TaxTMI 
TaxTMI 
2010 (1) TMI 1279
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.... briefly stated. Sometime in the month of May, 2007, the petitioner filed an application with respondent 4 in the name of his proprietary concern, M/s. Kunal Vintners, for the purpose of obtaining a wholesale licence under the Bombay Prohibition Act, 1949 known as "FL-I" for distribution of wines and liquor in the State of Maharashtra. The same was granted to the petitioner on 10/6/2008 being FL-I Licence No. 113. 4. On or about 8/7/1948, the Government of India became a signatory and subsequently ratified trading agreements with various countries known as the "General Agreement on Tariffs and Trade" (for short, "GATT"). The organization overseeing the multilateral trading system was then known as "GATT, 1947" and the signatory countries to the said Agreements were officially known as "GATT contracting parties". 5. Sometimes in the year 1994, certain amendments, popularly known as the "Dunkel Proposals" were made to GATT, 1947 and fresh agreements were entered into by the Governments of 128 countries around the world, including the Government of India, which agreements incorporated the revised and updated GATT, 1947. 6. On 1/1/1995, the World Trade Organization (for short ....
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....business of the petitioner. The case of the petitioner is that the impugned Notifications are in gross violation of the Union of India's trade agreements with 153 countries around the world and particularly the principle of "National Treatment" and "Agreement On Subsidies And Countervailing Measures" and also the specific direction of the year 2007 of the Union of India to the State of Maharashtra to levy duties, taxes and fees, etc. on imported spirits and wines at rates not exceeding the rates of such duties, taxes, fees, etc. levied on similar domestically produced wines and liquor. According to the petitioner, these Notifications are ultra vires, unconstitutional, arbitrary, unreasonable and unjust and are violative of Article 253, 14 and 19(1)(g) of the Constitution of India ("for short, "the Constitution"). 10. To understand the challenge raised by the petitioner, it is necessary to see what are the implications of the said Notifications as perceived by the petitioner. By impugned Notification No. BWR.1105/CR-9/EXC-3 dated 31/3/2006, respondent 2 remitted the whole of excise duty leviable under the Bombay Prohibition Act, 1949 (for short, "the said Act") in respect of ....
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....ving MRP of less than Rs. 900/-. 16. It is the petitioner's case that he has expended a huge amount on the business of import and distribution of foreign wines for the year 2008-2009, the petitioner has deposited Rs. 4,40,000/- as wholesale licence fees. The petitioner has deposited an amount of Rs. 2,50,000/- as authorization fees for the year 2008-2009. On 18/6/2008, the petitioner has paid an amount of Rs. 2,50,000/- as fees for authorization to remove imported liquor from Custom frontier. For the year 2008-2009, the petitioner has paid Rs. 1,05,000/- towards label registration charges and an amount of Rs. 79,212/- towards supervision fees. While, the petitioner's wines are subject to heavy taxes in the form of 'Special Fees', 'Authorization Fees', 'Label Registration Fees' etc., local wines are completely exempted from excise duty. The petitioner is, therefore, running heavy losses. According to the petitioner, due to the impugned discriminatory Notifications, the petitioner is not able to clear the wines from Custom Bonded Warehouses causing tremendous financial loss to him. 17. It is pointed out by the petitioner that the countries belong....
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....phasized that the principle of "National Treatment" has to be observed while imposing any levy on the imported wines and spirits and that the States are free to levy duties, taxes and fees, etc. on imported spirits at the rate not exceeding the rates of such duties, taxes, fees, etc. levied on domestic liquor. 20. In the circumstances, the petitioner has, inter alia, prayed that the impugned Notifications be quashed and set aside; that a writ of mandamus be issued against respondents 2, 3 and 4 restraining them from acting in furtherance and in pursuance of the impugned Notifications and that a writ of mandamus be issued against respondents 2, 3 and 4 directing them to refund to the petitioner the amounts recovered/and which are being recovered from the petitioner in pursuance of the impugned Notifications. 21. We have heard Mr. Kotwal, learned Counsel appearing of the petitioner, Mr. Khambatta, learned Additional Solicitor General for respondent 1 - Union of India and Ms. Bhende, learned A.G.P. for the State of Maharashtra. Written submissions have been filed by the petitioner, respondent 1 and the State of Maharashtra. 22. The basic submission canvassed by Mr. Kotwal, le....
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....gal v. Kesoram Industries Limited and Ors., (2004) 10 SCC 201 and a judgment of this Court in P.B. Samant and Ors. v. The Union of India and Anr. 1994 (4) Bom. C.R. 491. 24. Mr. Khambatta further submitted that the issue as regards the said Notifications/Rules is the subject matter of the consultations between the Union of India and European Union pursuant to the consultation request dated 25/9/2008 made by the European Union and circulated by the WTO. The bilateral consultations which are underway are under the "Understanding on Rules and Procedures Governing the Settlement of Disputes" (for short, "the Dispute Settlement Understanding" or "DSU"). He submitted that any alleged violation of GATT can be brought by a country which is a contracting party before the Dispute Settlement Body of the WTO. Learned ASG submitted that any consideration of these issues by this Court will affect the national position which will have to be taken by the Union of India (representing the State of Maharashtra and other States of India) both in these consultations as well as (assuming any complaint is filed) before the Dispute Settlement Understanding. Mr. Khambatta submitted that the issues raise....
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....to the contrary. Mr. Kotwal also relied on the judgment of this Court in Manuel Theodore D'Souza's case, 2000 (2) BCR 244, where this Court has reiterated the above principles. 28. We shall first deal with the preliminary objection raised by Mr. Khambatta, learned ASG. To appreciate the submissions of Mr. Khambatta, it is necessary to have a look at the relevant Constitutional provisions. 29. Chapter I of Part XI of the Constitution is captioned as "Relations Between the Union and the States". Article 245 of the Constitution, inter alia, states that subject to the provisions of the Constitution, the Parliament may make laws for the whole or any part of the territory of India and the legislature of a State may make laws for the whole or any part of the State. Article 246 refers to the subject matter of laws made by the Parliament and by the legislatures of the States. Clause (1) thereof states that notwithstanding anything in Clauses (2) and (3), the Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (Union List). Clause (2) states that notwithstanding anything in Clause (3), Parliament and, subje....
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....the petitioner, the State of Maharashtra could not have issued any Notifications which violate any of the stipulations of the said treaties. We, therefore, need to examine whether the said treaties have a force of law. Validity of the petitioner's argument needs to be examined against the backdrop of the above mentioned constitutional provisions. Fortunately for us, law in this behalf is well settled by the Supreme Court in Maganbhai's case to which our attention is drawn by Mr. Khambatta, learned ASG and, therefore, it is not necessary for us to conduct the exercise of interpretation of the relevant Articles. 32. In Maganbhai Patel's case (supra), the Constitution Bench was concerned with the question whether the Award dated 19/2/1968 of the Indo-Pakistan Western Boundary Case Tribunal may be implemented by a constitutional amendment and not otherwise. It was the case of the appellant before the Constitution Bench that the Award may be implemented only by an amendment modifying the relevant provisions in Schedule I to the Constitution, because in giving effect to the Award of the Tribunal, cession of the Indian Territory is involved, and the executive is incompetent....
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....he obligations of a Treaty which involve alteration of law they have to run the risk of obtaining the assent of Parliament to the necessary statute or statutes. The Judicial Committee further observed that Parliament, no doubt, has a constitutional control over the executive, but it cannot be disputed that the creation of the obligations undertaken in treaties and the assent to their form and quality are the function of the executive alone. Once they are created, while they bind the State as against the other contracting parties, Parliament may refuse to perform them and so leave the State in default. The Constitution Bench observed that the above observations are valid in the context of our constitutional set up. The Constitution Bench further observed as under: By Article 73, subject to the provisions of the Constitution, the executive power of the Union extends to the matters with respect to which the Parliament has power to make laws. Our Constitution makes no provision making legislation a condition of the entry into an international treaty in times either of war or peace. The executive power of the Union is vested in the President and is exercisable in accordance wit....
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....to international treaties/agreements / conventions under Article 73 (read with Entries 10 & 14 of List I of the VII Schedule to the Constitution of India) the power to legislate in respect of such treaties / agreements / conventions, lies with Parliament. It is open to Parliament to refuse to perform such treaties / agreements / conventions. In such a case, while the treaties / agreements / conventions will bind the Union of India as against the other contracting parties, Parliament may refuse to perform them and leave the Union of India in default. (iii) Though the applications under such treaties / agreements / conventions are binding upon the Union of India (referred to as "the State" in Maganbhai's case) these treaties / agreements / conventions "are not by their own force binding upon Indian nationals". (vi) The making of law by Parliament in respect of such treaties / agreements / conventions is necessary when the treaty or agreement restricts or affects the rights of citizens or others or modifies the law of India. (v) If the rights of citizens or others are not affected or the laws of India are not modified then no legislative measure is neede....
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....pen for Parliament to pass a law which deals with matters which are in the State List. The court observed that in case Parliament is entitled to pass laws in respect of matters which are in State List, it is difficult to appreciate how it can be held that the Central Government is not entitled to enter into treaty or agreement which affects the matters included in the State List. The Central Government was, therefore, well within its powers to enter into treaties with foreign countries in respect of matters included in the State List. In our opinion, Kesoram Industries' case and P.B. Samant's case do not help the petitioner. On the contrary, they lend support to the case of respondent 1. 38. It was urged by Mr. Kotwal, learned Counsel for the petitioner that the State cannot bring a Notification or an amendment of rules which violates its obligation to fulfill an international agreement to which India is a signatory. Reliance was placed by Mr. Kotwal on the Supreme Court's judgment in Government of Maharashtra and Ors. v. Deokar's Distillery 2003 (5) SCC 669. In that case, the respondents were holding a licence for manufacture of Indian made foreign liquor. All t....
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.... Act provided that such agreements / treaties could be availed of to the benefit of the assessee. As rightly contended by Mr. Khambatta, learned ASG, Section 90 of the Income Tax Act is an example of law made by Parliament under Article 253 of the Constitution. The only issue which the Supreme Court was considering was whether a citizen of a third State was also entitled to the benefits of the Indo-US treaty on avoidance of double taxation. Reliance placed on this judgment is, therefore, misplaced. 40. The upshot of the above discussion is that the Central Government has in exercise of its executive powers under Article 73 of the Constitution read with Entries 10 and 14 of List I of the VIIth Schedule entered into international treaties with which we are concerned here. The stipulations of the said treaties duly ratified by the Central Government do not by virtue of the treaties alone have the force of law. They are not by their own force binding upon Indian nationals. When the treaty or agreement restricts or affects the rights of citizens or others or modifies the law of India, it is necessary for Parliament to make a law in respect thereof under Article 253 of the Constitutio....
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....r Part C State or part thereafter, but does not include any Act of Parliament of the United Kingdom or any Order in Council, rule or other instrument made under such Act. Therefore, the argument that the impugned Notifications do not constitute municipal or domestic law of India must be rejected. 45. We shall now see what would be the effect of a conflict between a domestic law and international treaty. Mr. Kotwal has relied on Peoples Union for Civil Liberties v. Union of India (2005) 2 SCC 436, where the Supreme Court has held that there is a prima facie presumption that Parliament did not intend to act in breach of international law, including State treaty obligations. In Kesoram's case, the Supreme Court has held that a court is required to interpret domestic / municipal laws in conformity with the provisions of international treaties / agreements / conventions unless the provisions of municipal / domestic laws are intractable or in conflict with the international treaties / agreements / conventions. International conventions and norms may also be applied under the Indian law "in the absence of enacted domestic law occupying the field" i.e. where "there is a voi....
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.... be accommodated in the Municipal Law even without express legislative sanction provided they do not run into conflict with Acts of Parliament. But when they do run into such conflict, the sovereignty and the integrity of the Republic and the Supremacy of the constituted legislatures in making the laws may not be subjected to external rules except to the extent legitimately accepted by the constituted legislatures themselves. The doctrine of incorporation also recognizes the position that the rules of international law are incorporated into national law and considered to be part of the national law, unless they are in conflict with an Act of Parliament. Comity of nations or no Municipal Law must prevail in case of conflict. Similar view has been taken by the Supreme Court in Kuldip Nayar v. Union of India and Ors. AIR 2006 SC 3127. In Manuel Theodore's case, which is cited by Mr. Kotwal, a Division Bench of this Court has reiterated the same principles. 48. Therefore, assuming the argument of Mr. Kotwal that the impugned Notifications are in conflict with the international treaties is valid, the impugned Notifications must prevail over the international treaties. ....
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.... dispute about the propositions of law laid down in these judgments. But if Parliament has not made any law in respect of an international treaty under Article 253, delegated legislation cannot be struck down on the ground that it is contrary to a provision of an international treaty. In such a situation delegated legislation cannot be made subject to an international treaty. 51. It was submitted on behalf of the petitioner that the impugned Notifications are contrary to Article 51 of the Constitution of India and are, therefore, liable to be struck down. The Directive Principles of State Policy are not enforceable. Language of Article 51 itself makes it clear that it is only upto the State to endeavour to abide by the provisions of international treaties and agreements. This submission is, therefore, rejected. 52. It was urged by Mr. Kotwal that the impugned Notifications are in breach of a policy decision of the Government of India and, therefore, suffer from the vice of arbitrariness. In this connection, Mr. Kotwal relied on the following paragraph from Secretary, Ministry of Chemicals & Fertilizers, Government of India v. Cipla Limited and Ors. (2003) 7 SCC 1.....
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....icy document. In any case, even if it is assumed that the GATT reflects the policy decision of the Government of India, Cipla Limited (supra) does not help the petitioner. Cipla Limited (supra) speaks of a situation where the Central Government combines the dual role of a policy maker and the delegate of legislative power and states that in such a situation, the Central Government cannot at its sweet will and pleasure give go-by to the policy guidelines evolved by itself. Thus, it is only when the same entity makes the policy and then acts contrary to it whilst making delegated legislation that the delegated legislation can be challenged as ex facie contradictory and, therefore, "manifestly arbitrary". This principle cannot apply when the maker of the policy is alleged to be the Union of India and the maker of the delegated legislation is a different entity i.e. the State of Maharashtra. This argument of Mr. Kotwal must, therefore, be rejected. 54. It is now necessary to deal with the argument of Mr. Kotwal, learned Counsel for the petitioner that the impugned Notifications are arbitrary and discriminatory and do not provide for any valid classification between the domestic and ....
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....at the State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law operates unequally and that cannot be justified on the basis of any valid classification, that it would be violative of Article 14. The following statement of the law in Willis on "Constitutional Law" page 587, would correctly represent the position with reference to taxing statutes under our Constitution:-"A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably .... The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation. 56. In C.F. Khandige Sham Bhatt v. Agricultural Income Tax Officer AIR 1963 SC 591, the Supreme Court has clarified that in view of the inherent complexity of fiscal adjustment of diverse elements in case of taxing statutes, a larger discretion has to be permitted to the legislature for classification so long as there is no transgr....
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.... in the sense of treating dissimilar things similarly of vice versa, the court may treat the tax as suspect and scrutinise its vires more closely. In the present case, intoxicating liquids falling in the well known category of foreign liquors form one class and a flat minimal rate of Re. 1/- per bottle has no constitutional stigma of inequality. It is so easy to conceive of innumerable taxes imposed in this manner in the daily governance of the country that illustrations are unnecessary. As excisable article go, foreign liquor is a distinct category and absence of micro-classification within the broad genus does not attract the argument of inequality. Likewise, picking and choosing within limits is inevitable in taxation. 58. Mr. Kotwal submitted that in this case, the issue involved was about differential rates of taxation between 'Indian Made Foreign Liquor' popularly known as IMFL consisting of whisky, brandy, gin, etc. vis-a-vis traditionally produced local wines e.g. Mahuwa, Toddy, Arrack, etc. He submitted that the words 'Foreign liquor' used there, are not to be confused with 'Imported liquor'. Assuming Mr. Kotwal is right in so submitting that doe....
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....that inasmuch as the Parliament has not enacted any law for implementation of the GATT, the impugned Notifications cannot be struck down on the ground that they are violative of Article 253 of the Constitution. Therefore, assuming A. Venugopal pertains to petitions filed prior to the GATT that hardly has any relevance to the present case. The question is of classification of wines as 'imported wines' and 'domestic wines'. On that issue, observations of the Madras High Court in A. Venugopal would certainly be material. 61. In Soni India Limited's case, the Madras High Court was concerned with the question whether the classification of imported goods and fixing of higher rate of taxes on imported goods as against the domestic goods was violative of Article 14 of the Constitution. The Madras High Court observed that the imported goods once cleared from customs, get mingled with other goods but they do not loose their identity as foreign goods. The Madras High Court further observed that Article 14 of the Constitution forbids class legislation, but it does not forbid reasonable classification. Before the Madras High Court, reliance was placed on the GATT and it w....