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TMI Blog2005 (9) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... thdrawn the exemptions. The consequences of the withdrawal have been statutorily provided for including the recovery of the excise duties refunded or not paid. The effective period of such imposition is about eight months. The State has been deprived of revenue without any corresponding benefit. It may be that the retrospective operation may operate harshly in some cases, but that would not by itself invalidate the demand. - T.C.(CIVIL) 27 OF 2004 - - - Dated:- 19-9-2005 - Ruma Pal and Tarun Chatterjee, JJ. [Judgment per : Ruma Pal, J.]. - The dispute in these matters arises out of an exemption which had been granted by the Central Government to new industries by Notification No. 32/99-C.E., dated 8th July 1999 issued under Section 5A of the Central Excise Act, 1944 (referred to hereafter as 'the Act'). The parties in the various proceedings which are being disposed of by this judgment, represent industries manufacturing cigarettes on the one hand (whom we will refer to as "the petitioners") and the Union of India and the excise authorities on the other (who are described as "the respondents"). Almost all the petitioners are job workers for large tobacco companies. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty by the respondents to the petitioners. Although the exemption was finally withdrawn in respect of cigarettes by Notification No. 1/2001, dated 22nd January 2001, the respondents' prayer for vacating the interim order was rejected by the High Court by its order dated 8-2-2001. While extending the time for the respondents to comply with the interim order, the High Court directed that in verifying the claims for refund, the State Government could not interfere with the exercise of powers of the excise authorities but made it clear that : "This is not to say that the concerned Assistant Commissioner or the Deputy Commissioner of Central Excise Department cannot take into account any material furnished by the State Govt. authorities in deciding as to whether exemption is due to a manufacturer claiming refund under the said Notification. He may consider such material but the judgment will be that of the Assistant Commissioner or the Deputy Commissioner of Central Excise Department on the question as to whether the amount claimed by the manufacturer under the said Notification is entitled to exemption and refund under the Notification". 6.Relying on these observations separate or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action taken or anything done or purported to have been taken or done under the said notifications, shall be deemed to be and always to have been, for all purposes, as validly and effectively taken or done as if the notifications as amended by this sub-section had been in force at all material times. For the purposes of sub-section (1), the(2) Central Government shall have and shall be deemed to have the power to amend the notifications referred to in the said sub-section with retrospective effect as if the Central Government had the power to amend the said notifications under sub-section (1) of Section 5A of the Central Excise Act read with sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of Section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), retrospectively at all material times. No suit or other proceedings shall be(3) maintained or continued in any court, tribunal or other authority for any action taken or anything done or omitted to be done, in respect of any goods under the said notifications, and no enforcement shall be made by any cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trospective operation of Section 154 is rejected by us, any decision on the Union of India's appeals from the judgment of the High Court would necessarily be rendered infructuous. The petitioners challenge to Section 154, therefore, is considered at the outset. 13.Mr. Harish N. Salve appeared for M/s. R.C. Tobacco Pvt Ltd. (referred to briefly as 'RCT') in Transfer Case No. 27 of 2004. RCT manufacturers cigarettes as a job worker under an agreement with M/s. Godfrey Philips India Ltd. Mr. Salve said that there was no dispute that RCT was a new industrial unit within the meaning of Notification No. 32 of 1999. It was also submitted that the exemption was granted without any condition attached except that the unit must be a new unit and must be located in one of the growth centres etc. It is said that the High Court had correctly held that RCT fulfilled all the pre-requisites for grant of the refund. It is said that the inclusion of tobacco as an exempted industry was not by accident. In fact, when the exemption was withdrawn in December 2000, it was consciously re-introduced in January 2001. Mr. Salve conceded the legislative competence of Parliament to enact laws that have retros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Government and the Notification No. 32 of 1999 were concerned. This was the concurrent finding of both the courts below. It is said that the Union of India had full knowledge of the circumstances under which his client set up the industrial unit and gave the industry the benefit of the notification after being satisfied that all pre-requisites under the notification had been fulfilled. As far as the retrospective denial of the exemption is concerned, it is said that it stands on a different footing from a validating act. The former amounted to an imposition of tax for the first time whereas the latter merely rectified a defect in the statute by which the assessee was, from the outset, intended to be made liable. Reliance has been placed on the observations of Beg, C.J. in Madan Mohan Pathak v. Union of India - 1978 (3) SCR 334 at 344 as well as the dissenting view of A.N. Sen, J. in Lohia Machines Ltd. v. Union of India - (1985) 2 SCC 197. It is submitted that in the present case the retrospectivity was harsh and excessive since there is in fact a retrospective imposition of excise duty. It is contended that the justification for such retrospective imposition of a tax must be o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive imposition of excise duty after three years was unreasonable as has been held in Chairman, Railway Board Ors. v. C.R. Rangadhamaiah and Ors. - (1997) 6 SCC 623 at 638. The policy of granting such exemption was the outcome of experts opinion and after the exemption was reintroduced in respect of cigarettes in January, 2000, it was extended to four other North Eastern States namely Meghalaya, Mizoram, Nagaland and Manipur before its final withdrawal in January 2001. 17.Similarly, the A.S.S Cigarette Company which was a job worker under an agreement with Godfrey Phillips India has stated in TC No. 26 of 2004 that their Unit was set up by local industrialists and that they had deposited the excise duty after borrowing and since the withdrawal of the exemption in 2001 they had been manufacturing non-tobacco products. 18.New Tobacco Company in TC No. 36 of 2004 has claimed that it is not a job worker and in fact the unit still continues to operate in Assam but has stopped the manufacture of cigarettes. 19.ABN Company in TP© No. 151 of 2004 has said that it has closed down the manufacture of cigarettes after the withdrawal of the exemption. 20.Mr. A.K. Ganguly has appeared o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iking down the Section as unreasonable. In the majority of cases the units had not passed on the benefits granted by the exemption to their customers and had on the other hand realized the duty from their customers. 21.The competence of Parliament and State legislatures to repeal, amend or supersede an exemption notification is unquestionable. The power to do so retrospectively cannot be and is also not doubted. The limitation on this power is that the legislation must not conflict with other provisions of the Constitution. As far as fiscal legislation is concerned, the limitation is implicit in Article 265 of the Constitution which provides that no tax shall be levied or collected except by authority of law. As was held by this Court in Chhotabhai Jethabhai Patel and Co. v. The Union of India and Anr: "If by reason of Art. 265 every tax has to be imposed by "law" it would appear to follow that it could only be imposed by a law which is valid by conformity to the criteria laid down in the relevant Articles of the Constitution. These are that the law should be (1) within the legislative competence of the legislature being covered by the legislative entries in Schedule VII of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Nevertheless, while we cannot for that reason analyse the justification, we may at least consider the plea as setting out the background in which the Section was passed. 25.The particular context of the section impugned in this case was the industrial policy formulated by the Central and the State Government of Assam for the development of that State. The obvious intention behind the grant of the package of incentives including an exemption from payment of excise duties was to stimulate further industrial growth in the area with enduring benefits not only to the local populace by way of employment opportunities but also to the economic welfare of the State. The State Government's insistence from the very outset on the need to regulate the industries which were claiming the benefit of the exemption was to ensure that these objects were attained. According to the Union of India the exemption notification, at least as interpreted by the High Court, did not effectuate that intent. As it transpired none of the industrial units manufacturing cigarettes were prepared to contribute to this object and their investment in the manufacture of cigarettes was co-extensive with the period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed returns claiming exemption from sales tax. Up to June, 1952 the claims for exemption were allowed by the Department. Subsequently, the assessments were reopened on the ground that the exemption had been wrongly granted. The matter ultimately came up before the High Court. The High Court allowed the petitioners' claim for exemption under the notification in question holding that the expression "manufacturer" meant the first owner of the finished products for whom the ornaments were made either by his pre-paid employee or even by independent artisans on receipt of the raw materials and labour charges from him. On 1st August, 1961 the Orissa Sales Tax Validation Act, 1961 was passed. It provided that notwithstanding anything contained in any judgment, decree or order of any Court, the word "manufacturer" meant and was always to be deemed to have meant a person who by his own labour produces the ornaments or a person, who owns or runs manufactories for that purpose. The petitioners did not fall within this definition of manufacturer. They accordingly challenged the 1961 Act on three grounds; (1) that since the exemption had been granted by the State Government, it was not open to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Krishna v. State of Bihar - AIR 1963 SC 1667, 1675 para 18). 30.The pendency of the proceedings before the Courts meant that there was a possibility of an outcome adverse to the petitioners however strong the petitioners may have considered their case to be. If this Court had reversed the view of the High Court, the petitioners would have had to bear the burden of the excise duty for the period they had manufactured the cigarettes. It could not have been predicted with any certainty that the appeals of the Union of India would fail. By enacting Section 154, Parliament has forestalled a decision by this Court and in effect taken away the basis for the decisions of the High Court. In the circumstances, it could not be said that the financial burden was unforeseen or unforeseeable. 31.In Chairman Railway Board v. C.R. Rangadhamaiah (supra) the impugned notifications had sought to curtail pensionary rights with retrospective effect. The notifications were held to be unconstitutional on the grounds that when the pension had been granted to the employees, Articles 31(1) and 19(1)(f) were available, both of which were violated by such retrospective operation. It was also held that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Bombay Sales Tax Rules, 1959 allowed benefit of set-off in respect of all waste goods or scrap goods or bye-products. This benefit was sought to be taken away by Section 26 of the Maharashtra Tax Laws (Levy Amendment and Repeal) Act, 1989 which amended Rule 41E. The validity of such retrospective amendment to Rule 41E was challenged. It was contended that as a result of the amendment the assessee was deprived of the benefit for a period 8 years after which the benefit was reintroduced by another amendment of Rule 41E in 1992. This Court held that in absence of any material as to why the benefit under Rule 41E had been denied for a particular period, Section 26 of the 1989 Amendment Act deserved to be quashed. The Court found in favour of the assessee because there was no reason whatsoever forthcoming for the withdrawal of the benefit retrospectively for a limited period. 33The. decision is distinguishable. In this case, the reasons for the retrospective enactment of Section 154 have been given and as we have also said, those reasons are at least factually plausible. 34.The next challenge of the petitioners is based on Section 11A of the Act, the relevant extracts of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondents the refunds granted under the notifications dated 8th July, 1999 were not the "normal" refunds made under the Act but were of a special kind for which the complete machinery was provided under the Notifications. The submission is that since the exemption notifications themselves had been withdrawn by Section 154, the amounts refunded thereunder were recoverable independently of Section 11A under Section 154(4). 37.There are two aspects to this dispute. The first is the question of limitation and the second the question of notice. As far as the first aspect is concerned refund of duty under the Act has been provided for by Section 11B. The Section specifies the manner and circumstances under which refunds of duty may be made. It is neither of the parties' case that the refund made to the petitioners of the excise duty paid by them was under this Section. 38.In the present case Paragraph 2 of the Notification 32/99 prescribed for the method for giving effect to the exemption. It provided : (a) The manufacturer shall submit a statement of the duty paid from the said account current to the Assistant Commissioner of Central Excise or Deputy Commissioner of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is whether the benefit granted in 1999 could be withdrawn in 2003. Besides the Court in J.K. Cotton Spinning Weaving Mills Ltd.'s case rejected the contention of the Union of India that Section 51 of 1982 Finance Act by which the amendments were made to Rules 9 and 49 overrode the provisions of Section 11A saying 'if the intention of the legislature was to nullify the effect of Section 11A…., the legislature would have specifically provided for the same'. Similarly our decision in National Agricultural Cooperative Marketing Federation of India Ltd. v. Union of India - (2003) 5 SCC 23 which dealt with an amendment to Section 80P(2)(a)(iii) of the Income-tax Act, 1961 noted that 'the amendment does not seek to touch on the periods of limitation provided in the Act, and in the absence of such express provision or clear implication, the legislature clearly could not be taken to intend that the amending provisions authorizes the Income-tax Officer to commence proceedings which before the new Act came into force, had, by the expiry of the period provided become barred". In the present case Section 154(4) specifically and expressly allows amounts to be recovered within a period of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation." 47.Third "another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc." (ibid). 48.The final question is that of the relief to be granted. 49.The petitioners can be broadly classified into three groups : (A) Job workers for large cigarette companies which have closed down the units with the withdrawal of the exemption and left the State of Assam. (B) Job workers for large cigarette companies which have closed down their cigarette manufacturing units but started new business in other products. (C) Industrial units which have set up their own units and have reinvested their earnings in their businesses in the State after closing down the manufacture of cigarettes. 50.Some units have admittedly not passed on the excise duty benefits to their customers. On the other hand the large cigarette companies have recovered the excise duty from the customers. Other units claim to have passed on the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion State of Rajasthan v. J.K. Udaipur Udyog Ltd. - (2004) 7 SCC 673, 692]. 55.Furthermore having upheld the constitutional validity of Section 154 it would be a pyrrhic victory for the Union of India if they could not in fact recover the tax. It is not a case where the legislation has merely withdrawn the exemptions. The consequences of the withdrawal have been statutorily provided for including the recovery of the excise duties refunded or not paid. The effective period of such imposition is about eight months. The State has been deprived of revenue without any corresponding benefit. It may be that the retrospective operation may operate harshly in some cases, but that would not by itself invalidate the demand. [See: Epari Chinna Krishna Moorthy v. State of Orissa (supra)] It needs to be emphasized that in effect the retrospective operation extended over a very short period and principles of equity must give way to express statutory provision. As was said in Story on Equity (3rd Eng. Ed. 1920) p. 34 :- "Where a rule, either of the common or the statute law, is direct, and governs the case with all its circumstances, or the particular point, a court of equity is as much bound ..... X X X X Extracts X X X X X X X X Extracts X X X X
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