Case: R.C. Tobacco Pvt. Ltd. &amp; Anr. Etc Vs. Union Of India &amp; Ors

2. In December, 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 outside the growth centres. The procedure envisaged for obtaining the exemption under both notifications was that the manufacturer of goods in such industrial units would have to pay excise duty and subsequently claim refund from the excise authorities.4. A notification was issued on 31st December 1999, being Notification No. 45 of 1999 withdrawing the excise exemption to cigarettes. However, the exemption was re-introduced on 17th January, 2000 by Notification No. 1 of 2001.5. The petitioners set up units a specified growth centre and claimed the benefit of Notification No. 32/99. This was allowed to them initially for the first few months. However, from July to October, 2000 although some of the petitioners made payment of the excise duty, they were not refunded the amount. Being aggrieved, the petitioners filed writ petitions before the Gauhati High Court. An interim order was passed by the High Court on 19.1.2001 directing the provisional refund of the excise duty by the respondents to the petitioners. Although the exemption was finally withdrawn in respect of cigarettes by Notification No. 1/2001 dated 22nd January 2001, the respondents prayer for vacating the interim order was rejected by the High Court by its order dated 8.2.2001. While extending the time for the respondents to comply with the interim order, the High Court directed that in verifying the claims for refund, the State Government could not interfere with the exercise of powers of the excise authorities but made it clearis not to say that the concerned Assistant Commissioner or the Deputy Commissioner of Central Excise Department cannot take in to account any material furnished by the State Govt. authorities in deciding as to whether exemption is due to a manufacturing claiming refund under the said Notification. He may consider such material but the judgment will be that of the Assistant Commissioner or the Deputy Commissioner of Central Excise Department on the question as to whether the amount claimed by the manufacturer under the said Notification is entitled to exemption and refund under the Notification".Relying on these observations separate orders were passed by the Assistant Commissioner rejecting the claims for refund of the petitioners for the months of July 2000 to January 2001 and also ordering recovery of the amounts already refunded during April to June 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 asAmendment of notifications issued under Section 5-A of the Central Excise Act - (1) The notifications of the Government of India in the Ministry of Finance (Department of Revenue) Nos. G.S.R. 508(E), dated the 8th July, 1999 and G.S.R. 509(E), dated the 8th July, 1999, issued under sub-section (1) of Section 5-A of the Central Excise Act read with sub-section (3) of Section 3 of the Additional Duties of Excise (Textiles and Textiles Articles) Act, 1978, by the Central Government shall stand amended and shall be deemed to have been amended in the manner as specified against each of them in column (3) of the Ninth Schedule, on and from the corresponding date specified in column (4) of that Schedule retrospectively, and accordingly, notwithstanding anything contained in any judgment, decree or order of any Court, Tribunal or other authority, any action taken or anything done or purported to have been taken or done under the said notifications, shall be deemed to be and always to have been, for all purposes, as validly and effectively taken or done as if the notifications as amended by this sub-section had been in force at all materialFor the purposes of sub-section (1), the Central Government shall have and shall be deemed to have the power to amend the notifications referred to in the said sub-section with retrospective effect as if the Central Government had the power to amend the said notifications under sub-section (1) of Section 5A of the Central Excise Act read with sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of Section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), retrospectively at all material times.(3) No suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for any action taken or anything done or omitted to be done, in respect of any goods under the said notifications, and no enforcement shall be made by any court, tribunal or other authority of any decree or order relating to such action taken or anything done or omitted to be done as if the amendments made by sub-section (1) had been in force at all material times.(4) Recovery shall be made of all amounts of 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.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 the First Schedule or the Second Schedule to the Central Excise Tariff Act, 1985. In other words, the exemptions available to the manufacturers of cigarettes from 1999 upto 27th January, 2001 (except for a short period between 31st December, 1999 and 17th January 2000 during which it was not available), was rescinded retrospectively. This meant that the excise duties already refunded to the petitioners would be liable to be recovered, no further refund would be made and that the petitioners would be liable to pay the excise duties not paid when the exemption was in force i.e. between 8th July 1999 and 27th January 2001.11. A second batch of writ petitions were filed by the petitioners before the High Court challenging Section 154 as being unconstitutional. They were transferred to this Court at the instance of the Union of India and listed for hearing along with the appeals and are also being disposed of by this judgment.12. If the challenge to the retrospective operation of Section 154 is rejected by us, any decision on the Union of Indias appeals from the judgment of the High Court would necessarily be rendered infructuous. The petitioners challenge to Section 154, therefore, is considered at the outset.

Court's reasoning:
25. The particular context of the section impugned in this case was the industrial policy formulated by the Central and the State Government of Assam for the development of that State. The obvious intention behind the grant of the package of incentives including an exemption from payment of excise duties was to stimulate further industrial growth in the area with enduring benefits not only to the local populace by way of employment opportunities but also to the economic welfare of the State. The State Governments insistence from the very outset on the need to regulate the industries which were claiming the benefit of the exemption was to ensure that these objects were attained. According to the Union of India the exemption notification, at least as interpreted by the High Court, did not effectuate that intent. As it transpired none of the industrial units manufacturing cigarettes were prepared to contribute to this object and their investment in the manufacture of cigarettes was co-extensive with the period of the exemption. The loss of revenue suffered by the Union and the State by the various subsidies and exemptions granted was the quid in return for which the petitioners were not prepared to suffer any quo. With the withdrawal of the exemption, all 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.As we have said, Mr. Salve relied on Tata Motors Ltd. vs. State of Maharashtra & Ors. (2004) 5 SCC 783  to contend that despite the enormous powers of Parliament to legislate prospectively or retrospectively, unless the material is disclosed why there was an on again and off again exemption, Section 154 must be held to be arbitrary and therefore unconstitutional. In that case Rule 41E of the Bombay Sales Tax Rules 1959 allowed benefit of set-off in respect of all waste goods or scrap goods or bye- products. This benefit was sought to be taken away by Section 26 of the Maharashtra Tax Laws (Levy Amendment and Repeal) Act, 1989 which amended Rule 41E. The validity of such retrospective amendment to Rule 41E was challenged. It was contended that as a result of the amendment the assessee was deprived of the benefit for a period 8 years after which the benefit was reintroduced by another amendment of Rule 41E in 1992. This Court held that in absence of any material as to why the benefit under Rule 41E had been denied for a particular period, Section 26 of the 1989 Amendment Act deserved to be quashed. The Court found in favour of the assessee because there was no reason whatsoever forthcoming for the withdrawal of the benefit retrospectively for a limited period.33. The decision is distinguishable. In this case, the reasons for the retrospective enactment of Section 154 have been given and as we have also said, those reasons are at least factually plausible.According to the respondent the refunds granted under the notifications dated 8th July, 1999 were not the "normal" refunds made under the Act but were of special kind for which the complete machinery was provided under the Notifications. The submission is that since the exemption notifications themselves had been withdrawn by Section 154, the amounts refunded thereunder were recoverable independently of Section 11A under Section 154(4).37. There are two aspects to this dispute. The first is the question of limitation and the second the question of notice. As far as the first aspect is concerned refund of duty under the Act has been provided for by Section 11B. The Section specifies the manner and circumstances under which refunds of duty may be made. It is neither of the parties case that the refund made to the petitioners of the excise duty paid by them was under this Section.A grievance has been raised by the petitioners that cigarette manufacturers have been unfairly discriminated against. We are unable to accept the submission for several reasons.44. First, there is a presumption in favour of constitutionality of a statute, a presumption which only the clearest and weightiest evidence can displace.45. Second, we can take judicial notice of the fact that cigarettes have been treated as a class apart for the purposes of levy of excise duty with the manufacture of cigarettes probably yielding the highest revenue to the exchequer.The final question is that of the relief to be granted.We are not in a position to determine the disputes raised. However we cannot lose sight of the fact that although excise duty like other indirect taxes may be passed on to the customer of the goods under the law as it now stands, it is the manufacturer of the excisable goods to whom the excise authorities will look for payment. How the manufacturer will adjust its liability with its customers does not concern the respondents nor can they be asked to recover their dues from persons who may have ultimately taken on the responsibility to pay the excise duty as a result of an agreement with the manufacturer.55. Furthermore having upheld the constitutional validity of Section 154 it would be a pyrrhic victory for the Union of India if they could not in fact recover the tax. It is not a case where the legislation has merely withdrawn the exemptions. The consequences of the withdrawal have been statutorily provided for including the recovery of the excise duties refunded or not paid. The effective period of such imposition is about eight months. The State has been deprived of revenue without any corresponding benefit, it may be that the retrospective operation may operate harshly in some cases, but that would not by itself invalidate the demand. [See: Epari Chinna Krishna Moorthy vs. State of Orissa (supra)] it needs to be emphasized that in effect the retrospective operation extended over a very short period and principles of equity must give way to express statutory provision.No doubt in British Physical Lab India Ltd vs. State of Karnataka & Ors. (1999) 1 SCC 170 relied upon by the petitioners the Sales Tax Authorities proposed to recover the difference in duty from manufacturers within the State having regard to the fact that the notifications giving them the benefit of a lower rate of tax had been struck down. This court held that they should not do so. The rationale behind the decision has been explicitly stated in Texmaco Ltd vs. State of Andhra Pradesh (2000) 1 SCC 763. In directing that the State shall not collect the amount of sales tax that had become payable by reason of the quashing of the notifications, this Court noted that the notifications had been intended to protect the local cement industries. The quashing of the notifications should have the effect of putting the local cement industry and the same industry outside the State on par. It could not place the former in a disadvantageous position qua the later. Apart from this, the respondent-State had also not contested the factual position. The circumstances in which this Court directed the State not to collect amount of sales tax which had become payable only by reason of the Order quashing the notifications issued under the State Sales Tax Act do not exist here. What we are considering in this case is a positive statutory mandate directing the consequences of the withdrawal of the exemption