1992 (7) TMI 90 - HC - Central Excise

Summary

Issues Involved:
1. Validity of Notification No. 223 of 1987 amending Small Scale Exemption Notification No. 175 of 1986.
2. Whether the withdrawal of exemption for manufacturers using another company's brand name is arbitrary and discriminatory.
3. The rationale behind the classification of manufacturers in Notification No. 223 of 1987.
4. The discretion of the government in granting tax exemptions and concessions.

Detailed Analysis:

Issue 1: Validity of Notification No. 223 of 1987 amending Small Scale Exemption Notification No. 175 of 1986.

The petitioners challenged the validity of Notification No. 223 of 1987, which amended Notification No. 175 of 1986 by adding paragraph 7. The amendment stipulated that the exemption would not apply to goods affixed with a brand name or trade name of another person who is not eligible for the exemption. The petitioners contended that they are a small-scale manufacturer and should be entitled to the exemption benefits originally provided by Notification No. 175 of 1986.

Issue 2: Whether the withdrawal of exemption for manufacturers using another company's brand name is arbitrary and discriminatory.

The petitioners argued that the withdrawal of the exemption was arbitrary and discriminatory, as it penalized small-scale units using a brand name or trade name of another company not eligible for the exemption. They claimed that the amendment unfairly targeted small-scale manufacturers like themselves, who had no substantial relationship with the larger company beyond a manufacturing agreement.

Issue 3: The rationale behind the classification of manufacturers in Notification No. 223 of 1987.

The court analyzed Notification No. 175 of 1986, which provided exemptions based on the aggregate value of clearances. The amendment introduced by Notification No. 223 of 1987 aimed to prevent larger companies from benefiting indirectly by using smaller units to manufacture goods under their brand names. The court found that the classification was rational and aimed at ensuring that the benefit of the exemption was reserved for genuine small-scale manufacturers, not for larger companies circumventing the rules.

Issue 4: The discretion of the government in granting tax exemptions and concessions.

The court emphasized that the government has wide latitude in deciding economic and social policies, including tax exemptions and concessions. It cited precedents where the Supreme Court upheld the government's discretion in such matters, stating that the objective of protecting smaller units from competition by larger ones justified the classification. The court noted that the amendment sought to prevent larger companies from fragmenting into smaller units to exploit the concessional rates of duty.

Conclusion:

The court concluded that the classification made by Notification No. 223 of 1987 was reasonable and had a clear nexus with the objective of protecting small-scale manufacturers. The amendment was not arbitrary or discriminatory, as it aimed to prevent larger companies from indirectly benefiting from the exemptions intended for small-scale units. The petition was rejected, and the rule was discharged with no order as to costs. Ad interim relief was vacated.