When Does A Customs Notification Come into Force? (A time to Revisit Section 25 (4))

When Does A Customs Notification Come into Force?

(A time to Revisit Section 25 (4))

 “The time has come for Parliament to enact some new legislation- say, Prevention of Cruelty to Taxpayers Act- which should override all fiscal legislation.”  — Nani A Palkhivala [1]

Introduction:

Certainty and predictability are fundamental to tax jurisprudence. A taxpayer must know their exact tax liability with certainty at the relevant time. This basic principle has been under serious strain as apparent from litigation under Section 25 of the Customs Act, 1962. Though Section 25 empowers the Central Government to grant exemption from duty, it also plays the paramount role in determining the “effective rate” of duty, as the delegated power under Section 25(1) of notifying an exemption in the public interest also includes the inherent power to withdraw it in the public interest. This article examines the timing of enforcement of notifications under Section 25(1) or Section 25(2A) in relation to Section 25(4) of the Customs Act.   

Relevant Statutory Framework of Section 25 of the Customs Act

• Section 25 (1) empowers the Central Government to grant an exemption from customs duty by notification in the Official Gazette, in public interest.
• Section 25 (2A) empowers the Central Government to issue a notification clarifying the scope of a notification under Sub- Section 25 (1).
• Section 25 (4) (post 14.05.2016) states that every notification issued under sub-section (1) or sub-section (2A) shall, unless otherwise provided, come into force on the date of its issuance by the Central Government for publication in the Official Gazette.

Before its amendment vide Finance Act, 2016, Section 25 (4) stated as:

'(4) Every notification issued under sub-section (1) or sub-section (2A) shall, -

(a) unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette;

(b) also be published and offered for sale on the date of its issue by the Directorate of Publicity and Public Relations of the Board, New Delhi.'

 In the amended Section 25 (4), the requirement of mandatory publication on the date of issuance under clause 4 (b) was removed.

The combined effect of these provisions is that, after 14.05.2016, the date of issuance of the notification is deemed to be the date of its enforcement.

Legal Controversy

The controversy arose when the customs authorities sought to apply the enhanced rates of duty based on notifications that were signed or “issued” earlier, but were published in the e-gazette later. This led to the customs authorities demanding duty for the interregnum period. The core question that arises is whether a tax notification can be enforced against an assessee before it is published and made available to the public. When only the Government is privy to the contents of the notification, can such a notification adversely affect the economic rights of the public?

Judicial Response: Undeviating and Consistent Rejection of Section 25 (4)

       The provisions of Section 25 (4) have come under judicial scrutiny in various High Courts. The Andhra Pradesh High Court, in a landmark ruling in the case of M/s Ruchi Soya Industries Ltd. Versus UNION OF INDIA - 2019 (9) TMI 1374 - Andhra Pradesh High Court held inter alia as under:

• …the decision of Government should be predictable and the citizen should know where he is, giving effect on the date of its issue of notification before its publication, such notification is not known to any citizen as to the rate of duty on imported goods, amendment of sub-section (4) of Section 25 of the Act is not only arbitrary exercise of power by Central Government, but also created friction and contradiction between two sub-sections of same section.
•  Section 25(4) of the Customs Act is declared as arbitrary and contrary to Section 25(1) and (2A) of the Customs Act, 1962.

Thus, one can see that the publication in the Official Gazette is not a mere procedural formality, but a substantive requirement. A notification cannot be said to be “law” unless it is published and accessible to the public.

The reasoning was affirmed by the Gujarat High Court in RUCHI SOYA INDUSTRIES LTD THROUGH AUTHORIZED REPRESENTATIVE Versus UNION OF INDIA & 2 OTHERS - 2020 (9) TMI 422 - GUJARAT HIGH COURT  [2], ADANI WILMAR LIMITED Versus UNION OF INDIA - 2022 (11) TMI 764 - GUJARAT HIGH COURT and  in M/s. Ruchi Soya Industries Limited Versus Union of India, Commissioner of Customs (Imports), Chennai, Deputy Commissioner of Customs (Group 7H), Chennai - 2020 (7) TMI 429 - MADRAS HIGH COURT [3].

Now, Karnataka High Court in its recent order in M/s. Patanjali Foods Limited (Formely M/s. Ruchi Soya Industries Ltd.), Represented By Its Authorised Signatory Sri. T. Gajendra Versus Union of India, Commissioner of Customs, Mangalore And Deputy Commissioner of Customs, Mangalore - 2026 (1) TMI 176 - KARNATAKA HIGH COURT has re-affirmedthe above reasoning.  TheHigh Court, apart from the cases of Ruchi Soya Industries line of cases, also placed relianceon jurisprudential foundations laid by Apex Court:

• HARLA Versus STATE OF RAJASTHAN - 1951 (9) TMI 37 - Supreme Court,
• BK. SRINIVASAN Versus STATE OF KARNATAKA - 1987 (1) TMI 483 - Supreme Court
• Union of India & Others Versus M/s Param Industries Ltd. & Others - 2015 (6) TMI 732 - Supreme Court
• Union of India & Others Versus M/s GS Chatha Rice Mills & Another - 2020 (9) TMI 903 - Supreme Court

The High Courts has also placed reliance on the decision of the Delhi High Court in the case of M.D. Overseas Ltd., Kundan Care Products Ltd., Mink Tradecom Pvt. Ltd., Versus Union of India & Ors. - 2019 (11) TMI 130 - DELHI HIGH COURT  in which the Hon’ble High Court examined the issue in the context of electronic publication of the Notifications. The court, relying on Section 8 of the Information and Technology Act, 2000, held that the date and time of official electronic Gazette alone will determine the enforceability, not the date mentioned in the Notification (the Court held that aspect of whether they were, or were not, uploaded on the website of the DGFT on 25th August, 2017, is immaterial).

We can see that a consistent view of the constitutional courts, culminating in the recent decision in the case of Patanjali Foods Ltd., has rejected the provisions of Section 25(4). These decisions reaffirm that:

• Law must be  known before it can bind
• Taxation without notice is arbitrary and antithetical to the rule of law.
• Notifications cannot be enforced sans publication.

Conclusion:

The constitutional courts in India have consistently rejected the present incarnation of Section 25 (4), which seeks to enforce notifications before their publication. A definition of the term “Notification” has been inserted under Section 2 (30AA) vide Finance Act, 2018, which defines notification as a notification published in the Official Gazette. However, the friction inherent in Section 25 (4) remains.  The provisions of Sections 2 (30AA), 25 (1),25 (2A), and 25 (4) of the Customs Act, 1962, need to be realigned, and these also need to be reconciled with judicial pronouncements. 

[1] Shah, J. R. (Ed. or Comp.). (2015). The wit and wisdom of Nani A. Palkhivala. 

[2] Notice issued: Union of India Versus Ruchi Soya Industries Ltd. - 2021 (8) TMI 1447 - SC Order

[3] Notice issued: Union of India Versus Ruchi Soya Industries Limited - 2021 (8) TMI 1448 - SC Order.

In fact, several cases on the matter are tagged with SLP (C) 6645/2021, which is pending as per the website of the Apex Court.