1995 (3) TMI 101 - HC - Customs

Summary

Issues Involved:

1. Constitutionality and validity of Notification No. 306/86.
2. Entitlement to concessional rate of duty under Notification No. 133/85.
3. Discrimination and arbitrariness of the explanation in Notification No. 306/86.
4. Scope of the Government's power under Section 25 of the Customs Act.
5. Impact of the Tamil Nadu Government's permission to sell excess electricity.

Detailed Analysis:

1. Constitutionality and Validity of Notification No. 306/86:

The petitioner challenged the explanation introduced by Notification No. 306/86 as unconstitutional, ultra vires, and void. The explanation defined "Power Projects" to exclude captive power plants set up by units engaged in activities other than power generation. The petitioner argued that this explanation was arbitrary, discriminatory, and had no nexus with the objects of the exemption notification. The court noted that the explanation seemed to create an invidious discrimination between power projects in general and captive power plants, which was not justified by the original intention of Notification No. 133/85.

2. Entitlement to Concessional Rate of Duty under Notification No. 133/85:

The petitioner sought a mandamus to assess the goods under Tariff 98.01 read with Notification No. 133/85, which provided for a concessional rate of duty for power projects. The court observed that the petitioner had obtained the necessary certificates and approvals, and the subject imports were for a project whose end product was electricity. The court held that the petitioner was entitled to the benefit of Notification No. 133/85, as the intention of the government was to encourage private generation of power, irrespective of whether the power was used for captive consumption or distributed to others.

3. Discrimination and Arbitrariness of the Explanation in Notification No. 306/86:

The court examined whether the explanation introduced by Notification No. 306/86 created an unreasonable classification between power projects generating power alone and captive power plants. The court found that both types of projects produce electricity and help the State Electricity Boards by reducing their burden. The distinction made by the explanation was deemed artificial and arbitrary, as it did not have any real and substantial relation to the object sought to be achieved by the exemption notification. The court concluded that the explanation resulted in invidious discrimination and was therefore invalid.

4. Scope of the Government's Power under Section 25 of the Customs Act:

The petitioner argued that Section 25 of the Customs Act did not empower the government to issue a notification like 306/86. The court referred to the Supreme Court's judgment in I.E. Newspapers (Bombay) P. Ltd. v. Union of India, which held that subordinate legislation, including notifications under Section 25, could be questioned on grounds of arbitrariness and lack of nexus with the public interest. The court held that while the government has the power to grant, withdraw, or modify exemptions, such actions must be reasonable and justifiable. In this case, the explanation in Notification No. 306/86 did not meet these criteria.

5. Impact of the Tamil Nadu Government's Permission to Sell Excess Electricity:

The petitioner contended that since the Tamil Nadu Government had permitted the sale of excess electricity produced by the petitioner, the power plant should not be deemed a captive power plant. The court noted that the mere fact of selling excess power did not change the primary purpose of the power plant, which was to meet the petitioner's own power requirements. However, this fact supported the argument that the petitioner's power project should not be excluded from the benefit of the exemption notification, as it contributed to the overall power generation in the state.

Conclusion:

The court allowed the writ petitions, quashing the later part of Notification No. 306/86. The court held that the petitioner was entitled to the concessional rate of duty under Notification No. 133/85 and ordered the refund of the excess duty paid. The court found that the explanation in Notification No. 306/86 was arbitrary, discriminatory, and lacked a reasonable nexus with the object of the exemption notification.