Supreme Court Upholds Government’s Power to Amend Customs Notifications: Union of India vs. A.B.P. Pvt. Ltd. (2023)

Date of the Judgment: May 12, 2023
Citation: Civil Appeal No(s). 986 of 2011
Judges: S. Ravindra Bhat, J. and Dipankar Datta, J.
Can the government modify or withdraw a customs duty exemption notification once it has been issued? The Supreme Court of India recently addressed this question in a case concerning the import of printing machinery. The core issue revolved around the government’s power to amend an existing notification granting concessional customs duty, and whether such amendments must be justified by public interest. This judgment clarifies the extent of the government’s authority in fiscal matters and the limits of judicial review in such cases. The bench comprised of Justice S. Ravindra Bhat and Justice Dipankar Datta, with the judgment authored by Justice S. Ravindra Bhat.

Case Background

In October 2003, A.B.P. Pvt. Ltd. (referred to as “the assessee”) imported a high-speed cold-set web offset printing machine, along with its necessary parts and accessories. At the time, a notification dated May 28, 2003 (referred to as the “First Notification”) was in effect, which provided a concessional customs duty rate of 5% for such machines, provided they had a minimum speed of 70,000 copies per hour.

Relying on this First Notification, the assessee opened an irrevocable letter of credit for the purchase of the machine. However, the Central Government issued an amended notification on November 11, 2003 (referred to as the “Amended Notification”). This Amended Notification changed the criteria for the concessional duty, limiting it to “High Speed Cold-set Web Offset Rotary Double Width Four Plate Wide Printing Machine with a minimum speed of 70,000 copies per hour.”

As a result, when the assessee filed a Bill of Entry on February 9, 2004, they were no longer eligible for the 5% concessional rate. Instead, they were required to pay a customs duty of 39.2%, amounting to ₹1,92,54,318. The assessee then filed a writ petition before the Calcutta High Court, challenging the Amended Notification and seeking its withdrawal.

The High Court initially issued an interim order on March 18, 2004, allowing the release of the machinery provisionally upon payment of the concessional rate and a bank guarantee for the differential amount of ₹1,67,98,410.

Timeline

Course of Proceedings

A single judge bench of the High Court on December 5, 2005, set aside the Amended Notification. The court reasoned that there was no valid distinction between the types of machinery that were granted and denied the concessional rate. It directed that the assessee be granted the exemption.

The Union of India appealed this decision to the Division Bench of the High Court. The Union argued that its power to grant exemptions included the power to modify or alter them and that this was a matter of economic policy, which fell under the legislature’s domain.

The High Court upheld the single judge bench’s decision, observing that the imported machine was not manufactured in India, and the government had not shown any representation from domestic manufacturers questioning the exemption. The High Court also relied on the Supreme Court’s decision in Indian Express Newspapers v. Union of India [(1985) 2 SCR 287], stating that government actions under Section 25(1) of the Customs Act, 1962, were subject to judicial review and must be exercised reasonably and in the public interest.

Legal Framework

The case primarily revolves around Section 25(1) of the Customs Act, 1962, which empowers the Central Government to grant exemptions from customs duty. This section states that if the government is satisfied that it is necessary in the public interest to do so, it may exempt goods of any description from the whole or any part of the customs duty.

The Union also relied on Section 21 of the General Clauses Act, 1897, which states:
“21. Power to issue, to include power to add to, amend, vary or rescind notifications, orders, rules, or bye-laws.- Where, by any (Central Act) or Regulations, a power to ( issue notifications) orders, rules, or bye-laws is conferred, then that power includes a power, exercisable in the like manner and subject to the like sanction and condition (if any), to add to, amend, vary or rescind any (notifications), orders, rules or bye-laws so (issued).”

This provision implies that the power to issue a notification includes the power to amend or withdraw it.

Arguments

Arguments by the Union of India:

• The Union argued that the power to issue a notification under Section 25(1) of the Customs Act, 1962, includes the power to amend or withdraw it, as per Section 21 of the General Clauses Act, 1897. They contended that the Amended Notification was a matter of economic policy and was issued in public interest to promote technological advancement and modernization of the industrial sector.
• The Union submitted that the commodities granted exemption under the amended notification relate to technological advancement and modernization of the industrial sector in the country and thus the element of “public interest” is ingrained in the amended notification.
• The Union argued that single-width two-plate machines were excluded from the exemption because they were manufactured in India, while the exemption was intended for double-width four-plate machines, which were not. This was based on representations from domestic manufacturers.

Arguments by A.B.P. Pvt. Ltd. (the assessee):

• The assessee argued that the Union could not withdraw or amend the First Notification without a valid justification. They relied on the Supreme Court’s decision in Kasinka Trading & Anr. V. Union of India [(1994) Supp 4 SCR 448], which held that the reasons for withdrawing an exemption notification must be relevant and sufficient in the public interest.
• The assessee contended that the government’s power to grant or amend an exemption is not unrestricted and must be exercised in the public interest. They cited Indian Express Newspapers (Supra) to support this argument.
• The assessee argued that the government failed to establish the public interest necessitating the change in exemption, and that both types of machines had the same production capacity and were not manufactured in India. They relied on Dai-ichi Karkaria Limited v. Union of India & Ors. [(2000) 4 SCC 57] and MRF Ltd. v. Commissioner of Sales Tax [(2006) Supp 6 SCR 417] to argue that the government failed to justify the public interest in confining the concessional rate of duty to rotary printing machines of double width four plate variety and not extending the same to rotary printing machines of the single width two plate variety despite both the machines having minimum speed of 70,000 copies per hour.
• The assessee also argued that the principle of promissory estoppel applied, as they had made financial commitments based on the First Notification. They cited Shrijee Sales Corporation v. Union of India [(1997) 3 SCC 398] and Bannari Amman Sugars Ltd v. CTO [(2004) Supp 6 SCR 264] to argue that the government should have given them a reasonable opportunity to restore their position.

Submissions by Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

1. Whether the High Court was correct in setting aside the Amended Notification, and holding that the withdrawal of the concession was not in public interest.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Cases:

• Indian Express Newspapers v. Union of India [(1985) 2 SCR 287] – The Court discussed the power of the government under Section 25(1) of the Customs Act, 1962, stating that it is coupled with a duty to examine the issue in light of public interest. The Court held that the power is discretionary but not unrestricted.
• Kasinka Trading & Anr. V. Union of India [(1994) Supp 4 SCR 448] – The Court discussed the withdrawal of exemption in public interest, stating that it is a matter of policy and the courts would not bind the government to its policy decisions for all times to come. It also said that the government has to be left free to determine the priorities in the matter of utilisation of finances and to act in the public interest while issuing or modifying or withdrawing an exemption notification under Section 25(1) of the Act.
• Dai-ichi Karkaria Limited v. Union of India & Ors. [(2000) 4 SCC 57] – The Court held that the executive had not taken into account all the relevant factors while issuing the impugned notifications reducing the exemption to 25% for the aforesaid period and failed to discharge its statutory obligation while issuing the impugned notifications.
• MRF Ltd. v. Commissioner of Sales Tax [(2006) Supp 6 SCR 417] – The Court held that the denial of exemption, through an amendment, effected retrospectively, was arbitrary.
• Shrijee Sales Corporation v. Union of India [(1997) 3 SCC 398] – The Court discussed the principle of promissory estoppel and its applicability against the government.
• Bannari Amman Sugars Ltd v. CTO [(2004) Supp 6 SCR 264] – The Court held that there is no vested right as to tax-holding is acquired by a person who is granted concession. If any concession has been given it can be withdrawn at any time and no time-limit should be insisted upon before it was withdrawn.
• M.M Nagalingam Nadar Sons v. State of Kerela [(1993) 91 STC 61] – The Court observed that the government has no power to levy a tax with retrospective effect. The retrospective cancellation/withdrawal of an exemption or a reduction in rate tantamounts to levy of a tax, or tax at a higher rate from a date in the past, for which the Government has no power.
• Mahabir Vegetable Oils (P) Ltd. v. State of Haryana [(2006) 2 SCR 1172] – The Court held that benefits once granted, cannot be divested by a retrospective statute or notification.
• Prashanti Medical Services & Research Foundation v. Union of India [(2019) 9 SCR 828] – The Court held that a plea of promissory estoppel is not available to an assessee against the exercise of legislative power.
• Vivek Narayan Sharma (Demonetisation Case-5 J.) v. Union of India [2023 (1) SCR 116] – The Court stated that the court may not undertake a foray into the merits, demerits, sufficiency or lack thereof, success in realising the objectives, etc. of an economic policy, as such an analysis is the prerogative of the Government in consultation with experts in the field.

Legal Provisions:

• Section 25(1) of the Customs Act, 1962 – This section empowers the Central Government to grant exemptions from customs duty if it is necessary in the public interest.
• Section 21 of the General Clauses Act, 1897 – This section states that the power to issue a notification includes the power to amend or withdraw it.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that the executive has the exclusive domain in fiscal and economic matters. The Court emphasized that the judiciary’s role is limited to ensuring that the government’s decisions are backed by relevant reasons, are not mala fide, and are within the bounds of the law. The Court was of the opinion that the High Court had overstepped its boundaries by conducting a merits review of the economic measure.

The Court also considered that the availability of similar equipment within the country is a relevant factor in deciding whether to grant or withdraw an exemption. The Court noted that the government had received representations from domestic manufacturers, which was a valid consideration for amending the notification.

The Court also held that the principle of promissory estoppel is not applicable in cases where the government is exercising its legislative power.

The Court emphasized the need for the government to have flexibility in matters of economic policy and to be able to respond to changing circumstances.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

Logical Reasoning

The Court considered the principle of promissory estoppel, but held that it is not applicable against the exercise of legislative power. The Court also considered the need for the government to have flexibility in matters of economic policy and to be able to respond to changing circumstances.

The Court rejected the High Court’s view that the withdrawal of the concession was not in the public interest. The Court held that the High Court had overstepped its boundaries by conducting a merits review of the economic measure.

The Supreme Court did not discuss any alternative interpretations. The Court’s decision was based on the principle that the executive has the exclusive domain in fiscal and economic matters, and that the judiciary’s role is limited to ensuring that the government’s decisions are backed by relevant reasons, are not mala fide, and are within the bounds of the law.

The Supreme Court held that the High Court erred in its judgment. The Court stated that the wisdom or unwisdom, and the soundness of reasons, or their sufficiency, cannot be proper subject matters of judicial review.

The Court’s decision was based on the following reasons:

• The executive has the exclusive domain in fiscal and economic matters.
• The judiciary’s role is limited to ensuring that the government’s decisions are backed by relevant reasons, are not mala fide, and are within the bounds of the law.
• The availability of similar equipment within the country is a relevant factor in deciding whether to grant or withdraw an exemption.
• The government had received representations from domestic manufacturers, which was a valid consideration for amending the notification.
• The principle of promissory estoppel is not applicable in cases where the government is exercising its legislative power.

The Court did not have a minority opinion. The judgment was authored by Justice S. Ravindra Bhat, with Justice Dipankar Datta concurring.

The Court’s reasoning was based on the principle of separation of powers, which states that the judiciary should not interfere with the executive’s decisions in matters of economic policy, unless the decisions are mala fide or illegal.

The Court’s decision has potential implications for future cases involving similar issues. It reaffirms the government’s power to amend or withdraw customs notifications, provided that the decisions are backed by relevant reasons, are not mala fide, and are within the bounds of the law.

The Court did not introduce any new doctrines or legal principles. The Court’s decision was based on existing legal principles and precedents.

Key Takeaways

• The government has the power to amend or withdraw customs notifications if it is in the public interest.
• The judiciary’s role in reviewing economic policy decisions is limited to ensuring that the decisions are backed by relevant reasons, are not mala fide, and are within the bounds of the law.
• The availability of similar equipment within the country is a relevant factor in deciding whether to grant or withdraw an exemption.
• The principle of promissory estoppel is not applicable against the exercise of legislative power.
• This judgment reinforces the government’s authority in fiscal matters and limits judicial interference in economic policy decisions.

Directions

The Supreme Court set aside the judgment of the High Court. The appeal was allowed without any order on costs.

Specific Amendments Analysis

Not Applicable as no specific amendment was discussed.

Development of Law

The ratio decidendi of the case is that the government has the power to amend or withdraw customs notifications if it is in the public interest, and the judiciary”s role in reviewing economic policy decisions is limited. The Court emphasized the need for the government to have flexibility in matters of economic policy and to be able to respond to changing circumstances. The Court also clarified that the principle of promissory estoppel is not applicable against the exercise of legislative power. This case reinforces the government’s authority in fiscal matters and limits judicial interference in economic policy decisions.