UNION OF INDIA & ORS. versus A. B. P. PVT. LTD. & ANR. on 12 May 2023

1. This civil appeal arises from a judgment[1] of the Calcutta HighCourt which held the withdrawal of a customs notification invalid.

I

2. ABP Pvt Ltd (“assessee/respondent”) in October 2003, importedone set of high speed cold set (Universal 70) Web Offset printing machinealong with the necessary parts and accessories and claimed exemptionfrom payment of the duty relying upon the notification dated May 28,2003 (hereinafter, “First Notification”).[2] The First Notification providedfor levy of custom duty on the import of High Speed Cold-Set WebOffset Rotary Printing Machines with a minimum speed of 70,000 copiesper hour (hereafter, “Imported Machine”) at a concessional rate of 5 %.Relying upon the first notification, the assessee caused an irrevocableletter of credit[3] to be issued, for the purchase of the Imported Machine.This First Notification was subsequently amended by the CentralGovernment through a fresh notification dated November 11, 2003[4](hereafter, “Amended Notification”). The Amended Notification shiftedthe benefit of the concessional rate from “High Speed Cold-Set WebOffset Rotary Printing Machine with minimum speed of 70,000copies per hour” to “High Speed Cold-set Web Offset Rotary DoubleWidth Four Plate Wide Printing Machine with a minimum speed of70,000 copies per hour”.

3. On 09.02.2004, the assessee filed a Bill of Entry claiming thebenefit of a 5% concession (under the First Notification). However,owing to the Amended Notification, the assessee was ineligible for the 1 Dated December 23, 2008, in Writ Petition No 298/ 2004

2 Notification No 86 of 2003 (Cus) Classification 844 311 00.

3 Dated 18th October, 2003

4 Notification No 164 of 2003

A

B

C

D

EF

G

H

Abenefit of the previously enjoyed concession, under the First Notification,and was liable to pay customs duty at 39.2% on the value of the ImportedMachine amounting to 1,92,54,318. Assesee filed a writ before theHigh Court[5] for declaring the Amended Notification ultra vires Section25(1) of the Customs Act 1962 (hereafter, “the Act”) and thus sought, adeclaration for withdrawal of the Amended Notification. On 18.03.2004,Ba single judge made an interim order[6] directing the release of the importedmachinery provisionally on payment of a concessional rate of duty againstthe bank guarantee for the differential amount of 1,67,98,410.

4. On December 5, 2005, a single judge bench[7] set aside theamended notification on the ground that no intelligible differentia existedCfor granting concession on one type of machinery and withdrawingconcession to other types of machinery. The court therefore, directedthat the exemption be granted to the imported machinery of the assessee.Aggrieved by the order of the single judge bench, the Union preferredan appeal to the Division Bench of the High Court. The Union contended Dthat its power to grant exemption also includes the power to modify oralter any of the exemption, already granted and that delegation done iswithin the powers of the legislature. The Union further argued beforethe Division Bench that the subject matter involves economic policyover which the legislature has exclusive domain.

5. The High Court by its impugned judgment upheld the judgmentEand order of the single judge bench. The High Court observed that theimported machine was neither manufactured in any part of the countryat the relevant point of time nor any copy of representation receivedfrom domestic manufacturers questioning the exemption granted to theimported machine was shown by the revenue.F6. The High Court relied upon the affidavit of the Union where itwas contended that the imported machine has no indigenous angle. TheHigh Court further placed reliance upon the decision of this court inIndian Express Newspapers v. Union of India[8] (hereafter, “IndianExpress Newspapers”) and observed that actions of the Governmentunder Section 25(1) of the Act are not immune from judicial scrutiny andGthe power must be exercised reasonably and in furtherance of “publicinterest”. In the absence of any intelligible differentia between the 5 Writ Petition No 298/ 2004

6 Order dated 18.03.2004 in WP No 298/ 2004

7 By order dated 5 December, 2005 in WP No 298/ 2004

H8 [(1985) 2 SCR 287]

imported machine and newly exempted machine (as both have the samecapacity of production and neither of them was manufactured in thecountry), no case for exemption in furtherance of ‘public interest’ ismade out.

7. The High Court further noted that the assessee is entitled toclaim the benefit of the concessional rate of customs duty paid on theimported goods instead of the higher tariff as sought by the amendednotification. The union is aggrieved by the impugned order and hasapproached this court.

II

8. Mr. N. Venkatraman, learned Additional Solicitor General forthe Union (hereafter, “ASG”) submitted that the impugned orderchallenges the fundamental powers of the government to issue anotification under Section 25(1) of the Act which may have seriousimplications on their exercise of power in future. The ASG furthersubmitted that the assessee cannot claim concessions/exemptions inrespect of a commodity as a matter of right as the same falls within thepolicy domain of the government.

9. Learned counsel further submitted that the commodities grantedexemption under the amended notification relate to technologicaladvancement and modernization of the industrial sector in the countryand thus the element of “public interest” is ingrained in the amendednotification.

10. The learned ASG also placed reliance on section 21 of theGeneral Clauses Act, 1897 to argue that the Union’s power to issue anotification includes the power to withdraw the same. Section 21 of theGeneral Clauses Act, 1897 reads as:

“21. Power to issue, to include power to add to, amend, varyor rescind notifications, orders, rules, or bye-laws .- Where,by any (Central Act) or Regulations, a power to ( issuenotifications) orders, rules, or bye-laws is conferred, thenthat power includes a power, exercisable in the like mannerand subject to the like sanction and condition (if any), to addto, amend, vary or rescind any (notifications), orders, rulesor bye-laws so (issued).”

11. Learned counsel further submitted that there exists merit inexcluding single width two plate machines from exemption as those weremanufactured in the country. There was rationale to exclude such A

B

C

D

E

F

G

H

Amachines from the scope of concessions. Moreover, the concessiongranted was for cold-set web offset Rotary Double Width Four PlateWide Printing Machines with a minimum speed of 70,000 copies perhour. Thus, considering the indigenous angle and the representationsreceived from the domestic manufacturers of the equipment (i.e. singlewidth two plate machines with 50000 copies per hour speed) it wasBnecessary to exclude such single width two plate machines, from thescope of concessions.

III

12. Mr. Kaushik Murali, learned counsel for the assessee submittedthat the Union could not withdraw or amend the First Notification issuedCunder section 25(1) of the Act without any justification. To support theargument, counsel placed reliance on this court’s decision in KasinkaTrading & Anr. V. Union of India[9] (hereafter, “Kasinka”) and urgedthat though the Union has the power to amend or withdraw an exemptionnotification granted under section 25(1) of the Act, yet the reasons givenDby the revenue for justifying withdrawal of the exemption notificationmust be “relevant” and “sufficient” to the exercise of the power in “publicinterest”. In Kasinka (Supra), this court had observed that:

“[..] Thus, the Union of India has disclosed the circumstancesunder which the exemption was initially granted as well asthe change of circumstances which warranted the withdrawalEof the exemption notification. The reasons given by the Unionof India justifying withdrawal of the exemption notification,in our opinion, are not irrelevant to the exercise of the powerin “public interest”, nor are the same shown to be insufficientto support the exercise of that power. [..]”F13. Learned counsel further submitted that the power of theCentral Government under Section 25(1) of the Act to grant or amendan exemption is not unrestricted and the government is duty bound toexamine the issue in light of public interest. Reliance was placed on thiscourt’s judgment in Indian Express Newspapers (Supra) to contendGthat the power to grant exemption from payment of the customs dutyunder section 25(1) of the Act is not a delegated power to tax but apower expressly conferred under the Act and thus principles ofadministrative law will be applicable.

14. Learned counsel for the assessee also placed reliance on Dai-ichi Karkaria Limited v. Union of India & Ors., (hereafter, “Dai-ichi Karkaria”)[10] and MRF Ltd. v. Commissioner of Sales Tax(hereafter, “MRF Ltd.”)[11] to argue that in the present case, whileamending the First Notification, the government failed to discharge itsburden of establishing before the court as to what ‘public interest’ existedthat necessitated government to reduce the extent of exemption andhow the withdrawal/amendment of the First Notification is in furtheranceof “public interest”. In the present case, the Union failed to justify the“public interest” in confining the concessional rate of duty to rotaryprinting machines of double width four plate variety and not extendingthe same to rotary printing machines of the single width two plate varietydespite both the machines having minimum speed of 70,000 copies perhour. It was further argued that the machined imported by theRespondents was neither manufactured nor sold in India. Further, theargument of the Appellant that the Amended Notification was on accountof representations received from several domestic manufacturers cannotbe accepted as the Imported Machine was purchased from a foreigncountry and the same was neither manufactured nor sold by any of thedomestic manufacturers.

15. Learned counsel also placed reliance on Shrijee SalesCorporation v. Union of India[12]and Bannari Amman Sugars Ltd v.CTO[13 ]to contend that the principle of promissory estoppel is applicableagainst the government and though the government also has the right toresile from its promise but it must give a reasonable opportunity to thepromisee to restore the status quo ante. In the present case, theassessees had paid advances to a French supplier through an irrevocableletter of credit prior to the enactment of the amended notification andthe issuance of the amended notification resulting in the imposition ofenhanced custom duty has rendered it impossible for the assessees torevoke the letter of credit and restore the status quo.

IV

16. Before proceeding with the merits of the parties’ contentions,it would be worthwhile to notice that on 25.03.2004, the Tax ResearchUnit of the Department of Revenue, Union Ministry of Finance had 10 [(2000) 4 SCC 57]

11 (2006) Supp 6 SCR 417

12 [(1997) 3 SCC 398]

13 (2004) Supp 6 SCR 264

AB

C

D

E

F

G

H

Aissued a letter, justifying the withdrawal of tax exemption. The relevantextract of that letter is as follows:

“This amendment was done taking into accountrepresentations from domestic manufacturers of printingmachines seeking reconsideration of the said concession.

The intention was to restrict the concessional customs duty of5% with Nil CVD and Nil SAD only to those high - speed cold- offset printing machines which have no indigenous angle.”

B

The reply, or return filed by the Union before the High Court (inthe form of a supplementary affidavit) inter alia, averred as follows:

“I further say and submit that the power to grant exemptionwas utilized in the instant case for the purpose of regulation,control and promotion in the public interest. It is obvious thatno representation was held out to the public that the firstnotification would be continued indefinitely. The tax researchunit of the respondent authorities considered the relevant factsand market conditions and upon being satisfied that the firstnotification required amendment issued the secondnotification amending the description of the goods in respectof which the exemption was to be prospectively allowed as amatter of fiscal policy. It is submitted that the tax researchunit duly assessed the priorities in the matter of grant ofexemption and accordingly the second notification was issued.Serial No. 267A of notification No.21/2002-Customs wasamended vide Notification No.164/2002-Customs wasamended vide notification no.164/2003- Customs dated 11thNovember, 2003 so as to restrict the benefit of customs dutyconcession available for· specified printing machinery onlyto ‘high speed cold set web offset rotary double width fourplate printing machines with a minimum speed of 70,000 copiesper hour’. This amendment was done as a matter of fiscalpolicy taking into account several representations fromdomestic manufacturers of printing machines seekingreconsideration of the earlier concession. The intention as amatter of policy was to restrict the concessional customs dutyof 5% with nil CVD and Nil SAD only to those high-speedcold offset printing machines which have no indigenous angle.The earlier notification, significantly, did not hold out any,far less any unequivocal promise that it would be continued C

D

E

F

G

H

indefinitely. Hence, the earlier notification was amended afterdue consideration of the fiscal circumstances warranting thechange in description in respect of which the benefit was tobe provided. The alteration was made in the public interestafter assessing the circumstances relating to the particularsof the machinery covered by the earlier and the laternotification.”

17. The Union has sought to rely on an Office Memorandum[14]which virtually reiterates the stand taken in its counter affidavit beforethe High Court; it also states that the Central Government had receivedrepresentations from the Indian Printing and Packaging and AlliedMachinery Manufacturer’s Association (IPPAMMA) for reconsideringthe exemption under the first notification since the domestic industryhad the capacity to produce machines and heat set machines, withcapacity up to 60,000 copies per hour. The representation also requestedthat in view of such indigenous capacity, concessional duty should not begiven to single width two plate wide machines, and should be restrictedto four plate wide double width high speed offset printing machines.

18. The assessee had during the hearing opposed the reliance onthe additional affidavit and, in particular, the office memorandum,contending that these contained reasons given after the decision, andcould not be the basis of justifying the Amended Notification.

19. The reasons given by the Union, in its affidavit were consideredin the impugned order, which rejects the rationale for the amendednotification:

“As said above it is the element of public interest that governsthe field. The ground of withdrawal of concession, namelyseveral representations from domestic manufacturers of theprinting machines prompted recalling the concession does notappear to be tenable because the Indian products have thecapacity nor more than 60,000 copies per hour and did nothave comparable label of automation of the printing qualityas that of the foreign machine imported. It cannot be saidthat withdrawal of the concession was to facilitate theindigenous manufacturers. Indigenous angle therefore wasnot germane to withdrawal of exemption and this being the 14 Dated 30th September, 2010 issued by the Tax Research Unit of the Department ofRevenue, Govt of India A

B

C

D

E

F

G

H

SUPREME COURT REPORTS

Aposition element of public interest which must govern in thecase of grant or withdrawal of the grant is lost. There couldhardly remain any distinction between the two types ofmachines as both were having the same technology. Noreasonable differentiation could be made between the twotypes of machines as both the machines have the same capacityBof production and both were to be imported and were notmanufactured in the country. Therefore, to our mind theHon’ble Trial Judge did not commit any illegality in holdingthat element of public interest could not be perceived inwithdrawal of exemption.”C20. The assessee is, in the opinion of this court, correct in assertingthat every action of the executive government, including exercise of itspower to grant or withdraw tax exemption, should be suffused with publicinterest. In Indian Express Newspapers (Supra), this court, speakingin the context of a customs withdrawal notification [challenged on theDground of violation of the right to freedom of speech under Article 19 (1)(a)] stated that:

“18. In cases where the power vested in the Government is apower which has got to be exercised in the public interest, asit happens to be here, the Court may require the Governmentto exercise that power in a reasonable way in accordanceEwith the spirit of the Constitution. The fact that a notificationissued under Section 25(1) of the Customs Act, 1962 isrequired to be laid before Parliament under Section 159thereof does not make any substantial difference as regardsthe jurisdiction of the Court to pronounce on its validity.”

FThe court later also said that:

FThe court later also said that:

“19. Section 25 of the Customs Act, 1962 under which thenotifications are issued confers a power on the CentralGovernment coupled with a duty to examine the whole issuein the light of the public interest. It provides that if the CentralGGovernment is satisfied that it is necessary in the public interestso to do it may exempt generally either absolutely or subjectto such conditions goods of any description from the wholeor any part of the customs duty leviable thereon. The CentralGovernment may if it is satisfied that in the public interest soto do exempt from the payment of duty by a special order inHeach case under circumstances of an exceptional nature to be stated in such order any goods on which duty is leviable.The power exercisable under Section 25 of the Customs Act,1962 is no doubt discretionary but it is not unrestricted.”

21. The court, however, did not strike down the withdrawalnotification, but recorded that the government failed to consider the impactof the withdrawal, on newspaper publishers, and how that would affectthe exercise of freedom of speech. Therefore, the court required theexecutive to review the matter, after considering all relevant factors. InDai-Ichi Karkaria (supra), a customs notification which reducedexemption from 75% to 25% for a particular period (30-12-1986 to 10-9-1987) was held unjustified because the executive had “not taken intoaccount all the relevant factors while issuing the impugnednotifications reducing the exemption to 25% for the aforesaidperiod” and “failed to discharge its statutory obligation while issuingthe impugned notifications. Justifications offered, to say the least,is far too naive to be accepted.”

22. In Kasinka (supra), the court again described the power underSection 25 of the Act, and the legitimacy of exercise of grant orwithdrawal of exemption and observed that:

“[..] The withdrawal of exemption “in public interest” is amatter of policy and the courts would not bind the Governmentto its policy decisions for all times to come, irrespective of thesatisfaction of the Government that a change in the policywas necessary in the “public interest”. The courts, do notinterfere with the fiscal policy where the Government acts in“public interest” and neither any fraud or lack of bona fidesis alleged much less established. The Government has to beleft free to determine the priorities in the matter of utilisationof finances and to act in the public interest while issuing ormodifying or withdrawing an exemption notification underSection 25(1) of the Act. It needs no emphasis that the powerof exemption under Section 25(1) of the Act has been grantedto the Government by the Legislature with a view to enablingit to regulate, control and promote the industries and industrialproductions in the country. Where the Government on the basisof the material available before it, bona fide, is satisfied thatthe “public interest” would be served by either grantingexemption or by withdrawing, modifying or rescinding an AB

C

D

E

F

G

H

AB

C

D

E

F

G

H

Aexemption already granted, it should be allowed a free handto do so. We are unable to agree with the learned counsel forthe appellants that Notification No. 66 of 1979 could not bewithdrawn before 31-3-1981. First, because the exemptionnotification having been issued under Section 25(1) of theAct, it was implicit in it that it could be rescinded or modifiedBat any time if the public interest so demands and secondly it isnot permissible to postpone the compulsions of “publicinterest” till after 31-3-1981 if the Government is satisfied asto the change in the circumstances before that date. Since,the Government in the instant case was satisfied that the veryCpublic interest which had demanded a total exemption frompayment of customs duty now demanded that the exemptionshould be withdrawn it was free to act in the manner it did. Itwould bear a notice that though Notification No. 66 of 1979was initially valid only up to 31-3-1979 but that datewas extended in “public interest”, we see no reason why itDcould not be curtailed in public interest. Individual interestmust yield in favour of societal interest.”

23. In Bannari Amman Sugars Ltd. (supra), the court held thatthere is no “vested right as to tax-holding is acquired by a personwho is granted concession. If any concession has been given it canEbe withdrawn at any time and no time-limit should be insisted uponbefore it was withdrawn.” This court also held that promissory estoppel“can be invoked only if on the basis of representation made by theGovernment, the industry was established to avail benefit ofexemption.”F

24. The reliance by the assessee, on MRF Ltd (supra), in thiscourt’s opinion, is unfounded. This court held that the denial of exemption,through an amendment, effected retrospectively, was arbitrary andagreed with view taken by Kerela HC in M.M Nagalingam NadarSons v. State of Kerela[15] wherein it was observed that:

G

“[..] Government has also no power to levy a tax withretrospective effect. The retrospective cancellation/withdrawalof an exemption or a reduction in rate tantamounts to levy ofa tax, or tax at a higher rate from a date in the past, for which the Government has no power under sub-section (3).[..]”

25. The decision in Mahabir Vegetable Oils (P) Ltd. v. State ofHaryana[16] is along the same lines as MRF Ltd. (supra), which is thatbenefits once granted, cannot be divested by a retrospective statute ornotification. These decisions, in this court’s opinion stand on a differentfooting, because they primarily concern exercise of statutory power, i.e.withdrawal, in a manner that has an extremely prejudicial or unreasonableimpact, which is retrospective in effect.

26. So far as the question of promissory estoppel is concerned, arecent decision of this court, in Prashanti Medical Services & ResearchFoundation v. Union of India[17] placed the matter in correct perspective,when it observed that:

“26. [..] a plea of promissory estoppel is not available to anassessee against the exercise of legislative power and norany vested right accrues to an assessee in the matter of grantof any tax concession to him. In other words, neither theappellant nor the assessee has any right to set up a plea ofpromissory estoppel against the exercise of legislative powersuch as the one exercised while inserting sub-section (7) inSection 35-AC of the Act (see Motilal Padampat Sugar MillsCo. Ltd. [Motilal Padampat Sugar Mills Co. Ltd. v. State ofU.P., (1979) 2 SCC 409] and other cases relied on by thelearned counsel for the respondent Revenue). It is more sowhen we find that this sub-section was made applicableuniformly to all alike the appellant prospectively.”

27. In the present case, the principal, or rather the sole groundwhich persuaded the High Court, to set aside the Amended Notificationis that withdrawal of the concession could not be said to facilitateindigenous manufacturers. It was also held that “Indigenous angletherefore was not germane to withdrawal of exemption” and therefore,“public interest which must govern in the case of grant orwithdrawal of the grant is lost.” The third ground was that there wasno “distinction between the two types of machines as both werehaving the same technology.”

16 (2006) 2 SCR 117217 (2019) 9 SCR 828

A

B

C

DE

F

G

H

A28. Once it is recognized that it is the executive’s exclusive domain,in fiscal and economic matters to determine the nature of classification,the extent of levy to be imposed, and the factors relevant for eithergranting, refusing or amending exemptions, the role of the court is confinedto decide if its decision is backed by reasons, germane, and not irrelevantto the matter. Judicial scrutiny can also extend to consideration of legality,Band bona fides of the decision. The wisdom or unwisdom, and thesoundness of reasons, or their sufficiency, cannot be proper subjectmatters of judicial review. In the present case, the impugned judgmenthas virtually conducted a merits review of the concerned economicmeasure [Vivek Narayan Sharma (Demonetisation Case-5 J.) v.CUnion of India[18]]:

A

“13.4.[..] That the court may not undertake a foray into themerits, demerits, sufficiency or lack thereof, success inrealising the objectives, etc. of an economic policy, as suchan analysis is the prerogative of the Government inDconsultation with experts in the field.”

29. This court is of the opinion, that the High Court, by the impugnedjudgment, erred in judging the merits of the reasons which led theexecutive government to issue the Amended Notification. No mala fidesor oblique considerations were pleaded or urged; the exercise of powerEwas in line with the provisions of the Act. The indigenous angle, i.e.availability of equipment, cannot be characterized as an irrelevant factoror consideration, since grant of exemption to a class of goods, which aresimilar to those manufactured within the country, and its likely adverseimpact on such manufacturers or producers, is germane and relevant.F30. For the above reasons, it is held that the impugned judgmentcannot be sustained; it is accordingly set aside. The appeal is allowed,without order on costs.

G

Divya Pandey

(Assisted by : Roopanshi Virang, LCRA)

Appeal allowed.

18 2023 (1) SCR 1H