spinning and Weaving Mills Ltd. vs. Union of India (1987) Supp. SCC 350 para 31,
National Agricultural Co-operative Marketing Federation of India Ltd. vs. Union
of India & Ors. (2003) 5 SCC 23 para 29 in support of the submission.
Dave appearing on behalf of North East Tobacco Company in Transfer Case No. 25
of 2004 has claimed not to be a job worker for any other company. He says that
unlike most other units his clients had not left the State of Assam after the
denial of exemption of excise duty. While adopting the arguments of Mr. Salve
and Mr. Nariman, it is his submission that Section 11A of the Central Excise
Act, 1985 was clearly attracted to the case and the non-compliance with the
provisions thereof rendered the demand inoperative. This argument of Mr. Dave
is sought to be sustained by the decision in M/s. J.K. Cotton Spinning and
Weaving Mills Ltd. v. Union of India & ors. 1987 (Supp) SCC 350. The benefit of the
exemption as opposed to other units had been passed on to his client's
customers and, it is submitted, it would be inequitable to impose excise duty
retrospectively at this stage.
appeared on behalf of M/s. Kaziranga Tobacco Products (P) Ltd. and New Zone
India (P) Ltd. in Transfer Case Nos. 23 and 24 of 2004. The two companies are
job workers for Vazir Sultan. It is claimed that the units were set up by local
persons who had made huge investments after borrowing money for land and
machinery and had been granted the relief of exemption after a full disclosure
of all the facts to the excise authorities. In fact whatever benefits had been obtained,
had been utilized by the unit to promote other industries in the State. Mr. Goswami
also submitted that the retrospective imposition of excise duty after three
years was unreasonable as has been held in Chairman, Railway Board & Ors. v.
C.R. Rangadhamaiah and Ors. (1997) 6 SCC 623 at 638. The policy of granting
such exemption was the outcome of experts opinion and after the exemption was
reintroduced in respect of cigarettes in January, 2000, it was extended to four
other North Eastern States namely Meghalaya, Mizoram, Nagaland and Manipur
before its final withdrawal in January 2001.
the A.S.S Cigarette Company which was a job worker under an agreement with
Godfrey Phillips India has stated in TC No. 26 of 2004 that their Unit was set
up by local industrialists and that they had deposited the excise duty after
borrowing and since the withdrawal of the exemption in 2001 they had been
manufacturing non-tobacco products.
Tobacco Company in TC No. 36 of 2004 has claimed that it is not a job worker
and in fact the unit still continues to operate in Assam but has stopped the manufacture of cigarettes
Company in TP) No. 151 of 2004 has said that it has closed down the manufacture
of cigarettes after the withdrawal of the exemption.
A.K. Ganguly has appeared on behalf of Union of India and sought to justify the
validity of Section 154 by saying that the Section merely gave effect to what
was all along the intention behind the Notification No. 32 of 1999. The object
of the industrial policy declared in 1997 was to give long lasting benefit to
the State in the form of increased investments in industries with consequential
benefits by way of increased employment opportunities to the local population.
The grant of benefits was part of a package deal with the State getting
enduring benefits in return for a short term loss of revenue. The operation of
the notification did not attain this objective. The manufacture of cigarettes
was a controlled industry. The large tobacco companies avoided all the controls
by setting up these industrial units and taking undue advantage of the benefits
granted by the exemption Notification.
was no delay in Parliament stepping in since it clarified the law immediately
after the decision of the Division Bench. The Central Government which was
exercising delegated power under Section 5-A of the Act could not prevent
Parliament from undoing the clear error in the exercise of power by the Central
Government in granting the exemption or from correcting its vacillating
attitude. Parliament's right to legislate was unimpeded. It was contended that
the retrospective levy of excise duty was justified in the circumstances
particularly when the liability to pay excise duty was merely suspended by the
exemption notifications. The further argument is that there was no question of
issuing a fresh show cause notice after the enactment of Section 154, as the
demand related to and arose out of proceedings which culminated in the orders
of the Asstt. Commissioner impugned before the High Court. The orders had not
been appealed from under the Act. According to Mr. Ganguly, the previous orders
of refund were only provisional and the subsequent orders of the Assistant
Commissioner were the final orders rejecting the claims of refund. The setting
aside of the order by the High Court was immediately followed by the enactment
of Section 154. It is said that Section 154 stands by itself and provides for
the method of recovery and that the section could not be said to be
unreasonable. It is submitted that the fact that the section may operate
harshly in individual cases would not be sufficient reason for striking down
the Section as unreasonable. In the majority of cases the units had not passed
on the benefits granted by the exemption to their customers and had on the
other hand realized the duty from their customers.
competence of Parliament and State legislatures to repeal, amend or supersede
an exemption notification is unquestionable. The power to do so retrospectively
cannot be and is also not doubted. The limitation on this power is that the
legislation must not conflict with other provisions of the Constitution. As far
as fiscal legislation is concerned, the limitation is implicit in Article 265
of the Constitution which provides that no tax shall be levied or collected
except by authority of law. As was held by this Court in Chhotabhai Jethabhai
Patel and Co. V. The Union of India and Anr :
by reason of Art. 265 every tax has to be imposed by "law" it would
appear to follow that it could only be imposed by a law which is valid by
conformity to the criteria laid down in the relevant Articles of the
Constitution. These are that the law should be
the legislative competence of the legislature being covered by the legislative
entries in Schedule VII of the Constitution;
law should not be prohibited by any particular provision of the Constitution
such as for example Arts. 276(2), 286 etc. and
law or the relevant portion thereof should not be invalid under Article 13 for
repugnancy to those freedoms which are guaranteed by Part III of the
Constitution which are relevant to the subject matter of the law. (pg.30)
cannot be held to be unreasonable merely because it operates retrospectively.
Indeed even judicial decisions are in a sense retrospective. When a statute is
interpreted by a court, the interpretation is, by fiction of law, deemed to be
part of the statute from the date of its enactment. The unreason ability must
lie in some other additional factors. The retrospective operation of a fiscal
statute would have to be found to be unduly oppressive and confiscatory before
it can be held to be so unreasonable as to violate constitutional norms.
for instance it appears that the taxing statute is plainly discriminatory or
provides no procedural machinery for assessment and levy of the tax, or that it
is confiscatory, courts would be justified in striking down the impugned
statute as unconstitutional. In such cases, the character of the material
provisions of the impugned statute is such that the court would feel justified
in taking the view that, in substance, the taxing statute is a cloak adopted by
the legislature for achieving its confiscatory purposes". (Rai Ramkrishna
vs. State of Bihar: AIR 1963 SC 1667) The question to be answered therefore is
whether Section 154, which is in terms retrospective, is ex facie
discriminatory, or so unreasonable or confiscatory that it violates Articles 14
and 19 of the Constitution.
factors which are generally considered relevant in answering this question are
context in which retrospectivity was contemplated,
period of such retrospectivity, and
degree of any unforeseen or unforeseeable financial burden imposed for the past
context in which legislation is enacted is to be distinguished from the motives
which impelled it to act. The latter are irrelevant (See K.C. Gajapati Narayan Deo
& Ors. v. The State of Orissa (1954)
1 SCR 1,11; RS Joshi v. Ajit Mills Ltd. (1977) 4 SCC 98,108). The justification
put forward by the respondent for enacting Section 154 was therefore really
unnecessary. Nevertheless, while we cannot for that reason analyse the
justification, we may at least consider the plea as setting out the background
in which the Section was passed.
particular context of the section impugned in this case was the industrial
policy formulated by the Central and the State Government of Assam for the development
of that State.
obvious intention behind the grant of the package of incentives including an
exemption from payment of excise duties was to stimulate further industrial
growth in the area with enduring benefits not only to the local populace by way
of employment opportunities but also to the economic welfare of the State. The
State Government's insistence from the very outset on the need to regulate the
industries which were claiming the benefit of the exemption was to ensure that
these objects were attained. According to the Union of India the exemption
notification, at least as interpreted by the High Court, did not effectuate
that intent. As it transpired none of the industrial units manufacturing
cigarettes were prepared to contribute to this object and their investment in
the manufacture of cigarettes was co-extensive with the period of the
loss of revenue suffered by the Union
and the State by the various subsidies and exemptions granted was the quid in
return for which the petitioners were not prepared to suffer any quo. With the
withdrawal of the exemption, all of them without exception immediately closed
down their cigarette manufacturing units and a large majority have shifted out
of the State. Clearly if the grant of the exemption had operated as it was
intended to, it would have been unnecessary to enact Section 154.
High Court may have been right in construing the exemption notification as it
stood. Yet the respondent can contend that that the words should have been used
in the exemption so as to provide for sufficient safeguards to ensure that the
benefit of exemption was granted only to those industries which would in turn
permanently invest in the State.
retrospective enactment this defective expression of the object of the policy,
Exemption Notifications were issued under Section 5A of the Central Excise Act,
1944 as a delegate of Parliament.
Cabinet form of Government, the Executive is expected to reflect the views of
the legislature. It would be impossible for Legislatures to deal in detail and
cater to the innumerable problems which may arise in implementing a statute.
When the power of subordinate legislation is conferred by Parliament in certain
matters it can only lay down the policy and guidelines and expect that what is
done by the Executive is in keeping with such policy. It does of course retain
control over its delegate and can exercise that control by repealing the action
of the delegate . Consequently if the Executive has failed to carry out the
object of Parliament, such control may be exercised by retrospectively enacting
what the Executive ought to have achieved.
somewhat similar situation arose in the case of Epari Chinna Krishna Moorthy
vs. State of Orissa and Ors. AIR 1964 SC 1581. In that case the State
Government had issued an exemption notification under Section 6 of the Orissa
Sales Tax Act, 1947 for which gold ornaments were ordered to be exempted from
sales tax "when the manufacturer selling them charges separately for the
value of gold and the cost of manufacture". The Notification was issued on
1st July, 1949.
petitioners, who were registered dealers under the Orissa Sales Tax Act filed
returns claiming exemption from sales tax.
June, 1952 the claims for exemption were allowed by the Department.
Subsequently, the assessments were reopened on the ground that the exemption
had been wrongly granted. The matter ultimately came up before the High Court.
The High Court allowed the petitioners' claim for exemption under the
notification in question holding that the expression "manufacturer"
meant the first owner of the finished products for whom the ornaments were made
either by his pre-paid employee or even by independent artisans on receipt of
the raw materials and labour charges from him. On 1st August, 1961 the Orissa
Sales Tax Validation Act, 1961 was passed. It provided that notwithstanding
anything contained in any judgment, decree or order of any Court, the word
"manufacturer" meant and was always to be deemed to have meant a
person who by his own labour produces the ornaments or a person, who owns or
runs manufactories for that purpose.
petitioners did not fall within this definition of manufacturer.
accordingly challenged the 1961 Act on three grounds;
since the exemption had been granted by the State Government, it was not open
to the legislature to take away the exemption notification;
the provisions of 1961 Act contravened Article 14; and
the retrospective operation of the impugned Section was unconstitutional
because it imposed an unreasonable restriction on the petitioners fundamental
rights under Article 19(1)(g). In negativing these arguments a Constitution
Bench of this Court said:- "What the legislature has purported to do by S.
2 of the impugned Act is to make the intention of the notification clear.
Section 2 in substance declares that the intention of the delegate in issuing
the notification granting exemption was to confine the benefit of the said
exemption only to persons who actually produce gold ornaments or employ
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." Although the length of
time is not by itself decisive the effect of the retrospectivity of the
legislation in this case is less than two years. The tussle between the excise
authorities and the petitioners started almost immediately upon the latter
claiming and obtaining refunds of the excise duty paid by them on the
manufacture of cigarettes. The refusal of the excise authorities to refund, on
their interpretation of the notification, led to the filing of the writ
petitions. The writ petitions were allowed on 17th May, 2002. In the meanwhile
the exemption was already withdrawn in January 2001. The decision was then
challenged in appeals by the Union of India which were finally dismissed by the
Division Bench on 4th April, 2003. Therefore between 2000 to 2003 the dispute
as to the purport of the exemption notification during the period of their
operation from July 1999 to January 2001 was pending in Court. The matters were
then carried to this Court by the Union of India. While the proceedings were
pending and the issue was still at large, Section 154 was enacted. In these
circumstances, the Parliament cannot be blamed for having at least awaited the
decision of the High Court, nor can the statutory provision be questioned as
being unreasonably retrospective.( See in this connection Rai Ram Krishna vs.
State of Bihar AIR 1963 SC 1667, 1675 para 18).
of the proceedings before the Courts meant that there was a possibility of an
outcome adverse to the petitioners however strong the petitioners may have
considered their case to be. If this Court had reversed the view of the High
Court, the petitioners would have had to bear the burden of the excise duty for
the period they had manufactured the cigarettes.
could not have been predicted with any certainty that the appeals of the Union
of India would fail. By enacting Section 154, Parliament has forestalled a
decision by this Court and in effect taken away the basis for the decisions of
the High Court.
circumstances, it could not be said that the financial burden was unforeseen or
Chairman Railway Board vs. C.R. Rangadhamaiah (supra) the impugned
notifications had sought to curtail pensionary rights with retrospective
notifications were held to be unconstitutional on the grounds that when the
pension had been granted to the employees, Articles 31(1) and 19(1)(f) were
available, both of which were violated by such retrospective operation. It was
also held that it was violative of Articles 14 and 16 of the Constitution
because it had the effect of reducing the amount of pension that had become
payable to employees who had already retired from service on the date of
issuance of the impugned notifications according to the rules in force at the
time of their retirement. However the right of the petitioners to the exemption
in the present case can at best be described as a precarious one. It is
established law that benefits granted by exemptions may be modified or
withdrawn. By the notification the accrued liability to pay excise duty is
an exemption by its very nature is susceptible to being revoked or modified or
subjected to other conditions. The Government and a fortiori the Parliament is
free to determine the priorities in the matter of utilization of finances and
the courts cannot place an embargo on the Government or on the plenary power of
Parliament to withdraw the benefit on the basis of any principle of promissory estoppel.
It has been said:
is necessary that the Legislature should be able to cure inadvertent defects in
statutes or their administration by making what has been aptly called 'small
repairs'. Moreover, the individual who claims that a vested right has arisen
from the defect is seeking a windfall since had the legislature's or
administrator's action had the effect it was intended to and could have had, no
such right would have arisen. Thus, the interest in the retroactive curing of
such a defect in the administration of government outweighs the individual's
interest in benefiting from the defect.
Court has been extremely reluctant to override the legislative judgment as to
the necessity for retrospective taxation, not only because of the paramount
governmental interest in obtaining adequate revenues, but also because taxes
are not in the nature of a penalty or a contractual obligation but rather a
means of apportioning the costs of government among those who benefit from it
." As we have said, Mr. Salve relied on Tata Motors Ltd.
State of Maharashtra & Ors., (2004) 5 SCC 783 to contend that despite the
enormous powers of Parliament to legislate prospectively or retrospectively,
unless the material is disclosed why there was an 'on again and off again'
exemption, Section 154 must be held to be arbitrary and therefore
unconstitutional. In that case Rule 41E of the Bombay Sales Tax Rules 1959
allowed benefit of set-off in respect of all waste goods or scrap goods or bye-
products. This benefit was sought to be taken away by Section 26 of the Maharashtra
Tax Laws (Levy Amendment and Repeal) Act, 1989 which amended Rule 41E. The
validity of such retrospective amendment to Rule 41E was challenged. It was
contended that as a result of the amendment the assessee was deprived of the
benefit for a period 8 years after which the benefit was reintroduced by
another amendment of Rule 41E in 1992. This Court held that in absence of any
material as to why the benefit under Rule 41E had been denied for a particular
period, Section 26 of the 1989 Amendment Act deserved to be quashed. The Court
found in favour of the assessee because there was no reason whatsoever
forthcoming for the withdrawal of the benefit retrospectively for a limited
decision is distinguishable. In this case, the reasons for the retrospective
enactment of Section 154 have been given and as we have also said, those
reasons are at least factually plausible.
next challenge of the petitioners is based on Section 11A of the Act, the
relevant extracts of which reads:
RECOVERY OF DUTIES NOT LEVIED OR NOT PAID OR SHORT LEVIED OR SHORT-PAID OR
When any duty of excise has not been levied or paid or has been short levied or
short paid or erroneously refunded, a Central Excise Officer may, within six
months from the relevant date, serve notice on the person chargeable with the
duty which has not been levied or paid or which has been short levied or
short-paid or to whom the refund has erroneously been made, requiring him to
show cause why he should not pay the amount specified in the notice:
that where any duty of excise has not been levied or paid or has been short-
levied or short-paid or erroneously refunded by reason of fraud, collusion or
any willful mis- statement or suppression of facts, or contravention of any of
the provisions of this Act or of the rules made thereunder with intent to evade
payment of duty, by such person or his agent, the provisions of this
sub-section shall have effect, for the words "six months", the words
"five years" were substituted.
xxx xxx xxxx
the purposes of this section,
xxx xxx xxx
"relevant date" means:
the case of excisable goods on which duty of excise has not been levied or paid
or has been short-levied or short-paid-
where under the rules made under this Act a periodical return, showing
particulars of the duty paid on the excisable goods removed during the period
to which the said return relates, is to be filed by a manufacturer or a
producer or a licensee of a warehouse, as the case may be, the date on which
such return is so filed;
no periodical return as aforesaid is filed, the last date on which such return
is to be filed under the said rules;
any other case, the date on which the duty is to be paid under this Act or the
rules made thereunder.
a case where duty or excise is provisionally assessed under this Act or the
rules made thereunder, the date of adjustment of duty after the final
the case of excisable goods on which duty of excise has been erroneously
refunded, the date of such refund.
contention is that Section 154 violates Section 11A in that it does not
envisage the service of any notice and it seeks to allow recoveries to be made
after the periods of limitation provided.
to the respondents the refunds granted under the notifications dated 8th July,
1999 were not the "normal" refunds made under the Act but were of a
special kind for which the complete machinery was provided under the
submission is that since the exemption notifications themselves had been
withdrawn by Section 154, the amounts refunded thereunder were recoverable
independently of Section 11A under Section 154(4).
are two aspects to this dispute. The first is the question of limitation and
the second the question of notice. As far as the first aspect is concerned
refund of duty under the Act has been provided for by Section 11B. The Section
specifies the manner and circumstances under which refunds of duty may be made.
It is neither of the parties' case that the refund made to the petitioners of
the excise duty paid by them was under this Section.
present case Paragraph 2 of the Notification 32/99 prescribed for the method
for giving effect to the exemption. It provided:
The manufacturer shall submit a statement of the duty paid from the said account
current to the Assistant Commissioner of Central Excise or Deputy Commissioner
of Central Excise, as the case may be, by the 7th of the next month in which
the duty has been paid from the account current.
The Assistant Commissioner or Deputy Commissioner of Central Excise, as the
case may be, after such verification, as may be deemed necessary, shall refund
the amount of duty paid from the account current during the month under
consideration to the manufacturer by the 15th of the next month.
there is likely to be any delay in the verification, the Assistant Commissioner
or Deputy Commissioner of Central Excise, as the case may be, shall refund the
amount on provisional basis by the 15th of the next month to the month under
consideration, and thereafter may adjust the amount of refund by such amount as
may be necessary in the subsequent refunds admissible to the manufacturer.
claim for refund is subject to verification but the refund must be granted even
before such verification on a provisional basis. It was for that reason that
the learned single Judge had directed the refund by an interim order but
allowed the Assistant Commissioner to independently verify the claims.
Section 11A does not refer to Section 11B, it speaks of duties
"erroneously refunded". It cannot therefore refer to the refunds made
to the petitioners under the notifications as there was no error in the
provisional refunds made under the notifications to the appellants. What was
sought to be recovered under Section 154 was not an erroneous refund but a
benefit provisionally granted.
J.K. Cotton Spinning & Weaving Mills Ltd. vs. Union of India (1987) Supp.
SCC 350 relied upon by the petitioners, by virtue of the retrospective
amendment of Rules 9 and 49 of the Central Excise Rules in 1982, commodities
obtained at an intermediate stage of manufacture in a continuous process were
deemed to have been 'removed' within the meaning of Rule 9(1) thereby making
such intermediate products dutiable under the Act with effect from the
commencement of the Act i.e. 1944. In this context the Court held that the
amended Rules 9 and 49 would take effect subject to Section 11A. The decision
is distinguishable. The circumstances in which the Court held that the demands
for duty could only be limited to six months prior to the amendment was
unquestionably different from those present in the case before us. What we have
to consider here is whether the benefit granted in 1999 could be withdrawn in
2003. Besides the Court in J.K. Cotton Spinning & Weaving Mills Ltd's case
rejected the contention of the Union of India that Section 51 of 1982 Finance
Act by which the amendments were made to Rules 9 and 49 overrode the provisions
of Section 11A saying 'if the intention of the legislature was to nullify the
effect of Section 11A,.., the legislature would have specifically provided for
the same'. Similarly our decision in National Agricultural Cooperative
Marketing Federation of India Ltd. vs. Union of India (2003) 5 SCC 23 which
dealt with an amendment to Section 80P(2)(a)(iii) of the Income Tax Act, 1961
noted that 'the amendment does not seek to touch on the periods of limitation
provided in the Act, and in the absence of such express provision or clear
implication, the legislature clearly could not be taken to intend that the
amending provisions authorizes the Income Tax Officer to commence proceedings
which before the new Act came into force, had, by the expiry of the period
provided become barred". In the present case Section 154(4) specifically
and expressly allows amounts to be recovered within a period of thirty days
from the day the Finance Bill, 2003 received the assent of the President.
cannot but be held therefore that the period of six months provided under
Section 11A would not apply.
question of notice prior to the recovery irrespective of Section 11A, it is
contended by the petitioners relying on the decision of this Court in East
India Commercial Co. Ltd. vs.The Collector of Customs (1963) 3 SCR 338, 361
that whether a statute provides for notice or not, it was incumbent upon the
respondents to issue notice to the petitioners disclosing the circumstance
under which proceedings are sought to be initiated against them and that any
proceedings taken without such notice would be against the principles of
natural justice. Assuming that the principle were applicable to the case before
us, in fact notices of personal hearing were served on the petitioners by the
Assistant Collector for a personal hearing before the Assistant Collector
passed the orders by which the petitioners were held liable to repay the
refunds made and to pay the excise on the goods cleared for the subsequent
periods. The High Court's decision setting aside the orders as being contrary
to the Exemption Notification was sought to be overcome by Section 154(1). In
other words, by virtue of Section 154(1), notwithstanding the decision of the
High Court, the orders of the Assistant Collector, which were purported to have
been taken under the notifications, were validated as if the notifications as
amended had been in force when the orders were passed.
grievance has been raised by the petitioners that cigarette manufacturers have
been unfairly discriminated against. We are unable to accept the submission for
there is a presumption in favour of constitutionality of a statute, a
presumption which only the clearest and weightiest evidence can displace.
we can take judicial notice of the fact that cigarettes have been treated as a
class apart for the purposes of levy of excise duty with the manufacture of
cigarettes probably yielding the highest revenue to the exchequer.
said in R.K. Garg vs. Union of India (1981) 4 SCC 675 by the following words:
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." Third
"another rule of equal importance is that laws relating to economic
activities should be viewed with greater latitude than laws touching civil
rights such as freedom of speech, religion etc." (ibid).
final question is that of the relief to be granted.
petitioners can be broadly classified into three groups:
workers for large cigarette companies which have closed down the units with the
withdrawal of the exemption and left the State of Assam.
workers for large cigarette companies which have closed down their cigarette
manufacturing units but started new business in other products.
Industrial units which have set up their own units and have reinvested their
earnings in their businesses in the State after closing down the manufacture of
units have admittedly not passed on the excise duty benefits to their
customers. On the other hand the large cigarette companies have recovered the
excise duty from the customers. Other units claim to have passed on the benefit
of the entire exemption to their customers.
the petitioners however claim that they would be financially crippled if they
were called upon to repay the refund of the excise duties or pay the excise
duty on the cigarettes manufactured by them. According to them the quantum of
excise duties would far exceed their profits from the manufacture of
respondents on the other hand have urged that the petitioners were merely
fronts for the large cigarette companies which had misused the notification to
avoid the excise duty otherwise payable by them. This was clear from the
agreements entered into between them and the various industrial units through
which they claimed the benefits. The agreements showed inter alia that the
entire set up was financed by the large companies. The arrangement was back to
back so that with the withdrawal of the exemption, the units would be closed
down. The promptness with which a unit went into commercial production after it
was set up in a few days showed that there was no real investment by the
of the units had not even got permanent registration before they went into
production and claimed refund of large amounts of excise duty. Admittedly the
large cigarette companies had not only not passed on the benefit of exemption
but had levied and retained the excise duty on the cigarettes manufactured by
the petitioners for the customers of the large companies.
petitioners who were admittedly in group A have refuted this and contend that
their relationship with the large cigarette companies was on a principal to
principal basis and that under their agreements they alone would be liable to
pay the excise duty now demanded by the respondents under Section 154.
not in a position to determine the disputes raised.
we cannot lose sight of the fact that although excise duty like other indirect
taxes may be passed on to the customer of the goods under the law as it now
stands, it is the manufacturer of the excisable goods to whom the excise
authorities will look for payment. How the manufacturer will adjust its
liability with its customers does not concern the respondents nor can they be
asked to recover their dues from persons who may have ultimately taken on the
responsibility to pay the excise duty as a result of an agreement with the
manufacturer. (See in this connection State of Rajasthan vs. J.K. Udaipur Udyog Ltd. (2004) 7 SCC 673, 692).
having upheld the constitutional validity of Section 154 it would be a pyrrhic
victory for the Union of India if they could not in fact recover the tax. It is
not a case where the legislation has merely withdrawn the exemptions. The
consequences of the withdrawal have been statutorily provided for including the
recovery of the excise duties refunded or not paid. The effective period of
such imposition is about eight months. The State has been deprived of revenue
without any corresponding benefit. It may be that the retrospective operation
may operate harshly in some cases, but that would not by itself invalidate the
demand. [See: Epari Chinna Krishna Moorthy vs. State of Orissa (supra)] It
needs to be emphasized that in effect the retrospective operation extended over
a very short period and principles of equity must give way to express statutory
provision. As was said in Story on Equity (3rd Eng.Ed.1920)p.34:- " Where
a rule, either of the common or the statute law, is direct, and governs the
case with all its circumstances, or the particular point, a court of equity is
as much bound by it as a court of law, and can as little justify a departure
from it" .
doubt in British Physical Lab India Ltd vs. State of Karnataka & Ors.
(1999) 1 SCC 170 relied upon by the petitioners the Sales Tax Authorities
proposed to recover the difference in duty from manufacturers within the State
having regard to the fact that the notifications giving them the benefit of a
lower rate of tax had been struck down. This court held that they should not do
so. The rationale behind the decision has been explicitly stated in Texmaco Ltd
vs. State of Andhra Pradesh (2000) 1 SCC 763. In directing that the State shall
not collect the amount of sales tax that had become payable by reason of the
quashing of the notifications, this Court noted that the notifications had been
intended to protect the local cement industries. The quashing of the
notifications should have the effect of putting the local cement industry and
the same industry outside the State on par. It could not place the former in a
disadvantageous position qua the later. Apart from this, the respondent-State
had also not contested the factual position. The circumstances in which this
Court directed the State not to collect amount of sales tax which had become
payable only by reason of the Order quashing the notifications issued under the
State Sales Tax Act do not exist here. What we are considering in this case is
a positive statutory mandate directing the consequences of the withdrawal of
the exemption notifications.
the reasons stated we dismiss the transferred writ petitions without any order
as to costs.