1996 Supreme(SC) 668

1996(3) Supreme 213
SUPREME COURT OF INDIA
B.P. Jeevan Reddy & Suhas C. Sen, JJ.
Union of India -Appellant
versus
Paliwal Electricals (P) Ltd. & Anr. -Respondents
Civil Appeal No. 693 of 1995
Decided on 25-3-1996

IMPORTANT POINT
Para-7 of the Exemption Notification No. 175 of 1986 dated March 1, 1986, inserted by the Notification No. 223 of 1987, issued under Rule 8 of the Central Excise Rules, is consistent with the object underlying the Notification, therefore, valid.

Headnote:Central Excise Act-Central Excise Rules-Rule 8-Exemption Notification No. 175 of 1986 dated March 1, 1986-Para 7 inserted by Notification No. 223 of 1987-Validity of-Challenged on ground of violation of Article 14 of Constitution of India- Exemption designed to enable small manufacturer to survive in market in competition with ineligible manufacturer- If a small manufacturer who affixes brand-name or trade name of an ineligible manufacturer , very reason for granting exemption disappears-Para 7 is consistent with object underlying Notification-High Court not justified in striking down Para 7 of Notification as discriminatory-Banner & Co. v. Union of India, 1994(70) ELT 181 (Cal) : Overruled.

       Held : The object of the notification is self-evident. It is to help the small manufacturers to survive in the market which is dominated by brand-names/trade-names. It is a matter of common knowledge that people prefer well-known brand-names. They buy them under an implicit faith that they are of reliable quality. In such a situation, a small manufacturer faces an uphill task in having his goods accepted in the market. If he prices his goods at the same level as the price of goods manufactured by a well-known brand-name, he stands no chance; he will be priced out of market in no time. It is precisely to enable him to survive him in the market that the said exemption is granted. By virtue of exemption from duty, the small manufacturer would be able to sell his goods at a cheaper price thus making them attractive in the market-and more competitive. The notification thus serves the socio-economic objectives of helping the small manufacturers and increasing the industrial production. So far as Explanation IV is concerned, it is really clarificatory in nature; it merely reiterates the principle of the decision of this Court in Union of India & Ors. v. Cibatul Limited, 1985 (22) E.L.T. 302. (Para 5)

       Further held : Now, what does Para 7 provide and why ? It provides that the benefit of Notification No. 175 shall not be available to a small manufacturer, who affixes the brand-name or trade-name (registered or not) of another person, who is not eligible for the grant of exemption under the said notification. Explanation VIII defines the expressions "brand-name or trade-name". The explanatory note appended to the notification states that "(T)his amendment seeks to deny small scale exemption in respect of specified goods affixed with the brand-name/trade-name of a person who is not eligible for the exemption under Notification No. 175/86-CE dated 1.8.1986." The object underlying Para 7 is self-evident. If a small manufacturer who affixes the brand-name or trade-name of an ineligible manufacturer (a convenient expression to denote a manufacturer outside the purview of Notification No. 175 of 1986 and who owns or entitled to use a brand-name or trade-name), the very reason d eter for granting the exemption disappears. The exemption is designed to enable the small manufacturer to survive in the market in competition with the ineligible manufacturer but if he joins, or identifies himself with, the ineligible manufacturer, his goods become one with the goods of such ineligible manufacturer. They become indistinguishable. In the market, they will all be understood as one and the same goods. They no longer need the benefit under the Notification. It must be remembered that by extending the benefit of exemption, the State is foregoing public revenue to which it is entitled under the Act. The loss to public revenue is supposed to be compensated by helping along the small manufacturers to survive in the market and continue to produce. Once he becomes one with his competitor, the need for supporting crutches disappears. There is no reason why in such a case the State should forego the revenue due to it under the Act. It is the insufficient appreciation of this basic aspect that has led both the Allahabad and Calcutta High Courts astray. (Para 7)

       Consequently held that generally speaking the Exemption Notification and the terms and conditions prescribed therein represent the policies of the government evolved to subserve public interest and public revenue. A very heavy burden lies upon the person who challenges them on the ground of Article 14. Unless otherwise established, the court must presume that the said amendment was found by the Central Government to be necessary for giving effect to its policy (underlying the notification) on the basis of the working of the said Notification and that such an amendment was found necessary to prevent persons from taking unfair advantage of the concession. In fact, in this case, the explanatory note appended to amending Notification says so in so many words. If necessary, the Court could have called upon the Central Government to establish the reasons behind the amendment. (It did not think it fit to do so.) It is equally necessary to bear in mind, as pointed out repeatedly by this Court, that in economic and taxation sphere, a large latitude should be allowed to the Legislature. (Para 10)

       Finally held : Not only is Para 7 consistent with the object underlying the Notification, it indeed promotes it, as explained hereinbefore. We are constrained to say that the High Court has not bestowed the care and consideration which is expected of it before it strikes down such a Notification - or, for that matter, any statutory provision. For the very reason, the decision of the learned Single Judge of the Calcutta High Court in Banner & Co. v. Union of India1, (1994) 70 E.L.T. 181 must also be held to have been wrongly decided. (Para 12)