Dai-Ichi Karnataka Ltd. Vs. Union of
India & Ors [2000] INSC 211 (11 April 2000)
R.C.Lahoti, S.R.Babu
RAJENDRA BABU, J. :
By Notification No. 210/82 dated September
10, 1982 (as amended by Public Notice dated September 20, 1983) issued under
Section 25(i) of the Customs Act the Government of India exempted from payment
of customs duty and additional duty of customs on all raw materials and
components imported for the manufacture of goods to be supplied to various
organisations such as I.D.A. that is, the International Development
Association, International Bank for Reconstruction and Development (I.B.R.D.)
or bilateral or multilateral aided projects. The said notification stated that
it would be in force till September 10, 1987. By Notification No. 513/86 dated
December 30, 1986 issued under Section 25(i) of the Customs Act the Central
Government exempted raw materials and components required for the manufacture
of the goods to be supplied to the O.N.G.C. or G.A.I.L. from so much of that
portion of the duty of customs leviable thereon which is specified in the First
Schedule to the Customs Tariff Act, 1975 as is in excess of the amount
calculated at the rate of 25% ad valorem and whole of the additional duty
leviable thereon under Section 3 of the Customs Tariff Act, 1975 subject to
certain conditions. By another Notification No. 516/86 of the same date the
Central Government exempted goods imported in connection with off-shore oil
exploration or exploitation from the whole of the duty of customs leviable
thereon under the First Schedule to the Customs Tariff Act, 1975 and the
additional duty leviable thereon under Section 3 of the Customs Tariff Act,
1975 subject to certain conditions. By another Notification No. 517/86 dated
December 30, 1986 it was notified that Notification No. 210/82 dated September
10, 1982 stood amended by omitting the words "or Oil and Natural Gas
Commission or Oil India Limited or Gas Authority of India Limited". As a
result thereof the appellant who is manufacturer and supplier of certain goods
to O.N.G.C. in connection with oil exploration viz. Flow Improver under the
trade name "Daitrolite" became liable to pay duty to the extent of
25% for the period between December 30, 1986 and September 10, 1987. Though several
contentions had been raised in the High Court in challenging the action of the
respondents, in the appeal before us what is urged is only one contention which
is as follows: That Notification No.
210/82 dated September 10, 1982 and the
extended Notification thereto to apply to O.N.G.C. was issued to encourage
manufacture of goods indigenously for effecting supplies to essential Indian
enterprises as a part of the scheme which was Project Based and the exemption
under the said Notification was a part of Project Based exemption scheme.
Public interest did not demand the variation during the period the exemption
was in force by Notification No.210/82. In the writ petition before the High
Court the contention raised by the appellant is that the fact that many
persons, including the petitioners have undertaken importation of materials on
the basis that no duty was leviable or payable on the imported material and
that there have been no new events nor any supervening circumstances which
could form a basis for or justify the withdrawal of the benefit contained in
the exemption Notification No.210/82 as amended in 1983 after being satisfied
that public interest required that there should be no duty of customs nor
additional duty of customs in respect of raw materials and components imported
for supplies therefrom to O.N.G.C.for a fixed and definite period up to
September 10, 1987; that the policy of the first respondent is to indigenise
production as is the policy of O.N.G.C. to indigenize; that the appellant had
secured orders for supply of goods against global tenders where foreign
suppliers also participated and in the teeth of international competition the
company had been awarded the contracts by O.N.G.C.; that pursuant to the
exemption that has been granted the company had invested since 1983 a large
amount of money in respect of its plant for manufacture of goods to be supplied
to O.N.G.C.; that public interest which prompted the first respondent to issue
the exemption notification No. 210/82 remains unaltered and no new supervening
circumstances have justified reversal of the said policy and, in fact, such a
reversal to encourage foreign manufacturers at the cost of Indian manufacturers
is per se contrary to public interest drain on foreign exchange. The High Court
took the view that this Court had laid down in Kasinka Trading & Anr. v.Union
of India & Anr., 1995 (1) SCC 274, that the power to exempt flows from
Section 25 of the Customs Act; that just as the notification issued granting
exemption is in public interest, by another notification it can also be
modified or withdrawn in public interest, irrespective of whether exemption is
project based or specific goods related. The High Court having held that
Notification No. 210/82 had been issued in public interest and modified again
in public interest, dismissed the petition. Hence this appeal.
Inasmuch as the contention raised on behalf
of the appellant had not been specifically dealt with by the respondents in the
writ petition in the High Court, this Court permitted the respondents to file
counter affidavit. Accordingly, a counter affidavit was filed on February 9,
2000. In that affidavit what is stated is as follows :- "It is further
submitted that the oil section in general had been enjoying various fiscal
concessions since 1982. During December, 1986, a review was undertaken in
relation to various concessions accorded to oil exploration and development of
oil and natural gas production. The conditions prevailing then compelled the
government to review the earlier concessions and to prescribe different rates
of duties on different goods required by the sector in order to promote oil
exploration in the country. It was believed that the imposition of a nil rate
of duty on the import of raw materials and components required for the
manufacture and supply of products to the ONGC, OIL and GAIL could lead to
misuse, specially by the private contractors who have other interests, in
addition to the supplies to the Oil Sector. The Administrative requirements as
also the cost of the saving/earning of foreign exchange in the economy (which
is about 35%) were also taken into consideration. Consequently, it was felt
necessary to exclude ONGC, Oil India Ltd. and Gas Authority of India Ltd. from
the scope of Notification No. 210/82 and to prescribe a separate slab of duty
of 25% in respect of such imports in terms of notification No. 513/86."
The appellant filed a reply stating as follows :- "(1) It is wrong to say
that the appellant herein could have misused the exemption because under the
export obligation clause, in keeping with the policy of the government, the
appellant was obliged only to import for supplying to ONGC, respondent No. 4
herein. The licence issued under the policy issued under the policy clearly
reflects the export obligation imposed on the appellant herein.
(2) Furthermore, the finished product
Daitrolite manufactured from the raw materials imported under the licence,
being a highly specialised product could have been sold only to ONGC, Oil India
etc. and nobody else.
(3) At the time in 1982 when the exemption on
customs duty was allowed to the appellant, the prevailing basic customs duty
was 60% and 70% on different materials and even if on account of probable
misuse, the exemption why only a 25% customs duty was allowed to be imposed for
bringing in the raw materials." The law on the matter is now well settled
that even in respect of exemptions that may have been made by the Government
the doctrine of promissory estoppel will not be applicable if the change in the
stand of the Government is made on account of public policy. This position has
been explained in detail by this Court in Kasinka Trading & Anr.(supra) and
reiterated in Shrijee Sales Corporation & Anr.v. Union of India, 1997 (3)
SCC 398. In both these cases this Court is concerned with notifications issued
under Section 25 of the Customs Act. In Kasinka Trading & Anr.(supra) case
it is stated that the exemptions granted under Section 25(i) of the Customs Act
in public interest is designed to off-set the excess price which the local
entrepreneurs were required to pay for importing PVC resin at a time when the
difference between the indigenous product and the imported product was
substantial and at a time when the notification was withdrawn by the Government
there was no scope for any loss to be suffered by the importers and, therefore,
the change of policy was permissible. This decision is the same in Shrijee
Sales Corporation & Anr.(supra) wherein it was noticed that once public
interest is accepted as the superior equity which can override individual
equity, the principle would be applicable even in cases where a period has been
indicated for which period the notification would remain in force and
Government is competent to resile from a promise. It was further noticed
therein that the Government can resile from a promise even if there is no
manifest public interest involved provided, of course, that no one is put in
any adverse situation which cannot be rectified.
In the present case, it is clear that the
only public interest disclosed is as stated above in the counter affidavit and
those circumstances cannot stand close scrutiny because the appellant could not
mis-utilise the exemption granted inasmuch as the appellant is obliged only to
import goods for the purpose of supplying them to O.N.G.C. and the licence
issued under the policy also clearly reflects the export obligation imposed on
the appellant herein and the finished product Daitrolite manufactured from raw
materials imported under the licences is highly specialised product and could
be sold only to O.N.G.C., Oil India Ltd. and others. At the time in 1982 when
the exemption was granted the prevailing basic customs duty was 60% and 70% on
different materials imported for the manufacture of goods in question. However,
it is not clear as to why duty is reduced to 25% by reason of exemption being
modified. It is clear, therefore, that the factors taken into consideration by
the Government appear to us to be wholly irrelevant and do not subserve public
interest.
In somewhat identical situation, this Court
had occasion to examine the scope of interference in respect of notification
issued under Section 25 of the Customs Act.
In Indian Express Newspapers (Bombay) Private
Ltd.Ors. Etc. Etc. v. Union of India & Ors. Etc. Etc., 1985 (2) SCR 287,
scope of interference in the notification issued under Section 25 of the Customs
Act, 1962 is considered. This Court held that power to grant exemption under
Section 25 of the Customs Act is a legislative power and a notification issued
by the Government thereunder amounts to a piece of subordinate legislation,
even then the notification is liable to be questioned on the ground that it is
an unreasonable one inasmuch as a piece of subordinate legislation does not
carry the same degree of immunity which is enjoyed by a statute passed by a
competent legislature.
Subordinate legislation may be questioned on
any of grounds on which plenary legislation can be challenged : (i) that it
does not conform to the statute under which it is made;
(ii) that it is contrary to some other
statute inasmuch as subordinate legislation must yield to plenary legislation,
(iii) that it is unreasonable in the sense that it is manifestly arbitrary. The
embargo of arbitrariness is embodied in Article 14 of the Constitution. An
enquiry into the vires of delegated legislation must be confined to the ground
on which the plenary legislation may be questioned, except that subordinate
legislation cannot be questioned on the ground of violation of the principle of
natural justice on which administrative action may be questioned. In cases
where power vested in the Government is a power which has got to be exercised
in public interest, as is the case in the present case, the court may require
the Government to exercise that power in a reasonable way in accordance with
the spirit of the Constitution. The mere fact that a notification issued under
Section 25 of the Customs Act is required to be laid before Parliament under
Section 159 of the Customs Act does not make any substantial difference as
regards the jurisdiction of the court to pronounce on its validity. Section 25
of the Customs Act under which notifications are issued confers a power on the
Central Government coupled with a duty to examine the whole issue in the light
of public interest. If the Central Government is satisfied that it is necessary
in the public interest so to do, it may exempt generally either absolutely or
subject to such conditions, goods of any description, from the whole or any
part of the customs duty leviable thereon. Power exercisable under Section 25
of the Customs Act is no doubt discretionary, but it is not unrestricted. The
pattern of the law imposing customs duties and the manner in which it is
operated to a certain extent exposes the citizens who are liable to pay customs
duties to the vagaries of executive discretion. While Parliament has imposed
duties by enacting the Customs Act and the Customs Tariff Act, 1975, the executive
Government is given wide power by Section 25 of the Customs Act to grant
exemption from the levy of customs duty. It is ordinarily assumed that while
such wide power is given to the Government, it will consider all relevant
aspects governing the question whether exemption should be granted or not. Ms.
Nisha Bagchi, learned counsel for respondents, relied on Union of India v.
Indian Charge Chrome, 1999 (112) ELT 753 (S.C.). In this case, however, the law
stated in Kasinka Trading & Anr. (supra) is reiterated but there is no plea
in the petition that the formation of opinion as to public interest is based on
no material or was vitiated by malafides. In the present case, the position is
altogether different. Specific plea has been raised that there is no basis for
formation of the opinion as to public interest calling for withdrawal or
modification of the exemption already granted. Therefore, the principle stated
in that case has no application to the facts of the present case.
Relying upon a decision in Collector of
Central Excise v. R.M.D.C. Press Pvt. Ltd., 1997 (92) ELT 29 (S.C.), it was
further submitted by the learned counsel for the respondents that public
interest should be presumed to exist even when the judgment under appeal does
not expressly refer to public interest which moved the respondents to curtail
the period of exemption. When a specific contention had been raised regarding
non-existence of public interest in curtailing the period of exemption, we fail
to understand as to how this decision can be of any assistance to the learned
counsel.
In the present case, by issuing different set
of notifications and granting exemption at different stages and limiting only
to the extent of 75% for the period from December 30, 1986 to September 10,
1987 and for the reasons stated earlier in the manner set out in the counter
affidavit clearly indicate that the Government has not taken into account all
the relevant factors while issuing the impugned notifications reducing the
exemption to 25% for the aforesaid period. We may state that the Government has
failed to discharge its statutory obligation while issuing the impugned
notifications. Justifications offered, to say the least, is far too nave to be
accepted. The reason set out does not carry the case of the State Government
further at all. However, Ms. Nisha Bagchi sought to distinguish the different
notifications by stating that different notifications issued subsequently are
in respect of different commodities and it is always open to the Government to
change its policy. Undoubtedly it is so, but those factors per se would not
discharge the burden of the Government in establishing as to what public
interest governed the Government in reducing the extent of exemption.
We have already held that the Government has
failed to discharge that burden. In the result, we have no hesitation in
quashing the amended notifications which are applicable for the period from
December 30, 1986 to September 10, 1987 reducing the extent of exemption. The
notification issued earlier on September 10, 1982 and modified in 1983 shall be
effective till September 10, 1987. The appellants should be subject to duty
only in accordance with those notifications issued under the Customs Act.
The appeal is allowed accordingly by setting
aside the order made by the High Court in allowing the writ petition filed by
the appellant in the manner indicated therein.
There shall be no order as to costs.
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