Exemption Notification cannot discriminate between persons paying duty under different methods permissible under law

Brief of the case:

• The Hon’ble Supreme Court in the case of M/s N.S. Rathnam & Sons held that when two methods are permissible under the statutory scheme itself to discharge duty liability then 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 so as to provide distinction that one enjoy full exemption under a notification and no exemption to other.

• Such distinction is discrimination which is also hit by the Article 14 of the Constitution and thus, liable to be set aside.

Facts of the case:

• The assessee is engaged in the business of ship breaking activities. It had imported a foreign vessel for the purpose of breaking it and selling it as scrap. The duties on import was paid as required by Customs Tariff Act, 1975.
• The iron and steel scrap so obtained from dismantling of vessel is chargeable to excise duty.
• As per Notification No. 102/87 dated 27.03.1987 the excise duty on such scrap in excess of Rs. 365 is exempt provided the customs duty paid on imported vessel @ Rs. 1035 per LDT.
• Another Notification No. 103/87 dated 27.03.1987 provided for exemption from whole of excise duty if the customs duty has been paid at the rate of Rs.1400/- per Light Displacement Tonnage (LDT).
• These two notifications are issued in suppression of earlier notifications. The assessee challenged the validity of the Notifications No.-102 & 103 dated 27.03.1987 by filling a writ petition before the Hon’ble Madras HC on the ground that total exemption was granted only to those persons who had paid customs duty at the rate of Rs.1400/- LDT and no exemption to those who have discharged lesser customs duty as per the Customs Tariff Act, 1975.

Contention of the Revenue:

• It was entirely within the discretion of the Central Government to give exemption to particular class of assessees and it being a policy decision, it would not be open to the court to examine the same.
• Reliance was placed on the decision of Hon’ble Supreme Court in the case of Kasinka Trading wherein the court held 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.
• Thus, the modification in the conditions being a policy matter and within the discretionary domain of Central Govt. cannot be interfered by any court of law.
  

Contention of the Assessee:

• The notifications in question 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 ofRs.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.
• When customs duty is payable under either of the two methods, it is beyond understanding that why exemption is granted only to one set of persons paying customs duty in a particular method of assessment.
• Such distinction is infact discrimination between categories of assessee adopting separate duty assessment method.
• The Divisional Bench of Hon’ble Madras HC was right in strucking down the above distinction on the ground that the same is e violative of Article 14 of the Constitution which ensure equality in the eyes of law.

Held by Hon’ble Supreme Court:

• The point of dispute is that whether the notification exempting the assessees from payment of whole of excise duty on payment of customs duty @ Rs. 1400 under First Schedule of Customs Tariff Act,1975 is discriminatory in so far as disallowing the same benefit to the assessees opted to pay the duty of customs @ Rs. 1035 per LDT under First Schedule of Customs Tariff Act,1975 in addition to the additional duty under Sec 3 of Customs Act,1975,would be denied to the benefit of notification exempting whole of excise duty. The question become serious because both are the methods of paying custom duty and assessee is free to choose any one.
• Article 14 of the Constitution of India ensure equality in the eyes of law. Therefore, judicial review of such Notifications is permissible in order to examine whether the Notification results in discrimination between two persons though they belong to the same class
• 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.
• 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. For these goods two methods are permissible under the statutory scheme itself, and it assessee is free to choose any one to pay the custom duty. Thus, the payment of duty by assessee in the present case is very much valid.
• Merely because the duty payable under the method opted by assessee is lesser would not put him in inferior position to that of assessees paying more duty under a different method.
• Therefore, the Notification giving exemption only to those persons who paid a particular amount of duty, namely Rs.1,400/- per LDT,and not other persons like the assessee 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.
• On the basis of above findings the assessee is entitled to exemption from whole of excise duty leviable.