Supreme Court of India
UNION OF INDIA AND ORS.versusM/S NITDIP TEXTILE PROCESSORS PVT. LTD. AND ANOTHER
- Citation
- 2011 INSC 782
- Decided
- 3 November 2011
- Disposal
- Appeal(s) allowed
- Bench
- H L DATTU
Holding
The classification based on the 31 March 1998 cut‑off is reasonable and the provision does not contravene Article 14; the High Court’s judgment is set aside.
Summary
The respondents, manufacturers of textile fabrics, were found to have cleared goods without paying excise duty and were served a show‑cause notice on 6 January 1999. They sought relief under the Kar Vivad Samadhan Scheme, 1998, which allowed settlement of tax arrears quantified or notified on or before 31 March 1998, but their notice fell after that cut‑off date. The High Court struck down the cut‑off provision of s.87(m)(ii)(b) of the Finance (No.2) Act, 1998 as violative of Article 14, directing the revenue to entertain their declaration. On appeal, the Supreme Court examined whether the classification based on the notice date was arbitrary and whether the scheme’s language limited its scope. Relying on the doctrine of reasonable classification and the statutory purpose of the scheme—to settle disputed tax liabilities quickly—the Court held that the legislature’s distinction was intelligible, had a rational nexus to the scheme’s objective, and was not arbitrary. Consequently, the High Court’s decision was set aside and the appeals were allowed.
Issues considered
- The cut‑off date "on or before 31 March 1998" in s.87(m)(ii)(b) of the Finance (No.2) Act, 1998, does it violate Article 14 of the Constitution?
- Whether the classification of assessors based on issuance of demand or show‑cause notice before the cut‑off date is arbitrary or unreasonable.
- Interpretation of the term "tax arrear" under the Kar Vivad Samadhan Scheme, 1998.
- Whether the High Court’s declaration striking down the provision can be sustained.
Legislation cited
- Central Excise Act, 1944s. 11A, s. 11AB, s. 11AC, s. 209A
- Central Excise Rules, 1944s. Rule 173
- Customs Act, 1962
- Finance (No.2) Act, 1998s. 87(m)(ii)(a), s. 87(m)(ii)(b), s. 88, s. 89
- Income Tax Act, 1961
Subjects
Article 14ClassificationTaxationKar Vivad Samadhan SchemeFinance (No.2) Act 1998Central ExciseTax arrearsLegal fictionConstitutional lawEquality clause
Judgment
[2011] 13 (ADDL.) S.C.R. 26
A UNION OF INDIA AND ORS.
v.
M/S NITDIP TEXTILE PROCESSORS PVT. LTD. AND
ANOTHER
(Civil Appeal No. 2960 of 2006)
B
NOVEMBER 03, 2011.
[H.L. DATTU AND CHANDRAMAULI KR. PRASAO,JJ.]
FINANCE (NO. 2) ACT, 1998:
c
ss. 87 (m) (ii)(a) and (b) - Tax arrears' - Connotation of
- Application of Kar Vivad Samadhana Scheme, 1998 to 'tax
arrears' in respect of the amount of excise duty, interest, fine
or penalty determined as due or payable as on 31.3.1998, or
D which constituted the subject matter of the demand notice or
a show cause notice issued on or before 31.3.1998, but
remaining unpaid as on the date of making a declaration u/s
88 - High Court declared s. 87(m)(ii)(;;) as violative of Article
14 of the Constitution in so far as it seeks to deny the benefit
E of -the Scheme to those who were in arrears of duties etc. as
on 31. 3. 1998, but to whom notices were issued after
31.3.1998, and struck down the expression "on or before the
31st day of March 1998" - HELD: The classification made by
the legislature appears to be reasonable for the reason that
F the legislature has grouped two categories of assesses,
namely, the assessees whose dues are quantified but not
paid and the assessees who are issued with the Demand and
Show Cause Notice on or before a particular date - The
Legislature has not extended this benefit to those persons who
do not fall under this category or group - The distinction so
G made cannot be said to be arbitrary or illogical which has no
nexus with the purpose of legislation - The findings and the
conclusion reached by the High Court cannot be sustained
- The impugned common judgment and order is set aside -
H 26
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 27
PROCESSORS PVT. LTD.
Central Excise Act, 1944 - s. 11 A - Constitution of India, 1950 A
- Article 14 - Interpretation of Statutes - Legal fiction.
CONSTITUTION OF IND/A, 1950:
Article 14 - Classification in taxation - HELD: In
taxation, there is a broader power of classification than in 8
some other exercises of legislation' - When the wisdom of the
legislation while making classification is questioned, the role
of the courts is very much limited - It is not re viewable by the
courts unless palpably arbitrary - It is not the concern of the
courts whether the classification is the wisest or the best that C
could be made - However, a discriminatory tax cannot be
sustained if the classification is wholly illusory -
Discrimination resulting from fortuitous circumstances arising
out of particular situations, in which some of the tax payers
find themselves, is not hit by Article 14 if the legislation, as D
such, is of general application and does not single them out
for harsh treatment - In the instant case, keeping in view the
Scheme, the legislation is based on a reasonable
classification - Finance (No. 2) Act, 1998 - ss.87(m)(ii)(b)
and 88. - Cut-off date - Kar Vivad Samadhana Scheme, E
1998.
TAXATION:
Kar Vivad Samadhana Scheme, 1998 - Nature and
scope of - Held: The Scheme is a step towards the settlement F
of outstanding disputed tax liability - The Scheme is a
complete Code in itself and exhaustive of the matter dealt with
therein - It is statutory in nature and character - While
implementing the Scheme, liberal construction may be given
but it cannot be extended beyond conditions prescribed in the G
statutory scheme - Therefore, the courts must construe the
provisions of the Scheme with reference to the7anguag~ used
therein and ascertain what their true scope is by applying the
normal rule of construction - Further, the object ,JJf the
H
28 SUPREME COURT REPORTS [2011] 13 (ADDL:) S.C.R.
A Scheme and its application to Customs and Central Excise
cases involving arrears of taxes has been explained in detail
by the Trade Notice No. 74198 dated 17. 8. 1998 - It is a settled
law that the Trade Notice, even if it is issued by the Revenue
Department of any one State, is binding on all the other
B departments with equal force all over the country - However,
the Trade Notice, as such, is not binding on the courts but is
certainly binding on the assessee and can be contested by
him - Interpretation of Statute - Finance (N0.2) Act, 1998 -
ss. 87(m) (ii) and 88 - Trade Notice No. 74198 dated
c 17.8.1998 issued by the Commissioner of Central Excise and
Customs, Ahmedabad-1 - Practice and Procedure:
The respondents in C. A. No. 2960 of 2006, engaged
in the manufacture of textile fabrics, were found, on
5.9.1997, to have cleared the Man Made Fabric of Rs.
D 5,38,449/- without the payment of excise duty of Rs.
84,290/-. A show cause notice dated 06.01.1999 was
issued to the respondents demanding a duty of
Rs.84,290/- uls 11A of the Excise Act, 1944' along with
penalties and interest under the relevant provisions for
E non-payment of excise duty on clandestine clearance of
the said fabrics. Kar Vivad Samadhana Scheme, 1998, as
contained in the Finance (No.2) Act of 1998, was made
applicable to tax arrears outstanding as on 31.3.1998. The
benefit was also given to those assesses who had been
F issued show cause notice on or before 31.3.1998. The
benefits of the Scheme could be availed by any eligible
assessee by filing a declaration of his arrears u/s 88 of
the Act between 1.9.1998 and 31.12.2998 (subsequently
extended to 31.1.1999). Since the show cause notice to
G the respondents was issued on 6.1.1999, and, as such,
they were not entitled to the benefit of the Scheme, they
filed a writ petition, which was allowed by the High Court,
by its judgment dated 25.7.2005. The High Court declared
that s.87(m)(ii)(b) of Finance (No.2) Act,1998 was violative
H of Article 14 of the Constitution, and struck down the
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 29
PROCESSORS PVT. LTD.
expression "on or before the 31st day of March, 1998" in A
s. 87 (m) (ii) (b) as being unconstitutional. It further
directed the competent authority to entertain and decide
the declarations made by the assessees in terms of the
Scheme. Aggrieved, the Revenue filed the appeals.
B
Allowing the appeals, the Court
'
HELD: 1.1 Kar Vivad Samadhan Scheme, 1998, as
contained in Chapter IV of the Finance (N0.2) Act, 1998,
is a step towards the settlement of outstanding disputed
tax liability. The object and the purpose of the Scheme is C
to minimise the litigation and to realize the arrears by way
of settlement in an expeditious manner. The Scheme is a
complete Code in itself and exhaustive of the matter dealt
with therein. It is statutory in nature and character. While
implementing the Scheme, liberal construction may be D
given but it cannot be extended beyond conditions
prescribed in the statutory scheme. Therefore, the courts
must construe the provisions of the Scheme with
reference to the language used therein and ascertain
what their true scope is by applying the normal rule of E
construction. [para 6, 12 and 29] [44-F; 46-F; 60-A-B]
Regional Director, ES/ Corpn. v. Ramanuja Match
Industries, 1985 (2) SCR 119 = (1985) 1 SCC 218;
Hemalatha Gargya v. Commissioner of Income Tax, A.P., F
2002 (4) Suppl. SCR 382 =(2003) 9 SCC 510; Union of
India v. Charak Pharmaceuticals (India) Ltd., (2003) 11 SCC
689; Deepal Girishbhai Soni v. United India Insurance Co.
Ltd., (2004) 5 SCC 385; Maruti Udyog Ltd. v. Ram Lal, 2005
(1) SCR 790 = (2005) 2 SCC 638; Pratap Singh v. State of
Jharkhand, 2005 (1) SCR 1019 =(2005) 3 SCC 551; Sushi/a G
Rani v. Commissioner of Income Tax, 2002 (1)
SCR 809 =(2002) 2 SCC 697; Killick Nixon Ltd., Mumbai v.
Deputy Commissioner of Income Tax, Mumbai, 2002 (4)
Suppl. SCR 348 =(2003) 1 SCC 145; CIT v. Shatrusailya
Digvijaysingh Jadeja, 2005 (2) Suppl. SCR 1119 = (2005) H
30 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A 7 SCC 294; and Master Cables (P) Ltd. Vs. State of Kera/a
(2007) 5 sec 416 - relied on.
Speech of the Finance Minister dated 17 7. 1998, 232 ITR
1998(14) - referred to.
B 1.2 Further, the object of the Scheme and its
application to Customs ,and Central Excise cases
involving arrears of taxes has been explained in detail by
the Trade Notice No. 74/98 dated 17.8.1998 issued by the
Commissioner of Central Excise and Customs,
C Ahmedabad-1. It is a settled law that the Trade Notice,
even if it is issued by the Revenue Department of any one
State, is binding on all the other departments with equal
force all over the country. The Trade Notice guides the
traders and business community in relation to their
D business, and how to regulate it in accordance with the
applicable laws or schemes. However, the Trade Notice,
as such, is not binding on the courts but is certainly
binding on the assessee and can be contested by him.
[para 18, 19 and 21] [49-F; 52-D-F; 53-E]
E
Steel Authority of India v. Collector of Customs, (2001)
9 SCC 198; and Purewa/ Associates Ltd. v. CCE, 1996 (7)
=
Suppl. SCR 117 (1996) 10 SCC 752; CCE v. Kores (India)
Ltd., (1997) 10 SCC 338; Union of India v. Pesticides
F Manufacturing and Formulators Association of India, 2002 (
=
3 ) Suppl. SCR 231 (2002) 8 sec 410; and CCE v.
Jayant Dalal (P) Ltd., (1997) 10 sec 402) - relied on.
1.3 The Scheme in s. 87 (m) (ii) defines the meaning
of the expression 'tax arrear', in relation to indirect tax
G enactments. It would mean the determined amount of
duties, as due and payable which would include
drawback of duty, credit of duty or any amount
representing duty, cess, interest, fine or penalty
determined. The legislation, by using its prerogative
H power, has restricted the dues of duties quantified and
UNION OF INDIAAND ORS. v. NITDIP TEXTILE 31
PROCESSORS PVT. LTD.
payable as on 31st day of March, 1998 and remaining A
unpaid till a particular event has taken place, as
e!"visaged under the Scheme. The date has relevance.
The definition is inclusive definition. It also envisages
instances where a Demand Notice or Show Cause Notice
issued under indirect tax enactment on or before 31st day B
of March, 1998 but not complied with the demand made,
to Ile treated as tax arrears by legal fiction. [para 28) [58-
H; 59-A-C]
1.4 Thus, legislation has carved out two categories
of assessees viz. where tax arrears are quantified but not C
paid, and where Demand Notice or Show Cause Notice
issued but not paid. In both the circumstances, legislature
has taken cut-off date as on 31st day of March 1998. It
cannot be disputed that the legislation has the power to
classify. [para 28] [59-C-D] D
2.1 It is now well settled by catena of decisions of this
Court that a particular classification is proper if it is based
on reason and is not purely arbitrary, capricious or
vindictive. On the other hand, while there must be a E
reason for the classification, the reason need not be good
one, and it is immaterial that the Statute is unjust. The test
is not wisdom but good faith in the classification. The
tests adopted to determine whether a classification is
reasonable or not are, that the classification must be F
founded on an intelligible differentia which distinguishes
person or things that are grouped together from others
left out of the groups and that the differentia must have
a rational relation to the object sought to be achieved by
Statute in question. [para 28 and 30) [59-C-G; 60-C-D] G
2.2 The concept of Article 14 of the Constitution of
India vis-a-vis fiscal legislation is explained by this Court
in several decisions. It has been time and again observed
by this Court that the Legislature has a broad discretion
H
32 SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.
A in the matter of classification. In taxation, 'there is a
broader power of classification than in some other
exercises of legislation'. When the wisdom of the
legislation while making classification is questioned, the
role of the courts is very much limited. It is not reviewable
B by the courts unless palpably arbitrary. It is not the
concern of the courts whether the classification is the
wisest or the best that could be made. However, a
discriminatory tax cannot be sustained if the classification
is wholly illusory. [para 28 and 30] [59-F-H; 61-F]
c
Amalgamated Tea Estates Co. Ltd. v. State of Kera/a,
1974 (3) SCR 820 = (1974) 4 SCC 415; Anant Mills Co. Ltd.
v. State of Gujarat, 1975 (3) SCR 220 = (1975) 2 SCC 175;
Jain Bros v. Union of India, 1970 (3) SCR 253 = (1969) 3
SCC 311; Murthy Match Works v. CCE, 1974 (3) SCR 121 =
D (1974) 4 SCC 428; R.K. Garg v. Union of India, 1982 (1)
SCR 947 = (1981) 4 SCC 675; E/el Hotels and Investments
Ltd. v. Union of/ndia, 1989 (2) SCR 880 =(1989) 3 SCC 698;
P.M. Ashwathanarayana Setty v. State of Karnataka, (1989)
Supp. (1) SCC 696; Kera/a Hotel and Restaurant Assn. v.
E State of Kera/a, 1990 (1) SCR 516 =(1990) 2 SCC 502;
Spences Hotel (P) Ltd. v. State of W.B., 1991 (1) SCR
429 =(1991) 2 SCC 154; Venkateshwara Theatre v. State of
A. P., 1993 (3) SCR 616 = (1993) 3 SCC 677; State of Kera/a
v. Aravind Ramakant Modawdakar, (1999) 7 SCC 400; State
F of U.P. v. Kam/a Palace, 1999 (5) Suppl. SCR 452 = (2000)
1 SCC 557; Aashirwad Films v. Union of India, 2007 (7)
SCR 310 = (2007) 6 SCC 624; and Jai Vijai Metal Udyog
Private Limited, Industrial Estate, Varanasi v. Commissioner,
Trade Tax, Uttar Pradesh, Lucknow, (2010) 6 SCC 705 -
G relied on
2.3 However, it is well settled that the Legislature
enjoys very wide latitude in the matter of classification of
objects, persons and things for the purpose of taxation
H in view of inherent complexity of fiscal adjustment of
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 33
PROCESSORS PVT. LTD.
diverse elements. The power of the Legislature to classify A
is of wide range and flexibility so that it can adjust its
system of taxation in all proper and reasonable ways.
Even so, large latitude is allowed to the State for
classification upon a reasonable basis and what is
reasonable is a question of practical details and a variety B
of factors which the court will be reluctant and perhaps
ill-equipped to.investigate. It has been laid down in a large
number of decisions of this Court that a taxation Statute,
for the reasons of functional expediency and even
otherwise, can pick and choose to tax some assessees. c
A power to classify being extremely broad and based on
diverse considerations of executive pragmatism, the
Judicature cannot rush in where even the Legislature
warily treads. All these operational restraints on jJdicial
power must weigh more emphatically where the subject D
is taxation. [para 45] [73-F-H; 74-A-C]
2.4 Discrimination resulting from fortuitous
circumstances arising out of particular situations, in
which some of the tax payers find themselves, is not hit
by Article 14 if the legislation, as such, is of general E
application and does not single them out for harsh
treatment. Advantages or disadvantages to individual
assessees are accidental and inevitable and are inherent
in every taxing Statute as it has to draw a line somewhere
and some cases necessarily fall on the other side of the F
line. [para 45] [74-C-D]
Khandige Sham Bhat vs. Agricultural Income Tax Officer,
Kasaragod and Anr. AIR 1963 SC 591 - relied on
2.5 As regards the instant matters, the Legislature in G
relation to 'tax. arrears' has classified two groups of
assessees. The first one being those assessees in whose·
cases duty is quantified and not paid as on the 31st day
of March, 1998 and those assessees who are served with
H
34 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A Demand or Show Cause Notice issued on or before the
31st day of March, 1998. The Scheme is not made
applicable to such of those assessees whose duty dues
are quantified but Demand Notice is not issued as on
31st day of March, 1998 intimating the assessee's dues
B payable. The same is the case of the assessees who are
not issued with the Demand or Show Cause Notice as
on 31.03.1998. [para 30] [60-C-F]
2.6 The Legislature, in its wisdom, has thought it fit
C to extend the benefit of the Scheme to such of those
assessees whose tax arrears are outstanding as on
31.03.1998, or who are issued with the Demand or Show
Cause Notice on or before 31st day of March, 1998,
though the time to file declaration for claiming the benefit
is extended till 31.01.1999. The classification made by the
D legislature appears to be reasonable for the reason that
the legislature has grouped two categories of assesses,
namely, the assessees whos1: dues are quantified but
not paid and the assessees who are issued with the
Demand and Show Cause Notice on or before a
E particular date. The Legislature has not extended this
benefit to those persons who do not fall under this
category or group. This position is made clear by s. 88
of the Scheme which provides for settlement or tax
payable under the Scheme by filing declaration after 1st
F day of September, 1998 but on or before the 31st day of
December, 1998 in accordance with s.89 of the Scheme,
which date was extended upto 31.01.1999. The
distinction so made cannot be said to be arbitrary or
illogical which has no nexus with the purpose of
G legislation. [para 30] [60-F-H; 61-A-C]
2.7 In determining whether classification is
reasonable, regard must be had to the purpose for which
legislation is designed. Keeping in view the Scheme, the
H legislation is based on a reasonable basis which is firstly,
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 35
PROCESSORS PVT. LTD.
the amount of duties, cesses, interest, fine or penalty A
must have been determined as on 31.03.1998 but not paid
as on the date of declaration; and secondly, the date of
issuance of Demand or Show Cause Notice on or before
31.03.1998, which is not disputed, but the duties remain
unpaid on the date of filing of declaration. Therefore, the B
Scheme 1998 does not violate the equal protection clause
where there is an essential difference and a real basis for
the classification which is made. The mere fact that the
line dividing the classes is placed at one point rather than
another will not impair the validity of the classification. C
[para 30] [61-C-F]
2.8 The findings and the conclusion reached by the
High Court cannot be sustained. The impugned common
judgment and order is set aside. [para 46] [75-C]
D
Union of India v. M. V. Va/liappan, (1999) 6 SCC 259,
Sudhir Kumar Consul v. Allahabad Bank, (2011) 3 SCC 486
and Government of Andhra Pradesh v. N. Subbarayudu,
(2008) 14 SCC 702 Government of India v. Dhanalakshmi
Paper and Board Mills, 1989 Supp. (1) SCC 596 State of E
Jammu and Kashmir v. Triloki Naths Khosa, (1974) 1 SCC
19 - cited.
Case Law Reference:
1985 (2) SCR 119 relied on para 6 F
2002 (4) Suppl. SCR 382 relied on para 7
(2003) 11 sec 689 relied on para 8
(2004) 5 sec 385 relied on para 9
G
2005 (1) SCR 790 relied on para 19
2005 (1) SCR 1019 relied on para 11
2002 (1) SCR809 relied on para 14
H
36 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A 2002 (4) Suppl. SCR 348 relied on para 15
2005 (2) Suppl. SCR 1119 relied on para 16
(2007) 5 sec 416 relied on para 17
2001 (9) sec 198 relied on para 19
B
1996 (7) Suppl. SCR 117 relied on para 20
1997 (10) sec 338 relied on para 21
2002 (3) Suppl. SCR 231 relied on para 21
c 1997 (10) sec 402 relied on para 21
232 ITR 1998(14) referred to para 23
(1999) 6 sec 259 cited para 23
D (2011) 3 sec 486 cited para 23
(2008) 14 sec 102 cited para 23
(1974) 1 sec 19 cited para 24
E 1989 supp. (1) sec 596 cited para 24
1974 (3) SCR 820 relied on para 31
1975 (3) SCR 220 relied on para 32
1970 (3) SCR ·253 relied on para 33
F
1974 (3) SCR 121 relied on para 34
1982 (1) SCR 947 relied on para 35
1989 (2) SCR 880 relied on para 36
G
1990 (1) SCR 516 relied on para 37
(1989) supp. (1) sec 696 relied on para 38
1991 (1) SCR 429 relied on para 39
H 1993 (3) SCR 616 relied on para 40
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 37
PROCESSORS PVT. LTD.
1999 (7) sec 400 relied on para 41 A
1999 (5) Suppl. SCR 452 relied on para 42
2007 (7) SCR 310 relied on para 43
201 o (6) sec 10s relied on para 44
8
AIR 1963 SC 591 relied on para 45
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
2960 of 2006.
From the Judgment & Order dated 25.07.2005 of the High C
Court of Gujarat at Ahmedabadm, in Special Civil Application
No. 735 of 1999.
WITH
C.A. Nos. 2961, 2962, 2963, 2964, 3659 & 5616 of 2006 and D
990 of 2007.
R.P. Bhatt, Shalini Kumar, Arijit Prasad, Sunita Rani Singh,
8. Krishna Prasad for the Appellants.
Prasas Kuhad, Heman! Sharma, Jitin Chaturvedi, lndu E
Sharma, Sheela Goel for the Respondents.
The Judgment of the Court was delivered by
H.L. DATTU, J. 1. The present batch of eight appeals F
arises out of the common Judgment and Order dated
25.07.2005 passed by the High Court of Gujarat at Ahmedabad
in the Special Civil Application No.735 of 1999 and connected
applications filed under Article 226 of the Constitution of India.
Since these appeals involve common question of law, they are G
disposed of by this common Judgment and Order.
2. All the parties in these present appeals before us were
duly served but none appeared for the respondents except one
in Civil Appeal No. 5616 of 2006.
H
36 SUPREME COURl REPORTS [2011) 13 (ADDL.) S.C.R.
A 3. The High Court, vide its impugned Judgment and Order
dated 25.07.2005, has declared that Section 87(m)(ii)(b) of
Finance (No.2) Act, 1998 is violative of Article 14 of the
Constitution of India insofar as it seeks to deny the benefit of
the 'Kar Vivad Samadhana Scheme; 1998 (hereinafter referred
B to as "the Scheme") to those who were in arrears of duties etc.,
as on 31.03.1998 but to whom the notices were issued after
31.03.1998 and further, has struck down the expression "on or
before the 31st day of March 1998" under Section 87(m)(ii)(b)
of the Finance (No. 2) Act, 1998 as ultra vires of the
C Constitution of India and in particular, Article 14 of the
Constitution on the ground that the said expression prescribes
a cut-off date which arbitrarily excludes certain category of
persons from availing the benefits under the Scheme. The High
Court has further held that as per the definition of the 'tax
D arrears' in Section 87(m)(ii)(a) of the Act, the benefit of the
Scheme was intended to be given to all persons against whom
the amount of duties, cess, interest, fine or penalty were due
and payable as on 31.3.1998. Therefore, this cut-off date in
Sectien 87(m)(ii)(b) arbitrarily denies the benefit of the Scheme
to those who were in arrears of tax as on 31.03.1998 but to
E whom notices were issued after 31.3.1998. This would result
in unreasonable and arbitrary classification between the
assessees merely on the basis of date of issuance of Demand
Notices or Show Cause Notices which has no nexus with the
purpose and object of the Scheme. In other words, the persons
F who were in arrears of tax on or before 31.03.1998 were
classified as those, to whom Demand Notices or Show Cause
Notices have been issued on or before 31.03.1998 and, those
to whom such notices were issued after 31.3.1998. The High
Court observed that this classification has no relation with the
G purpose of the Scheme to provide a quick and voluntary
settlement of tax dues. The High Court further observed that this
artificial classification becomes more profound in view of the
fact that the Scheme came into operation with effect from
1.9.1998 which contemplates filing of declaration by all persons
H on or after 1.9.1998 but on or before 31.1.1999. The High
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 39
PROCESSORS PVT. LTD. [H.L. DATTU, J.]
Court further held that all persons who are in arrears of direct A
as well as indirect tax as on 31.3.1998 constitute one class,
and any further classification among them on the basis of the
date of issuance of Demand Notice or Show Cause Notice
would be artificial and discriminatory. The High Court concluded
by directing the Revenue to consider the claims of the B
respondents for grant of benefit under the Scheme, afresh, in
terms of the Scheme. The relevant portions of the impugned
judgment of the High Court is extracted below:
"In the light of the above, we shall now consider whether
definition of "tax arrears" contained in Section 87 (m)(ii)(b) C
is arbitrary, irrational or violative of the doctrine of equality
enshrined under Article 14 of the Constitution and whether
the petitioners are entitle to avail benefit under Scheme ..
A reading of the speech made by the Finance Minister and
the objects set out in memorandum to Finance (No. 2) Bill, D
1998 shows that the Scheme was introduced with a view
to quick and voluntary settlement of tax dues outstanding
as on 31.3.1998 under various direct and indirect tax
enactments by offering waiver of a part of the arrears of
taxes and interest and providing immunity against E
prosecution and imposing of penalty. The definition of 'tax
arrear' contained in Section 87 (m)(i) in the context of direct
tax enactment also shows that the legislation was intended
to give benefit of the scheme to the assessee who were
in arrears of tax on 31.3.1998. The use of the words as F
on "31st day of March, 1998" in Section 87(m)(ii) also
shows that even in relation to indirect tax enactments, the
benefit of the scheme was intended to be given to those
against whom the amount of duties, cess, interest, fine or
penalty were due or payable upto 31.3.1998. Viewed in G
this context it is quite illogical to exclude the persons like
the petitioners from whom the amount of duties, cess,
interest, fine, penalty, etc. were due as on 31.3.1998 but
to whom Demand Notices were issued after 31.3.1998.
In our opinion, the distinction made between those who H
40 SUPREME COURT REPORTS (2011) 13 (ADDL.) S.C.R.
A were in arrears of indirect taxes as on 31.3.1998 only on
the basis of the date of issuance of notice is wholly arbitrary
and irrational. The classification sought to be made
between those Demand Notices or Show Cause Notices
may have been issued on or before 31st day of March,
B 1998 and those to whom such notices were issued after
31.3.1998 is per se unreasonable and has no nexus with
the purpose of the legislation, namely to provide a quick
and voluntary settlement of tax dues outstanding as on
31.3.1998.
c The irrationality of the classification becomes more
pronounced when the issue is examined in the backdrop
of the fact that the scheme was made applicable with
effect from 1.9.1998, and in terms of Sections 88
(amended) a declaration was required to be filed on or
D after first day of September, 1998 but on or before
31.1.1999. In our opinion, all persons who were in arrears
of direct or indirect taxes as on 31.3.1998 constituted one
class and no discrimination could have been made among
them by introducing an artificial classification with reference
E to the date of Demand Notice or Show Cause Notice. All
of them should have been treated equally and made
eligible for availing benefit under the Scheme subject to
compliance of conditions contained in other provisions of
the Scheme."
F
4. We will take Civil Appeal No. 2960 of 2006 as the lead
matter. The facts of the case, in brief, are hereunder: The
respondent is engaged in the manufacture of textile fabrics. The
team of Preventive Officers of the Central Excise, Ahmedabad-
G I conducted a surprise inspection of the premises of the factory
on 5.9.1997. The Revenue Officers examined the statutory
Central Excise Records and physically verified the stocks at
various stages of manufacturing in the presence of two
independent panchas and respondent no. 2, under the
H Panchnama dated 5.9.1997. The Revenue Officers found that
'
UNION OF INDIAAND ORS. v. NITDIP TEXTILE 41
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
the respondents have cleared the Man Made Fabric A
admeasuring 38,726 l.m. of Rs. 5,38,449/- without the payment
of excise duty of Rs. 84,290/-. In this regard, the Statement of
respondent no. 2 was recorded on 5.9.1997 under Section 14
of the Central Excise Act, 1944 (hereinafter referred to as "the
Excise Act"). The respondent no. 2, in his Statement has B
admitted the processing of the said fabric in his factory, after
registering it in the lot register, and its subsequent clandestine
removal without payment of the excise duty. Accordingly, a
Show Cause Notice dated 06.01.1999 was issued to the
respondents demanding a duty of Rs. 84,2901- under Section c
11 A of the Excise Act along with an equal amount of pena1ty
under Section 11AC of the Excise Act, and further penalty
under Rule 173 Q of the Central Excise Rules, 1944 [hereinafter
referred to as "the Excise Rules"] and interest under Section
11AB of the Excise Act for non-payment of excise duty on
0
clandestine clearance of the said fabrics. Further, the
Respondent no. 2 was also asked to show cause as to why
penalty under Section 209 A of the Excise Rules should not be
imposed on him for his active involvement in acquiring,
possession, removal, concealing, selling and dealing of the E
excisable goods, which are liable to be confiscated under the
Excise Act. In the meantime, the Scheme was introduced by
ttie Hon'ble Finance Minister through the 1998 Budget, which
was contained in the Finance (No.2) Act of 1998. The Scheme
was made applicable to tax arrears outstanding as on
31.3.1998 under the direct as well as indirect tax enactments. F
Originally, the benefits of the Scheme could be availed by any
eligible assessee by filing a declaration of his arrears under
Section 88 of the Act on or after 1.9.1998 and on or before
31.12.1998. However, the peritld for declaration under the
Scheme was extended upto 31.1.1999 by the Ordinance dated G
31.12.1"998. However, the cut-off date prescribed by the
Scheme under Section 87 (m) (ii) (a) and (b) of the Act for
availing the benefits under the Scheme excluded the
respondents from its ambit. Being aggrieved, the respondents
filed a Special Civil Application before the High Court of H
42 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A Gujarat, inter-a/ia, seeking a writ to strike down the words "on
or before the 31st day of March 1998" occurring in Section 87
(m) (ii) of the Finance Act, 1998. They had further prayed for
issuance of an appropriate direction to the petitioner to give
them benefit of the Scheme, 1998 in respect of tax arrears
B under tax enactments for which Show Cause Notices or
Demand Notices were issued on or after 31.03.1998. The High
Court, vide its impugned judgment and order dated 25.7.2005,
struck down the expression "on or before the 31st day of March,
1998" in Section 87 (m) (ii) (b) as being unconstitutional. The
c High Court further directed the competent authority to entertain
and decide the declarations made by the assessees in terms
of the Scheme. Aggrieved by the Judgment and Order, the
Revenue is before us in this appeal.
5. The Scheme was introduced by Finance (No.2) Act and
D is contained in Chapter IV of the Act. The Scheme is known
as Kar Vivad Samadhana Scheme, 1998. It was in force
between 1.9.1998 and 31.1.1999. Briefly, the Scheme permits
the settlement of "tax arrear" as defined in Section 87 (m) of
the Act. It is necessary to extract the relevant provisions of the
E Scheme:
"Section 87 - Definitions.
In this Scheme, unless the context otherwise requires,
F •••
h) "direct tax enactment" means the Wealth-tax Act, 1957
or the Gift-tax Act, 1958 or the Income-tax Act, 1961 or
the Interest-tax Act, 1974 or the Expenditure-tax Act, 1987;
G (j) "indirect tax enactment" means the Customs Act, 1962
or the Central Excise Act, 1944 or the Customs Tariff Act,
1975 or the Central Excise Tariff Act, 1985 or the relevant
Act and includes the rules or regulations made under such
enactment;
H
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 43
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
••• A
(m) "tax arrear" means,-
(i) in relation to direct tax enactment, the amount of
tax, penalty or interest determined on or before the
8
31st day of March, 1998 under that enactment in
respect of an assessment year as modified in
consequence of giving effect to an appellate order
but remaining unpaid. on the date of declaration;
(ii) in relation to indirect tax enactment,- c
(a) the amount of duties (including drawback
of duty, credit of duty or any amount
representing duty), cesses, interest, fine or
penalty determined as due or payable under D
that enactment as on the 31st day of March,
1998 but remaining unpaid as on the date of
making a declaration under section 88; or
(b) the amount of duties (including drawback
of duty, credit of duty or any amount E
representing duty), cesses, interest, fine or
penalty which constitutes the subject matter
of a Demand Notice or a show-cause notice
issued on or before the 31st day of March,
1998 under that enactment but remaining F
unpaid on the date of making a declaration
under section 88,
but does not include any demand relating to
erroneous refund and where a show-cause G
notice is issued to the declarant in respect
of seizure of goods and demand of duties,
the tax arrear shall not include the duties on
such seized goods where such duties on the
seized goods have not been quantified.
H
44 SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.
A Explanation.-Where a declarant has already paid either
voluntarily or under protest, any amount of duties, cesses,
interest, fine or penalty specified in this sub-clause, on or
before the date of making a declaration by him under
section 88 which includes any deposit made by him
B pending any appeal or in pursuance of a Court order in
relation to such duties, cesses, interest, fine or penalty,
such payment shall not be deemed to be the amount
unpaid for the purposes of determining tax arrear under
this sub-clause;
c Section 88 - Settlement of tax payable
Subject to the provisions of this Scheme, where any person
makes, on or after the 1st day of September, 1998 but on
or before the 31st day of December, 1998, a declaration
D to the designated authority in accordance with the
provisions of section 89 in respect of tax arrear, then, not-
withstanding anything contained in any direct tax enactment
or indirect tax enactment or any other IJiOVision of any law
for the time being in force, the amount payable under this
E Scheme by the declarant shall be determined at the rates
specified hereunder, namely .. ."
6. The Scheme, as contained in Chapter IV of the Act, is
a Code in itself and statutory in nature and character. While
implementing the scheme, liberal construction may be given but
F it cannot be extended beyond conditions prescribed in the
statutory scheme. In Regional Director, ES/ Corpn. v.
Ramanuja Match Industries, (1985) 1 SCC 218, this Court
observed:
G "10 ... We do not doubt that beneficial legislations should
have liberal construction with a view to implementing the
legislative intent but where such beneficial legislation has
a scheme of its own there is no warrant for the Court to
travel beyond the scheme and extend the scope of the
H
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 45
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
statute on the pretext of extending the statutory benefit to A
those who are not covered by the scheme."
7. In Hemalatha Gargya v. Commissioner of Income Tax,
A.P., (2003) 9 sec 510, this Court has held:
"10. Besides, the Scheme has conferred a benefit on 8
those who had not disclosed their income earlier by
affording them protection against the possible legal
consequences of such non-disclosure under the
provisions of the Income Tax Act. Where the assessees
seek to claim the benefit under the statutory scheme they C
are bound to comply strictly with the conditions under
which the benefit is granted. There is no scope for the
application of any equitable consideration when the
statutory provisions of the Scheme are stated in such
plain language." D
8. In Union of India v. Charak Pharmaceuticals (India)
Ltd., (2003) 11 SCC 689, this Court has observed thus:
"8. If benefit is sought under a scheme, like KVSS, the
party must fully comply with the provisions of the Scheme E
If all the requirements of the Scheme are not met then on
principles of equity, courts cannot extend the benefit of that
Scheme."
9. In Oeepa/ Girishbhai Soni v. United India Insurance F
Co. Ltd., (2004) 5 SCC 385, at page 404, this Court observed
as:
"53. Although the Act is a beneficial one and, thus,
deserves liberal construction with a view to implementing G
the legislative intent but it is trite that where such beneficial
legislation has a scheme of its own and there is no
vagueness or doubt therein, the court would not travel
beyond the same and extend the scope of the statute on
the pretext of extending the statutory benefit to those who H
46 SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.
A are not covered thereby. (See Regional Director, ES/
Corpn. v. Ramanuja Match Industries)"
10. In Maruti Udyog Ltd. v. Ram Lal, (2005) 2 SCC 638,
this Court has observed:
B "A beneficial statute, as is well known, may receive liberal
construction but the same cannot be extended beyond the
statutory scheme. (See Deepal Girishbhai Soni v. United
India Insurance Co. Ltd.)"
c 11. In Pratap Singh v. State of Jharkhand, (2005) 3 SCC
551, this Court has held:
"93. We are not oblivious of the proposition that a
beneficent legislation should not be construed so liberally
so as to bring within its fore a person who does not answer
D
the statutory scheme. (See Deepal Girishbhai Soni v.
United India Insurance Co. Ltd.)"
12. The object and purpose of the Scheme is to minimize
the litigation and to realize the arrears of tax by way of
E Settlement in an expeditious manner. The object of the Scheme
can be gathered from the Speech of the Finance Minister, whilst
presenting the 1998-99 Budget:
"Litigation has been the bane of both direct and indirect
taxes. A lot of energy of the Revenue Department is being
F
frittered in pursuing large number of litigations pending at
different levels for long periods of time. Considerable
revenue also gets locked up in such disputes. Declogging
the system will not only incentivise honest taxpayers, it
would enable the Government to realize its reasonable
G
dues much earlier but coupled with administrative
measures, would also make the system more user-friendly.
I therefore, propose to introduce a new scheme called
Samadhan. he scheme would apply to both direct taxes
and indirect taxes and offer waiver of interest, penalty and
H
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 47
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
immunity from prosecution on payment of arrears of direct A
tax at the current rates. In respect of indirect tax, where in
recent years the adjustment of rates has been very sharp,
an abatement of 50 per cent of the duty would be available
alongwith waiver of interest, -penalty and immunity from
prosecution" B
13. The Finance Minister, whilst replying to the debate after
incorporating amendments to the Finance (No. 2) Bill, 1998,
made a Speech dated 17.7.1998. The relevant portion of the
Speech, which highlights the object or purpose of the Scheme,
is extracted below: C
"The Kar Vivad Samadhan Scheme has evoked a positive
response from a large number of organizations and tax
professionals. Hon'ble Members of Parliament have also
taken a keen interest in the scheme. The lack of clarity in D
regard to waiver of interest and penalty in relation to
settlement of tax arrears under the indirect tax enactments
is being taken care of by rewording the relevant clauses
of the Finance Bill. I have also carefully considered the
suggestions emanating from various quarters including the E
Standing Committee on Finance to extend the scope of
this scheme so as to included tax disputes irrespective of
the fact whether the tax arrears are existing or not. As you
have seen from the scheme, it has two connected limbs-
"Kar" and "Vivad". Collection of tax arrears is as important F
as settlement of disputes. The scheme is not intended to
settle disputes when there is no corresponding gain to the
other party. The basic objective of the scheme cannot be
altered."
14. This Court, in plethora of cases, has discussed the G
object and purpose of this Scheme. In Sushi/a Rani v.
Commissioner of Income Tax, (2002) 2 SCC 697, this Court
observed:
"5. KVSS was introduced by the Central Government H
48 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
with a view to collect revenues through direct and indirect
taxes by avoiding litigation. In fact the Finance Minister
while explaining the object of KVSS stated as follows:
"Litigation has been the bane of both direct and
indirect taxes. A lot of energy of the Revenue Department
B
is being frittered in pursuing large number of litigations
pending at different levels for long periods of timP
Considerable revenue also gets locked up in suc11
disputes. Declogging the system will not only incentivise
honest taxpayers, it would enable the Government to
c realize its reasonable dues much earlier but coupled with
administrative measures, would also make the system
more user-friendly .... "
15. In Killick Nixon Ltd., Mumbai v. Deputy
D Commissioner of Income Tax, Mumbai, (2003) 1 SCC 145,
this Court has held:
"9. The scheme of KVSS is to cut short litigations
pertaining to taxes which were frittering away the energy
of the Revenue Department and to encourage litigants to
E come forward and pay up a reasonable amount of tax
payable in accordance with the Scheme after declaration
thereunder."
16. In CIT v. Shatrusailya Digvijaysingh Jadeja, (2005)
F 7 SCC 294, this Court has observed:
"11. The object of the Scheme was to make an offer by
the Government to settle tax arrears locked in litigation at
a substantial discount. It provided that any tax arrears could
G be settled by declaring them and paying the prescribed
amount of tax arrears, and it offered benefits and
immunities from penalty and prosecution. In several
matters, the Government found that a large number of
cases were pending at the recovery stage and, therefore,
the Government came out with the said Scheme under
H
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 49
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
which it was able to unlock the frozen assets and recover A
the tax arrears.
12. In our view, the Scheme was in substance a recovery
scheme though it was nomenclatured as a "litigation
settlement scheme" and was not similar to the earlier B
Voluntary Disclosure Scheme. As stated above, the said
Scheme was a complete code by itself Its object was to
put an end to all pending matters in the form of appeals,
references, revisions and writ petitions under the IT AcU
WT Act."
c
17. In Master Cables (P) Ltd. v. State of Kera/a, (2007) 5
SCC 416, this Court has held:
"8. The Scheme was enacted with a view to achieve the
purposes mentioned therein viz. recovery of tax arrears by D
way of settlement. It applies provided the conditions
precedent therefor are satisfied."
18. Further, the object of the Scheme and its application
to Customs and Central Excise cases involving arrears of taxes
has been explained in detail by the Trade Notice No. 74/98 E
dated 17 .8.1998 issued by the Commissioner of Central
Excise and Customs, Ahmedabad-1. The relevant portion of the
said Trade Notice has been extracted below:
Office of the Commissioner of Central Excise &
Customs: Ahmedabad-1
F
Trade Notice No.: 74/98
Basic No.: 34/98
Sub: Kar Vivad Samadhan Scheme-1998
• G
1. As a part of this year's Budget proposals, the Finance
Minister had announced amongst others a scheme termed
"Kar Vivad Samadhan Scheme' essentially to provide
quick and voluntary settlement of tax dues. The basic aim
of introducing this scheme has been to bring down the H
50 SUPREME COURT REPORTS (2011) 13 (ADDL.) S.C.R.
A pending litigation/disputes between the Dept. and the
assessees- both on the direct tax side and indirect tax
side- as well as to speedily realize the arrears of taxes
(including fines, penalties & interest) considered due from
various parties which are locked up in various disputes.
B
2. Essentially, these disputed cases involving duties,
cesses, fine, penalty and interest on Customs and Central
Excise side are proposed to be settled - case by case -
if the concerned party agrees to pay up in each case a
particular amount (which may be termed settled amount)
c calculated as per provisions of the scheme, following the
laid procedure. Whereas the department gets immediate
revenue and it results in reduction in pending disputes
which may be prolonged otherwise before final
assessment, the party also gets significant benefit by way
D of reduced payments instead of the disputed liability and
immunity from prosecution.
3 ...
3.1. The relevant extracts containing provisions of the
E Samadhan Scheme as incorporated in the enacted
Finance (No. 2) Act, 98 (21 of 1998) are enclosed
herewith. The salient features of the Samadhan Scheme
in relation to Indirect Taxes are briefly discussed below:-
F 4. APPLICABILITY OF THE SCHEME
. A. CATEGORY OF CASES TO WHICH SCHEME
APPLICABLE
4.1. The Scheme is limited to Customs or Central Excise
G cases involving arrears of taxes (including duties, cesses,
fine, penalty of (sic.) interest) which were not paid up as
on 31.3.98 and are still in arrear and in dispute as on date
of declaration (as envisaged in section 98 (sic.) of the
aforesaid Act). The dispute and the case may be still at
H the stage of Show Cause Notice or Demand Notice (other
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 51
PROCESSORS PVT. LTD. [H.L. DATTU, J.]
than those of erroneous refunds) when party come (sic.) A
forward and makes a declaration for claiming the benefits
of the scheme, or the duties, fine, penalty or interest after
the issue of show cause/ Demand Notice may have been
determined, but the assessee is disputing the same in
appellate forums/courts etc and the amounts due have not B
been paid up.
4.3. It is pertinent to note that when a party comes forward
for taking the benefits of the Samadhan Scheme and C
makes suitable declaration as provided thereunder
(discussed further later) there must be dispute pending
between the party and the Dptt. (Section 98(ii)(c) of
Finanace Act refers). In other words, if in any case, there
is no Show Cause Notice pending nor the party is in D
dispute at the appellate/revision stage nor there is an
admitted petition in the court of law where parties is
contesting the stand of the Dpt!., but certain arrears of
revenue due in case, are pending payment, the benefits
of the scheme will not be available in such case. E
B. TYPES OF REVENUE ARREARS CASES
COVERED BY THE SCHEME
4.4. The intention of the scheme is to cover almost all
categories of cases involving revenue in arrears and in F
dispute on Customs and Central Excise side (with few
exceptions mentioned specifically in section 95 of Finance
Act). The cases covered may involved duty, cess, fine,
penalty or interest - whether already determined as due
or yet to be determined (in cases where show cause/ G
Demand Notice is yet to be decided). The term duty has
been elaborated to include credit of duty, drawback of duty
or any amount representing as duty. In other words, the
scheme would extend not only disorted (sic.) cases of
duties leviable under customs or Central Excise Acts and H
52 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A relevant tariff Acts or various specified Act. ...
4.5. The nature of cases covered will vary depending upon
contraventions/offence involved, but essentially it must
involve quantified duty/cess and or penalty, fine or interest.
Simple Show -Cause Notices which do not quantify any
B
amount of duty being demanded and which propose only
penal action - like confiscation of ceased goods and or
imposition of penalty for violation of statutory provisions/
collusion/abetment etc. thus will not be covered by the
scheme. However, whenever quantified amount of duties
c are demanded and penal action also proposed for various
violations even at Show Cause Notice stage benefits under
the scheme for such Show Cause Notices can be claimed.
19. In view of the aforementioned Trade Notice, it is clear
D that the object of the Scheme with reference to indirect tax
arrears is to bring down the litigation and to realize the arrears
which are considered due a:id locked up in various disputes.
This Scheme is mutually beneficial as it benefits the Revenue
Department to realize the duties, cess, fine, penalty or interest
E assessed but not paid in an expeditious manner and offers
assessee to pay disputed liability at discounted rates and also
afford immunity from prosecution. It is a settled law that the
Trade Notice, even if it is issued by the Revenue Department
of any one State, is binding on all the other departments with
F equal force all over the country. The Trade Notice guides the
traders and business community in relation to their business
as how to regulate it in accordance with the applicable laws or
schemes. In Steel Authority of India v. Collector of Customs,
(2001) 9 SCC 198, this Court has held:
G "3. Learned counsel for the Revenue submitted that this
trade notice had been issued only by the Bombay Customs
House. It is hardly to be supposed that the Customs
Authorities can take one stand in one State and another
stand in another State. The trade notice issued by one
H Customs House must bind all Customs Authorities and,
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 53
PROCESSORS PVT. LTD. [H.L. DATTU, J.]
if it is erroneous, it should be withdrawn or amended, A
which in the instant case, admittedly, has not been done."
20. In Purewal Associates Ltd. v. CCE, (1996) 10 SCC
752, this Court has held:
"10. We must take it that before issuing a trade notice B
sufficient care is taken by the authorities concerned as it
guides the traders to regulate their business accordingly.
Hence whatever is the legal effect of the trade notice as
contended by the learned Senior Counsel for the
respondent, the last portion of the above trade notice C
cannot be faulted as it is in accordance with the views
expressed by this Court. Though a trade notice as such is
not binding on the Tribunal or the courts, it cannot be
ignored when the authorities take a different stand for if it
was erroneous, it would have been withdrawn." D
21. However, the Trade Notice, as such, is not binding on
the Courts but certainly binding on the assessee and can be
contested by the assessee. (see CCE v. Kores (India) Ltd.,
(1997) 10 SCC 338; Union of India v. Pesticides E
Manufacturing and Formulators Association of India, (2002)
8 SCC 410; and CCE v. Jayant Dalal (P) Ltd., (1997) 10 SCC
402)
22. Shri. R.P. Bhatt, learned senior counsel, has appeared
for the Revenue and the respondents in civil appeal no. 5616 F
of 2006 are represented by Shri. Paras Kuhad, learned senior
counsel.
23. Learned senior counsel Shri. R.P. Bhatt, submits that
an assessee can claim benefits under the Scheme only when G
his tax arrears are determined and outstanding, or a Show
Cause Notice has been issued to him, prior to or on 31.3.1998
in terms of Section 87 (m) (ii) (a) and (b) of the Act. He further
submits that the determination of the arrears can be arrived at
by way of adjudication or by issuance of the Show Cause H
54 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A Notice to the assessee. He submits that once this condition is
satisfied, then the assessee is required to submit a declaration
under Section 88 of the Act on or after 1.9.1998 and on or
before 31.1.1999, provided that the arrears are unpaid at the
time of filing the declaration. He further submits that the present
B Scheme is statutory in character and its provision should be
interpreted strictly and those who do not fulfill the conditions of
eligibility contained in the Scheme are not allowed to avail the
benefit under the Scheme. In support of his contention, he has
relied on the Judgment of this Court in Union of India v. Charak
C Pharmaceuticals (India) Ltd., (2003) 11 SCC 689. Learned
senior counsel, relying on the, Speech of the Finance Minister
dated 17. 7.1998, [232 ITR 1998 (14)] asserts that the purpose
or the basic object of the· Scheme is the collection of tax and
settlement of disputes and it is intended to be beneficial to both
assessee as well as the Revenue. He further contends that the
0
determination of arrears or issuance of Show Cause Notice
before or on 31.3.1998 is a substantive requirement for
. eligibility under the Scheme and filing of declaration of unpaid
arrears under Section 88 of the Act is the procedural formality
E for availing the benefits of the Scheme. Therefore, he submits
that the extension of time to file declaration under the Scheme
on or before 31.1.1999 is just a procedural formality and in no
manner discriminatory, so as to violate the mandate of Article
. 14 of the Constitution. Learned senior counsel, on the strength
of Trade Notice dated 17.8.1998 and the observations made
F by this Court in the case of Charak Pharmaceuticals (supra),
further submits that. in cases of Central Excise and Customs,
the Scheme is limited only to two categories of cases: firstly,
the arrears of tax which are assessed as on 31.3.1998 and are
still unpaid and in dispute on the date of filing of declaration;
G secondly, the arrears for which, the Show Cause Notice or
Demand Notice has been issued by the Revenue as on
31.3.1998 and which are still unpaid and are in dispute on the
date of filing of declaration. He submits that the said Trade
Notice indicates that the concept of actual determination or
H assessment has been extended to the Show Cause Notice in
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 55
PROCESSORS PVT. LTD. [H.L. DATTU, J.]
order to grant the benefit of the Scheme to duty demanded in A
such Show Cause Notice. He submits that the Show Cause
Notice is in the nature of tentative charge, which has been
included in the ambit of the Scheme in order to realize the tax/
duty dues but not yet paid. He submits that the Scheme
contemplates the conferring of the benefits only on the B
quantified duty either determined by way of adjudication or
demanded in a Show Cause Notice. Learned senior counsel
contends that in the present case, the Show Cause Notice
demanding the duty was issued to the respondents only on
6.1.1999 and, therefore, the duty was determined as quantified c
only on the issuance of the Show Cause Notice. Hence,
respondents are not eligible to avail the benefit under this
Scheme. Learned senior counsel submits that the cut-off date
of on or before 31.3.1998 prescribed by Section 87 (m) (ii) (b)
cannot be considered as discriminatory or unreasonable only D
on the basis that it creates two classes of assessees unless it
appears on the face of it as capricious or malafide. The cut-off
date of 31.3.1998 in indirect tax enactments under the Scheme
has been purposively chosen in order to maintain uniformity with
direct tax enactments where assessment year ends on the said
date. In support of his submission, learned senior counsel relies E
on Union of India v. M. V. Valliappan, (1999) 6 SCC 259,
Sudhir Kumar Consul v. Allahabad Bank, (2011) 3 SCC 486
and Government of Andhra Pradesh v. N. Subbarayudu,
(2008) 14 SCC 702. He further submits that the present
Scheme extends the benefit of reduction of tax and does not F
deprive or withdraw any existing benefit to the assessees. He
also submits that if certain section of assessees is excluded
from its scope by virtue of cut-off date, they cannot challenge
the entire Scheme merely on ground of their exclusion.
G
24. Per contra, Shri. Paras Kuhad, learned senior counsel,
submits that the Scheme became effective from 1.09.1998 and
remained operative till 31.1.1999. However, the arrears in
question should relate to the period prior to or as on 31.3.1998
which is the essence of the Scheme or the qualifying condition. H
56 SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.
A He submits that Section 87 (I) defines 'disputed tax' as the total
tax determined and payable, in respect of an assessment year
under any direct tax enactment but which remains unpaid as
on the date of making the declaration under Section 88. In this
regard, he submits that the factum of arrears exists even on the
B date of filing of declaration. He contends that the Finance Act
uses the expression 'determination' instead of 'assessment' in
order to include the cases of self assessment. He submits that
in the case of direct tax and payment of advance tax, the
process of determination arises before the assessment. He
c ·further argues that the purpose of the Scheme is to reduce
litigation and recover revenue arrears in an expeditious manner.
The classification should be in order to attain these objectives
or purpose. The classification of assessees on the basis of date
of issuance of Show Cause Notice or Demand Notice is
0 unreasonable and has no nexus with the purpose of the
legislation: He further submits that all the assessees who are
in arrears of tax on or before 31.3.1998 formed one class but
further classification among them just on the basis of issuance
of Show Cause Notice is arbitrary and unreasonable. The
criterion of date of issuance of Show Cause Notice is per se
E unreasonable as based on fortuitous circumstances. It is neither
objective nor uniformly applicable. He further submits that the
High Court has correctly struck down the words "on or before
the 31st day of March 1998" in Section 87 (m) (ii) (b) and,
thereby, created a right in favour of assessee to claim benefit
F under the Scheme for all arrears of tax arising as on 31.3.1998.
He further submits that by application of the doctrine of
severability, the Scheme can operate as a valid one for all
purposes. Learned senior counsel submits that the carving out
of suQ-group only on the basis of whether Show Cause Notice
G has been issued or not and the Scheme being made effective
from prospective date would render the operation or availability
of Scheme variable or uncertain, depending on case to case.
He further submits that this has no relation with the purpose of i
the Scheme which is beneficial in nature. He further submits
H that the date of issuance of Show Cause Notice is not controlled
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 57
PROCESSORS PVT. LTD. [H.L. DAITU, J.]
by the assessee. Therefore, it is fortuitous circumstance which A
is per se unreasonable. The objective of the doctrine of
classification is that the unequal should not be treated equally
in order to achieve equality. The basis for classification in terms
of Article 14 should be intelligible criteria which should have
nexus with the object of the legislation. He argues that the B
criterion of date of issuance of Show Cause Notice is just· a
fortuitous factor which is variable, uncertain, and fateful and
cannot be considered as intelligible criteria for the purpose of
Article 14 of the Constitution. He submits, however, criterion for
classification is the prerogative of the Parliament but it should c
be certain and not vacillating like date of issuance of Show
Cause Notice. He further submits that the hardships arising out
of normal cut-off criteria is acceptable and justified but when
injustice arises out of operation of the provision which prescribe
criteria which is variable fOf same class of persons for availing D
the benefit of the Scheme, is against the mandate of Article 14
of the Constitution. He relies on the decision of this Court in
State of Jammu and Kashmir v. Tri/oki Naths Khosa, (1974)
1 sec 19 in order to buttress his argument that the
classification is a subsidiary rule to the Fundamental Right of E
Equal Protection of Laws and should not be used in a manner
to submerge and drown the principle of equality. Learned senior
counsel contends that the purpose of the Scheme is to end the
dispute qua assessee, who is in arrears of taxes and has not
paid such arrears. He further submits that in case of Central
Excise, the excise duty is determined on removal of goods but F
the actual payment is made later and also, in case of self
assessment, the tax arrears are determined before the actual
payment or possible dispute. He submits that as per Rule 173
F of the Excise Rules, the assessee is required to determine
the duty payable by self assessment of the excisable goods G
before their removal from the factory. He further submits that
the methodology of re-assessment under Section 11 A of the
Excise Act, rate of product approved before hand under Section
1738 and ad valorem for value of goods under Section 173C
contemplates the determination of duty payable by the H
58 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A assessee. In this regard, he submits that the word 'determined'
has been used purposively and deliberately in the Scheme
instead of 'assessment'. He further argues that in view of the
object of the Scheme to collect revenue, the Scheme envisages
two elements: first, the determination of the amount of tax due
B and payable on or before 31.3.1998 and, second, whether the
tax so determined is in arrears on date of declaration under
Section 88. In other words, he submits that the tax so
determined on or before 31.3.1998 should be in arrears on the
date of declaration under Section 88. Learned senior counsel,
c in support of his submissions, relies on the decision of this
Court in Government of India v. Ohanalakshmi Paper and
Board Mills, 1989 Supp. (1) SCC 596.
25. Taxation is a mode of raising revenue for public
purposes. In exercise of the power to tax, the purpose always
D is that a common burden shall be sustained by common
contributions, regulated by some fixed general rules, and
apportioned by the law according to some uniform ratio of
'equality.
E 26. The word 'duty' means an indirect tax imposed on the
importation or consumption of goods. 'Customs' are duties
charged upon commodities on their being imported into or
exported from a country.
27. The expression 'Direct Taxes' include those assessed
F upon the property, person, business, income, etc., of those who
are to pay them, while indirect taxes are levied upon
commodities before they reach the consumer, and are paid by
those upon whom they ultimately fall, not as taxes, but as part
of the market price of the commodity. For the purpose of the
G Scheme, indirect tax enactments are defined as Customs Act,
1962, Central Excise Act, 1944 or the Customs Tariff Act, 1985
and the Rules and Regulations framed thereunder.
28. The Scheme defines the meaning of the expression
H 'Tax Arrears', in relation to indirect tax enactments. It would
UNION OF INDIA AND ORS. v. NITDIP TEXTILE. 59
PROCESSORS PVT. LTD. [H.L. DATTU, J.]
mean the determined amount of duties, as due and payable A
which would include drawback of duty, credit of duty or any
amount representing duty, cesses, interest, fine or penalty
determined. The legislation, by using its prerogative power, has
restricted the dues of duties quantified and payable as on 31st
day of March, 1998 and remaining unpaid till a particular event B
has taken place, as envisaged under the Scheme. The date
has relevance, which aspect we would elaborate a little later.
The definition is inclusive definition. It also envisages instances
where a Demand Notice or Show Cause Notice issued under
indirect tax enactment on or before 31st day of March, 1998 c
but not complied with the demand made to be treated as tax
arrears by legal fiction. Thus, legislation has carved out two
categories of assessees viz. where tax arrears are quantified
but not paid, and where Demand Notice or Show Cause Notice
issued but not paid. In both the circumstances, legislature has D
taken cut off date as on 31st day of March 1998. It cannot be
disputed that the legislation has the power to classify but the
only question that requires to be considered is whether such
classification is proper. It is now well settled by catena of
decisions of this Court that a particular classification is proper E
if it is based on reason and not purely arbitrary, caprice or
vindictive. On the other hand, while there must be a reason for
the classification, the reason need not be good one, and it is
immaterial that the Statute is unjust. The test is not wisdom but
good faith in the classification. It is too late in the day to contend
otherwise. It is time and again observed by this Court that the F
Legislature has a broad discretion in the matter of
classification. In taxation, 'there is a broader power of
classification than in some other exercises of legislation'. When
the wisdom of the legislation while making classification is
questioned, the role of the Courts is very much limited. It is not G
reviewable by the Courts unless palpably arbitrary. It is not the
concern of the Courts whether the classification is the wisest
or the best that could be made. However, a discriminatory tax
cannot be sustained if the classification is wholly illusory.
H
60 SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.
A 29. Kar Vivad Samadhan Scheme is a step towards the
settlement of outstanding disputed tax liability. The Scheme is
a complete Code in itself and exhaustive of matter dealt with
therein. Therefore, the courts must construe the provisions of
the Scheme with reference to the language used therein and
B ascertain what their true scope is by applying the normal rule
of construction. Keeping this principle in view, let us consider
the reasoning of the High Court.
30. The tests adopted to determine whether a
classification is reasonable or not are, that the classification
C must be founded on an intelligible differentia which
distinguishes person or things that are grouped together from
others left out of the groups and that the differentia must have
a rational relation to the object sought to be achieved by Statute
in question. The Legislature in relation to 'tax arrears' has
D classified two groups of assessees. The first one being those
assessees iR whose cases duty is quantified and not paid as
on the 31st day of March, 1998 and those assessees who are
served witla Demand or Show Cause \lotice issued on or
before the 31st clay of March, 1998. The Scheme is not made
E applicable to such of those assessees whose duty dues are
quantified but Demand !'ilotice is not issued as on 31st day of
March, 1998 inti(natin~ the a.ssessee's dues payable. The
same is the case of the assessees who are not issued with
the Demand or Show Cause Notice as on 31.03.1~98. The
F grievance of the assessee is that the date fixed is arbitrary and
deprives the benefit for those assessees who are issued
Demand Notice or Show Cause Notice after the cut off date
namely 31st day of March, 1998. The Legislature, in its wisdom,
has thought it fit to extend the benefit of the scheme to such of
G those assessees whose tax arrears are outstanding as on
31.03.1998, or who are issued with the Demand or Show
Cause Notice on or before 31st day of March, 1998, though
the time to file declaration for claiming the benefit is extendea
till 31.01.1999. The classification made by the legislature
H appears to be reasonable for the reason that the legislature has
UNION OF INDIAAND ORS. v. NITDIP TEXTILE 61
PROCESSORS PVT. LTD. [H.L. DATIU, J.)
grouped two categories of assessees namely, the assessees A
whose dues are quantified but not pcftd and the a'SSessees who
are issued with the Demand and Show Cause Notice on or
before a particular date, month and year. The Legislature has
not extended this benefit to those persons who do not fall under
this category or group. This position is made clear by Section B
88 of the Scheme which provides for settlement or tax payable
under the Scheme by filing declaration after 1st day of
September, 1998 but on or before the 31st day of December,
1998 in accordance with Section 89 of the Scheme, which date
was extended upto 31.01.1999. The distinction so made cannot c
be said to be arbitrary or illogical which has no nexus with the
purpose of legislation. In determining whether classification is
reasonable, regard must be had to the purpose for which
legislation is designed. As we have seen, while understanding
the Scheme of the legislation, the legislation is based on a D
reasonable basis which is firstly, the amount of duties, cesses,
interest, fine or penalty must have been determined as on
31.03.1998 but not paid as on the date of declaration and
secondly, the date of issuance of Demand or Show Cause
Notice on or before 31.03.1998, which is not disputed but the E
duties remain unpaid on the date of filing of declaration.
Therefore, in our view, the Scheme 1998 does not violate the
equal protection clause where there is an essential difference
and a real basis for the classification which is made. The mere
fact that the line dividing the classes is placed at one point
rather than another will not impair the validity of the classification. F
The concept of Article 14 vis-a-vis fiscal legislation is explained
by this Court in several decisions.
31. In Amalgamated Tea Estates Co. Ltd. v. State of
Kera/a, (1974) 4 SCC 415, this Court has held: G
8. It may be pointed out that the Indian Income Tax Act also
makes a distinction between a domestic company and a
foreign company. But that circumstance per se would not
help the State of Kerala. The impugned legislation, in order H
62 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A to get the green light from Article 14, should satisfy the
classification test evolved by this Court in a catena of
cases. According to that test: (1) the classification should
be based on an intelligible differentia and (2) the differentia
should bear a rational relation to the purpose of the
B legislation.
9. The classification test is, however, not inflexible and
doctrinaire. It gives due regard to the complex necessities
and intricate problems of government. Thus as revenue is
the first necessity of the State and as taxes are raised for
c various purposes and by an adjustment of diverse
elements, the Court grants to the State greater choice of
classification in the field of taxation than in other spheres.
According to Subba Rao, J.:
D "(T)he courts in view of the inherent complexity of
fiscal adjustment of diverse elements, permit a
larger discretion to the Legislature in the matter of
classification, so long as it adheres to the
fundamental principles underlying the said doctrine.
E The power of the Legislature to classify is of wide
range and flexibility so that it can adjust its system
of taxation in all proper and reasonable ways."
(Khandige Sham Bhat v. Agricultural Income Tax
Officer, Kasargod; V. Venugopala Ravi Verma
F Rajah v. Union of India.)
10. Again, on a challenge to a statute on the ground
of Article 14, the Court would generally raise a
presumption in favour of its constitutionality.
Consequently, one who challenges the statute
G bears the burden of establishing that the statute is
clearly violative of Article 14. "The presumption is
always in favour of the constitutionality of an
enactment and the burden is upon him who attacks
it to show that there is a clear transgression of the
H
UNION OF !NOIA AND ORS. v. NITDIP l l:::X I Ill:: 63
PROCESSORS PVT. LTD. [H.L. DATTU, J.)
constitutional principle." (See Charanjit Lal v. Union A
of India.)
32. In Anant Mills Co. Ltd. v. State of Gujarat, (1975) 2
SCC 175, this Court has observed:
"25. It is well-established that Article 14 forbids class B
legislation but does not forbid classification. Permissible
classification must be founded on an intelligible differentia
which distinguishes persons or things that are grouped
together from others left out of the group, and the differentia
must have a rational relation to the object sought to be C
achieved by the statute in question. In permissible
classification mathematical nicety and perfect equality are
not required. Similarity, not identity of treatment, is
enough. If there is equality and uniformity within each
group, the law will not be condemned as discriminative, D
though due to some fortuitous circumstances arising out
of a peculiar situation some included in a class get an
advantage over others, so long as they are not singled out
for special treatment. Taxation law is not an exception to
this doctrine. But, in the application of the principles, the E
courts, in view of the inherent complexity of fiscal
adjustment of diverse elements, permit a larger discretion
to the Legislature in the matter of classification so long as
it adheres to the fundamental principles underlying the said
doctrine. The power of the Legislature to classify is of wide F
range and flexibility so that it can adjust its system of
taxation in all proper and reasonable ways (see Ram
Krishna Dalmia v. Justice S.R. Tendolkar and Khandige
Sham Bhat v. Agricultural Income Tax Officer;
Kasaragod) Keeping the above principles in view, we find G
no violation of Article 14 in treating pending cases as a
class different from decided cases. It cannot be disputed
that so far as the pending cases covered by clause (i) are
concerned, they have been all treated alike."
33. In Jain Bros v. Union of India, (1969) 3 SCC 311, the H
64 SUPREME COURT REPORTS [2011] 13 (ADDL) S.C.R.
A issue before this Court was whether the clause (g) of Section
297(2) of the lncon:ie Tax Act, 1961 is violative of Article 14 of
the Constitution inasmuch as in the matter of imposition of
penalty, it discriminated between two sets of assessees with
reference to a particular date, namely, those whose
s assessment had been completed before 1st day of April 1962
and others whose assessment was completed on or after that
date. Whilst upholding the validity of the above provision, this
Court has observed:
"Now the Act of 1961 came into force on first April 1962.
c It repealed the prior Act of 1922. Whenever a prior
enactment is repealed and new provisions are enacted the
Legislature invariably lays down under which enactment
pending proceedings shall be continued and concluded.
Section 6 of the General Clauses Act, 1897, deals with the
D effect of repeal of an enactment and its provisions apply
unless a different intention appears in the statute. It is for
the Legislature to decide from which date a particular law
should come into operation. It is not disputed that no
reason has been suggested why pending proceedings
E cannot be treated by the Legislature as a class for the
purpose of Article 14. The date first April, 1962, which has
been selected by the Legislature for the purpose of clauses
(f) and (g) of Section 297(2) cannot be characterised as
arbitrary or fanciful."
F
34. In Murthy Match Works v. CCE, (1974) 4 SCC 428,
this Court has observed:
"15. Certain principles which bear upon classification may
. be mentioned here. It is true that a State may classify
G persons and objects for the purpose of legislation and
pass laws for the purpose of obtaining revenue or other
objects. Every differentiation is not a discrimination. But
classification can be sustained only it it is founded on
pertinent and real differences as distinguished from
H irrelevant and artificial ones. The constitutional standard by
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 65
PROCESSORS PVT. LTD. [H.L. DATTU, J.]
which the sufficiency of the differentia which form a valid A
basis for classification may be measured, has been
repeatedly stated by the Courts. If it rests on a difference
which bears a fair and just relation to the object for which ·
it is proposed, it is constitutional. To put it differently, the
means must have nexus with the ends. Even so, a large B
latitude is allowed to the State for classification upon a
reasonable basis and what is reasonable is a question of
practical details and a variety of factors which the Court
will be reluctant and perhaps ill-equipped to investigate.
In this imperfect world perfection even in grouping is an c
ambition hardly ever accomplished. In this context, we have
to remember the relationship between the legislative and
judicial departments of Government in the determination
of the validity of classification. Of course, in the last
analysis Courts possess the power to pronounce on the D
constitutionality of the acts of the other branches whether
a classification is based upon substantial differences or
is arbitrary, fanciful and consequently illegal. At the same
time, the question of classification is primarily for legislative '
judgment and ordinarily does not become a judicial E
question. A power to classify being extremely broad and
based on diverse considerations of executive pragmatism,
the Judicature cannot rush in where even the Legislature
warily treads. All these operational restraints on judicial
power must weigh more emphatically where the subject is
taxation. F
19. It is well-established that the modern state, in
exercising its sovereign power of taxation, has to deal with G
complex factors relating to the objects to be taxed, the
quantum to be levied, the conditions subject to which the
levy has to be made, the social and economic policies
which the tax is designed to subserve, and what not. In the
famous words of Holmes, J. in Bain Peanut Co. v. Pinsoni: H
66 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A "We must remember that the machinery of
Government would not work if it were not allowed a little
play in its joints."
35. In R.K. Garg v. Union of/ndia, (1981) 4 SCC 675, this
Court has held:
8
7. Now while considering the constitutional validity of a
statute said to be violative of Article 14, it is necessary to
bear in mind certain well established principles which have
been evolved by the courts as rules of guidance in
c discharge of its constitutional function of judicial review.
The first rule is that there is always a presumption in favour
of the constitutionality of a statute and the burden is upon
him who attacks it to show that there has been a clear
transgression of the constitutional principles. This rule is
D based on the assumption, judicially recognised and
accepted, that the legislature understands and correctly
appreciates the needs of its uwn people, its laws are
directed to problems made manifest by experience and
its discrimination are based on adequate grounds. The
E presumption of constitutionality is indeed so strong that in
order to sustain it, the Court may take into consideration
matters of common knowledge, matters of common report,
the history of the times and may assume every state of
facts which can be conceived existing at the time of
F legislation.
"8. Another rule of equal importance is that laws relating
to economic activities should be viewed with greater
latitude than laws touching civil rights such as freedom of
speech, religion etc. It has been said by no less a person
G than Holmes, J., that the legislature should be allowed
some play in the joints, because it has to deal with
complex problems which do not admit of solution through
any doctrinaire or strait-jacket formula and this is
particularly true in case of legislation dealing with
H economic matters, where, having regard to the nature of
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 67
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
the problems required to be dealt with, greater play in the A
joints has to be allowed to the legislature. The court
should feel more inclined to give judicial deference to
legislative judgment in the field of economic regulation
than in other areas where fundamental human rights are
involved." B
36. In E/e/ Hotels and Investments Ltd. v. Union of India,
(1989) 3 SCC 698, this Court has held:
"20. It is now well settled that a very wide latitude is
available to the legislature in the matter of classification C
of objects, persons and things for purposes of taxation. It
must need to be so, having regard to the complexities
involved in the formulation of a taxation policy. Taxation is
not now a mere source of raising money to defray
expenses of Government. It is a recognised fiscal tool to D
achieve fiscal and social objectives. The differentia of
classification presupposes and proceeds on the premise
that it distinguishes and keeps apart as a distinct class
hotels with higher economic status reflected in one of the
indicia of such economic superiority." E
37. In P. M. Ashwathanarayana Setty v. State of
Karnataka, (1989) Supp. (1) SCC 696, this Court has held:
"... the State enjoys the widest latitude where measures of
economic regulation are concerned. These measures for F
fiscal and economic regulation involve an evaluation of
diverse and quite often conflicting economic criteria and
adjustment and balancing of various conflicting social and
economic values and interests. It is for the State to decide
what economic and social policy it should pursue and what G
discriminations advance those social and economic
policies."
38. In Kera/a Hotel and Restaurant Assn. v. State of
Kera/a, (1990) 2 SCC 502, this Court has observed:
H
68 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A "24. The scope for classification permitted in taxation is
greaterand unless the classification made can be termed
to be palpably arbitrary, it must be left to the legislative
wisdom to choose the yardstick for classification, in the
background of the fiscal policy of the State .... "
B
39. In Spences Hotel (P) Ltd. v. State of WB., (1991) 2
SCC 154, this Court has observed:
"26. Whatthen 'equal protection of laws' means as applied
to taxation? Equal pr9tec~ion cannot be said to be denied
c by a statute which operates alike on all persons and
property similarly situated, or by proceedings for the
assessment and collection of taxes which follows the
course usually pursued in the State. It prohibits any person
or class of persons from being singled out as special
D subject for discrimirrati'on and hostile legislation; but it does
not require equal rates of •axatiOn on different classes of
property, nor does it prohibit unequat'!axation so long as
the inequality is not based upon arbitrary classification.
Taxation will not be discriminatory if, within the sphere of
E its operation, ii affects alike all persons similarly situated.
It, however, does not prohibit special legislatlon, or
legislation that is limited either in the objects lo which ii is
directed, or by the territory within which it is to operate. In
the words of Cooley: It merely requires that all persons
F subjected to such legislation shall be treated alike, under
like circumstances and conditions, both in the privileges
conferred and in the liabilities imposed. The rule of equality
requires no more than that the same means and methods
be applied impartially to all the constituents of each class,
so that the law shall operate equally and uniformly upon all
G
persons in similar circumstances. Nor does this
requirement preclude the classification of property, trades,
profession and events for taxation - subjecting one kind
to one rate of taxation, and another to a different rate. "The
rule of equality of taxation is not intended to prevent a State
H from adjusting its system of taxation in all proper and
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 69
PROCESSORS PVT. LTD. [H.L. DATTU, J.]
reasonable ways. ·it may, if it chooses, exempt certain A
classes of property from any taxation at all, may impose
different specific taxes upon different trades and
professions." "It cannot be said that ii is intended to
compel the State to adopt an iron rule of equal taxation."
In the words of Cooley :il B
"Absolute equality is impossible. Inequality of taxes
means substantial differences. Practical equality is
constitutional equality. There is no imperative
requirement that taxation shall be absolutely equal. C
If there were, the operations of government must
come to a stop, from the absolute impossibility of
fulfilling it. The most casual attention to the nature
and operation of taxes will put this beyond question.
No single tax can be apportioned so as to be
exactly just and any combination of taxes is likely D
in individual cases to increase instead of diminish
the inequality."
27. "Perfect equality in taxation has been said time and
again, to be impossible and unattainable. Approximation E
to it is all that can be had. Under any system of taxation,
however, wisely and carefully framed, a disproportionate
share of the public burdens would be thrown on certain
kinds of property, because they are visible and tangible,
while others are of a nature to elude vigilance. It is only F
where statutes are passed which impose taxes on false
and unjust principle, or operate to produce gross inequality,
so that they cannot be deemed in any just sense
proportional in their effect on those who are to bear the
public charges that courts can interpose and arrest the G
course of legislation by declaring such enactments void."
"Perfectly equal taxation", it has been said, "will remain an
unattainable good as long as laws and government and
man are imperfect." 'Perfect uniformity and perfect equality
H
70 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A of taxation', in all the aspects in which the human mind can
view it, is a baseless dream."
40. In Venkateshwara Theatre v. State of A.P., (1993) 3
SCC 677, this Court has held:
B "21. Since in the present case we are dealing with a
taxation measure it is necessary to point out that in the field
of taxation the decisions of this Court have permitted the
legislature to exercise an extremely wide discretion in
classifying items for tax purposes, so long as it refrains
c from clear and hostile discrimination against particular
persons or classes."
41. In State of Kera/a v. Aravind Ramakant Modawdakar,
(1999) 7 SCC 400, this Court has held:
D "Coming to the power of the State in legislating taxation
law, the court should bear in mind that the State has a wide
discretion in selecting the persons or objects it will tax and
thus a statute is not open to attack on. the ground that it
taxes some persons or objects and not others. It is also
E well settled that a very wide latitude is available to the
legislature in the matter of classification of objects, persons
and things for the purpose of taxation. While considering
the challenge and nature that is involved in these cases,
the courts will have to bear in mind the principles laid down
F by this Court in the case of Murthy Match Works v. CCEl
wherein while considering different types of classifications,
this Court held: (AIR Headnote)
"[T]hat a pertinent principle of differentiation, which was
G visibly linked to productive process, had been adopted in
the broad classification of power-users and manual
manufacturers. It was irrational to castigate this basis as
unreal. The failure however, to mini-classify between large
and small sections of manual match manufacturers could
not be challenged in a court of law, that being a policy
H
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 71
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
decision of Government dependent on pragmatic wisdom A
playing on imponderable forces at work. Though refusal to
make rational classification where grossly dissimilar
subjects are treated by the law violates the mandate of
Article 14, even so, as the limited classification adopted
in the present case was based upon a relevant differentia B
which had a nexus to the legislative end of taxation, the
Court could not strike down the law on the score that there
was room for further classification."
42. In State of U.P. v. Kam/a Palace, (2000) 1 SCC 557, C
this Court has observed:
11. Article 14 does not prohibit reasonable classification
of persons, objects and transactions by the legislature for
the purpose of attaining specific ends. To satisfy the test
of permissible classification, it must not be "arbitrary, D
artificial or evasive" but must be based on some real and
substantial distinction bearing a just and reasonable
relation to the object sought to be achieved by the
legislature. (See Special Courts Bill, 1978, Re, seven-
Judge Bench; R.K. Garg v. Union of India, five-Judge E
Bench.) It was further held in R.K. Garg case that laws
relating to economic activities or those in the field of
taxation enjoy a greater latitude than laws touching civil
rights such as freedom of speech, religion etc. Such a
legislation may not be struck down merely on account of F
crudities and inequities inasmuch as such legislations are
designed to take care of complex situations and complex
problems which do not admit of solutions through any
doctrinaire approach or straitjacket formulae. Their
Lordships quoted with approval the observations made by G
Frankfurter, J. in Morey v. Doud:
"In the utilities, tax and economic regulation cases,
there are good reasons for judicial self-restraint if
not judicial deference to legislative judgment. The
legislature after all has the affirmative responsibility. H
72 SUPREME COURT REPORTS (2011] 13 (ADDL.) S.C.R.
A The courts have only the power to destroy, not to
reconstruct. When these are. added to the
complexity of economic regulation, the uncertainty,
the liability to error, the bewildering conflict of the
experts, and the number of times the Judges have
B been overruled by events - self-limitation can be
seen to be the path to judicial wisdom and
institutional prestige and stability."
12. The legislature gaining wisdom from historical facts,
existing situations, matters of common knowledge and
c practical problems and guided by considerations of policy
must be given a free hand to devise classes - whom to
tax or not to tax, whom to exempt or not to exempt and
whom to give incentives and lay down the rates of taxation,
benefits or concessions. In the field of taxation if the test
D of Article 14 is satisfied by generality of provisions the
courts would not substitute judicial wisdom for legislative
wisdom.
43. In Aashirwad Films v. Union of India, (2007) 6 SCC
E 624, this Court has held:
14. It has been accepted without dispute that taxation laws
must also pass the test of Article 14 of the Constitution of
India. It has been laid down in a large number of decisions
of this Court that a taxation statute for the reasons of
F functional e>:pediency and even otherwise, can pick and
choose to tax some. Importantly, there is a rider operating
on this wide power to tax and even discriminate in taxation
that the classificat!"n thus chosen must be reasonable. The
extent of reasonability of any taxation statute lies in its
G efficiency to achieve the object sought to be achieved by
the statute. Thus, the classification must bear a nexus with
the object sought to be achieved. (See Moopil Nair v.
State of Kera/a, East India Tobacco Co. v. State of A.P.,
N. Venugopa/a Ravi Varma Rajah v. Union of India,
H
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 73
PROCESSORS PVT. LTD. [H.L. DATTU, J.]
' Asstt. Director of Inspection Investigation v. A.B. Shanthi A
and Associated Cement Companies Ltd. v. Govt. of AP.)
44. In Jai Vijai Metal Udyog Private Limited, Industrial
Estate, Varanasi v. Commissioner, Trade Tax, Uttar Pradesh,
Lucknow, (2010) 6 SCC 705, this Court held: B
19. Now, coming to the second issue, it is trite that in view
of the inherent complexity of fiscal adjustment of diverse
elements, a wider discretion is given to the Revenue for
the purpose of taxation and ordinarily different
interpretations of a particular tariff entry by different C
authorities as such cannot be assailed as violative of
Article 14 of the Constitution. Nonetheless, in our opinion,
two different interpretations of a particular entry by the
same authority on same set of facts, cannot be immunised
from the equality clause under Article 14 of the Constitution. D
It would be a case of operating law unequally, attracting
Article 14 of the Constitution.
45. To sum up, Article 14 does not prohibit reasonable
classification of persons, objects and transactions by the E
Legislature for the purpose of attaining specific ends. To satisfy
the test of permissible classification, it must not be "arbitrary,
artificial or evasive" but must be based on some real and
substantial distinction bearing a just and reasonable relation to
the object sought to be achieved by the Legislature. The
F
taxation laws are no exception to the application of this principle
of equality enshrined in Article 14 of the Constitution of India.
However, it is well settled that the Legislature enjoys very wide
latitude in the matter of classification of objects, persons and
things for the purpose of taxation in view of inherent complexity G
of fiscal adjustment of diverse elements. The power of the
Legislature to classify is of wide range and flexibility so that it
can adjust its system of taxation in all proper and reasonable
ways. Even so, large latitude is allowed to the State for
classification upon a reasonable basis and what is reasonable
is a question of practical details and a variety of factors which H
74 SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A the Court will be reluctant and perhaps ill-equipped to
investigate. It has been laid down in a large number of
decisions of this Court that a taxation Statute, for the reasons
of functional expediency and even otherwise, can pick and
choose to tax some. A power to classify being extremely broad
B and based on diverse considerations of executive pragmatism,
the Judicature cannot rush in where even the Legislature warily
treads. All these operational restraints on judicial power must
weigh more emphatically where the subject is taxation.
Discrimination resulting from fortuitous circumstances arising
c out of particular situations, in which some of the tax payers find
themselves, is not hit by Article 14 if the legislation, as such, is
of general application and does not single them out for harsh
treatment. Advantages or disadvantages to individual assesses
are accidental and inevitable and are inherent in every taxing
Statute as it has to draw a line somewhere and some cases
0
necessarily fall on the other side of the line. The point is
illustrated by two decisions of this Court. In Khandige Sham
Bhat vs. Agricultural Income Tax Officer, Kasaragod and Anr.
{AIR 1963 SC 591). Travancore Cochin Agricultural Income Tax
Act was extended to Malabar area on November 01, 1956 after
E formation of the State of Kerala. Prior to that date, there was
no agricultural income tax in that area. The challenge under
Article 14 was that the income of the petitioner was from areca
nut and pepper crops, which were harvested after November
in every year while persons who grew certain other crops could
F harvest before November and thus escape the liability to pay
tax. It was held that, that was only accidental and did not
amount to violation of Article14. In Jain Bros. vs. Union of India
{supra), Section 297{2){g) of Income Tax Act, 1961 was
challenged because under that Section proceedings completed
G prior to April, 1962 was to be dealt under the old Act and
proceedings completed after the said date had to be dealt with
under the Income Tax Act, 1961 for the purpose of imposition
of penalty. April 01, 1962 was the date of commencement of
Income Tax Act, 1961. It was held that the crucial date for
H imposition of Penalty was the date of completion of assessment
UNION OF INDIA AND ORS. v. NITDIP TEXTILE 75
PROCESSORS PVT. LTD. [H.L. DATTU, J.]
or the formation of satisfaction of authority that such act had A
been committed. It was also held that for the application and
implementation of the new Act, it was necessary to fix a date
and provide for contiAuation of pending proceedings. It was also
held that the mere possibility that some officer might intentionally
delay the disposal of a case could hardly be a ground for striking B
down the provision as discriminatory.
46. In view of the above discussion, we cannot agree with
the findings and the conclusion reached by the High Court for
which, we have made reference earlier. We have also not C
discussed in detail the individual issues raised by the learned
senior counsel for the respondent, since those were the issues
which were canvassed and accepted by the High Court.
Accordingly, the appeals are allowed. The impugned common
judgment and order is set aside. Costs are made easy.
D
N.J. Appeals allowed.
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Article 14"Sign in to search