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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1795 OF 2005

UNION OF INDIA & ORS. .....APPELLANT(S)

VERSUS

M/S N.S. RATHNAM & SONS .....RESPONDENT(S)

J U D G M E N T

A.K. SIKRI, J.

The respondent herein impugned the validity of Notifications

Nos.102/87-CE and 103/87-CE, both dated 27.03.1987, whereby

whole of the duty of excise was exempted in respect of iron and

steel scrap obtained by breaking the ship subject to the condition

that  customs  duty  should  have  been  levied  at  the  rate  of

Rs.1400/-  per  Light  Displacement  Tonnage  (LDT).   With  the

stipulation of such a condition, giving the exemption of payment

of  excise  duty  only  to  those  who  had  paid  customs  duty  at

Rs.1400/-  per  LDT, another  class  of  persons  who   also  paid

custom duty  under  Section 3  of  the Customs Tariff  Act,  1975,

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albeit at  a  lesser  rate,  was  excluded.   The  respondent  who

belonged  to  excluded  category,  had  challenged  the  said

Notification  as  arbitrary  and  violative  of  Article  14  of  the

Constitution.  Though the learned Single Judge dismissed the writ

petition, the Division Bench in appeal has accepted the aforesaid

plea of the respondent and vide judgment dated 18.08.2003 held

that the second category of persons shall also be entitled to the

benefit of this Notification.  It is this judgment which is impugned

by the Union of  India  and is  the subject  matter  of  the instant

appeal.   

2. The facts which are relevant to the aforesaid controversy need to

be traversed at this stage.  These are as follows:  

The respondent herein is engaged in the business of ship

breaking  activities.   It  had  imported  a  foreign  vessel  “M.V.

Gonong Mass”  for  the purpose of  breaking it  and selling it  as

scrap.   This  ship  was  purchased  by  the  respondent  as  a

successful tenderer for a sum of Rs.61 lakhs and at the time of

import, the Collector of Customs, Cochin, assessed the custom

duty and additional duty payable under Section 3 of the Customs

Tariff  Act,  1975 on this ship on ad-valorem basis and customs

duty in the sum of Rs.62,16,796.55 was levied on the movable

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articles in the ship; body of the ship was assessed at 30% and

50% ad-valorem and additional  custom duty  i.e.  countervailing

duty at  12% ad-valorem.  The respondent  also paid a sum of

Rs.5,68,660/- as sales tax.   

3. After import  of  the ship,  the same was dismantled and broken

from which iron and steel scrap was taken out.   This iron and

steel  scrap  is  exigible  to  excise  duty.   The  respondent  has

registered itself under the Central Excise Act.  The aforesaid iron

and steel  scrap which was obtained by breaking the ship was

cleared by the respondent on payment of central excise duty at

the rate of Rs.365/- per tonne as per Notification No.146/86-CE

dated  01.03.1986.   Upto  this  point,  there  is  no  dispute.   The

relevant period with which we are concerned is from 08.08.1986

to 27.07.1987.  During this period, the following materials were

cleared:

09.08.1986 to 26.03.1987 - 3058.49 MT 27.03.1987 to 30.06.1987 - 1249.715 MT 01.07.1987 to 27.07.1987 - 408.180 MT

4. There  are  certain  exemption  Notifications  issued  by  the

Government of India under sub-rule (1) of Rule 8 of the Central

Excise Rules,  1944.   The details  of  these Notifications are  as

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under:  

Notification  No.146/86-CE  dated  01.03.1986  which  pertains  to

“iron and steel from breaking the ship”.  It provides for exemption

of  goods  falling  under  Heading  No.72.15  and  73.09  of  the

Schedule to the Central Excise Tariff Act, 1985, from so much of

the duty or excise leviable thereon, which is specified in the said

Schedule, as in excess of the amount calculated at the rate of

Rs.305 per tonne.  Proviso to the said Notification lays down the

conditions which need to be fulfilled to avail  the benefit  of this

Notification.  This proviso reads as under:  

“Provided  that  the  said  goods  have  been obtained from breaking of ships, boats and other floating structures-

(i)  On which duty of customs leviable thereon under the First  Schedule to the Customs Tariff Act, 1975 (51 of 1975) has been paid at the rate of Rs.1,400/- per Light Displacement tonnage; or

(ii)   Imported  on  or  before  the  28th  day  of February,  1986  and  on  which  appropriate additional duty leviable thereon under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), has been paid.”

5. The aforesaid Notification was superseded by another Notification

No.386/86-CE dated 20.08.1986.  Under this Notification, whole

of the duty of excise stood exempted on meeting the conditions

mentioned in proviso thereto, provided that the said goods have

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been obtained from breaking of ships, boats and other floating

structures-

(i) on which duty of customs leviable thereon under the First

Schedule to the Customs Tariff Act, 1975 (51 of 1975) has

been paid at the rate of Rs.1,400/- per LDT; or

(ii) imported on or before the 28th day of February, 1986 and

on which appropriate additional duty leviable thereon under

Section 3 of the Customs Tariff Act, 1975 (51 of 1975), has

been paid.

  6. Within  few  months,  another  Notification  No.102/87-CE  dated

27.03.1987  was  issued  which  superseded  Notification

No.386/86-CE  dated  20.08.1986  as  well.   In  this  Notification,

again partial exemption was provided.  This exemption was from

so much of the duty of excise leviable thereon, which is specified

in the Schedule to the Central Excise Tariff Act, as in excess of

the amount calculated at the rate of Rs.365 per tonne.  However,

in the proviso, the condition that was stipulated which had to be

met to avail the exemption, reads as under:

“Provided  that  the  said  goods  have  been obtained from breaking of ships, boats and other floating structures on which has been paid the duty  of  customs  leviable  under  the  First Schedule to the customs Tariff Act, 1975 (51 of 1975)  at  the  rate  of  Rs.1,035/-  per  Light Displacement  Tonnage  and also  the  additional

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duty leviable thereon under Section 3 of the said Customs Tariff Act at the rate of Rs.365 per Light Displacement Tonnage.”

7. On  the  same  day,  another  Notification  No.103/87-CE  dated

27.03.1987 was also issued.  Vide this Notification, goods were

exempted from whole of the duty or excise leviable thereon as

specified  in  the  Schedule  to  the  Act  falling  under  the  same

Heading  Nos.  i.e.  72.15  and  73.09  on  the  fulfillment  of  the

condition contained in proviso to this Notification, which reads as

follows:

“Provided  that  the  said  goods  have  been obtained  from  breaking  of  ships,  boats  and other  floating  structures  on  which  the  duty  of customs  leviable  thereon  under  the  First Schedule to the Customs Tariff Act, 1975 (51 of 1975) has been paid at  the rate of  Rs.1,400/- per Light Displacement Tonnage.”

8. These two Notifications, both dated 27.03.1987, pertain to same

goods, namely, those falling under Headings 72.15 and 73.09 of

the  said  Schedule  to  the  Act.   However, vide  first  Notification

No.102/87-CE, if the customs duty leviable on the import of ship

for the purpose of breaking is paid at the rate of Rs.1,035/- per

LDT along with additional duty leviable thereon under Section 3 of

the Customs Tariff Act, the excise duty payable is at the rate of

Rs.365/- per tonne, exempting the remainder as specified in the

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Schedule.  On the other hand, as per Notification No.103/87-CE,

if the customs duty has been paid at the rate of Rs.1400/- per

LDT, the scrap obtained from breaking of such ships is exempted

from the entire excise duty.   

9. The respondent herein had paid the duty at the rate of Rs.1035/-

per  LDT,  albeit,  as  leviable  under  the  first  Schedule  to  the

Customs Tariff Act.  However, as the respondent had cleared the

goods without payment of any excise duty on the assumption that

there was exemption of payment of entire excise duty, appellant

herein issued show cause notice dated 28.07.1987 calling upon

the  respondent  to  show  cause  as  to  why  an  amount  of

Rs.25,73,487/-  towards  excise  duty  be  not  demanded  under

Section 11 A of the Central Excise Act.  Receipt of the aforesaid

show  cause  notice  prompted  the  respondent  to  file  the  writ

petition in the High Court of Madras and challenge the validity of

Notification  dated  27.03.1987  on  the  ground  that  by  this

Notification, total exemption was granted only to those persons

who had paid customs duty at the rate of Rs.1400/- LDT.  It was

pleaded that by a Notification dated 20.08.1986, the whole of the

duty of excise levied was exempted if the two conditions as set

out  above  are  satisfied.   The  limited  exemption  in  excess  of

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Rs.365/- per tonne was restored by the third Notification dated

27.03.1987.  However, by the impugned Notifications issued on

the very same day, total  exemption was granted only to those

persons  who  have  paid  customs  duty  at  Rs.1,400/-  per  LDT.

According  to  the  respondent,  it  has  resulted  in  a  distinction

between two categories of persons who have paid customs duty,

viz. one set of persons who have paid customs duty at the rate of

Rs.1,400/- per LDT and the second set of persons who have paid

customs duty of lesser amount though as per Section 3 of the

Customs  Tariff  Act,  1975.   This  distinction,  pleaded  the

respondent,  was arbitrary, artificial  and has no nexus with  the

object  that  is  sought  to  be  achieved.   When  customs duty  is

payable under either of the two methods, it is not understood why

exemption is granted only to one set of persons paying customs

duty in a particular method of assessment.   

10. The learned Single Judge was not convinced with the aforesaid

case set up by the respondent.  He reasoned that the Court could

not direct the Central Government to extend the Notification to a

class to whom it  has not been extended as that was a matter

which  was  entirely  within  the  discretion  of  the  Central

Government.  Sustenance was drawn from the judgment of this

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Court in  Kasinka Trading and Another  v.  Union of India and

Another1 wherein  this  Court  has  held  that  wide  discretion  is

available to the Government in the matter of granting, curtailing,

withholding,  modifying or  repealing the exemptions  granted  by

earlier notifications and the Government was not bound to grant

exemption to anyone if it so desires.

11. The respondent preferred writ appeal against the said judgment.

The Division Bench vide impugned judgment has reversed the

decision of the learned Single Judge finding sufficient merit in the

case set up and pleaded by the respondent.  It  is held by the

Division  Bench  that  when  the  benefit  of  concessional  right  is

restored  by  a  notification,  there  cannot  be  any  discriminatory

treatment  to  some  persons  who  fall  in  the  same  category.

According to the Division Bench, both the categories of importers

paid the duty as leviable under Customs Tariff Act.  Once a choice

is  given  under  the  said  Act  and  the  duty  is  paid  accordingly,

merely because the rate of duty arrived at is different would not

be rational basis for excluding the other class.  This reasoning of

the High Court can be found in paras 10 and 11 of the impugned

judgment which are reproduced hereinbelow:

1 (1995) 1 SCC 274

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“10.  From the notification or  from the Counter Affidavit, we are unable to find any rational basis for treating two categories of persons who have paid the customs duty differently and hence, the failure to consider the duty already paid by the appellants on ad valorem basis, on the face of it, is  illegal  and  therefore,  the  impugned notifications,  which did  not  make any provision for  such  of  those  remittance  made  under  the second category, are clearly arbitrary.  As rightly pointed out, the exemption from excise duty is to avoid  double  taxation  and  the  withdrawal  of exemption would mean that  the persons would be paying additional duty under the Customs Act as well as the excise duty.  It is further seen that the person who had paid the customs duty at the rate  of  Rs.1,400/-  per  Light  Displacement Tonnage would have been totally exempted from the payment of excise duty.  In the light of this clear  and  palpable  discrimination  without  any rational  basis,  we  are  of  the  view  that  the appellants have made out  a case and that  the impugned notifications are liable to be quashed in so far as the appellants is concerned.

11.  The Supreme Court, in Government of India Vs.  Dhanalakshmi  Paper  and  Board  Mills, Tiruchirappalli,  A.I.R.  1989  S.C.  665,  has  held that  the  benefit  of  concessional  right  was bestowed upon the entire group of assesses. The division  of  two  classes  without  adopting  any differentia, having a rational relation to the object of  the  notification  and  the  withdrawal  of  the benefit to one class, while retaining it in favour of the  other  is  ultra  vires.   In  Thermax  Private Limited  Vs.  Collector  of  Customs  (Bombay), A.I.R. 1993 S.C. 1339, the Supreme Court held that if  the person using the goods is entitled to remission, the importer will be entitled to say that C.V.D.  should  only  be  the  amount  of concessional  duty and if  he has paid more, he will be entitled to ask for refund.  Section 3(1) of the Customs Tariff Act, 1975 mandates that the C.A.V. will  be  equal  to  the  excise  duty  for  the time being leviable on a like article if produced or manufactured in India.”

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12. Mr. Panda, learned senior counsel appearing for the appellants,

submitted  that  it  was  entirely  within  the  domain  of  the

Government to give exemption to particular class of assessees

and it being a policy decision, it would not be open to the High

Court to tinker with the same.  For this purpose, he relied on the

judgment  of  this  Court  in  Kasinka  Trading's case,  and  in

particular paras 8 and 21 thereof, which are as follows:

8. Section 12 of the Customs Act, which is the charging  section,  provides  that  duties  of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 or any other law for the time being in force on the goods  imported  into  India.  Section  2  of  the Customs Tariff Act, 1975 read with the First and Second Schedules thereto lays down the rates at which duties of customs shall be levied under the Customs Act on various goods imported into India. Section 25 of the Act, with which we are primarily  concerned  in  this  batch  of  appeals, confers powers on the Central  Government  to grant  exemptions  from  levy  of  duty  in  “public interest”. Sub-sections (1) and (2) of Section 25 which are relevant for our purposes provide as under: “25. Power to grant exemption from duty.— (1) If the  Central  Government  is  satisfied  that  it  is necessary in the public interest so to do it may, by  notification  in  the  Official  Gazette,  exempt generally  either  absolutely  or  subject  to  such conditions  (to  be  fulfilled  before  or  after clearance),  as  may  be  specified  in  the notification  goods  of  any  specified  description from the whole or any part of duty of customs leviable therein. (2) If the Central Government is satisfied that it is  necessary in the public  interest  so to do,  it may, by special order in each case, exempt from

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the payment of duty, under circumstances of an exceptional  nature to  be stated in such order, any goods on which duty is leviable.” The power to grant exemption from duty, wholly or in part, on the plain language of Section 25 (supra) is contingent upon the satisfaction of the Government that it would be in “public interest” to do so.  Thus,  “public  interest”  is  the guiding criterion for exercising the power under Section 25 (supra).

xx xx xx 21. The power to grant exemption from payment of  duty, additional  duty  etc.  under  the  Act,  as already  noticed,  flows  from  the  provisions  of Section 25(1) of the Act. The power to exempt includes  the  power  to  modify  or  withdraw  the same.  The  liability  to  pay  customs  duty  or additional  duty  under  the  Act  arises when the taxable event occurs. They are then subject to the payment of duty as prevalent on the date of the entry of the goods. An exemption notification issued under Section 25 of the Act had the effect of suspending the collection of customs duty. It does not make items which are subject to levy of customs duty etc. as items not leviable to such duty. It only suspends the levy and collection of customs  duty,  etc.,  wholly  or  partially  and subject to such conditions as may be laid down in the notification by the Government in “public interest”. Such an exemption by its very nature is susceptible of  being revoked or  modified or subjected to other conditions. The supersession or revocation of an exemption notification in the “public interest”  is an exercise of  the statutory power  of  the  State  under  the  law  itself  as  is obvious from the language of Section 25 of the Act. Under the General Clauses Act an authority which has the power to issue a notification has the undoubted power to rescind or  modify  the notification  in  a  like  manner.  From  the  very nature  of  power  of  exemption  granted  to  the Government  under  Section  25  of  the  Act,  it follows that the same is with a view to enabling the  Government  to  regulate,  control  and promote the industries and industrial production in the country. Notification No. 66 of 1979 in our

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opinion, was not designed or issued to induce the appellants to import PVC resin. Admittedly, the said notification was not even intended as an incentive for import.  The notification on the plain language of it  was conceived and issued on the Central Government “being satisfied that it is necessary in the public interest so to do”. Strictly  speaking,  therefore,  the  notification cannot  be  said  to  have  extended  any ‘representation’ much less a ‘promise’ to a party getting the benefit of it to enable it to invoke the doctrine  of  promissory  estoppel  against  the State.  It  would  bear  repetition that  in  order  to invoke the doctrine of promissory estoppel, it is necessary that the promise which is sought to be  enforced  must  be  shown  to  be  an unequivocal promise to the other party intended to  create  a  legal  relationship  and  that  it  was acted upon  as such by the party to whom the same  was  made.  A  notification  issued  under Section  25  of  the  Act  cannot  be  said  to  be holding out of any such unequivocal promise by the Government which was intended to create any legal relationship between the Government and the party drawing benefit flowing from of the said notification. It is, therefore, futile to contend that even if the public interest so demanded and the Central  Government  was satisfied that  the exemption did not  require to be extended any further, it could still not withdraw the exemption.

He stated that the principle laid down in the aforesaid judgment is

followed  and  reiterated  in  Shrijee  Sales  Corporation  and

Another  v.  Union  of  India2 and  Reliance  Industries  Ltd.  v.

Pravinbhai Jasbhai Patel and Others3.   

13. He also referred to Ground A in the writ petition and submitted

that the plea of the respondent was that the duty already paid by

2 (1997) 3 SCC 398 3 (1997) 7 SCC 300

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the respondent should have been taken into account and only the

balance out of it  should have been the rate of duty.  He, thus,

submitted that this aspect has not been taken into consideration

by the High Court in the impugned judgment.

14. Learned counsel for the respondent, on the other hand, argued

that all those who paid excise duty as per the provisions of the

Act constitute one single class and, therefore, by restricting the

benefit  to only those who had paid custom duty at  the rate of

Rs.1,400/-  per  LDT  and  excluding  other  sets  of  persons  like

appellants amounted to hostile discrimination and, therefore, the

High Court rightly held the Notification to be violative of Article 14

of the Constitution.

15. The judgment of this Court in Kasinka Trading's case, no doubt,

lays down the principle that there is wide discretion available to

the Government in the matter of granting, curtailing, withholding,

modifying  or  repealing  the  exemptions  granted  by  earlier

Notifications.  It is also correct that the Government is not bound

to grant exemption to anyone to which it so desires.  When the

duty  is  payable  under  the  provisions  of  the  Act,  grant  of

exemption from payment of the said duty to particular class of

persons or products etc.  is entirely within the discretion of  the

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Government.  This discretion rests on various factors which are to

be considered by the Government as these are policy decisions.

In the present case, however, the issue is not of granting or not

granting the exemption.   When the exemption is  granted to  a

particular  class  of  persons,  then  the  benefit  thereof  is  to  be

extended to all similarly situated person.  The Notification has to

apply  to  the  entire  class  and  the  Government  cannot  create

sub-classification thereby excluding one sub-category, even when

both the sub-categories are of same genus.  If  that is done, it

would be considered as violating the equality clause enshrined in

Article 14 of the Constitution.  Therefore, judicial review of such

Notifications is permissible in order to undertake the scrutiny as to

whether  the  Notification  results  in  invidious  discrimination

between two persons though they belong to the same class.  In

Aashirwad Films v. Union of India and Others4, this aspect has

been articulated in the following manner:

9. The State undoubtedly enjoys greater latitude in the matter of a taxing statute. It may impose a tax on a class of people, whereas it may not do so in respect of the other class.

10. A taxing statute, however, as is well known, is not beyond the pale of challenge under Article 14 of the Constitution of India.

4 (2007) 6 SCC 624

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11. In  Chhotabhai  Jethabhai  Patel  &  Co. v. Union of India, AIR 1962 SC 1006 it was stated: (AIR p. 1021, para 37) “37. But it does not follow that every other article of  Part  III  is  inapplicable  to  tax  laws.  Leaving aside Article 31(2)  that  the provisions of  a tax law  within  legislative  competence  could  be impugned as offending Article 14 is exemplified by such decisions of  this  Court  as  Suraj  Mall Mohta  &  Co. v.  A.V.  Vishvanatha  Sastri  (AIR 1954  SC  545  :  (1955)  1  SCR  448) and Meenakshi  Mills  Ltd. v.  A.V. Visvanatha Sastri (AIR 1955 SC 13 : (1955) 1 SCR 787).  In K.T. Moopil  Nair v.  State  of  Kerala  (AIR  1961  SC 552) the Kerala Land Tax Act was struck down as  unconstitutional  as  violating  the  freedom guaranteed by  Article  14.  It  also  goes  without saying  that  if  the  imposition  of  the  tax  was discriminatory as contrary to Article 15, the levy would be invalid.”

12.   A taxing statute, however, enjoys a greater latitude. An inference in regard to contravention of Article 14 would, however, ordinarily be drawn if  it  seeks  to  impose  on  the  same  class  of persons or occupations similarly situated or an instance  of  taxation  which  leads  to  inequality. The  taxing  event  under  the  Andhra  Pradesh State  Entertainment  Tax  Act  is  on  the entertainment  of  a  person.  Rate  of entertainment tax is determined on the basis of the amount collected from the visitor of a cinema theatre in terms of the entry fee charged from a viewer by the owner thereof.

16. It  is,  thus,  beyond  any  pale  of  doubt  that  the  justiciability  of

particular Notification can be tested on the touchstone of Article

14  of  the  Constitution.   Article  14,  which  is  treated  as  basic

feature  of  the  Constitution,  ensures  equality  before  the law or

equal  protection of  laws.   Equal  protection means the right  to

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equal  treatment  in  similar  circumstances,  both  in  the  priviliges

conferred  and  in  the  liabilities  imposed.   Therefore,  if  the  two

persons or two sets of persons are similarly situated/placed, they

have to be treated equally.  At  the same time, the principle of

equality  does  not  mean  that  every  law  must  have  universal

application for all persons who are not by nature, attainment or

circumstances in the same position.  It would mean that the State

has the power to classify persons for legitimate purposes.  The

legislature  is  competent  to  exercise  its  discretion  and  make

classification.  Thus, every classification is in some degree likely

to produce some inequality but mere production of inequality is

not enough.  Article 14 would be treated as violated only when

equal protection is denied even when the two persons belong to

same class/category.  Therefore, the person challenging the act

of the State as violative of Article 14 has to show that there is no

reasonable basis for the differentiation between the two classes

created by the State.  Article 14 prohibits class legislation and not

reasonable classification.  What follows from the above is that in

order to pass the test of permissible classification two conditions

must  be  fulfilled,  namely,  (i)  that  the  classification  must  be

founded on an intelligible differential which distinguishes persons

or things that  are grouped together  from others left  out  of  the

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group and (ii) that, that differential must have a rational relation to

the object sought to be achieved by the statute in question.  If the

government  fails  to  support  its  action  of  classification  on  the

touchstone  of  the  principle  whether  the  classification  is

reasonable having an intelligible differentia and a rational basis

germane  to  the  purpose,  the  classification  has  to  be  held  as

arbitrary  and  discriminatory.   In  Sube  Singh  v.  State  of

Haryana5, this aspect is highlighted by the Court in the following

manner:

10.  In  the counter  and the note of  submission filed  on  behalf  of  the  appellants  it  is  averred, inter alia, that the Land Acquisition Collector on considering the objections filed by the appellants had recommended to the State Government for exclusion of the properties of appellants 1 and 3 to 6 and the State Government had not accepted such recommendations only on the ground that the constructions made by the appellants were of  'B'  or  'C'  class  and  could  not  be  easily amalgamated into  the  developed colony  which was proposed to be built. There is no averment in the pleadings of the respondents stating the basis of classification of structures as 'A' 'B' and 'C' class, nor is it stated how the amalgamation of  all  'A'  class  structures  was  feasible  and possible  while  those  of  'B'  and  'C'  class structures was not possible. It is not the case of the  State  Government  and  also  not  argued before us that there is no policy decision of the Government  for  excluding  the  lands  having structures  thereon  from  acquisition  under  the Act. Indeed, as noted earlier, in these cases the State Government has accepted the request of some  land  owners  for  exclusion  of  their properties on this very ground. It remains to be

5 (2001) 7 SCC 545

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seen  whether  the  purported  classification  of existing structures into 'A', 'B' and 'C' class is a reasonable  classification  having  an  intelligible differential and a rational basis germane to the purpose. If the State Government fails to support its  action  on  the  touchstone  of  the  above principle  then  this  decision  has  to  be  held  as arbitrary and discriminatory. It is relevant to note here that the acquisition of the lands is for the purpose  of  planned  development  of  the  area which includes both residential and commercial purposes. That being the purpose of acquisition it  is  difficult  to  accept  the  case  of  the  State Government  that  certain  types  of  structures which according to its own classification are of 'A'  class can be allowed to remain while other structures  situated  in  close  vicinity  and  being used  for  same  purposes  (residential  or commercial) should be demolished. At the cost of  repetition,  it  may  be  stated  here  that  no material was placed before us to show the basis of classification of the existing structures on the land  proposed  to  be  acquired.  This  assumes importance  in  view  of  the  specific  contention raised on behalf of the appellants that they have pucca  structures  with  R.C.  roofing,  Mozaic flooring etc. No attempt was also made from the side  of  the  State  Government  to  place  any architectural plan of different types of structures proposed to be constructed on the land notified for  acquisition  in  support  of  its  contention  that the  structures  which  exist  on  the  lands  of  the appellants  could  not  be  amalgamated  into  the plan.

17. The  question,  therefore,  that  arises  is  as  to  whether  the  two

categories,  one  mentioned  in  Notification  No.386/86-CE  dated

20.08.1986,  which is given the benefit and removal of the second

category,  which  was  initially  granted  same  benefit  vide

Notification  No.102/87-CE  dated  27.03.1987,  is  discriminatory.

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To put  it  otherwise,  we  have  to  see  as  to  whether  the  two

categories  are  identical  or  there  is  a  reasonable  classification

based  on  intelligible  differentia  which  has  nexus  with  some

objective that is sought to be achieved.  The test in this behalf

that is to be applied can again be culled out from the judgment in

Aashirwad's case.  It is summarized in para 14, after taking note

of various earlier judgments.  This para reads as under:

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 functional expediency 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 classification thus chosen must be reasonable. The  extent  of  reasonability of  any  taxation statute lies in its 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 Kerala, AIR 1961 SC 552, East India Tobacco Co. v.  State  of  A.P.,  AIR  1962  SC  1733,  N. Venugopala Ravi Varma Rajah v. Union of India (1969) 1 SCC 681 : AIR 1969 SC 1094,  Asstt. Director  of  Inspection  Investigation v.  A.B. Shanthi, (2002) 6 SCC 259 : AIR 2002 SC 2188 and  Associated  Cement  Companies  Ltd. v. Govt. of A.P., (2006 ) 1 SCC 597 : AIR 2006 SC 928).

18. In the present case, we find that the two Notifications both dated

27.03.1987 pertain  to  same goods namely  those  falling  under

Heading  72.15  and  73.09  of  the  second Schedule  to  the  Act.

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Customs duty is leviable on these goods under Section 3 of the

Customs Tariff Act.  The said duty can be paid under any of the

two  methods.   When  two  methods  are  permissible  under  the

statutory scheme itself, obviously option is that of the assessee to

choose in all those methods to pay the custom duty.  Duty, thus,

paid is to be naturally treated as validly paid.  Merely because

with the adoption of one particular method the duty that becomes

payable is lesser would not mean that two such persons belong

to different categories.  The important factors for the purposes of

parity are same in the instant case, viz. the goods are same; they

fall under the same Heading and the custom duty is leviable as

per  the  Act  which  has  been  paid.   Therefore,  the  impugned

Notification giving exemption only to those persons who paid a

particular amount of duty, namely Rs.1,400/- per LDT, would not

mean that such persons belong to a different category and would

be  entitled  to  exemption  and  not  other  persons  like  the

respondent herein who paid the duty on the same goods under

the same Act but on the formula which he opted and which is

permissible, which rate of duty comes to  Rs.1,035/- per LDT.

19. It is also important to bear in mind that the appellants have not

supported  the  withdrawal  of  exemption  by  any  cogent

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explanation.   The  High  Court  has  noted,  and  rightly  so,  that

Ground  C  was  taken  by  the  respondent  in  the  writ  petition

specifically urging that no rational policy is mentioned for creating

two  different  classes  and  no  reply  to  this  was  given  by  the

appellants even in the counter affidavit filed to the said petition.

On the other hand, the specific case made out by the respondent

was that  the purpose behind Notification No.146/86-CE  dated

01.03.1986 and Notification No.386/86-CE dated 20.08.1986 was

to treat the ships imported on or before 28.02.1986 differently and

to avoid double taxation and additional duty equivalent to excise

duty.  For this reason, exemption Notification became necessary

which provided exemption from excise duty.  It was argued that

the withdrawal of the exemption duty in the cases like that of the

respondent amounted to double taxation.  Even this could not be

refuted by the appellants.

20. We are conscious of the principle that the difference which will

warrant a reasonable classification need not be great.  However,

it has to be shown that the difference is real and substantial and

there must be some just and reasonable relation to the object of

legislation  or  notification.   Classification  having  regard  to

microscopic differences is not good.  To borrow the phrase from

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the  judgment  in  Roopchand  Adlakha  v.  D.D.A.6:  “To overdo

classification is to undo equality.”   

21. We are also conscious of the principle that in the field of taxation,

the Legislature has an extremely wide discretion to classify items

for  tax  purposes,  so  long  as  it  refrains  from clear  and hostile

discrimination  against  particular  persons  or  classes  (See

Secretary to Govt. of Madras v. P.R. Sriramulu7).  However, at

the same time, when a substantive unreasonableness is to be

found in a taxing statute/notification, it may have to be declared

unconstitutional.  Although the Court may not go into the question

of  a hardship which may be occasioned to the tax payers but

where  a  fair  procedure  has  not  been  laid  down,  the  validity

thereof cannot be upheld.  A statute which provides for civil or evil

consequences  must  conform  to  the  test  of  reasonableness,

fairness and non-arbitrariness.   

22. In  State  of  U.P.  v.  Deepak  Fertilizers  &  Petrochemical

Corporation Ltd.8, this aspect is succinctly brought about as is

apparent from the following passages in that judgment:  

“15. The learned counsel appearing for the State relying heavily on Kerala Hotel and Restaurant Assn.  v.  State  of  Kerala,  (1990)  2  SCC 502,

6 (1989) 1 Supp. SCC 116 7 (1996) 1 SCC 345 8 (2007) 10 SCC 342

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contended  that  the  State  has  widest  latitude where  measures  of  economic  and  fiscal regulation are concerned. There is no dispute on this  principle  of  law  as  enumerated  in  the aforesaid  decision  of  this  Court.  However,  this same law must not be repugnant to Article 14 of the Constitution i.e. it must not violate the right to equality  of  the  people  of  India,  and  if  such repugnancy prevails then, it shall stand void up to  the  level  of  such  repugnancy  under  Article 13(2)  of  the  Constitution  of  India.  Therefore, every  law  has  to  pass  through  the  test  of constitutionality,  which  is  nothing  but  a  formal name of  the  test  of  rationality. We understand that whenever there is to be made any type of law  for  the  purpose  of  levying  taxes  on  a particular  commodity  or  exempting  some other commodity  from  taxation,  a  sought  of classification  is  to  be  made.  Certainly,  this classification  cannot  be  a  product  of  blind approach  by  the  administrative  authorities  on which the responsibility of delegated legislations is vested by the Constitution. In a nutshell,  the notifications issued by the Trade Tax Department of  the  State  of  U.P.,  dated  10.04.1995  and 15.05.1995  lack  the  sense  of  reasonability because it is not able to strike a rational balance of classification between the items of the same category. As a result of this, NPK 23:23:0 is not given exemption from taxation whereas all other NPK fertilisers of the same category like that of NPK  20:20:0  are  provided  with  the  exemption from taxation.

16.  The  reasonableness  of  this  classification must be examined on the basis, that when the object of the taxing provision is not to tax the sale of certain chemical fertilisers included in the list, which clearly points out that all the fertilisers with the  similar  compositions  must  be  included without  excluding  any  other  chemical  fertiliser which has the same elements and compositions. Thus,  there  is  no  reasonable  nexus  of  such classification among various chemical  fertilisers of  the  same  class  by  the  state.  This  court  in Ayurveda  Pharmacy  [(1989)  2  SCC 285],  held

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that two items of the same category cannot be discriminated  and  where  such  a  distinction  is made between items falling in the same category it should be done on a reasonable basis, in order to  save  such  a  classification  being  in contravention of Article 14 of the Constitution of India.”

23. It was contended by the learned senior counsel for the appellants

that  purpose  was  to  give  exemption  only  to  those  who  paid

custom duty at Rs.1,400/- per LDT and since the duty paid by the

respondent herein was lesser in amount, respondent could not

ask for exemption.  That may be so.  In such a case, the only

option to bring parity was to demand duty on differential amount,

which  was  even  contended  by  the  respondent  herein.   That

provision should have been incorporated to save the impugned

Notification from the vice of arbitrariness.  In fact, that would bring

both the sub-categories completely at par.  Thus, while upholding

the view taken by the High Court, we modify the same only to the

extent  that  the respondent  herein  shall  also be entitled  to  the

benefit of the exemption Notification subject to the condition that

the duty already paid by the respondent herein on LDT, would be

taken into account and only the balance out of it would be subject

to excise duty.

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24. The  appeal  is  disposed of  in  the  aforesaid  terms  without  any

order as to cost.

.............................................J. (A.K. SIKRI)

.............................................J. (N.V. RAMANA)

NEW DELHI JULY 29, 2015.

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