Holding

Clause (a) of Proviso 3 of the 1964 notification is ultra vires and cannot be enforced; the concessional excise duty rate is available to the entire class of assessees, including the respondent.

Summary

The respondent, Dhanalakshmi Paper and Board Mills, set up a paper‑board factory and began production on 7 May 1964. It claimed a concessional excise duty rate under a Government of India notification dated 1 March 1964, but the revenue department denied the benefit because clause (a) of Proviso 3 required that a manufacturer applying for a licence on or after 9 November 1963 must have owned the factory on that date. The Madras High Court struck down the clause as arbitrary, holding that the date had no rational nexus with the object of the notification. On appeal, the Supreme Court examined whether a statutory provision fixing such a date could be upheld and whether it violated the principle of equality. Relying on earlier decisions, the Court found that the date was arbitrary, created an unjustified classification, and was ultra vires. Consequently, the clause was declared invalid and the concessional rate was made available to the respondent. The appeal was dismissed without costs.

Issues considered

Whether clause (a) of Proviso 3 of the 1964 notification, fixing 9 November 1963 as a cut‑off date, is arbitrary and violative of Article 14 of the Constitution.
Whether a statutory provision can be struck down for lack of rational nexus between the chosen date and the object of the legislation.

Legislation cited

Subjects

Central exciseConcessional dutyArbitrary dateArticle 14Ultra viresNotificationCut‑off dateClassification

Judgment

~-
GOVT. OF INDIA, REPRESENTED BY SECRETARY,
A
MINISTRY OF FINANCE AND OTHERS
v.
DHANALAKSHMI PAPER AND BOARD MILLS "
TIRUCHIRUPALLI

DECEMBER 12, 1988 B

[SABYASACHI MUKHARJI AND LALIT MOHAN
SHARMA, JJ.]

Central Excises and Salt Act, 1944 Central Excise Rules 1944:
First Schedule Item No. 17(3)/Rule 8( I) and Notification dated March
1, J96<f-Strawboard and pulpboard-Ex'emption from duty-Clause
c
(a) proviso (3) of Notification held ultra vires-Choice of date-
Relevancy of.

;:_ The respondent-assessee built up a factory for the manufacture of .i
paper and paper boards, which started produciiOn on 7.s:1964. The D
respondent claimed that the duty in respect of the paper boards
manufactured in the factory during the period 7.5.1964 to June 1966
.) was payable at the concessional rates allowed by the Government of
India notification dated lst March, 1964. The claim was how.ever
rejected by the Revenue on the ground that the factory had not come
into existence on or before the 9th day of November, 1963 as stipulated E
in clause (a) of Proviso (3) of the said notification; '

The respondent's writ application before the High Court was
allowed by the Single Judge and the appellant's Letters Patent appeal
was dismissed in limine. The High Court has accepted the respondent's
contention that the date '9th of November, 1963' mentioned In the F
notification was arbitrary.

On behalf of the Revenue it was contended that the date
(9.11.1963) was selected because an earlier notification bearing No. 110
had required applications to be made on or after 9.11.1963. It was
further contended that a statutory provision had necessarily to be G
arbitrary In the choice of date and It could not be challenged on that
ground.

On behalf of the respondent It was contended that the said date did not
have any significance whatsoever and did not bear any rational rela-
tionship to the object sought to be achieved by the notification. H
)
1051
r,--,
,_. 4
-!'!; :· ''-~""'
1052 SUPREME COURT REPORTS [1988] Supp .. 3 S.C.R.

A Dismissing the appeal, it was

HELD: I. A rule which makes a difference between past and
present cannot be condemned as arbitrary and whimsical. [ I056D]

2. In cases where choice of the date is not material for the object
B to be achieved, the provisions are generally made prospective in
operation. [I056D]

3. The Revenue has not been able to produce notification
/
No. 110. Unless the nature and contents of notification No. UO and its
"
relevance with reference to the present notification are indicated, it is futile
C to try to defend tbecbokeoftbedateindause (a) on its bam. [IOSSA; I056E]

4. In the present case, the benefit of concessional rate was
bestowed upon the entire group of assesses referred therein and by
clause (a) of Proviso {3) the group was divided into two classes without
adopting l\DY differentia having a rational relation to the object of the
D Notification. [I057F]

5. Clause (a) of the Proviso (3) of the Notification was ultra vires < •
and the benefit allowed by the Notification would be available to the
entire group including the respondent. [1057G J

E, Union of India v. Mis. P: Match Works [1975] 2 SCR 573 Jagdish
Pandey v. The Chancellor, University of Bihar, [1968] l SCR 237 and
U.P. M.T. S.N.A. Samiti, Varanasiv.StateofU.P., [1987]2SCR453,
distingilished.

Dr. Sushma Sharma v. State of Rajasthan, [1985) Supp. SCC 45;
F and D.S. Nakara v. Union of India, ll983] l SCC 3(;5 referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6 of
1976.

, iFrom the Judgment and Order dated 12.11.1973 of the Madras
G High Court in Writ Appeal No. 390of1969.

V.C. Mahajan, C.V. Subba Rao and K.M.M. Khan for the
Appellants

K.N. Bhat and Vineet Kumar for the Respondent.
H (. . .
SECY., MIN. OF FINANCE v. DHANALAKSHMI PAPER [SHARMA,J.) 1053

The Judgment of the Court was delivered by

SHARMA, J. This appeal arises out of a writ application allowed
by the Madras High Court striking down Clause (a) of the Proviso (3)
of the Notification dated the !st March, 1964 issued by the Union of
India in the Ministry of Finance, under Rule 8(1) of the Central Excise
Rules, 1944 and granting consequential relief. The aforesaid notifica- B
ti on granted certain exemptions from payment of excise duty, but the
benefit was denied to the writ petitioner, respondent before this
Court, in view of the impugned clause.

2. The respondent assessee, a business concern functioning
under the name ofM/s. Dhanalakshmi Paper and Board Mills, decided C
to set up a factory for the manufacture of paper and paper boards and
allied products, and obtained a lease of certain premises in June 1963
and put up a suitable structure for the factory by August 1963. The
necessary machineries for running the factory, however, were received
in April 1964 and application for licence therefor was filed on
27.4.1964. The licence was granted on 6.5.1964 and production in the D
factory started the next day, i.e. 7.5.1964.

3. The respondent claimed that the duty in respect of the paper
boards manunactured in the factory during the period 7.5.1964 to June
1966 was payable at the concessional rate allowed by the Notification,
relevant portion whereof reads as follows: E

"GOVERNMENT OF INDIA
MINISTRY OF FINANCE (DEPARTMENT
OF REVENUE)
NEW DELHI, THE !ST MARCH, 1964/PHALGUNA
11, 1885 (SAKA) F
••
NOTIFICATION
CENTRAL EXCISE

CSR: In exercise of the powers conferred by Sub-rule (!)
of Rule 8 of the Central Excise Rules, 1944, and in G
supersession of the notification of the Government of India
in the Ministry of Finance (Department of Revenue) No.
57 /60 Central Excise dated 20th April, 1960 and No. 37 /63
Central Excise dated the !st March, 1963 the Central Govt.
hereby exempts strawboard and pulpboard including, gre-
board, calling under Sub-item (3) of Item No. 17 of the H
1054 SUPREME COURT REPORTS [1988] Supp. 3 S.C.R.

First Schedule to the Central Excises and Salt Act, 1944 (1
A
of 1944), takes together up to the quantity prescribed in
column (1) of Table 1 (omitted), cleared by any manufac-
turer for home consumption dµring any financial year, .
from so much of the leviable thereon as is in excess of the
amount specified in the corresponding entry in column (2)
B of the same Table:

TABLE-1 (being not relevant, omitted)
)
Provided that-

(1) ....................... .
c (2)

TABLE-2 (being not relevant, omitted)

(3) nothing contained in this notification shall apply to a
D manufacturer who applied or applies for a licence on or
after the 9th day of November 1963, unless he satisfies the
Collector of Central Excise-

(a) that the factory for which the licence was or is applied
for was owned on the 9th day of November, 1963, by the
E applicant;"

The benefit of the Notification claimed by the respondent assessee was
denied by the appellants on the ground that ihe factory did not come
into existence on or before the 9th day of November, 1963, the date
mentioned in the impugned clause (a). The respondent moved the
F High Court in its writ jurisdiction under Article 226 of the Constitu-
tion, and the application was allowed by a learned Single Judge. An 1
appeal therefrom under Clause 15 of the Letters Patent was dismissed
in limine. The appellants have by special leave challenged the decision
before this Court.

G 3. The ground urged on behalf of the assessee which found
favour with the High Court is arbitrary nature of the date, '9th of
November, 1963' mentioned in the impugned clause (a). It has been
contended that the said date does not have any significance what-
soever and does not bear any rational relationship to the object sought
to be achieved by the Notification. The learned counsel for the appel-
H !ants defended the validity of the impugned provision on the ground (; '!"!
SECY., MIN. OF FINANCE v. DHANALAKSHMI PAPER [SHARMA, J:i 1055

that the date (9 .11.1963) was selected because an earlier notification
A
bearing no. 110 had required applications to be made on or after
9.11.1963. This notification is not on the records of the case and the
learned counsel has stated that he has also not been able to examine.
the same inspite of his unsuccessful request to the Department con-
cerned for a copy thereof. He has mentioned about this notification in
his argument on the basis of the reference in the judgment of the High B
Court. The High Court judgment does not throw any light on the
nature of the notification no. 110, and the learned counsel could not
draw any inference about its provisions from the judgment. It is not
claimed that the said notification was before the High Court or the
Judges had any occasion to examine it. The present appeal was filed in
1976 and even now the learned counsel for the appellants is not in ·a
position either to produce it or to tell us what it was about. The result c
is that no explanation for the choice of the date in clause (a) is
forthcoming.

4. Sri V.C. Mahajan, learned counsel for the appellants, con-
tended that a statutory p~ovision has necessarily to be arbitrary in the D
choice pf date and it cannot be challenged on that ground. He\ relied
upon ·the observations of this Court in Union· of India v. Mis
Parmeswaran Match Works etc., [1975) 2 SCR 573 (at page 578) as
quoted behw:

"To achieve that purpose, the Government chose E
September 4, 1967, as the date before which the declara-
tion should be filed. There can be no doubt that any date
chosen for the purpose would to a certain extent, be
arbitrary. That is inevitable"

Reliance was also placed on Jagdish Pandey v. The Chancellor, Uni- F
versity of Bihar and Another, [1968] 1 SCR 237 and U.P.M. T.S.N.A.
Samiti, Varanasiv. State of U.P. and Others, [1987] 2 SCC 453. We are
afraid, the argument has no merit and has to be rejected.

5. In Union of India v. Mis P. Match Works, (supra) the ques-
tion related to concessional rate of excise duty leviable on the G
manufacture of match boxes. Match factories were classified on the
basis of their output during the financial year and matches produced in
different categories of factories were subject to varying rates of duty-
higher rate being levied on. matches produced in factories having
higher output. In pursuance of a change in the policy, the match
\
factories were later classified as mechanised units and non-mechanised H
1056 SUPREME COURT REPORTS I1988] Supp. 3 S.C.R.

A units and by a notification dated July 21, 1967 a concessional rate of
duty was allowed in respect of units certified according to the provi-
sions therein. The notification also contained a proviso. The purpose
of these provisions was'to grant the benefit of concessional rate of duty
only to small manufacturers. This Court while analysing the notifica-
tion observed that the proviso "would have defeated the very purpose
B of the notification, namely, the grant of concessional rate of duty.only
to 'small manufacturers". In order to cure this self-defeating position,
the notification dated July 21, 1967 was amended by Notification No.
205 of 1967 dated September 4, 1967. The latter notification
I
mentioned the 4th September, 1967 as"the cut-off date. The attach on
th,e choice of this date was met by the observations relied upon by the
C learned counsel for the appellants and quoted earlier. It will be ob-
served that the date, September 4, 1967, was the date on which the
l''
amending Notification itself was issued. The crucial date, therefore,
could not be condemned as one "taken from a hat". It was the date.of I
the notification itself. A rule which makes a difference between past
and present cannot be condemned as arbitrary and whimsical. In cases
D where choice of date is not material for the object to be achieved, the
provisions are gern,rally made prospective in operation. In that sense
'
this Court observed in Mis P. Match Works case that the date chosen
would to a certain extent be arbitrary and this was inevitable. In the
present case the relevant Notification was dated March 1, 1964 and not
i
'
••
9.11.1963. It is true that as mentioned in the High Court judgment
E some other notification required applications referred therein to be
made on or after 9.11.1963, but unless the nature and contents of that
notification and its relevance with reference to the present notification
are indicated, it is futile to try to defend the choice of the date on its
basis. The appellants have miserably failed to do so, inspite of more
than a decade available to them.
F
6. The other two cases relied upon on behalf of the appellants,
instead of supporting their case, indicate that the view taken by the
High Court is correct. In U.P.M. T.S.N.A. Samiti, Varanasi v. State of
.
U. P., and Others (supra) this Court observed in pargraph 1 of the '
judgmeni: ''The legislature could not arbitrarily adopt January 3,
G 1984, as the cut-off date ....... " After examining the circumstances
of the case it was held in paragraph 2:

"We agree with the High Court that fixation of the date
January 3, 1984 for purposes of regularisation was not
arbitrary or irrational but had a reasonable nexus with the
H object sought to be achieved." ( ,

'
i-
-;::f' -:,-

• \
SECY., MIK OF FINANCE v. DHANALAKSHM! PAPER [SHARMA, J.] 1057
.

,.,.,
Similarly in Jagdish Pandey y. The Chancel/or, University of Bihar and A
Another it was held:
"There is no doubt that if the dates are arbitrary, s. 4 would
~1\ be violative of Art. 14 for then there would be no justifica-
tion for singling out a class of teachers who were appointed

f · or dismissed etc. bet_ween these dates and applying s. 4 to
them while the rest would be out of the purview of that
B
section."
The Court then proceeded to examine the purpose of the legislation
' and the attendant circumstances and upheld the section.
7. Another learned counsel who appeared on behalf of the
appellants for the final reply placed reliance on paragraphs 38, 44 and c
~~

45 of the judgment in Dr. Sushma Sharma and Others v. State of
Rajasthan and Others, [1985] Supp. SCC 45. In paragraph 38 it was said
that wisdom or lack of wisdom in the action of the Government or
Legislature is not justiciable by the Court, and to find fault with the
law is not to demonstrate its invalidity. We are afraid, this aspect is D
wholly irrelevant in the case before us. In paragraph 44, the case of
.... Union of India v. Mis. P. Match Works Ltd., already discussed above,
-.t was mentioned. Jn paragraph 45 the case of D.S. Nakara v. Union of
India, I 1983] 1sec305, was distinguished in the following words:
"But as we have mentioned hereinbefore, Nakara case
dealt with the problem of benefit to all pensioners. The E
.¥.,~
choice of the date of April 1, 1979 had no nexus with the
r purpose and object of the Act. The facts in the instant case
are, however, different."
Oii
·-"!

In the present case also benefit of concessional rate was bestowed
' F

•
upon the entire group of assessees referred therein and by clause (a) of
Proviso (3) the group was divided into two classes without adopting
any _differentia having a rational relation to the object of the Notifica-
'"l~
tion, and the benefit of one class was withdrawn while retaining .it in
,. favour of the other. It must, therefore, be held that the impugned
'·
.i,.
clause (a) of the Proviso (3) of the Notification ,in question is ultra vires
' and the benefit allowed by the ·Notification is available to the entire G
lil'i··
;~:-·i'
group including the respondent.

• 8. We, therefore, hold that there is no merit in this appeal which
is dismissed without costs.
iii) .,
R.S.S. Appeal dismissed. H
('

,,_,;