IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.J.CHELAMESWAR & THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON THURSDAY, THE 21ST OCTOBER 2010 / 29TH ASWINA 1932 W.P.(C).No. 32857 of 2009(B) -------------------------- PETITIONERS: --------------- 1. ZION INDUSTRIES, ZION HILL, KUZHIMATTAM P.O., KOTTAYAM, REPRESENTED BY ITS PARTNER. 2. ZION VENEER INDUSTRIES, ZION HILL, KUZHIMATTAM P.O., KOTTAYAM. BY ADV. SRI.BECHU KURIAN THOMAS RESPONDENTS --------------- 1. UNION OF INDIA, REPRESENTED BY SECRETARY, MINISTRY OF COMMERCE, UDYOGBHAVAN, NEW DELHI. 2. DIRECTOR GENERAL OF FOREIGN TRADE, C/O.THE DIRECTOR GENERAL OF FOREIGN TRADE, UDYOGBHAVAN, NEW DELHI. 3. THE RUBBER BOARD, KEEZHEEKKUNNU, KOTTAYAM. R1 AND R2 BY ADV. SRI.T.P.M.IBRAHIM KHAN, ASST.SOLICITOR GENERAL. R3 BY SRI.JOSEPH KODIANTHARA AND ADV. SRI.TENY V.JAMES THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 21/10/2010, ALONG WITH W.A. NO. 1883 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 32857 of 2009(B) APPENDIX PETITIONERS' EXHIBITS: EXT.P1 : TRUE COPY OF THE CERTIFICATE OF IMPORTER- EXPORTER CODE ISSUED BY MINISTRY OF COMMERCE, GOVERNMENT OF INDIA TO 1st PETITIONER. EXT.P21(a) : TRUE COPY OF THE CERTIFICATE ON IMPORTER- EXPORTER CODE ISSUED BY MINISTRY OF COMMERCE , GOVERNMENT OF INDIA TO 2nd PETITIONER. EXT.P2 : TRUE COPY OF THE NOTIFICATION ISSUED BY THE 1st RESPONDENT DATED 07.12.2001. RESPONDENTS' EXHIBITS: EXT.R3(a) : TRUE COPY OF LETTER DATED 17.06.2010 OF THE 1st PETITIONER . EXT.R3(b) : TRUE COPY OF LETTER DATED 12.07.2010 OF THE 2nd PETITIONER. /TRUE COPY/ P.S. TO JUDGE. J. CHELAMESWAR, CJ & P.R. RAMACHANDRA MENON, J. .............................................................................. W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 ......................................................................... Dated this the 21st October, 2010 J U D G M E N T J. Chelameswar, CJ. This Writ Appeal is filed by the Union of India and others, who are the respondents in W.P.(C)No. 592 of 2004, whereas in W.P.(C)No. 32857 of 2009, the Union of India and others are respondents. Since the questions raised in the Writ Petition is identical to the questions raised in the W.A.1883 of 2009, the Writ Petition was referred to the Division Bench to be heard along with the Writ Appeal No.1883 of 2009. 2. The first respondent in W.A.No.1883 of 2009 is a Public Limited Company engaged in the manufacture of heat resistant Latex Rubber threads. the Writ Petition was filed with the following prayers. “i) issue a writ in the nature of declaration declaring that petitioner is also entitled to the benefit of zero paise cess for the rubber products exported as stated in Ext.P1 issued under Section 12 of the Rubber Act, W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 2 Or ii) issue a writ of certiorari or other appropriate writ order or direction quashing Ext. P1 in so far as it confers benefit of zero paise cess for rubber procured for export production by the Export Oriented Units (EOU's) or industries situated in Special Economic Zones (SEZ), units in Export Processing Zone (EPZ's); iii) issue a writ in the nature of a declaration declaring that no person is entitled to an exemption from payment of cess. iv) issue such other appropriate writ, order or direction that may be deemed to be just and equitable in the facts and circumstances of the case. “ 3. The factual background of the case is as follows: It was thought expedient by the Legislature to establish a Board/Body to make appropriate measures for the rubber development in the Country. Accordingly, an enactment called, Rubber Act came to be made. Under Section '4' of the said Act, the Board is constituted with various functions as specified under section '8' of the Act. Section 8 authorises the Board to undertake, assist or encourage scientific, technological and W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 3 economic research, to train the students in improved methods of planning, cultivation, manuring and spraying and also to improve the marketing of the rubber business. Under Section '9' of the Act, the above mentioned Board is required to maintain two funds, known as a General Fund and a Pool Fund . Under Section 9A and 9B, the purposes of the said funds are also specified. Under Section 12 of the Act, levy of cess is authorised . Section 12(1) reads as follows: “(1) With effect from such date as the Central Government may, by notification in the Official Gazette appoint, there shall be levied as a cess for the purposes of this Act, a duty of excise on all rubber produced in India at such rate, not exceeding two rupees per kilogram of rubber so produced, as the Central Government may fix.” 4. It is stipulated further in sub-section (2) of Section 12 that the duty of excise levied under sub-section(1) shall be collected by the Board in accordance with the rules made in that behalf, either from the owner of the estate on which the rubber is produced or from the manufacturer by whom such rubber is used. W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 4 5. Further details of other sub-sections of Section 12 are not necessary having regard to the nature of the dispute in this Writ Petition, except sub-section (7), which reads as follows; “(7) The proceeds of the duty of excise collected under this section reduced by the cost of collection as determined by the Central Government shall first be credited to the Consolidated Fund of India, and then be paid by the Central Government to the Board for being utilised for the purposes of this Act, if Parliament by appropriation made by law in this behalf so provides.” 6. It may also be mentioned herein that the Rubber Act came to be amended by the Act of Parliament (Act 4 of 2010). Section 7 of the Rubber (Amendment)Act, 2009 inter alia seeks to introduce a proviso to Section 12 , which reads as follows: “ provided that the Central Government may, if considered necessary in the public interest, by order for reasons to be recorded in writing, exempt or reduce the duty of excise on rubber exported on such terms and conditions as it deems fit.” W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 5 7. The appellant issued the impugned notification dated 7th December, 2001 in exercise of the powers under Section 12(1) of the Rubber Act. The relevant portion reads as follows: “In exercise of powers conferred by sub-section (1) of Section 12 of the Rubber Act, 1947 (24 of 1947), the Central Government hereby specifies zero paise per kg. as the rate of cess on rubber produced in India and procured for export production by the Export Oriented Units (EOU's) , Units in the Export Processing Zones (EPZ's ) and Units in the Special Economic Zones (SEZ's ) with immediate effect.” 8. It can be seen from the above extract that by the impugned notification, the appellant purported to specify the duty to levy cess at zero paise per kg on the rubber produced in India and procured for export production by (i) the Export Oriented Units (EOU's), (ii) Units in the Export Processing Zones (EPZ's) and (iii) Units in the Special Economic Zones with effect from the date of notification. We wish to straight away point out here that the Rubber Act itself is not very consistent in its language. Section 12(1) speaks about the levy of cess, W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 6 whereas Section 12(2) speaks about the duty of excise levied under sub-section (1). However, that discrepancy need not deter us from examining the question involved in the instant appeal. 9. The petitioners in W.P.(C) No. 32857 of 2009 and the petitioner in W.P.(C)No.592 of 2004, (the first respondent in W.A.No. 1883 of 2009) challenged the said notification on two grounds: (i) that such exemption is without any authority of law; and (ii) granting of such concession as the one provided under the impugned notification has the effect of immediate discrepancy against those industries which procure rubber, but not entitled for the benefit of zero rate taxation extended to some of the Units specified in the impugned notification based on the location of such units or based on the fact that the units export their product out of India. W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 7 10. By the judgment under appeal it was held that the impugned notification is without any authority of law. At paragraph No.10 of the judgment, it was held as follows: “It is evident from Ext.P1 that the Government themselves admitted that they had issued such a notification only by virtue of power conferred under Section 12(1) of the Act. But it is clear and evident that Section 12(1) of the Act does not empower the Government from issuing any order granting exemption to any category of estate owners or manufacturers from payment of the duty of excise. No other provisions in the Act empowers the Government from granting such an exemption. Therefore Ext.P1 is issued beyond the power and competence of the Government and hence it is not sustainable. Thirdly, whether the Government is right in issuing such a notification in promotion of the “EXIM Policy”. It is settled law that a policy decision cannot be permitted to contradict the provisions of the statute or the legislative object. Therefore the exemption granted through Ext.P1 which is in violation of the provisions of the Act and its legislative object, could not be held valid, even if it is issued as a policy decision taken by the W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 8 Government.” 11. The judgment under appeal does not record any specific finding on the submission that the impugned notification is violative of Article 14 of the Constitution of India. Hence the appeal. 12. We may point out that at the relevant point of time when the impugned notification came to be issued, there was no express provision under the Rubber Act, which enable the first respondent/Central Government to exempt any industry or manufacturer of rubber from the liability to pay cess/excise duty contemplated under Section 12 of the Act. But, Mr. T.P.M. Ibrahim Khan, the learned Asst. Solicitor General argued that the impugned notification is not a notification of exemption from tax. According to him, the prescription of zero paise per kg is also a prescription of rate of tax and therefore the impugned notification cannot be described as an exemption notification. We are of the opinion that the said submission is to be taken note of only to be rejected as the Parliament itself on W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 9 realisation of the fact, (that the Rubber Act did not provide necessary authority of law in favour of Union of India to grant any exemption in appropriate cases) amended the Act (Act 4 of 2010 ) by introducing a proviso to Section 12, which we have already taken note of earlier. 13. However, the learned Asst. Solicitor General also brought to our notice that though the Rubber Act did not contain a provision authorising the Union of India to grant exemption from the levy of tax under Section 12, Section 7 of the Special Economic Zones Act, 2005 categorically exempts certain goods or services from the enactments specified under the First Schedule of the said Act and that levy under Section 12 of the Rubber Act is one of the levies specified in the First Schedule of the Special Economic Zones Act 2005 (under item 4). Therefore, notwithstanding the fact that the Rubber Act does not expressly authorise the Union of India to grant exemption, by virtue of operation of Section 7 of the Special Economic Zones Act, 2005, the impugned notification stands authorised by law. 14. On the other hand, the learned Counsel for the writ W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 10 Petitioner Mr. Bechu Kurian Thomas submitted that the Special Economic Zones Act, 2005 is of the year 2005 and Sections 1 to 19 came into force w.e.f. 10.02.2006, whereas the impugned notification is dated 7th December, 2001 and therefore, the submission of the learned Asst. Solicitor General that the impugned notification could derive authority of law from the Special Economic Zones Act, 2005 is untenable as the said Act came into force after 4 ½ years of the issuance of the impugned notification. 15. Section 7 of the Special Economic Zones Act reads as follows: “7. Exemption from taxes, duties or cess: Any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by,- (i) a Unit in a Special Economic Zone; or (ii) a Developer, shall, subject to such terms, conditions and limitations, as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule.” W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 11 16. It can be seen from Section 7 that it purports to exempt either the goods or services exported out of, or imported into, or procured from the “Domestic Tariff Area”. The term/expression “Domestic Tariff Area” is defined under Section 2(i) of the Special Economic Zones Act, 2005, as follows: “(i) “Domestic Tariff Area” means the whole of India (including the territorial waters and continental shelf) but does not include the areas of the Special Economic Zones.” The expression “Special Economic Zone” itself is defined under Section 2(za) of the Act as follows: “(za) “Special Economic Zone” means each Special Economic Zone notified under the proviso to sub- section (4) of section 3 and sub-section(1) of Section 4 (including Free Trade and Warehousing Zone) and includes an existing Special Economic Zone.” ; whereas the expression “Developer” is defined under Section 2 (g) of the Act as follows: “(g) “Developer” means a person who, or a State Government which, has been granted by the Central Government a letter of approval under W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 12 sub-section (10) of section 3 and includes an Authority and a Co-Developer”. 17. It may be noticed here that while the impugned notification purports to reduce the rate of tax, whether it is an exemption or not, in so far as the rubber procured either by the Export Oriented Units (EOU's) irrespective of their location or Units in the Export Processing Zones (EPZ's ) or Units in the Special Economic Zones (SEZ's). Section 7 grants exemption only in cases of units of Special Economic Zones. We are not examining the full implications of the expression “Special Economic Zone”. Whether by definition it includes the units located in the Export Processing Zones contemplated under the impugned Notification or whether it also includes Export Oriented Units, is a question that may have to be decided as and when occasion arises. 18. Therefore, we are of the opinion that the submission of the appellant that the impugned notification could be sustained on the basis of authority of law as provided under Section 7 of the Special Economic Zones Act, 2005, cannot be W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 13 accepted, in so far as it relates to a period anterior to the commencement of the Special Economic Zones Act or the Rubber (Amendment Act) 2009. In so far as the period between, ie., after commencement of the Special Economic Zones Act, 2005 and the Rubber Amendment Act, 2009 is concerned, the implications of Section 7 of the Special Economic Zones Act are required to be examined further in the light of our discussion as above. However, in view of the fact that the impugned notification did not have the requisite authority of law on the date of its issuance, we are of the opinion that the notification is void ab initio. Neither the Special Economic Zones Act, 2005 nor the Rubber (Amendment )Act would validate the impugned notification. 19. Further from the judgment under appeal, it appears that an attempt was made to justify the impugned notification on the basis of the “EXIM Policy” of the Government of India, which submission was rejected by the learned single Judge for the reasons stated in paragraph 10 of the judgment. We do not find any reason to interfere with the said conclusion also, as W.P.(C) No.32857 OF 2009 & W.A.No. 1883 OF 2009 14 no further submission is made before us in this regard. However, we may point out that in both the Writ Petitions, except for a declaration that the impugned notification is illegal no consequential directions is sought for, nor can any consequential relief be granted as the beneficiaries of the notification are before us. Therefore we are of the opinion that the above exercise is in a way of academic and for that reason, the Writ Petitions are required to be dismissed. The Writ Petition and the Writ Appeal are disposed of as above. J. CHELAMESWAR, CHIEF JUSTICE. P.R. RAMACHANDRA MENON, JUDGE. lk