TaxTMI 
TaxTMI 
TaxTMI 
2005 (9) TMI 80
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....1997 the Government of India had announced a separate industrial policy for the North Eastern Region of the country which proposed to stimulate 'synergetic' development of industries in the region by giving a package of incentives which included exemption from excise duties, transport subsidies, capital investment subsidies, interest subsidies and other benefits. 3.Pursuant to this policy, a number of notifications were issued by the concerned Ministries in the Government, the relevant ones for our purpose being the Excise Notifications Nos. 32/99 and 33/99 dated 8th July 1999 by which diverse benefits were given. Briefly stated, under the first notification all excisable goods were exempt from duty under the Act if the goods were produced by new industrial units which commenced their commercial production on or after 24th December 1997 and were located in defined areas specified in the annexure to the notification. The benefit was given for a period of 10 years from the date of publication of the notification or from the date of the commencement of commercial production whichever was later. The second notification exempted goods produced in specified industries located in areas o....
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....2000 forthwith. 7.He found that no unit without a Permanent Registration Certificate (PMT) issued by the Directorate of Industries & Commerce, Government of Assam could "legally" go into commercial production and that the earlier order of refund passed "on the basis of such misinformation & misrepresentation of fact with regard to the date of commercial commencement of production would also be unjust/incorrect and devoid of 'legal sanction'. 8.The pending writ petitions were amended to incorporate a challenge to this order. The writ petitions were allowed by the learned Single Judge on 17th May 2002 who held that the petitioners were entitled to refund of excise duty on the cigarettes manufactured from the date of commercial production till the date the benefit was withdrawn by the Central Government in January 2001. The judgment was affirmed on 4th April 2003 by the Division Bench in the writ appeal filed by the Union of India. The Union of India has challenged the decision before us in the above noted appeals. 9.Immediately after the decision of the Division Bench of the Gauhati High Court, Section 154 of the Finance Act, 2003 was enacted by Parliament. The section reads as fo....
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.... made of all amounts of(4) duty or interest or other charges which have not been collected or, as the case may be, which have been refunded but which would have been collected or, as the case may be, which would have not been refunded if the provisions of this section had been in force at all material times, within a period of thirty days from the day on which the Finance Bill, 2003 receives the assent of the President, and in the event of non-payment of duty or interest or other charges so recoverable, interest at the rate of fifteen per cent per annum shall be payable from the date immediately after the expiry of the said period of thirty days till the date of payment. Explanation. - For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if the notifications referred to in sub-section (1) had not been amended retrospectively by that sub-section." 10.The Ninth Schedule referred to in Section 154(1) insofar as it is relevant seeks to amend Notification No. 32/99, dated 8th July 1999 with effect from 8th July 1999 by excluding cigarettes falling under Chapter 24 of....
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.... where the retrospective legislation is unreasonable it would violate Articles 14 and 19 of the Constitution and would have to be struck down as unconstitutional. It is submitted that a change in policy, which is sought to be given a retrospective effect and which seeks to unsettle settled rights and to deprive people of benefits already enjoyed and causes financial burdens would clearly be unreasonable and arbitrary. The unreasonableness was evident from the 'flip-flop' of the Union of India in issuing notifications granting, then withdrawing, again granting, before finally withdrawing the benefit in respect of cigarettes in the short space of about a year and a half. The final withdrawal of the exemption effected by Section 154 was also followed by the re-grant of exemptions from duties above 8% to tobacco products other than cigarettes. This erratic behaviour was, according to Mr. Salve, the ground on which this Court in Tata Motors v. Maharashtra - (2004) 5 SCC 783 struck down retrospective legislation as arbitrary and unconstitutional. It was further submitted that although promissory estoppel operates only against the executive and not against statute, when the legislature vi....
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....made for the amount refunded and for payment of excise duty for the remaining period. According to Mr. Nariman, the demand which was raised cannot be sustained as it was made without issuing any show cause notice and in contravention of Section 11A of Central Excise Act, 1944. He has relied on the decisions in East India Commercial Co. Ltd. v. The Collector of Customs, Calcutta - 1963 (3) SCR 338 as well as M/s. J.K. Cotton Spinning and Weaving Mills Ltd. v. Union of India - (1987) Supp. SCC 350 para 31, National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India & Ors. - (2003) 5 SCC 23 para 29 in support of the submission. 15.Mr. Dave appearing on behalf of North East Tobacco Company in Transfer Case No. 25 of 2004 has claimed not to be a job worker for any other company. He says that unlike most other units his clients had not left the State of Assam after the denial of exemption of excise duty. While adopting the arguments of Mr. Salve and Mr. Nariman, it is his submission that Section 11A of the Central Excise Act, 1985 was dearly attracted to the case and the non-compliance with the provisions thereof rendered the demand inoperative. This argument....
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....red in 1997 was to give long lasting benefit to the State in the form of increased investments in industries with consequential benefits by way of increased employment opportunities to the local population. The grant of benefits was part of a package deal with the State getting enduring benefits in return for a short term loss of revenue. The operation of the notification did not attain this objective. The manufacture of cigarettes was a controlled industry. The large tobacco companies avoided all the controls by setting up these industrial units and taking undue advantage of the benefits granted by the exemption Notification. There was no delay in Parliament stepping in since it clarified the law immediately after the decision of the Division Bench. The Central Government which was exercising delegated power under Section 5A of the Act could not prevent Parliament from undoing the clear error in the exercise of power by the Central Government in granting the exemption or from correcting its vacillating attitude. Parliament's right to legislate was unimpeded. It was contended that the retrospective levy of excise duty was justified in the circumstances particularly when the liabili....
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....cy to those freedoms which are guaranteed by Part III of the Constitution which are relevant to the subject matter of the law. (pg.30)" 22.A law cannot be held to be unreasonable merely because it operates retrospectively. Indeed even judicial decisions are in a sense retrospective. When a statute is interpreted by a court, the interpretation is, by fiction of law, deemed to be part of the statute from the date of its enactment. The unreasonability must lie in some other additional factors. The retrospective operation of a fiscal statute would have to be found to be unduly oppressive and confiscatory before it can be held to be so unreasonable as to violate constitutional norms. "Where for instance it appears that the taxing statute is plainly discriminatory or provides no procedural machinery for assessment and levy of the tax, or that it is confiscatory, courts would be justified in striking down the impugned statute as unconstitutional. In such cases, the character of the material provisions of the impugned statute is such that the court would feel justified in taking the view that, in substance, the taxing statute is a cloak adopted by the legislature for achieving its confisc....
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....l of them without exception immediately closed down their cigarette manufacturing units and a large majority have shifted out of the State. Clearly if the grant of the exemption had operated as it was intended to, it would have been unnecessary to enact Section 154. 26.The High Court may have been right in construing the exemption notification as it stood. Yet the respondent can contend that that the words should have been used in the exemption so as to provide for sufficient safeguards to ensure that the benefit of exemption was granted only to those industries which would in turn permanently invest in the State. By the retrospective enactment this defective expression of the object of the policy, was rectified. 27.The Exemption Notifications were issued under Section 5A of the Central Excise Act, 1944 as a delegate of Parliament. In a Cabinet form of Government, the Executive is expected to reflect the views of the legislature. It would be impossible for Legislatures to deal in detail and cater to the innumerable problems which may arise in implementing a statute. When the power of subordinate legislation is conferred by Parliament in certain matters it can only lay down the po....
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....n on the petitioners fundamental rights under Article 19(1)(g). In negativing these arguments a Constitution Bench of this Court said :- "What the legislature has purported to do by S. 2 of the impugned Act is to make the intention of the notification clear. Section 2 in substance declares that the intention of the delegate in issuing the notification granting exemption was to confine the benefit of the said exemption only to persons who actually produce gold ornaments or employ artisans for that purpose. We do not see how any question of legislative incompetence can come in the present discussion. And, if the State Government was given the power either to grant or withdraw the exemption, that cannot possibly affect the legislature's competence to make any provision in that behalf either prospectively or retrospectively." 29.Although the length of time is not by itself decisive the effect of the retrospectivity of the legislation in this case is less than two years. The tussle between the excise authorities and the petitioners started almost immediately upon the latter claiming and obtaining refunds of the excise duty paid by them on the manufacture of cigarettes. The refusal of ....
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....ng to the rules in force at the time of their retirement. However the right of the petitioners to the exemption in the present case can at best be described as a precarious one. It is established law that benefits granted by exemptions may be modified or withdrawn. By the notification the accrued liability to pay excise duty is merely suspended. Such an exemption by its very nature is susceptible to being revoked or modified or subjected to other conditions. The Government and a fortiori the Parliament is free to determine the priorities in the matter of utilisation of finances and the courts cannot place an embargo on the Government or on the plenary power of Parliament to withdraw the benefit on the basis of any principle of promissory estoppel. It has been said : "It is necessary that the Legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called 'small repairs'. Moreover, the individual who claims that a vested right has arisen from the defect is seeking a windfall since had the legislature's or administrator's action had the effect it was intended to and could have had, no such right would have arisen. Thus,....
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....r may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice: Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, for the words "six months", the words "five years" were substituted. (2) xxx xxx xxx xxxx (3) For the purposes of this section, - (i) xxx xxx xxx xxx (ii) "relevant date" means : in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levi....
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.... from the account current. (b) The Assistant Commissioner or Deputy Commissioner of Central Excise, as the case may be, after such verification, as may be deemed necessary, shall refund the amount of duty paid from the account current during the month under consideration to the manufacturer by the 15th of the next month. (c) If there is likely to be any delay in the verification, the Assistant Commissioner or Deputy Commissioner of Central Excise, as the case may be, shall refund the amount on provisional basis by the 15th of the next month to the month under consideration, and thereafter may adjust the amount of refund by such amount as may be necessary in the subsequent refunds admissible to the manufacturer. 39.The claim for refund is subject to verification but the refund must be granted even before such verification on a provisional basis. It was for that reason that the learned single Judge had directed the refund by an interim order but allowed the Assistant Commissioner to independently verify the claims. 40.Although Section 11A does not refer to Section 11B, it speaks of duties "erroneo....
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.... Finance Bill, 2003 received the assent of the President. It cannot but be held therefore that the period of six months provided under Section 11A would not apply. 42.On the question of notice prior to the recovery irrespective of Section 11A, it is contended by the petitioners relying on the decision of this Court in East India Commercial Co. Ltd. v. The Collector of Customs - (1963) 3 SCR 338, 361 that whether a statute provides for notice or not, it was incumbent upon the respondents to issue notice to the petitioners disclosing the circumstance under which proceedings are sought to be initiated against them and that any proceedings taken without such notice would be against the principles of natural justice. Assuming that the principle were applicable to the case before us, in fact notices of personal hearing were served on the petitioners by the Assistant Collector for a personal hearing before the Assistant Collector passed the orders by which the petitioners were held liable to repay the refunds made and to pay the excise on the goods cleared for the subsequent periods. The High Court's decision setting aside the orders as being contrary to the Exemption Notification was s....
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....rs. Other units claim to have passed on the benefit of the entire exemption to their customers. 51.All the petitioners however claim that they would be financially crippled if they were called upon to repay the refund of the excise duties or pay the excise duty on the cigarettes manufactured by them. According to them the quantum of excise duties would far exceed their profits from the manufacture of cigarettes. 52.The respondents on the other hand have urged that the petitioners were merely fronts for the large cigarette companies which had misused the notification to avoid the excise duty otherwise payable by them. This was clear from the agreements entered into between them and the various industrial units through which they claimed the benefits. The agreements showed inter alia that the entire set up was financed by the large companies. The arrangement was back to back so that with the withdrawal of the exemption, the units would be closed down. The promptness with which a unit went into commercial production after it was set up in a few days showed that there was no real investment by the petitioners. Many of the units had not even got permanent registration before they wen....