TaxTMI 
TaxTMI 
1978 (12) TMI 50
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.... to be fixed in a specified number. 3. A base period had to be determined and a base clearance had to be ascertained under the scheme. The grant of 25 percent rebate or exemption or concession in the payment of excise duty in the subsequent years was to be made on the quantum of clearance in excess of the base clearance. Duty at the full rate was payable on the quantity cleared till the base clearance was reached. The quantity in excess thereof was to be cleared by a manufactureron payment of 75 per cent of the applicable rate of excise duty. 4. The scheme provided that the base period and clearances, in relation to a factory, shall be determined as under:- "After comparing the clearances of specified goods under sub-paragraph (1) the base period and clearances, in relation to a factory, shall be determined as under :- (a) Where the specified goods were or are cleared from a factory for the first time on or after the 1st day of April 1976, the base period shall be the year 1975-76 and the base clearances shall be nil; (b) Where the specified goods were cleared from a factory for the first time on or after the 1st day of April, 1973 but not later than the 31st day of ....
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....entitled for exemption. "The base clearances once determined will not be changed during the currency of this scheme." Such was the condition of the scheme. The scheme was for a limited period. It came into force on 1st July, 1976 and will remain in operation till 31st March, 1979. 6. The purpose and object of the scheme was "to encourage higher production" and to make "all out efforts to boost production in farms and factories." The press note issued by the Government of India said : "Government hopes that as a result of this scheme production in vital sectors will go up which in turn should stipulate overall production of essential items in the country." Now five industrial units are engaged in the manufacturer of polyester fibre. They are : 1. Indian Organic Chemicals Ltd., Tamilnadu (IOC), petitioner in this case, 2. Ahmedabad Manufacturing and Calico Printing Co. Ltd., Ahmedabad (Calico), 3. J.K. Synthetics Ltd. (J.K.), 4. Swadeshi polytex Ltd., Ghaziabad (Swadeshi), and 5. Chemicals and Fibres of India Ltd., Bombay (CAFI). 7. On 27th June, 1978 IOC filed a petition under Article 226 of the Constitution against the sole respondent Union of India. Cali....
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.... manufactuers in three classes is not based on any reasonable or intelligible differential and is wholly unrelated to the object sought to be achieved. The objection to the scheme is that "the benefit of the notification has gone only to one or two manufacturers and has threatened the other manufacturers with loss and/or closure of business." 11. It is to be noted that none of the respondents supports the IOC. Neither the Union of India nor the other four manufacturers in the field support IOC. In fact all of them oppose the petition. IOC therefore stands almost alone its attack on the scheme. 12. The scheme has been in operation from 9th September, 1976. All the five manufacturers have benefited from the scheme. IOC has got a duty relief of Rs. 34.4 lakhs in the years 1976-77 and 1977-78. Similarly CAFI got a duty relief of Rs. 171 lakhs. Swadeshi got a relief of Rs. 190.16 Calico got a relief of Rs. 581.45 lakhs. J.K. got relief of Rs. 228.30 lakhs. IOC's main grievance is that while Calico got the phenomenal benefit of Rs. 581.45 lakhs it was able to reap only a benefit of Rs. 34.4 lakhs. On this ground the scheme has been attacked and it is said that it is discriminatory,....
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....of Karnataka and others v. D.P. Sharma and others, 1975 (1) S.C.C. 391 and State of Gujarat v. Ambica Mills Ltd., 1974 (4) S.C.C. 656.] 15. While it is true that a taxation law cannot claim immunity from the equality clause in Article 14 of the Constitution, and has to pass like any other law the equality test of that article, it must be remembered that the State has, in view of the intrinsic complexity of fiscal adjustments of diverse elements, a considerably wide discretion in the matter of classification for taxation and economic matters. [See Income Tax Officer & Others v. R. Takin Roy Rymbai - 1976 (1) S.C.C. 916 (922)]. The Central Government is the best judge to take policy decisions and to decide what excisable goods should be exempted from the whole or any part of the duty leviable on such goods on what conditions. In State of Gujrat v. Shri Ambica Mills Ltd. — (1976) 4 S.C.C. 656 (678) Mathew J. speaking for the Court said : "In the utilities, tax and economic regulation cases, there are good reasons for judicial self restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only t....
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....argument that rationality of a classification may depend upon 'local conditions' about which local legislative of administrative body would be better informed than a court consequently lacking the capacity to inform itself fully about the peculiarities of a particular local situation, a court should hesitate to dub the legislative classification irrational [See Carmichael v. Southern Coal & Coke Co. - (1936) 301 U.S. 495] Tax laws for example, may respond closely to local needs and the court's familiarity with these needs is likely to be limited. Therefore the court must be aware of its own remoteness and lack of familiarity with the local problems. Classification is dependent on peculiar needs "and specific difficulties of the community. The needs and the difficulties of a community are constituted out of facts and information beyond the easy ken of the court." G.L. Krishnan v. State of Tamil Nadu. - AIR 1975 SC 583 (593). The crucial date is April 1, 1976 on which the scheme is based. The choice of a date as a basis for classification cannot always be dubbed as arbitrary even if no particular reason is forthcoming for the choice unless it is shown to be capricious or whimsi....
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....had incurred losses in the past. Some had made profits. Some could go straight into production. Some had teething troubles. No one tag could fit all of them. They had differing needs. 18. The traditional test under the equal protection clause has been whether a State has made an "invidious discrimination" as it does when it selects "a particular race or nationality for oppressive treatment." "Universal equality is not the test, there is room for weighting." Nor need the classification be perfect. "The prohibition of the equal protection clause goes no further than the invidious discrimination." [See Baker v. Carr - 369 U.S. 186 (1962) per Douglas J]. 19. No one unit has been singled out for different treatment or hostile discrimination. In deciding where to draw the line any rule is artificial and to some extent arbitrary. One scheme may benefit one unit and another some others. No rule can do perfect justice in every case. The scheme has not been framed with a view to favour any particular industry or unit. Some may benefit more, some less. Some Industries are older in the field and are stabilised. Is it any real injustice to expect them to take the rough with the smooth of ....
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....emned on the mere ground that it benefits some and does not benefit all in the same degree. A classification for a permissible end is not to be condemned because it operates to the disadvantage of the IOC. Unless the line which the notification draws is so wide of the mark as palpably to have no reasonable relation to the legitimate end, it is not for the judicial power reject it and say that another must be substituted. The exemption does not merit condemnation because IOC has not gained the benefits of the scheme to the same extent as Calico has done under its shelter. The IOC invited the Government to broaden the sweep of the scheme so as to include polyester staple fibre. If things have not turned out to its advantage the scheme cannot be condemned. 23. A balanced executive view has favoured this scheme. A crucial decision was taken in the light of all the consequences involved. The repercussions on balance have been found to be acceptable. On these questions the executive and representative commercial interests are entitled to express their views. 24. Limits of Judicial Review. This type of issue is unsuitable for decision by the judiciary. It is the sort of case where, ....
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....flation and depression be controlled? Is there too much, or too little, governmental intervention in economic affairs? What can be done to eliminate poverty and unemployment and otherwise assure economic opportunity for all? In regulating production have too many concessions been made to private enterprise? What measures will boost production? Should foreign imports be allowed? Will the excise duty relief encourage higher pro- duction? Where does national interest lie? In a word, what is for the welfare of the people? These are facts of economic life which provoke endless discussion. Fiscal considerations are paramount. Questions of fiscal policy are acute. How to use fiscal powers to ensure economic growth, control inflation and avoid depressions? To flourish profitably, industry needs the right industrial climate, room to breathe, space to develop and incentive to grow. Will excise relief promote industrial growth? Will it help in reaching the goal of a vibrant and forward-looking economy? 28. Fiscal data are dull and difficult to comprehend. The number of taxes are legion. Benefits and costs are not easily indentified and evaluated. Fiscal policies reflect the differing va....
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....pact. In the choice of ultimate values lawyers and judges will be found scattered right across the broad ideological spectrum much like other people (except perhaps for their more pronounced conservative bias). It is not easy for a judge to find his way through the economic and industrial thickets. In this situation, as in others of like nature, appeal for relief does not belong here. It lies to the legislature or its delegate. I confess to knowing myself to be entirely unqualified to judge what repercussions will a scheme have upon production and the economic life of the country. 31. It is true that one of the functions of law in society is tn give a gyroscopic stability to the ship of the State as the weather shifts and the seas mount. But judicial review has its limitations. Judges are not angels with fleshing words ready to strike evil wherever they find it. Faulted and criticised this scheme may be but we must always remember that the legislature has the affirmative responsibilities. "The courts have only the power to destroy, not to construct" [State of Gujrat v. Ambica Mills Ltd. (1974) 4 SCC 656 (678) per Mathew J.]. The most authoritative treatise on judicial review in ....
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....552 (557-558). 34. The courts cannot strike down the scheme because it has not made the classification which commends to the court as proper. The scheme is a policy decision of the Government dependent on pragmatic wisdom playing on imponderable forces at work. The scheme is innovative and experimental. It addresses itself to one single question: how to promote industrial growth ? No one Claims that it is a model scheme. No one suggests that it is perfectly logical. It may be a grand success, it may be a dismal failure. Experience will show. "The question is a practical one, dependent on experience," as Justice Holmes said. Law itself is reason codified by experience. The framers of the scheme will learn much from practical experience. We must heed to the advice of John Dickinson which he gave to Philadelphia Convention of 1787 commissioned to frame the American Constitution. He said: "Experience must be our only guide. Reason may mislead us." 35. A large latitude is allowed to the legislature in economic matters and taxation for classification upon any reasonable basis, and what is reasonable is a question of practical details into which academic speculation cannot enter. It....
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....practice. In an otherwise obscure opinion of 1938, Justice Stone appended the new famous footnote, suggesting that for legislation regulating the economy, judicial hands-off would henceforth be the rule, but in the orbit of civil rights of the court's responsibility was less confined Government action restricting or taking away fundamental rights would require "more exacting judicial scrutiny" for the judiciary has the duty of implementing the constitutional safeguards that protect individual rights. [United States v. Carolene Products Co. - 304 U.S. 144 : 1938. The court in the field of fundamental human rights has positive responsibility [State of Gujarat v. Shri Ambica Mills Ltd. - (1974) 4 SCC 656 (677)]. 39. Judicial restraint has taught us judicial humility. It came as a warning against judicial aggrandizement which, during the New Delhi Legislation of Franklin D. Rossevelt, had been carried to such length that the U.S. Supreme Court had come to think of itself as "the only agency of Government that must be assumed to have the power to govern." But judicial self-restraint does not mean the court is paralysed. "It simply conserves its strength to strike more telling blows i....
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....d sounded a note of warning. He had said : "Great Constitutional provisions must be administered with caution. Some play must be allowed for the joints of the machine, and it must be remembered that legislatures are ultimate guardians of the liberties and welfare of the people in quite as great a degree as the courts.'' [Missourie K & T Rly Co. v. May 48 Law. Ed. 971 (1903)] Summary 42. To sum up. The decision dealing with economic regulation indicate that in this context courts adopt the philosophy of restraint in order to give plenty of leeway to the legislature. When taxation or regulation of economic activity is all that is involved, a State has wide discretion in assessing the problems to be dealt with and in deciding what classifications are reasonable. Unless it is Palpably arbitrary a classification is likely to be upheld, and in any state of facts which would sustain the classification's rationality can be reasonably conceived, its existence must be assumed. Indeed a permissive approach which does not require every classification to be drawn with mathematical nicety seems a practical necessity if the process of legislation is not to be hopelessly stymied. A dev....
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....robation'', "encouragement acquiescence" which are merely examples, applications, corollaries or off-shoots of that great Central doctrine of equitable estoppel in their widest comprehension and truest sense are being pressed against IOC. IOC made a declaration in the prescribed form. On its request the scheme was extended to it. It got a benefit of Rs. 34.4 lakhs in the first year. Having taken advantage of the scheme IOC is precluded from challenging it. A party cannot approbate and reprobate. IOC joined in the application made by the association to the Government for extending the benefit of the scheme to the polyester industry. But then it is said that it is a question of infringement of fundamental rights. Basing himself on Basheshwar Nath v. Commissioner of Income Tax - AIR 1959 SC 149, Counsel for the IOC contended that as he has made out a case of an illegal contravention of his fundamental right, the plea of waiver cannot be raised against his claim. In my opinion, it is not so much a question of waiver as of discretion. Should the court exercise discretion in favour of a party who after a deep study of the scheme, its consequences and repercussions, requested the Go....
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.... and one ground for refusing relief under Article 226 is that the petitioner has filed the petition after delay for which there is no satisfactory explanation. It is also true that the writ will not be granted if there is such negligence or omission on the part of the applicant to assert his right as, taken in conjunction with the lapse of time and other circumstances, causes prejudice to the adverse party (See Durga Prasad v. The Chief Controller of imports and Exports and others - AIR 1970 S.C. 769). 51. The scheme was extended to IOC on 9th September, 1976. The present petition was brought on 27th June, 1978. The scheme is to last only till 31st March, 1979. 26 months have already run out. A few months remain. Jha Committee has denounced the scheme. The Government has also gained experience from its working. Will it be a proper exercise of discretion to declare the scheme as void ? In the deliberate exercise of my discretion I would be well advised to let things remain as they are and let the scheme run its full course. Suppression of Facts : 52. The respondents contended that the petitioner is guilty of suppression of facts. Nowhere in the petition has it been disclose....