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TMI Blog2012 (7) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... eas other assessees of the same class whose assessment have already been completed would get the benefit. Therefore, discrimination based on two classes, first, whose assessments have become final and secondly, whose assessment are pending, definitely violates Article 14 of the Constitution of India as there is no rationale nexus with the object of the amendment, and, therefore, such classification fails the test of Article 14 of the Constitution, being a case of ‘palpable arbitrariness’. Further, Revenue has failed to discharge that burden by pointing out the reason for making classification based on the above two aspects which have no reasonable connection with the object of amendment. Legislature is not bound by the doctrine of promissory estoppel and thus proposed amendment cannot be struck down on the ground that the same is violative of principles of promissory estoppel although individually an assessee can take the plea of promissory estoppel if the amended provision adversely affects such an assessee. Substantive amendment cannot be made with retrospective operation - Held that:- Present amendment has been made at a point of time when the application of section 80HHC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by amendment of Taxation Laws (Second Amendment) Act, 2005 with retrospective effect is challenged. According to the petitioners, the benefit of deduction under section 80 HHC of the Act was available to them from the Assessment Year 1988-99 to the Assessment Year 2004-05. They claim that they have settled their affairs based on availability of the said benefit up to 31st March 2004 and by the amendment challenged in these writ-applications, the respondents seek to take away the benefit retrospectively after the entire period of benefit is over on 31st March 2004. They contend that the amendment seeks to grant some conditional benefit selectively to certain assessees in January 2006 with retrospective effect for the period from A.Y. 1988-89 to A.Y. 2004-05. The petitioners allege that the impugned portion of the said amendment discriminates between the assessee falling in the same class, which is prohibited by Article 14 of the Constitution of India and at the same time, imposes new pre-conditions retrospectively for being eligible for deduction under section 80 HHC of the Act. The petitioners further contend that the said amendment denies retrospectively the deduction under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onable classification permitted by Article 14 of the Constitution of India. The respondents contend that the classification in terms of quantum of income or quantum of turnover is embedded all through in the Act as can be seen from Section 44AA(2), 44AB and 139(4A). It is further contended by the respondents that the beneficial nature of the impugned amendments made by the Taxation Laws (Amendment) Act, 2005 in section 80 HHC is further clear from the first proviso to section 80 HHC(3) added by the same amendment Act providing for set off of loss worked out under clauses (a), (b) or (c) of section 80 HHC (3) against proportionate amount of ninety per cent of export incentives with effect from 1st April 1992. According to the respondents, it thus becomes clear from the fact that based on the ratio of the Supreme Court decision in the case of IPCA LABORATORIES v/s DCIT reported in 266 ITR 521 (SC) it had been held in several decisions that in case the result of computation under section 80 HHC (3) (a), (b) and (c) is a loss, no deduction was at all admissible with reference to the export incentives under the proviso to section 80 HHC (3) of the Act. According to the respondents, by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted in (2004) 4 SCC 311 : AIR 2004 SC 2371 (2) MALPE VISHWANATH ACHARYA ORS. Vs. STATE OF MAHARASHTRA ANR. reported in 1998 (2) SCC 1 : 1998 SC 602. (3) WELFARE ASSOCIATION A.R.P. reported in (2003) 9 SCC 358 : AIR 2003 SC 1266 5.2. The Amendment is violative of Article 14: On the above aspect, the learned counsel for the petitioners submit that the impugned amendment places two assessees of the same class on different footing and the amendment, in fact, seeks to take away the deduction from one retrospectively and continues to give the benefit to others although both are in the same class. Learned counsel for the petitioners contend that the impugned amendment thus violates Article 14 of the Constitution of India inasmuch as it is unreasonably discriminatory and leads to class legislation, which is not permissible by the Constitution of India. They contend that in the case of some assessees whose export turnover is more than Rs.10 Crore and who have claimed deduction u/s. 80 HHC on DEPB / DFRC in their return of income and the assessments have become final by the Respondents accepting the same cannot be reopened after a period of 6 years (31st March 2005) if no asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the object of the amendment and therefore, fails the test of Article 14. They contend that this leads to discrimination between the assessee placed in the same class by giving them unequal treatment and therefore, would be grossly violative of Article 14 of the Constitution of India and thus, the impugned amendment is ultra vires and bad in law. In support of this contention, they rely upon the decision in the case of S. K. DUTTA, ITO ORS. V/s LAWRENCE SINGH INGTY reported in 68 ITR 272(SC) = AIR 1968 SC 658. 5.3. The amendment in its present form does not entitle a single assessee to claim benefit of incentives under Section 80HHC of the Act. So it makes the section completely unworkable: While interpreting a statutory provision, according to the learned counsel for the petitioners, construction of provisions of the statute, which leads to absurdity, should not be preferred. The learned advocates for the petitioners contend that if the strict and literal construction of the statute is applied, then there is an absurd proposition that no assessee would be in a position to fulfill the twin conditions as laid down by the amendment under challenge. Resultantly, no assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly, the learned advocates for the petitioners submit that it would appear from the history of section 80HHC of the Act that it was given to encourage the exports, and the petitioners, by virtue of the impugned amendment retrospectively cannot be deprived of the incentives / deductions. According to them, such an amendment is against the principle of promissory estoppel. They contend that the assessees have arranged their business affairs in the past when there were no conditions on the statute book, which is now sought to be upturned by making the amendment retrospectively and thus, is contrary to the representation as evident from history of deduction u/s. 80HHC of the Act. They contend that the principle of promissory estoppel applies in all areas of activities of a State including legislative field. In support of such contention, they rely on the following judgments: 1. MOTILAL PADAMPATH SUGAR MILLS LTD. reported in 1979) 2 SCC 409 : AIR 1979 SC 621. 2. STATE OF PUNJAB V. NESTLE INDIA LTD. reported in (2004) 6 SCC 465 : AIR 2004 SC 4559. 3. MAHAVIR VEGETABLES (PVT.) LTD. reported in (2006) 3 SCC 620. 764. UP POWER CORPORATION LTD. reported in (2008) 2 SCC 777 : AIR 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its of business, but since the legislature intended to give deduction under section 80HHC in respect of export incentives it provided for the deduction by way of First to Fourth Proviso appended to sub-section (3) of section 80HHC. The rationale of first excluding the export incentives from the profits of business and then loading it back for calculating deduction under section 80HHC by way of provisos is attributed to the concept that the export incentives are not strictly to be construed as profits of business as the effective source of these incentives are the government schemes. [c]. After the decision of the Supreme Court in the case of TOPMAN EXPORTS reported in 342 ITR 49(SC), upholding the decision of Special Bench reported in TOPMAN EXPORTS vs. INCOME-TAX OFFICER reported in [2009] 318 ITR (AT) 87, it can be safely stated that the issue which now remains is only with regard to excess of realization over the face value of DEPB. [d]. In the case of DEPB, any premium over and above the face value on transfer cannot be stated to be in the nature of export incentives and it would classify under the category of independent income . Thus, any independent income in any ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect both factually as also legally. In the first place, it is pointed out that prior to the impugned amendments, the Income Tax Act 1961 did not at any stage grant benefit of any kind to the exporters in respect of profits derived by them from the transfer/sale of their DEPB entitlements. This, according to the Revenue, is evident from the provisions of the Act as these existed prior to the impugned amendments. 6.6 The Revenue submits that the Ministry of Commerce, with a view to give boost to the exports, does introduce from time to time certain schemes of cash assistance or other direct/indirect incentives under the EXIM Policy of the Govt. However, such incentives do not automatically get the analogous benefit under the direct tax laws. Parliament has to step in to amend the IT Act to provide corresponding benefits under the IT Act. The incentives which were included for benefits under the IT Act prior to the impugned amendments, it is pointed out, were only the following: (a) Profit on sale of license under Imports(Control) order 1955 made under Imports and Exports ( Control) Act of 1947. (Section 28(iiia)) (b) Repayment of customs/excise duty under the Customs and Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght of above, the learned Counsel for the Revenue referred to debate/discussion in the House while moving the Bill and contended that the premium is simply a business profit as the income earned is not in foreign exchange but in Indian rupees and does not arise out of export activity or import activity but arises on trading of license. It is also pointed out that reduction in any event was required to be effected as per Explanation (baa) but only with a view to give benefit, Second to Fourth Provisos were inserted. 6.11 Thus, according to the Revenue, it is factually incorrect to suggest that the petitioners were entitled to benefits of higher deduction of export profits from A.Y. 1998-99. Their claims advanced in the returns of income filed before tax authorities, according to the Revenue, were wholly untenable since those were based on a complete misunderstanding of law that the announcement of the scheme would automatically allow them not only to take credits against payment of import duty but also claim higher deduction under section 80HHC in the event of sale of such entitlements. 6.12 Thus, according to the Revenue, the impugned amendments gave certain benefit/concession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Total turnover is Rs. 2000/-. Say profits from business are now Rs. 300/- which includes turnover based Rs. 200/- and non turnover based Rs. 100/-. In such scenario as per the above formula profits derived from exports"= 300 x 500/2000=75. Thus, according to the Revenue, in this manner just by including non turnover based income in it's income under the head "profits from business" an assessee is artificially able to increase it's claim of deduction. It was to overcome this unintended benefit possible due to inclusion of non-turnover based incomes that, according to the Revenue, the Explanation (baa) was amended in 1992 to provide for exclusion of interest, rent commission and receipts of similar nature AND THUS EVEN AS PER THE SECTION AS IT ORIGINALLY STOOD IN AY 1998 assessees could not have claimed benefit of deduction u/s 80HHC on profit from sale of DEPB because these non turnover based receipts were to be excluded even as per the amendments made in 1992. 6.15 Whenever, the Revenue submits, the Legislature wanted to grant benefit of profit on sale of export incentives which was not within the normal profits of business, properly so called, a specific inclusion was mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r.Rangarajan Committee Report. The impugned amendment, according to the Revenue, grants unconditional benefits to the small and medium exporters (2nd Proviso) having export turnover of less than Rs. 10 Crore and conditional benefits to large exporters having turnover of over Rs. 10 Crore ( 3rd and 4th Proviso). This, the Revenue contends, is based on intelligible and reasonable classification widely recognized in matters relating to Direct Tax laws all over the world. Income tax, according to the Revenue, being a progressive levy is based on income classification in terms of both basis of taxation and the rate of tax. Persons having a certain income/turnover levels form a class by themselves. The impugned amendments, according to the Revenue, are neither unreasonable nor discriminatory nor violative of Article 14 of the Constitution. Exporters may form a broad category of taxpayers but the classification of small and medium exporters and big or large exporters depending upon their turnover levels is a reasonable classification and cannot be held to be discriminatory. 6.19 Classification based on turnover has been held to be valid in the following decisions as pointed out by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ends, the issues raised are merely academic and do not arise out of any real and substantial prejudice to the Petitioners. It is a settled principle, the Revenue submits, that the constitutional validity of an enactment cannot be addressed for academic considerations. 6.22 It is a settled position of law, according to the Revenue, that in taxing statute more laxity is permissible:- (a) AIR 1987 SC 662 [citation seems to be wrong] (b) GOVERNMENT OF ANDHRA PRADESH AND ORS. V. SMT. P. LAXMI DEVI. Reported in AIR 2008 SC 1640 [at Para 68, 69, 76] (c) BHAVESH D. PARISH AND OTHERS V. UNION OF INDIA AND ANOTHER, reported in AIR 2000 SC 2047 6.23 It is a settled position of law, the Revenue contends, that when the Legislature enacts the law it is aware of the ground realities and there is presumption qua constitutionality. [K K BASKARAN v. STATE reported in (2011) 3 SCC 793. 6.24 Thus, the Revenue contends, it is abundantly clear that though profit on DEPB is reduced in (baa) the benefit of deduction is sought to be given under Second to Fourth Provisos , with retrospective effect. It is also necessary to note that the insertion of Second to Fifth provisos were in fact of benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the statutory resolutions moved by Shri P. Chidambaram, which are quoted below: STATUTORY RESOLUTION AND GOVERNMENT BILL Extract from the Combined discussion on the statutory Resolution regarding disapproval of taxation laws (Amendment) Ordinance, 2005 (No.4 of 2005) moved by Prof. Rasa Singh Rawat and consideration of the Taxation Laws (Second Amendment) Bill, 2005, moved by Shri P. Chidambaram (Resolution negatived and Bill Passed) SHRI P. CHIDAMBARAM: Now, I come to the sixth amendment. It is the one dealing with DEPB. This is not in the Ordinance. We did not bring it by way of an Ordinance. We are bringing it by way of a Bill and hon. Members are debating this provision. Now, this is rather a complicated question of law. I would take three or four minutes to explain this in as simple a language as possible. But please try to understand that it is a complicated question of law. You heard an hon. Member, Shri Varkala Radhakrishanan, saying that we should not have these Sections 3 and 4 because exporters do not deserve this benefit. You also heard other Members, like Shri Kashiram Rana saying that Sections 3 and 4 are necessary because exporters deserve the benefits, but we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80-HHC. I am not going into the subsections. Therefore this is not to be counted as exempted export profit. This must be added back as taxable profit. The assessees took a different view. Please remember, the first assessment in respect of this was filed only in the assessment year 1998-99. Some exporters paid; some exporters did not pay. Some exporters paid but disputed. Some assessing officers assessed it as taxable profit. Some assessing officers exempted it as exempted profit. That is bound to happen. When so many assessments take place all over the country, there is bound to be different assessments income tax or sales tax or whatever. Ultimately, one case went up to the Income-tax Appellate Tribunal. The assessing officer took the view that this is not exempted profit; this is taxable profit. The assessee went in appeal. In appeal, the ITAT observed that the case falls under section 28(iv) not under section 28-(iii )(a), (iii)(b) or (iii)(c). It falls under section 28(iv). Then, the Tribunal gave a judgment, which I find as a lawyer difficult to understand. But, with great respect to the Tribunal which is entitled to take a view, the Tribunal gave a judgment that although ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) No penalty by way of interest or penal interest should be levied; and (4) The arrears of tax, if any, may be collected over a period of two years. I have accepted all the four recommendations with the improvement that the arrears, if any, will be collected not over two years but over five years. What more can I do? ... (Interruptions) SHRI SURESH PRABHAKAR PRABHU Is it with penalty or with interest? SHRI P. CHIDAMBARAM: There will be no penalty and no interest. I read it. I am going to collect the basic arrears over five years. Shri Kashiram Rana asked me two questions. One, he asked: What is the basis of Rs.10 crore? The basis of this Rs.10 crore is the Economic Advisory Council's Report. They have gone into the data. They have looked at the frequency distribution of the exporters. They found that out of the 65,000 exporters of course, not all will be covered under the DEPB credit scheme if you keep a limit of Rs.10 crore, 60,000 exporters are out. So, all the small exporters are exempted. I am giving the exemption today. It is not there in the law as we interpret it. But we are now amending the law to give the exemption to about 60,000 exporters according to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submit we have come to a reasonable solution to the problem.. (Interruptions) I have explained. I have to protect the interest of the revenue also. I cannot give up revenues. When there is such large expenditure, such large claims for Sarva Siksha Abhiyan, Mid- Day Meal Scheme ...... 8. It will be also profitable to refer to the provisions contained in sections 28 and section 80 HHC of the Act as it stands now which are quoted below:- Profits and gains of business or profession. 28. The following income shall be chargeable to income-tax under the head Profits and gains of business or profession ,-- [i] the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; [ii] any compensation or other payment due to or received by,-- [a] any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto; [b] any person, by whatever name called, managing the whole of substantially the whole of the affairs in India of any other company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for-- [a] not carrying out any activity in relation to any business; or [b] not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: Provided that sub-clause[a] shall not apply to-- [i] any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head Capital gains ; [ii] any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India. Explanation.-- For the purposes of this clause,-- [i] agreement includes any arrangement or understanding or action in concert,-- [A] whether or not such arrangement, understanding or action is formal or in writing; or [B] whether or not such arrangement, understanding or action is intended to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods. (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), there shall, in accordance with the subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B), derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House. (1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of the profits shall be an amount equal to- [i] eighty per cent thereof for an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1)- (a) where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall,- i. in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and ii. in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that,- (a) he had and option to choose either the duty drawback or the Duty Free Replenishment Certificate, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme. Explanation:- For the purposes of this clause, rate of credit allowable means the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme calculated in the manner as may be notified by the Central Government: Provided also that in the case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent of- (a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or (b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of Section 28, as applicable in the case of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate from the undertaking in the special economic zone containing such particulars as may be prescribed, duly certified by the auditor auditing the accounts of the undertaking in the special economic zone under the provisions of this Act or under any other law for the time being in force. [4A] The deduction under sub-section [1A] shall not be admissible unless the supporting manufacturer furnishes in the prescribed form along with his return of income,-- [a] the report of an accountant, as defined in the Explanation below sub-section [2] of section 288, certifying that this deduction has been correctly claimed on the basis of the profits of the supporting manufacturer in respect of his sale of goods or merchandise to the Export House or Trading House; and [b] a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section; Provided that the certificate specified in clause [b] shall be duly certified by the auditor auditing the accounts of the Expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch profits; and [2] the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India; [bb] Omitted. [c] Export House Certificate or Trading House Certificate means a valid Export House Certificate or Trading House Certificate, as the case may be, issued by the Chief Controller of Imports and Exports, Government of India; [d] supporting manufacturer means a person being an Indian company or a person [other than a company] resident in India, manufacturing [including processing] goods or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export; [e] special economic zone shall have the meaning assigned to it in clause [viii] of the Explanation 2 to section 10A. 9. At the very outset, we propose to refer to the following observations of the Constitutional Bench of the Supreme Court in the case of KUNNATHAT THATHUNNI MOOPIL NAIR V. STATE OF KERALA AND ANOTHER reported in AIR 1961 SC 552 pointing out the scope of investigation by a court while considering the question whether a Taxing Statute is ultra vires the provisions of the Constitution of India: Article 265 imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification, Art. 14 will not be in the way of such a classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incident of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Art. 14, though the Courts are not concerned with the policy underlying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the Court might think more just and equitable. The Act has, therefore, to be examined with reference to the attack based on Art. 14 of the Constitution. Bearing in mind the aforesaid observations, we first propose to consider the first question that arises for determination as to whether the amendment impugned in this application is arbitrary and unreasonable. 10. According to the learned counsel appearing on behalf of the petitioners, the benefit conferred from Assessment Year 1998-99 till Assessment Year 2004-05 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true perspective as under (at p. 2276 of AIR) : "As we said, a large dealer occupies a position of economic superiority by reason of his volume of business and to make the tax heavier on him both absolutely and relatively is not arbitrary discrimination but an attempt to proportion the payment to capacity to pay and thus arrive in the end at a more genuine equality. The capacity of a dealer, in particular circumstances, to pay tax is not an irrelevant factor in fixing the rate of tax and one index of capacity is the quantum of turnover. The argument that while a dealer beyond certain limit is obliged to pay higher tax, when others bear a less tax, and it is consequently discriminatory, really misses the point namely that the former kind of dealers are in a position of economic superiority by reason of their volume of business and form a class by themselves. They cannot be treated as on a par with comparatively small dealers. An attempt to proportion the payment to capacity to pay and thus bring about a real and factual equality cannot be ruled out as irrelevant in levy of tax on the sale or purchase of goods. The object of a tax is not only to raise revenue but also to regulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easure does not necessarily imply its unconstitutionality. It is rightly said that no economic measure has yet been devised which is free from all discriminatory impact and that in such a complex arena in which no perfect alternatives exist, the Court does well not to impose too rigorous a standard of criticism, under the equal protection clause, reviewing fiscal services. In G. K. Krishan v. State of Tamil Nadu (AIR 1975 SC 583) this Court referred to, with approval, the majority view in San Antonio Independent School District v. Rodriguez (1973- 411 US 1) speaking through Justice Stewart : 'No scheme of taxation, whether the tax is imposed on property, income or purchases of goods and services, has yet been devised which is free of all discriminatory impact. In such a complex arena in which no perfect alternatives exist, the Court does well not to impose too rigorous a standard of scrutiny lest all local fiscal schemes become subjects of criticism under the Equal Protection clause' and also to the dissent of Marshall, J. who summed up his conclusion thus : 'In summary, it seems to me inescapably clear that this Court has consistently adjusted the care with which it will revie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, it is clear that the test applicable for striking down a taxing provision on this ground is one of 'palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience'; and the courts should not interfere with the legislative wisdom of making the classification unless the classification is found to be invalid by this test. We, therefore, find no substance in the aforesaid contention of the petitioners as regards the legality of the amendment based on turnover. 12. The next question is whether the impugned amendment is violative of Article 14 of the Constitution of India because it is arbitrary. In this connection, the learned counsel for the petitioners vehemently contended before us that by the impugned amendment, two assessees of the same class are placed on different footing. They contend that in case of some of the assessees whose export turnover is more than Rs.10 Crore and who have claimed deduction u/s. 80 HHC on DEPB / DFRC in their return of income and the assessments have become final by the Respondents accepting the same, are given the benefit of deduction without compliance of the conditions imposed by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iolative of the principles of promissory estoppel and legitimate expectation. 16. According to the learned counsel for the petitioners, the benefit of section 80HHC was given to encourage exports and by virtue of the impugned amendment, they are deprived of the incentive which was promised. According to the learned counsel for the petitioners, the assessees have arranged their business affairs in the past when there were no conditions on the statute book, which is now sought to be upturned by making the amendment retrospectively by imposing new conditions and thus, they contend that the principle of promissory estoppel applies in all areas of activities of a State including the legislative field. 17. After hearing the learned counsel for the parties and after going through the various decisions cited at the Bar, we find that although initially there was some discrepancy about the application of doctrine of promissory estoppel on the legislative field, the law is now settled that there is no estoppel against legislation. (See M/s. Vij Resins Pvt. Ltd. vs. State of J K, reported in AIR 1989 SC 1629). The Supreme Court in the above decision pointed out that that there is no esto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m a future date and not from an earlier point of time. If after inducing a citizen to arrange his business in a manner with a clear stipulation that if the existing statutory conditions are satisfied, in that event, he would get the benefit of taxation and thereafter, the Revenue withdraws such benefit and imposes a new condition which the citizen at that stage is incapable of complying whereas if such promise was not there, the citizen could arrange his affairs in a different way to get similar or at least some benefit, such amendment must be held to be arbitrary and if not, an ingenious artifice opposed to law. In the case before us, the object of the amendment, as it appears from the statements of the Finance Minister while moving the bill, is to get rid of the alleged wrong decision of the Tribunal interpreting the then provision of the Statute in a way beneficial to the assesses, which according to the Finance Minister, was never the intention of the legislature. If such be the position, the Revenue has definitely right to challenge the decision of the Tribunal as a wrong one before the higher forum; but on a plea of delay in disposal of appeal if filed, without challenging th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected to stand under the re-enacted law. Sometimes the legislature gives its own meaning and interpretation of the law under which the tax was collected and by legislative fiat makes the new meaning binding upon Courts. The legislature may follow any one method or all of them and while it does so it may neutralise the effect of the earlier decision of the Court which becomes ineffective after the change of the law. Whichever method is adopted it must be within the competence of the legislature and legal and adequate to attain the object of validation. If the legislature has the power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and make it retrospectively so as to bind even past transactions. The validity of a Validating law, therefore, depends upon whether the legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the Courts had found in the existing law and makes adequate provisions in the validating law for a valid imposition of the tax. 21.1 In the case before us, there is no defect in the original legislation but the Tribunal has in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective effect was found to be valid by the Supreme Court. In that context, the Supreme Court made the following observations: 21. A law 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 unreasonability 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: Where 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 confiscat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 25. The High Court may have been right in construing the exemption notification as it stood. Yet the respondent can contend 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. By the retrospective enactment this defective expression of the object of the policy, was rectified. 26. The exemption notifications were issued under Section 5-A of the Central Excise Act, 1944 as a delegate of Parliament. In a cabinet form of Government, the executive is expected to reflect the views of the legislature. It would be impossible for the 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 guid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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