2005 Supreme(SC) 1206

2005(6) Supreme 656
Supreme Court of India
(Under Article 139-A(1) of the Constitution of India)
Mrs. Ruma Pal & Tarun Chatterjee, JJ.
R.C. Tobacco Pvt. Ltd. & Anr. etc. —Appellants
versus
Union of India & Ors. —Respondents
Transfer Case (Civil) No. 27 of 2004
With
C.A. Nos. 881-896/2004
TC (C) Nos. 23-26 of 2004, 28-36 of 2004,
TP (C) No. 151 of 2004
Decided on 19-9-2005
Counsel for the Parties :
For the Appearing Parties : Harish N. Salve, R.F. Nariman, Dushyant A. Dave, P.K. Goswami, A.K. Ganguli, Sr. Advocates, Krishan Venugopal, Ravinder Narain, Ms. Sonu Bhatnagar, Ms. Sushma Sharma, Ajay Agarwal, Sanjeev Dahiya, Ms. Kanika Gombar, Rajan Narain, S. Bhandari, Ms. Pragya Baghel, Mrs. Manik Karanjawala, O.P. Khaitan, A.T. Patra, Ms. Nisha Baghchi, Ramesh Singh, Nipun Malhotra, Rajiv Mehta, B. Aggarwala, Ms. Radha Rangaswami, Siddhartha Chaudhary, P.S. Narasimha, Ananga Bhattacharya, Sunil Murarka, K. Swami, A. Subba Rao, B. Krishna Prasad, P. Parmeswaran, Vivek Kohli, Subramonium Prasad, Manoj Gupta, Anil K. Kher, Bhargava V. Desai, Kapil Kher, Sanjeev Kr. Singh, Pradeep Kr. Malik and Ms. Sheenam Parwarda, Advocates.

Important point
Constitutional validity of Section 154 of the Finance Act, 2003 amending exemption notifications issued u/s 5A of the Central Excise Act by which exemptions available to the manufacturers of cigarettes was rescinded retrospectively, has been upheld.

Headnote:(i) Central Excise Act, 1944—Section 5A—Notification No. 32/99-CE dated 8.7.1999—Exemption notification—Industries manufacturing cigarettes—Job workers for large tobacco companies set up their units under agreements with large tobacco industries and produced cigarettes with brand names of those companies—In December, 1997, Government of India announced an industrial policy for North Eastern Region of the country which proposed to stimulate ‘synergetic’ development of industries—Issuance of Excise Notifications Nos. 32/99 and 33/99 dated 8.7.1999 by which diverse benefits were given—Petitioners set up units in a specified growth centre and claimed benefit of Notification No. 32/99—This was allowed to them initially for the first few months—Payment of excise duty paid by some of the petitioners was not refunded to them—Writ petitions filed—Separate orders were passed by Assistant Commissioner rejecting claims for refund—Enactment of Section 154 of Finance Act, 2003—Amendment of Notification No. 32/99 by excluding cigarettes—Exemptions available to manufacturers of cigarettes was rescinded retrospectively—Challenge to retrospective operation of Section 154 of the Finance Act—Whether Section 154 is ex facie discriminatory, or so unreasonable or confiscatory that it violates Articles 14 and 19 of the Constitution—(No)—Reasons for retrospective enactment of Section 154 have been given—Those reasons are factually plausible.

       Held : The competence of Parliament and State legislatures to repeal, amend or supersede an exemption notification is unquestionable. The power to do so retrospectively cannot be and is also not doubted. The limitation on this power is that the legislation must not conflict with other provisions of the Constitution. As far as fiscal legislation is concerned, the limitation is implicit in Article 265 of the Constitution which provides that no tax shall be levied or collected except by authority of law. (Para 20)

       The factors which are generally considered relevant in answering this question are (i) the context in which retrospectivity was contemplated, (ii) the period of such retrospectivity, and (iii) the degree of any unforeseen or unforeseeable financial burden imposed for the past period [Empire Industries Ltd. vs. Union of India (1985) 3 SCC 314; Ujagar Prints v. Union of India (1989) 3 SCC 488, 517]. The context in which legislation is enacted is to be distinguished from the motives which impelled it to act. The latter are irrelevant. (Paras 22 and 23)

       The justification put forward by the respondent for enacting Section 154 was therefore really unnecessary. Nevertheless, while we cannot for that reason analyse the justification, we may at least consider the plea as setting out the background in which the Section was passed. (Paras 23)

       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 Government’s 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. (Para 24)

       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 policy and guidelines and expect that what is done by the Executive is in keeping with such policy. It does of course retain control over its delegate and can exercise that control by repealing the action of the delegate [Sita Ram Bishamber Dayal vs. State of UP (1972) 2 SCR 141 : (1972) 4 SCC 485; M.K. Papaih & Sons vs. The Excise Commissioner & Anr. (1975) 1 SCC 492]. Consequently if the Executive has failed to carry out the object of Parliament, such control may be exercised by retrospectively enacting what the Executive ought to have achieved. (Para 26)

       Although the length of time is not by itself decisive [National Agricultural Coop Marketing Federation of India Ltd. vs. Union of India (2003) 5 SCC 23] 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 the excise authorities to refund, on their interpretation of the notification, led to the filing of the writ petitions. The writ petitions were allowed on 17th May, 2002. In the meanwhile the exemption was already withdrawn in January 2001. The decision was then challenged in appeals by the Union of India which were finally dismissed by the Division Bench on 4th April, 2003. Therefore between 2000 to 2003 the dispute as to the purport of the exemption notification during the period of their operation from July 1999 to January 2001 was pending in Court. The matters were then carried to this Court by the Union of India. While the proceedings were pending and the issue was still at large, Section 154 was enacted. In these circumstances, the Parliament cannot be blamed for having at least awaited the decision of the High Court, nor can the statutory provision be questioned as being unreasonably retrospective. (Para 28)

       (ii) Central Excise Act, 1944—Section 11A—Finance Act, 2003—Section 154—Recovery of duties—Enactment of Section 154 of Finance Act by which exemption available to manufacturers of cigarettes was rescinded—Validity of Section 154 challenged—Allegations that Section 154 violates Section 11A in that it does not envisage service of any notice and it seeks to allow recoveries to be made after the periods of limitation provided—Whether Section 154 can be held as violative of Section 11A of the Act—(No).

       Held : 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. (Para 36)

       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. Although Section 11A does not refer to Section 11B, it speaks of duties “erroneously refunded”. It cannot therefore refer to the refunds made to the petitioners under the notifications as there was no error in the provisional refunds made under the notifications to the appellants. What was sought to be recovered under Section 154 was not an erroneous refund but a benefit provisionally granted. (Paras 38 and 39)