Case Law Details
Torrent Power Ltd Vs Union of India (Gujarat High Court)
“Transmission” and “distribution” being separately understood in the trade concerning electricity and they having been separately defined and dealt with under the Electricity Act, the impugned circular “clarifying” that transmission and distribution are one and the same cannot be held as valid and legal. Transmission and distribution are separate activities. If the Respondents chose to include even “distribution” in the list of prohibited activities for the purpose of EPCG scheme they could have always done so prospectively by amending Para 5.01(g) of the scheme. It is not even the case of the writ applicants that the respondents cannot prospectively enlist the distribution activity in the prohibited category under the EPCG scheme. However the attempt made by the respondents to give retrospective effect to the prohibition of distribution activity by using the nomenclature “clarification” is liable to be quashed and set aside.
The issue can be looked at from another angle. It was clearly mentioned in the applications for the EPCG license made by the writ applicants that the capital goods will be used for distribution of electricity. Thus the EPCG licenses were issued to the writ applicants in full light of the fact that the capital goods were to be used in distribution of electricity. Thus the allegation of misdeclaration against the writ applicants does not merit acceptance. In fact, as pointed out by the learned Senior Counsel on behalf of the writ applicants, there was a specific discussion in the case of one M/s Vadhman Chemicals in the EPCG committee meeting held on 19th September 2014 that since transformer was required for distribution of power and not transmission of electricity, the issuance of EPCG license for the import of distribution transformer was permissible. The EPCG licenses were also issued to the writ applicants despite disclosure by the writ applicants that the capital goods were required for distribution of electricity. It thus appears that even the Respondents at the relevant point of time believed that the EPCG licenses could be issued to the persons engaged in the distribution of electricity. Had the respondents raised objection to issuance of the EPCG licenses at the relevant point of time, then the entire issue would not have arisen. Having granted the EPCG licenses to the writ applicants on the basis of their disclosure that the capital goods will be used in distribution of electricity, the writ applicants cannot now be put to prejudice for the past transactions by issuing retrospective circular. Such retrospective circular, apart from being legally fallacious as held herein before, is also manifestly arbitrary and violative of Articles 14 and 19(1) (g) resply of the Constitution in so far as it operates retrospectively.
We are further fortified in our conclusion by the judgement of the Apex Court in the case of Director General of Foreign Trade vs. Kanak Exports and Another (2016) 2 SCC 226 wherein in the context of Export Import Policy 2002-07 it was held that the policy could not have been retrospectively amended by the Government without there being any express power in this regard and that in any case the retrospective amendment of policy cannot take away vested rights of the exporters.
in the case of Khemka (supra), the Supreme Court held that a penalty not being merely an adjunct to or consequential to an assessment, could not be levied in the absence of an express provision under Section 9 of the Central Sales Tax Act. Section 9 was retrospectively amended. This was challenged in Shiv Dutt Rai Fateh Chand vs. Union of India [1984 AIR 1195 : 1983 SCR (3) 198]. Shiv Dutt Rai’s case (supra) dealt with a penalty under the Central Sales Tax Act. The Supreme Court upheld the retrospective operation of the newly added Sub-section (2A) of Section 9 and held that it did not contravene the provisions of Article 19(1)(f) and (g) of the Constitution. The Supreme Court said that it has to be presumed that all the tax had been collected by the dealers from their customers. There was also no dispute that the law requires the dealer to pay the tax within a specified time, the dealers had also knowledge of the provisions relating to penalty in the General Sales Tax law of the respective States. It was only owing to the defect in the Act pointed out by the Supreme Court in Khemka’s case that penalties became not payable. In the Situation, if the Parliament calls upon the dealers to pay the penalties in accordance with the law as amended with retrospective effect, it cannot be said that there has been any unreasonable restriction imposed on the rights guaranteed under Article 19(1)(f) and (g) of the Constitution even though the period of retrospectivity is nearly 19 years. It also pointed out that the Amending Act provided for exclusion of the period between the date on which the judgment in Khemka’s case , was delivered up to the date of the commencement of the Amending Act in computing the period of limitation for questioning any order levying penalty. Looking to all the circumstances, it said that the Section 9(2A) cannot be said to be violative of Article 19(1)(f) and (g) of the Constitution.
However, when a fresh levy is imposed retrospectively by any legislation, the Courts have tended to strike down such levy as being an unreasonable restriction on the fundamental rights guaranteed under Article 19(1)(f) and (g) for the Constitution. Thus, in the case of Shew Bhagwan Goenka v. CTO [1973] 32 STC 368, the Calcutta High Court considered the West Bengal Taxation Laws (Amendment) Act of 1969, in so far as it gave retrospective operation to a new definition of “business” incorporated retrospectively by virtue of the amendment. The court observed that the object of the amendment was not to remove or rectify any defect in phraseology or lacuna or to validate proceedings which had taken place on the basis of the earlier enactment, the object was to enlarge the scope and ambit of the expression “business” by including within it transactions which without the amendment could not be brought within the meaning of the word “business” as understood in the commercial world and as interpreted by courts of law. The effect of such retrospective operation of the amendment would be to impose an unexpected liability in respect of transactions which, when they took place, were not subject to any charge or liability under the Act. The retrospective amendment, the court said, imposed an unreasonable restriction upon a person’s fundamental right guaranteed under Article 19(1)(f) and (g) of the Constitution and was, therefore, invalid.
A similar view was taken by the Division Bench of the Calcutta High Court in the case of Bengal Paper Mill Co. Ltd. v. CTO [1976] 38 STC 163.
Similarly, a retrospective amendment which does not remove the lacuna which it intended to remove, but merely legislates to impose a new burden has also been held to be unconstitutional. In the case of D. Cawasji and Co. v. State of Mysore reported in (1984) 150 ITR 648 : (AIR 1984 SC 1780), the Mysore State Government, with effect from April 1, 1966, had started collecting sales tax on the sale price of arrack as well as on the excise duty and cesses payable on it, so computed. The sales tax came to 24 paise per litre. The validity of the levy of sales tax on the price of arrack inclusive of excise duty and cess was challenged before the High Court. The High Court held that the State Government was not entitled to levy sales tax on excise duty and cess. In order to get over the High Court decision and to retain the tax already recovered, the State Government retrospectively levied sales tax at the increased rate of 45 per cent, instead of 6 1/2 per cent, with effect from April 1, 1966, and validated, inter alia, all collections already made. The Supreme Court said that the Amending Act did not proceed to cure the defect or lacuna by bringing in an amendment providing for exigibility of excise duty, health cess and education cess to sales tax. Instead of removing the defect, the Amending Act had merely sought to raise the rate of tax with retrospective effect to avoid the liability of refunding the excess amounts collected. Thus, the only object of the amendment was to enable the State Government to nullify the effect of the judgment and retain the amount wrongfully and illegally connected. The enhancement of the rate of tax was, therefore, clearly arbitrary and unreasonable. It could not be considered as rectifying any defect. The Supreme Court, therefore, set aside the Amending Act to the extent that it imposed a higher levy with retrospective effect and considered it as invalid and unconstitutional.
For all the foregoing reasons, the present writ application succeeds and is accordingly allowed. The circular dated 4th January 2019 (annexed at Annexure A) issued by the Government of India is declared and held to be ultra vires Para 5.01(g) of the Foreign Trade Policy 2015-20/Foreign Trade Policy 2009-14 read with the provisions and scheme of the Electricity Act. It is further declared that the retrospective operation of the circular dated 4th January 2019 is manifestly arbitrary and violative of Articles 14 and 19(1)(g) resply of the Constitution of India.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
By this writ application under Article 226 of the Constitution of India, the writ applicants have prayed for the following reliefs:
“A. This Hon’ble Court may be pleased to issue a writ striking down and declaring the circular dated 4.1.2019 (annexed at Annexure A) issued by the Government of India as being ultra-vires Para 5.01(g) of the Foreign Trade Policy 2015-20/Foreign Trade Policy 2009-14 read with the provisions and scheme of the Electricity Act;
B. Without prejudice to the above and in the alternative, this This Hon’ble Court may be pleased to declare that retrospective operation of circular dated 4.1.2019 (annexed at Annexure A) issued by the Government of India is without competence, manifestly arbitrary, in breach of principles of promissory estoppel and violating Article 14 and 19(1)(g) of the Constitution of India;
C. This Hon’ble Court may be pleased to issue a writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order directing the Respondents to forthwith return/issue EPCG licenses and invalidation letters surrendered by the Petitioners on the basis of impugned circular dated 4.1.2019;
D. Without prejudice to the above and in the alternative this Hon’ble Court may be pleased to issue a writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order directing the Respondents to forthwith return the bank guarantees furnished for the EPCG licenses which have already been surrendered by the Petitioners pursuant to impugned circular dated 4.1.2019;
E. Pending notice, admission and final hearing of this petition, this Hon’ble Court be pleased to suspend the retrospective operation and implementation of the impugned circular dated 4.1.2019 (annexed at Annexure A);
F. Ex parte ad interim relief in terms of prayer E may kindly be granted;
G. Such further relief(s) as deemed fit in the facts and circumstances of the case may kindly be granted in the interest of justice for which act of kindness your petitioners shall forever pray.”
- FACTUAL BACKGROUND :
2 The Export Promotion Capital Goods scheme (for short “the EPCG Scheme”) is inter-alia available under the Foreign Trade Policy to the service provider who is designated/certified as the Common Service Provider by the Directorate General of Foreign Trade in a Town of Export Excellence. The writ applicants were designated as the common service provider by the DGFT which was communicated by letter dated 28th July 2011. The para 5.01(g) of the EPCG scheme as introduced by the notification dated 18th April 2013 inter alia prohibited authorization under the EPCG scheme for supply of electricity transmission services. There was no specific prohibition for electricity distribution service.
3 The writ applicants applied for the EPCG licenses from October 2014 to February 2016. It was clearly mentioned in the applications that the capital goods imported under the license would be used for power distribution in the Towns of Export Excellence. On the basis of the applications filed by the writ applicants, the DGFT granted the EPCG licenses as well as the invalidation letters from time to time.
4 The para 5.01(g) of the Foreign Trade Policy came to be amended by the Notification No. 35/2015-20 dated 29th January 2016. Even after the amendment the restriction was limited to the import of capital goods for generation/transmission of power and there was no reference made to the “distribution of power”. Even in Public Notice No. 47/2015-20 dated 6th December 2017 which contained a list of capital goods prohibited under EPCG scheme, there was no reference to the distribution of electricity.
5 The EPCG licenses were granted even though the Respondents were fully aware that the writ applicants were engaged in the distribution of electricity and capital goods were required for such purpose. Only one refund application amounting to Rs.1,51,986/- was sanctioned by the DGFT and the refund amount was disbursed to the writ applicants on 24th May 2017.
6 The writ applicants thereafter received a letter dated 18th August 2017 from the DGFT informing them that the approval for further refund applications of terminal excise duty had been withdrawn since the issuance of the EPCG licenses and that the invalidation letters to the writ applicants was being reviewed in light of the notification dated 18th April 2013.
7 Thereafter the writ applicants preferred a written representation before the DGFT explaining that the transmission of electricity was different from distribution of electricity and that therefore, the writ applicants were eligible for the EPCG licenses despite Para 5.01(g) of the Foreign Trade Policy. Besides this, oral representations were also made from time to time.
8 The DFGT however issued the impugned policy circular dated 4th January 2019 “clarifying” that the transmission and distribution of electricity constituted the same process of supply of electricity from one point to another and that Sr. No. 12 of the Appendix 5F of Foreign Trade Policy 2015-20 did not permit the import of capital goods for generation, transmission and distribution of power.
9 Upon on receipt of such clarification the writ applicants surrendered all the EPCG licenses and requested for release of the bank guarantee on 9th January 2019. This was acknowledged by the Regional Authority, Ahmedabad on 15th January 2019. One TED refund received was also surrendered with interest and was acknowledged by the Regional Authority, Ahmedabad. The writ applicants thereafter requested for the release of bank guarantees.
10 The writ applicants however received a show cause notice dated 26th December 2019 from the DGFT (Ahmedabad) asking the writ applicants to show cause as to why the EPCG authorizations should not be cancelled ab initio and why penalty should not be imposed for submitting false and incorrect declaration/undertaking in their EPCG applications in addition to refusal to grant any further license, authorization, scrip or any instrument bestowing financial or fiscal benefits.
11 The DGFT, Ahmedabad rejected the submissions made by the writ applicants and proceeded to pass the order dated 7th September 2020, wherein relying upon the impugned policy circular dated 4th January 2019, it held that the writ applicants had mis-utilized the EPCG scheme and willfully defaulted. The penalty of Rs.50,52,59,535/- has been imposed on the writ applicants under Section 13 of the FTDR Act in addition to the notional customs duty and interest thereon.
12 It is in the aforesaid factual background that the writ applicants are here before this Court with the present writ application seeking to challenge the impugned policy circular dated 4th January 2019 which forms the basis for imposition of penalty on the writ applicants. It was stated at the bar that the appeal against the order imposing penalty is pending before the appellate authority. However, the order imposing penalty is based on the impugned policy circular dated 4th January 2019 which is the subject matter of challenge in the present writ application.
- SUBMISSIONS ON BEHALF OF THE WRIT APPLICANTS :
13 Mr. S. N. Soparkar, the learned Senior Counsel assisted by Mr. Uchit Sheth learned counsel appearing for the writ applicants made the following submissions:
(a) The impugned policy circular dated 4th January 2019 seeking to “clarify” that the distribution of electricity was also prohibited by virtue of Para 5.01(g) of the Foreign Trade Policy is nothing but addition of a new condition to the EPCG scheme in the garb of clarification and retrospective addition of such new condition is wholly arbitrary, mechanical and illegal.
(b) Transmission and distribution of electricity are two separate and distinct terms as per the provisions of the Electricity Act, 2003 (for short “the Electricity Act”). Both have been separately defined and there are separate chapters in the Electricity Act dealing with the two activities. Hence the impugned “clarification” to the effect that even distribution of electricity was not permissible under the EPCG scheme even though Para 5.01(g) of the scheme only prohibited transmission of electricity is not legally tenable.
(c) When technical terms are used in the statute, then such terms are
to be interpreted as per the understanding of the people in the relevant industry. Hence, when transmission and distribution are separate activities for people engaged in its business, they need to be given separate meaning even while interpreting the provisions of the Foreign Trade Policy. Reliance was placed on the following judgements:
(i) Collector of Central Excise, Kanpur vs. Krishna Carbon Paper Co. (1989) 1 SCC 150
(ii) Chemical and Fibres of India Ltd. vs. Union of India (1997) 2 SCC 664.
(iii) Union of India vs. V. M. Salgaoncar and Bros. (P) Ltd. and Others (1998) 4 SCC 263.
(d) Giving retrospective operation to a new condition in the EPCG scheme and thereby penalizing the writ applicants who bonafidely believed that only transmission of electricity was barred under the scheme is arbitrary and illegal.
(e) The writ applicants had made full disclosure of the fact that they were going to use the capital goods procured under the EPCG scheme for distribution of electricity. The EPCG licenses were granted by the Respondents to the writ applicants in full knowledge of the fact that the writ applicants are going to use them for the purpose of distribution of electricity. Holding the writ applicants now guilty of misrepresentation and suppression on the basis of retrospective operation of impugned circular dated 4th January 2019 is absolutely arbitrary and illegal.
14 In such circumstances referred to above, Mr. Soparkar prays that there being merit in his writ application, the same may be allowed and an appropriate relief may be granted.
- SUBMISSIONS ON BEHALF OF THE RESPONDENTS :
15 On the other hand Mr. Devang Vyas, the learned Additional Solicitor General of India has canvassed the following contentions on behalf of the respondents:
(a) The Respondents always believed that “transmission” and “distribution” of electricity were one and the same for the purpose of the Foreign Trade Policy. The impugned policy circular dated 4th January 2019 only clarified such position and therefore it had retrospective operation.
(b) From a layman’s perspective both, the transmission and distribution of electricity meant supplying electricity from one point to another and it is in this sense that the prohibition in the Foreign Trade Policy is to be interpreted. The provisions of the Electricity Act cannot be relied upon.
(c) The writ applicants had given a misdeclaration that the activity being undertaken by them using the capital goods did not fall under the negative list under the Foreign trade policy. Since the EPCG licenses were issued on the basis of such misdeclaration, the writ applicants were bound to face the consequences for the same including imposition of penalty equal to the value of the goods for which the EPCG licenses were obtained.
16 Mr. Vyas place strong reliance on the decision of the Supreme Court in the case of Khemka and Company vs. State of Maharashtra reported in AIR 1975 SC 1549.
17 In such circumstances referred to above, Mr. Vyas prays that there being no merit in the present writ application, the same be rejected.
- ANALYSIS :
18 Having heard the learned counsel appearing for the parties and having gone through the materials on record, the question that falls for our consideration is whether the policy circular dated 4th January 2019 is only in the nature of clarification so as to have retrospective effect or whether it introduces a new substantive condition in the EPCG scheme which can, if at all, operate only prospectively?
19 It is not in dispute that the para 5.01(g) of the EPCG scheme which was introduced w.e.f. 18th April 2013 only used the term “transmission” in the prohibited list of activities. Thereafter, by a specific amendment dated 29th January 2016, the “generation” of electricity was also brought within the ambit of negative list of activities. Even then there was no reference to the “distribution” of electricity. Even in the Public Notice No. 47/2015-20 dated 6th December 2017 containing a list of capital goods prohibited under the EPCG scheme, there was no reference to distribution of electricity.
20 It was only in the impugned circular dated 4th January 2019 that for the first time reference was made to “distribution” of electricity and it was “clarified” that even distribution of electricity was debarred under the provisions of the EPCG scheme.
21 We are of the view that the impugned circular cannot be considered as a clarification but it imposes a new restriction in the EPCG scheme by specifying distribution of electricity also as a restricted activity. The terms “transmission” and “distribution” of electricity have distinct and separate meaning in the electricity business which is reflected in the provisions of the Electricity Act. Few relevant definitions contained in Section 2 of the Electricity Act read thus:
“2(17) “distribution licensee” means a licensee authorised to operate and maintain a distribution system for supplying electricity to the consumers in his area of supply;
Xxxx
2(19) “distribution system” means the system of wires and associated facilities between the delivery points on the transmission lines or the generating station connection and the point of connection to the installation of the consumers;
Xxxx
2(72) “transmission lines” means all high pressure cables and overhead lines (not being an essential part of the distribution system of a licensee) transmitting electricity from a generating station to another generating station or a sub- station, together with any step-up and step-down transformers, switch-gear and other works necessary to and used for the control of such cables or overhead lines, and such buildings or part thereof as may be required to accommodate such transformers, switch-gear and other works;
2(73) “transmission licensee” means a licensee authorised to establish or operate transmission lines;
2(74) “transmit” means conveyance of electricity by means of transmission lines and the expression “transmission” shall be construed accordingly;”
22 Further, there are distinct chapters in the Electricity Act for transmission and distribution. While Part V deals with the transmission of electricity, the Part VI is dedicated for distribution of electricity. Both the activities require separate licenses and they are governed by different statutory provisions.
23 Thus, it is apparent that transmission and distribution are separate activities for the purpose of the Electricity Act and they are distinctly understood by persons such as the writ applicants who are engaged in the business involving supply of electricity.
24 It is well established by a series of judgements that the terms used in fiscal statute are to be interpreted as they would be interpreted by persons engaged in the relevant trade. Reference may be made to the judgement of the Apex Court in the case of Collector of Central Excise, Kanpur vs. Krishna Carbon Paper Co. (1989) 1 SCC 150 wherein it was held and observed as under:
“9. It is well settled, as mentioned before, that where no definition is provided in the statue itself, as in this case, for ascertaining the correct meaning of a fiscal entry reference to a dictionary is not always safe. The correct guide, it appears in such a case, is the context and the trade meaning. In this connection reference may be made to the observations of this Court in CST v. S.N. Brothers, Kanpur [(1973) 3 SCC 496 : 1973 SCC (Tax) 254 : AIR 1973 SC 78] , at p. 80 Para 5 (SCC pp. 500-01, paras 4 and 5).
10. The trade meaning is one which is prevalent in that particular trade where the goods is known or traded. If special type of goods is subject-matter of a fiscal entry then that entry must be understood in the context of that particular trade, bearing in mind that particular word. Where, however, there is no evidence either way then the definition given and the meaning following (sic flowing) from particular statute at particular time would be the decisive test.
11. In the famous Canadian case in King v. Planters Nut and Chocolate Co. Ltd. [1951 CLR Ex 122] Cameron, J. observed that it is not botanist’s conception as to what constitutes a fruit or vegetable … but rather what would ordinarily in matters of commerce in Canada be included that should be the guide. Similarly, this Court has held in Union of India v. Delhi Cloth and General Mills Co. Ltd. [AIR 1963 SC 791] at p. 794 para 12 that the view of the Indian Standards Institute as regards what is refined oil as known to the market in India must be preferred in the absence of any other reliable evidence. It must be emphasised in view of the arguments advanced in this case that the meaning should be as understood in the particular trade. In this case, we are construing not paper as such but a particular brand of paper with a meaning attributed to it. Sub-item (2) of Item 17 as was the position in 1979 paper referred to all kinds of paper including paper or paper boards which have been subjected to various treatments such as coating, impregnating. So, therefore, if all kinds of paper including coated paper is the goods, we have to find out the meaning attributed to those goods in the trade of those kinds of paper where transactions of those goods take place.
12. It is a well-settled principle of construction, as mentioned before, that where the word has a scientific or technical meaning and also an ordinary meaning according to common parlance, it is in the latter sense that in a taxing statute the word must be held to have been used, unless contrary intention is clearly expressed by the legislature. This principle is well settled by a long line of decisions of Canadian, American, Australian and Indian cases. Pollock, J. pointed out in Grenfell v. IRC [(1876) 1 Ex D 242, 248 : 34 LT 426 : 24 WR 582] that if a statute contains language which is capable of being construed in a popular sense, such a statute is not to be construed according to the strict or technical meaning of the language contained in it, but is to be construed in its popular sense, meaning, of course, by the words “popular sense” that which people conversant with the subject-matter with which the statute is dealing would attribute to it. The ordinary words in every day use are, therefore, to be construed according to their popular sense. The same view was reiterated by Story, J. in 200 Chests of Tea [(1824) 9 Wheaton US 435, 438] where he observed that the legislature does not suppose our merchants to be naturalists, or geologists, or botanists. See the observations of Bhagwati, J. as the learned Chief Justice then was, in Porritts & Spencer (Asia) Ltd. v. State of Haryana [(1979) 1 SCC 82 : 1979 SCC (Tax) 38] . But there is a word of caution that has to be borne in mind in this connection, the words must be understood in popular sense, that is to say, these must be confined to the words used in a particular statute and then if in respect of that particular items, as artificial definition is given in the sense that a special meaning is attached to particular words in the statute then the ordinary sense or dictionary meaning would not be applicable but the meaning of that type of goods dealt with by that type of goods in that type of market, should be searched. In the instant case, we have “all kinds of papers including papers subjected to coating, impregnating etc.” If there is a market meaning or trade meaning of that kind of a paper that should be adhered to. In this case, there is no direct evidence how these peculiar goods are dealt with in the particular market dealing with those goods. But there is evidence how these are to be understood in the light of the specifications of the Indian Standards Institute which we have mentioned before. It is instructive to refer in this connection a passage of the Tribunal’s decision in Kores (India) Ltd. v. CCE [29 ELT 627] , where the Tribunal observed that on the point whether carbon paper is understood as a coated paper in trade, there is authority of the Indian Standards Institute’s publication “Glossary of Terms used in Paper Trade and Industry” — IS: 4661. Therefore, understood in the accepted notion of construing entries of fiscal statutes not from a technical or scientific point of view but from the point of view of the people in the trade dealing with that particular type of goods and having regard to the evidence of the Indian Standards Institute and in the absence of any other evidence to the contrary, the Tribunal was justified in holding that on the basis of the definition of paper as it was in the year 1976 carbon paper would come within Item 17(2) of the tariff items.”
25 Trade parlance was again considered as a determinating factor by the Supreme Court in the case of Chemical and Fibres of India Ltd. v/s Union of India and Others (1997) 2 SCC 664 wherein it was observed as under:
“18. In the present case, since Entry 15-A as it then stood, uses a commercial term “plastics” which is well known in the trade and is used in the trade, we should not go into the technical analysis of the composition and character of a plastic product. We should go by the meaning which is attached to the term “plastics” in the trade parlance. Plastics as understood in the trade covers all kinds of synthetic materials. As the Encyclopaedia Britannica sets out very clearly, there is a distinction made in commercial parlance between materials used in the production of plastics and materials used in the production of fibres, films or rubber although they may share certain structural features. The assessee has also filed affidavits from people in the trade to say that polymer chips of the kind manufactured by the assessee are not considered as plastics by those dealing in plastics.”
26 Again in the case of Union of India vs. V. M. Salgaoncar and Bros.(P) Ltd. and Others (1998) 4 SCC 263, the meaning of the “ocean-going vessels” for the purpose of the Customs Act, 1962 was decided on the basis of the definition contained in the Merchants Shipping Act, 1958 and on the basis of how the phrase was understood in the maritime enterprises.
27 Applying such principle to the facts of the present case, “transmission” and “distribution” being separately understood in the trade concerning electricity and they having been separately defined and dealt with under the Electricity Act, the impugned circular “clarifying” that transmission and distribution are one and the same cannot be held as valid and legal. Transmission and distribution are separate activities. If the Respondents chose to include even “distribution” in the list of prohibited activities for the purpose of EPCG scheme they could have always done so prospectively by amending Para 5.01(g) of the scheme. It is not even the case of the writ applicants that the respondents cannot prospectively enlist the distribution activity in the prohibited category under the EPCG scheme. However the attempt made by the respondents to give retrospective effect to the prohibition of distribution activity by using the nomenclature “clarification” is liable to be quashed and set aside.
28 The issue can be looked at from another angle. It was clearly mentioned in the applications for the EPCG license made by the writ applicants that the capital goods will be used for distribution of electricity. Thus the EPCG licenses were issued to the writ applicants in full light of the fact that the capital goods were to be used in distribution of electricity. Thus the allegation of misdeclaration against the writ applicants does not merit acceptance. In fact, as pointed out by the learned Senior Counsel on behalf of the writ applicants, there was a specific discussion in the case of one M/s Vadhman Chemicals in the EPCG committee meeting held on 19th September 2014 that since transformer was required for distribution of power and not transmission of electricity, the issuance of EPCG license for the import of distribution transformer was permissible. The EPCG licenses were also issued to the writ applicants despite disclosure by the writ applicants that the capital goods were required for distribution of electricity. It thus appears that even the Respondents at the relevant point of time believed that the EPCG licenses could be issued to the persons engaged in the distribution of electricity. Had the respondents raised objection to issuance of the EPCG licenses at the relevant point of time, then the entire issue would not have arisen. Having granted the EPCG licenses to the writ applicants on the basis of their disclosure that the capital goods will be used in distribution of electricity, the writ applicants cannot now be put to prejudice for the past transactions by issuing retrospective circular. Such retrospective circular, apart from being legally fallacious as held herein before, is also manifestly arbitrary and violative of Articles 14 and 19(1) (g) resply of the Constitution in so far as it operates retrospectively.
29 We are further fortified in our conclusion by the judgement of the Apex Court in the case of Director General of Foreign Trade vs. Kanak Exports and Another (2016) 2 SCC 226 wherein in the context of Export Import Policy 2002-07 it was held that the policy could not have been retrospectively amended by the Government without there being any express power in this regard and that in any case the retrospective amendment of policy cannot take away vested rights of the exporters. The relevant observations of the Supreme Court read thus:
“135. We have already discussed these aspects in detail. To recapitulate, it is held by us that Section 5 of the Act does not empower the Government to make amendments with retrospective effect, thereby taking away the rights which have already accrued in favour of the exporters under the Scheme. No doubt, the Government has, otherwise, power to amend, modify or withdraw a particular scheme which gives benefits to a particular category of persons under the said scheme. At the same time, if some vested right has accrued in favour of the beneficiaries who achieved the target stipulated in the scheme and thereby became eligible for grant of duty credit entitlement, that cannot be snatched from such persons/exporters by making the amendment retrospectively. In the present case, we find that Section 5 of the Act does not give any specific power to the Central Government to make the rules with retrospective effect. The Central Government is authorised to make rules/schemes under the said provision as a delegatee, which means that the EXIM Policy/Scheme framed under the said provision is by way of delegated legislation. There has to be specific power to make the amendments with retrospective effect, which are lacking in the instant case. Moreover, even if there is such a power, it cannot take away vested rights which have accrued in favour of particular persons/exporters.”
30 At this stage, we shall look into the decision of the Supreme Court relied upon by Mr. Vyas, the learned A.S.G. in the case of Khemka (supra), the Supreme Court held that a penalty not being merely an adjunct to or consequential to an assessment, could not be levied in the absence of an express provision under Section 9 of the Central Sales Tax Act. Section 9 was retrospectively amended. This was challenged in Shiv Dutt Rai Fateh Chand vs. Union of India [1984 AIR 1195 : 1983 SCR (3) 198]. Shiv Dutt Rai’s case (supra) dealt with a penalty under the Central Sales Tax Act. The Supreme Court upheld the retrospective operation of the newly added Sub-section (2A) of Section 9 and held that it did not contravene the provisions of Article 19(1)(f) and (g) of the Constitution. The Supreme Court said that it has to be presumed that all the tax had been collected by the dealers from their customers. There was also no dispute that the law requires the dealer to pay the tax within a specified time, the dealers had also knowledge of the provisions relating to penalty in the General Sales Tax law of the respective States. It was only owing to the defect in the Act pointed out by the Supreme Court in Khemka’s case that penalties became not payable. In the Situation, if the Parliament calls upon the dealers to pay the penalties in accordance with the law as amended with retrospective effect, it cannot be said that there has been any unreasonable restriction imposed on the rights guaranteed under Article 19(1)(f) and (g) of the Constitution even though the period of retrospectivity is nearly 19 years. It also pointed out that the Amending Act provided for exclusion of the period between the date on which the judgment in Khemka’s case , was delivered up to the date of the commencement of the Amending Act in computing the period of limitation for questioning any order levying penalty. Looking to all the circumstances, it said that the Section 9(2A) cannot be said to be violative of Article 19(1)(f) and (g) of the Constitution.
31 However, when a fresh levy is imposed retrospectively by any legislation, the Courts have tended to strike down such levy as being an unreasonable restriction on the fundamental rights guaranteed under Article 19(1)(f) and (g) for the Constitution. Thus, in the case of Shew Bhagwan Goenka v. CTO [1973] 32 STC 368, the Calcutta High Court considered the West Bengal Taxation Laws (Amendment) Act of 1969, in so far as it gave retrospective operation to a new definition of “business” incorporated retrospectively by virtue of the amendment. The court observed that the object of the amendment was not to remove or rectify any defect in phraseology or lacuna or to validate proceedings which had taken place on the basis of the earlier enactment, the object was to enlarge the scope and ambit of the expression “business” by including within it transactions which without the amendment could not be brought within the meaning of the word “business” as understood in the commercial world and as interpreted by courts of law. The effect of such retrospective operation of the amendment would be to impose an unexpected liability in respect of transactions which, when they took place, were not subject to any charge or liability under the Act. The retrospective amendment, the court said, imposed an unreasonable restriction upon a person’s fundamental right guaranteed under Article 19(1)(f) and (g) of the Constitution and was, therefore, invalid.
32 A similar view was taken by the Division Bench of the Calcutta High Court in the case of Bengal Paper Mill Co. Ltd. v. CTO [1976] 38 STC 163.
33 Similarly, a retrospective amendment which does not remove the lacuna which it intended to remove, but merely legislates to impose a new burden has also been held to be unconstitutional. In the case of D. Cawasji and Co. v. State of Mysore reported in (1984) 150 ITR 648 : (AIR 1984 SC 1780), the Mysore State Government, with effect from April 1, 1966, had started collecting sales tax on the sale price of arrack as well as on the excise duty and cesses payable on it, so computed. The sales tax came to 24 paise per litre. The validity of the levy of sales tax on the price of arrack inclusive of excise duty and cess was challenged before the High Court. The High Court held that the State Government was not entitled to levy sales tax on excise duty and cess. In order to get over the High Court decision and to retain the tax already recovered, the State Government retrospectively levied sales tax at the increased rate of 45 per cent, instead of 6 1/2 per cent, with effect from April 1, 1966, and validated, inter alia, all collections already made. The Supreme Court said that the Amending Act did not proceed to cure the defect or lacuna by bringing in an amendment providing for exigibility of excise duty, health cess and education cess to sales tax. Instead of removing the defect, the Amending Act had merely sought to raise the rate of tax with retrospective effect to avoid the liability of refunding the excess amounts collected. Thus, the only object of the amendment was to enable the State Government to nullify the effect of the judgment and retain the amount wrongfully and illegally connected. The enhancement of the rate of tax was, therefore, clearly arbitrary and unreasonable. It could not be considered as rectifying any defect. The Supreme Court, therefore, set aside the Amending Act to the extent that it imposed a higher levy with retrospective effect and considered it as invalid and unconstitutional.
34 For all the foregoing reasons, the present writ application succeeds and is accordingly allowed. The circular dated 4th January 2019 (annexed at Annexure A) issued by the Government of India is declared and held to be ultra vires Para 5.01(g) of the Foreign Trade Policy 2015-20/Foreign Trade Policy 2009-14 read with the provisions and scheme of the Electricity Act. It is further declared that the retrospective operation of the circular dated 4th January 2019 is manifestly arbitrary and violative of Articles 14 and 19(1)(g) resply of the Constitution of India.
35 As the learned Senior Counsel appearing for the writ applicants has stated at the bar that they are not pressing for getting back the EPCG licenses already surrendered by the writ applicants, the Respondents are directed to forthwith return the bank guarantees furnished for the EPCG licenses which have already been surrendered by the writ applicants.
