Article 14 challenge to excise exemption proviso succeeds where unequal duty treatment lacked rational basis.

The proviso to Notification No. 193/81-C.E., and later similar provisos, was found to create an arbitrary and discriminatory classification among manufacturers of aluminium goods. By denying exemption to finished products unless the raw material had suffered duty under the same notification, it made identically situated manufacturers pay different effective duties despite the operation of proforma credit under Rule 56A of the Central Excise Rules, 1944. The classification lacked a rational basis and was not justified by any demonstrated policy objective, including hoarding control. The proviso was therefore unconstitutional and void for violating Article 14 of the Constitution of India.

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Issues: Whether the proviso to Notification No. 193/81-C.E. and the similar provisos in the later notifications were unconstitutional as creating an arbitrary and discriminatory classification among manufacturers, contrary to Article 14 of the Constitution of India.

Analysis: The exemption scheme granted concessional duty on aluminium in crude form and on certain finished products, but the impugned proviso denied the exemption on finished goods unless the raw material had suffered duty at the rate specified in the same notification. This created two classes of manufacturers: those who had obtained raw material under the new lower-duty regime and those who held older stock on which higher duty had already been paid. Since proforma credit under Rule 56A of the Central Excise Rules, 1944 operates by deducting duty already borne by the raw material from the duty on the finished product, the proviso made identically situated manufacturers pay different effective duties on the same finished goods without any rational basis. The classification was not justified by any demonstrated policy objective, including hoarding control, which was not the real basis adopted by the Government.

Conclusion: The proviso was unconstitutional and void as violative of Article 14 of the Constitution of India; the later similar provisos also failed for the same reason.

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