DAL-ICHI KARKARIA LTD.versusUNION OF INDIA AND ORS.

A                           DAl-ICHI KARKARIALTD.
                                          v.
                           UNION OF INDIA AND ORS.

                                  APRIL 11, 2000

B                 [S. RAJENDRA BABU AND R.C. LAHOTI, JJ.]


          Customs Act, 1962 :

            Sections 12 and 25( 1)-Exemption Notification-Withdrawal of-Before
    period ofexpiry-Judicial rnview of-Notification No. 210182 dated 10.9.1982
c   (as amended on 20.9.1983) exempted all raw materials and components im-
    parted for manufacture of goads to be supplied ta ONGC from payment of
    customs duty and additional duty up ta 10.9.1987. However, Notification No.
    513186 dated 30.12.1986 rnstricted such exemption only to the extent in excess
    of25% ad valarnm-Validity of-Held: Such rnduction is not based on relevant
D   factors and does not sub-serve public policy-Hence, Notification No. 210182
     is effective till 10.9.1987.

           Section 25( 1)-Exemption Notification-Withdrawal of-In public in-
    terest-Beforn period of expiry-Doctrine of promissory estappel-Applica-
    bility "of-Held : Nat applicable if the change of Government policy is made
E   in public interest.

          Section 159-Notification-Laying of-Before Parliament-Judicial
    rnview-Scope of-Held : Does not make any substantial differnnce ta the
    judicial rnview of the notification.

F         Administrative Law :

          Administrative actian-Discrntianary power-Exercise of-Jn public
    internst-Held: Should be exercised in a rnasonable way in accordance with
                                                                                     -
    the spirit of the Constitution-Constitution of India, 1950. Art. 14.

G         Doctrines :

          Doctrine of Promissory Estoppel-Applicability of

         Respondent by Notification No. 210/82 date 10.9.1982 (as amended
    by Public Notice dated 20.9.1983) issued under Section 25(1) of the Cus-
H   toms Act, 1962 exempted from payment of customs duty and additional
                                 .   1254
                    DAI-ICHI KARKARIA LTD. v. U.O.I.                  1255
duty of customs up to 10.9.1987 on all raw materials and components            A
imported for the manufacture of goods to be supplied to various organisa-
tions including ONGC. The respondent by another Notification No. 513/86
dated 30.12.1986 exempted raw materials and components required for
the manufacture of the goods to be supplied to ONGC from customs duty
in excess of 25 % ad valorem subject to certain conditions. ONGC and
                                                                               B
certain other organisations. were omitted from Notification No. 210/82
dated 10.9.1982 by a Notification No. 517/86 dated 30.12.1986. As a result
thereof the appellant who was a manufacturer and supplier of certain
goods to ONGC in connection with oil exploration viz. Flow Improver
under the trade name ''Daitrolite" became liable to pay duty to the extent
of 25% for the period between 30.12.1986 and 10.3.1987. The appellant's        c
writ petition challenging the action of the respondent was dismissed by the
High Court. Hence this appeal.

      On behalf of the appellant-assessee it was contended that public
interest did not demand the variation during the period the exemption was
                                                                               D
in force by Notification No. 210/82.

      On behalf of the respondent-Revenue it was contended that imposi-
tion of a nil rate of duty on the import of raw materials and components
could lead to misuse thereof; that the administrative requirements as also
the cost of the saving/earning of foreign exchange in the economy (which       E
was about 35 %) were also taken consideration; and that it was felt neces-
sary to exclude ONGC from the scope of Notification No. 210/82 and to
prescribe a separate slab of duty of 25 % in respect of such imports in
terms of Notification No. 513/86.

      Allowing the appeal, this Court                                          F

     HELD : 1.1. The law is now well settled that even in respect of
exemptions that may have been made by the Government the doctrine of
promissory estoppel will not be applicable if the change in the stand of the
Government is made on account of public policy. [1260-C-D]                     G

     Kasinka Trading v. Union of India, (1995] 1 SCC 274 and Shrijee Sales
Corpn. v. Union of India, [1997) 3 SCC 398, relied on.

     1.2. In the present case, the only public interest disclosed by the
Revenue cannot stand close scrutiny because the appeJlant could not            H
    1256                     SUPREME COURT REPORTS                 [2000] 2 S.C.R.
A   misutilise the exemption granted inasmuch as the appellant is obliged only
    to import goods for the purpose of supplying them to O.N.G.C. and the
    licence issued under the policy also clearly reflects the export obligation
    imposed on the appellant and the finished product Daitrolite manufac-
    tured. From raw materials imported under the licence is a highly special-
    ised product and could be sold only to O.N.G.C., Oil India Ltd. and others.
B
    At the time when the exemption was granted the prevailing basic customs
    duty was 60 % and 70 % on different materials imported for the manufac-
    ture of goods in question. However, it is not clear as to why duty is reduced
    to 25 % by reason of exemption being modified. It is clear, therefore, that
    the factors taken into consideration by the Government are wholly irrel-
c   evant and do not sub-serve public interest. [1260-G-H; 1261-A-C] •

            2.1. In cases where power vested in the Government is a power which
    has gotto be exercised in public interest, as in tne presentcase, the court may
    require the Government to exercise that power in a reasonable way in ac-
    cordance with the spirit of the Constitution. The mere fact that a notification
D   issued under Section 25 of the Customs Act, 1962is required to be laid before
    the Parliament under Section 159 of the Act does not make any substantial
    difference as regards the jurisdiction of the court to pronounce on its valid·
    ity. Power exercisable under Section 25 of the Act is no doubt discretionary,
    but it is not unrestricted. The pattern of the law imposing custom duties and
E   the manner in which it is operated to a certain extent exposes the citizens
    who are liable to pay customs duties to the vagaries of executive discretion.
    It is ordinarily assumed that while such wide power is given to the Govern-
    ment, it will consider all relevant aspects governing the question whether
    exemption should be granted or not. [1261-G-H; 1262-B-D]

F        Ir.dian Express Newspapers (Bombay) Pvt. Ltd. v. Union ofIndia, (1985)
    2 SCR 287, relied on.

         Union of India v. Indian Charge Chrome, (1999) 112 ELT 753 SC and
    CCE v. RMDC Press Pvt. Ltd., (1997) 92 ELT 29 SC, held inapplicable.

G         2.2. In the present case, the Government has failed to discharge its
    burden of establishing as to what public interest governed the Government
    in reducing the exteµt of exemption. Therefore, the amended notifications,
    which are applicable for the period from 30.12.1986 to 10.9.1987 reducing
    the extent of exemption, are quashed. The notification issued earlier on
                                                                                      .
H   10.9.1982and modified in 1983 shall be effective till 10.9.1987. (1263-C-D]
                   DAl-ICHI KARKARIA LTD. v. U.0.1. [RAJENDRA BABU, J.]             1257

.....
  ~

               CIVIL APPELLA1E JURISDICTION: Civil Appeal No. 7202 of 1995.

               From the Judgment and Order dated 27.6.95 of the Bombay High Court
                                                                                             A


         in W.P. No. 593 of 1987.

              F.S. Nariman, R.F. Nariman, A.B. Diwan, Sunil Dogra, S.S. Shroff, Ms.
         Monica Sharma, Shahid Rizvi, R. Sasiprabhu, Manish Garg, Ms. Nisha                  B
         Bagchi and P. Parmeshwaran for the appearing parties.

               The Judgment of the Court was delivered by

                RAJENDRA BABU, J. By Notification No. 210/82 dated September
          10, 1982 (as amended by Public Notice dated September 20, 1983) issued             c
          under Section 25(i) of the Customs Act the Government of India exempted
          from payment of customs duty and additional duty of customs ·on all raw
          materials and components imported for the manufacture of goods to be
          supplied to various organisations such as l.D.A. that is, the International
          Development Association, International Bank for Reconstruction and Devel-
          opment (I.B.R.D.) or bilateral or multilateral aided projects. The said notifi-
                                                                                             D
          cation stated that it would be in force till September 10, 1987. By Notification
          No. 513/86 dated December 30, 1986 issued under Section 25(i) of the
          Customs Act the Central Government exempted raw materials and compo-
          nents required for the manufacture of the goods to be supplied to the
          O.N.G.C. or G.A.l.L. from so much of that portion of the duty of customs           E
          foviable thereon which is specified in the First Schedule to the Customs Tariff
~
          Act, 19.75 as is in excess of the amount calculated at the rate of 25% ad
          valorem and whole of the additional duty leviable thereon under Section 3 of
          the Customs Tariff Act, 1975 subject to certain conditions. By another
        . Notification No. 516/86 of the same date the Central Government exempted
                                                                                             F
          goods imported in connection with ·off-shore oil exploration or exploitation
          from the whole of the duty of customs leviable thereon under the First
          Schedule to the Customs Tariff Act, 1975 and the additional duty leviable
          thereon under Sectio~ 3 of the Customs Tari.ff Act, .1975 subject to certain
          conditions. By another Notification No. 517/86 dated December 30, 1986 it
          was notified that Notification No. 210/82 dated September 10, 1982 stood           G
          amended by omitting the words "or Oil and Natural Gas Commission or Oil
          India Limited or Gas Authority of India Limited". As a result thereof the
---      ·appellant who is manufacturer and supplier of certain goods to O.N.G.C. in
          connection with oil exploration viz. Flow Improver under the trade name
         "Daitrolite" became liable to pay duty to the extent of 25% for the period          H
      1258                    SUPREME COURT REPORTS                 [2000] 2 S.C.R.
A    between December 30, 1986 and September 10, 1987.

            Though several contentions had been raised in the High Court in
     challenging the action of the respondents, in the appeal before us what is
     urged is only one contention which is as follows: That Notification No. 210/
     82 dated September 10, 1982 and the extended Notification thereto to apply
B    to O.N.G.C. was issued to encourage manufacture of goods indigenously for
     effecting supplies to essential Indian enterprises as a part of the scheme which
     was Project Based and the exemption under the said Notification was a part
     of Project Based exemption scheme. Public interest did not demand the
     variation during the period the exemption was in force by Notification No.
c    210/82.

            In the writ petition before the High Court the contention raised by the
     appellant is that the fact that many persons, including the petitioners have
    undertaken importation of materials on the basis that no duty was leviable or
    payable on the imported material and that there have been no new events nor
D any supervening circwnstances which could form a basis for or justify the
    withdrawal of the benefit contained in the exemption Notification No. 210/
    82 as amended in 1983 after being satisfied that public interest required that
  . there should be no duty of customs nor additional duty of customs in respect
    of raw materials and components imported for supplies therefrom to O.N.G.C.
E for a fixed and defmite period up to September 10, 1987; that the policy of
    the first respondent is to indigenise production as is the policy of O.N.G.C.
    to indigenise; that the appellant had secured orders for supply of goods
    against global tenders where foreign suppliers also participated and in the
    teeth of international competition the company had been awarded the con-
     tracts by O.N.G.C.; that pursuant to the exemption that has been granted the
F company had invested since 1983 a large amount of money in respect of its
    plant for manufacture of goods to be supplied' to O.N.G.C.; that public interest
     which prompted the first respondent to issue the exemption notification No.
    210/82 remains unaltered and no new supervening circumstances have justi-
    fied reversal of the said policy and, in fact, such a reversal to encourage
G foreign manufacturers at the cost of Indian manufacturers is per se contrary
    to public interest drain on foreign exchange.

            The High Court took the view that this Court had laid down in Kasinka
     Trading & Am: v. Union of India & Am:, [1995] 1 SCC 274, that the power
     to exempt flows from Section 25 of the Customs Act; that just as the
H    notification issued granting exemption is in public interest, by another
         DAI-ICHI KARKARIA LTD . v. U.O.I. [RAJENDRA BABU, J.]            1259
notification it can also be modified or withdrawn in public interest, irrespec-    A
tive of whether exemption is project based or specific goods related. The High
Court having held that Notification No. 210/82 had been issued in public
interest and modified again in public interest, dismissed the petition. Hence
this appeal.

       Inasmuch as the contention raised on behalf of the appellant had not        B
been specifically dealt with by the respondents in the writ petition in the High
Court, this Court permitted the respondents to file counter affidavit. Accord-
ingly, a counter affidavit was filed on February 9, 2000. In that affidavit what
is stated is as follows :-

         "It is further submitted that the oil section in general had been
                                                                                   c
         enjoying various fiscal concessions since 1982. During December,
         1986, a review was undertaken in relation to various concessions
         accorded to oil exploration and development of oil and natural gas
         production. The conditions prevailing then compelled the govern-
         ment to review the earlier concessions and to prescribe different         D
         rates of duties on different goods required by the sector in order to
         promote oil exploration in the country. It was believed that the
         imposition of a nil rate of duty on the import of raw materials and
         components required for the manufacture and supply of products to
         the ONGC, OIL and GAIL could lead to misuse, specially by the             E
         private contractors who have other interests, in addition to the
         supplies to the Oil Sector. The Administrative requirements as also
         the cost of the saving/earning of foreign exchange in the economy
         (which is about 35%) were also taken into consideration. Conse-
         quently, it was felt necessary to exclude ONGC, Oil India Ltd. and
         Gas Authority of India Ltd. from the scope of Notification No. 210/       F
         82 and to prescribe a separate slab of duty of25% in respect of such
         imports in terms of notification No. 513/86."

      The appellant filed a reply stating as follows :-

         "(l) It is wrong to say that the appellant herein could have misused      G
         the exemption because under the export obligation clause, in
         keeping with the policy of the government, the appellant was obliged
         only to import for supplying to ONGC, respondent No. 4 herein. The
         licence issued under the policy clearly reflects the export obligation
         imposed on the appellant herein.·                                         H
    1260                     SUPREME COURT REPORTS                   [2000] 2 S.C.R.
A            (2) Furthermore, the finished product Daitrolite manufactured from
             the raw materials imported under the licence, being a highly special-
             ised product could have been sold only to ONGC, Oil India etc. and
             nobody else.

             (3) At the time in 1982 when the exemption on customs duty was
B            allowed to the appellant, the prevailing basic customs duty was 60%
             and 70% on different materials and even if on account of probable
             misuse, the exemption why only a 25% customs duty was allowed
             to be imposed for bringing in the raw materials."

           The law on the matter is now well settled that even in respect of
c   exemptions that may have been made by the Government the doctrine of
    promissory estoppel will not be applicable if the change in the stand of the
    Government is made on account of public policy. This position has been
    explained in detail by this Court in Kasinka Trading & Am: (supra) and
    reiterated in Shrijee Sales Corporation & Am: v. Union of India, [1997] 3
D   SCC 398. In both these cases this Court is concerned with notifications issued
    under Section 25 of the Customs Act. In Kasinka Trading & Am: (supra) case
    it is stated that the exemptions granted 'under Section 25(i) of the Customs
    Act in public interest is designed to off-set tl1e excess price which the local
    entrepreneurs were required to pay for importing PVC resin at a time when
    the difference between the indigenous product and the imported product was
E
    substantial and at a time when the notification was withdrawn by the
    Government there was no scope for any loss to be suffered by the importers
    and, therefore, the change of policy was permissible. This decision is the same
    in Shrijee Sales Corporation & Anr. (supra) wherein it was noticed that once
    public interest is accepted as the superior equity which can override indi-
F   vidual equity, the principle would be applicable even in cases where a period
    has been indicated for which period the notification would remain in force
    and Government is corr.petent to resile t~om a promise. It was further noticed
    therein that the Government can resile from a promise even if there is no
    manifest public interest involved provided, of course, that no one is put in any
G   adverse situation which cannot be rectified.

           In the present case, it is clear that the only public interest disclosed is



H
    as stated above in the counter affidavit and those circumstances cannot stand
    close scrutiny because the appellant could not mis-utilise the exemption
    granted inasmuch as the appellant is obliged only to import goods for the
    purpose of supplying them to O.N.G.C. and the licence issued under the
                                                                                         -
                 DAl-ICHI KARKARIA LTD. v. U.0.1. [RAJENDRA BABU, J.]            1261
        policy also clearly reflects the export obligation imposed on the appellant       A
~
        herein and the finished product Daitrolite manufactured from raw materials
        imported under the licences is highly specialised product and could be sold
        only to O.N.G.C., Oil India Ltd. and others. At the time in 1982 when the
"-      exemption was granted the prevailing basic customs duty was 60% and 70%
        on different materials imported for the manufacture of goods in question.
                                                                                          B
        However, it is not clear as to why duty is reduced to 25% by reason of
        exemption being modified. It is clear, therefore, that the factors taken into
        consideration by the Government appear to us to be wholly irrelevant and do
        not subserve public interest. In somewhat identical situation, this Court had
        occasion to examine the scope of interference in respect of notification issued

 -
        under Section 25 of the Customs Act.                                              c
               In Indian Express Newspapers (Bombay) Private Ltd. & Ors. etc. etc.
        v. Union of India & Ors. etc. etc., [1985] 2 SCR 287, scope of interference
        in the notification issued under Section 25 of the Customs Act, 1962 is
        considered. This Court held that power to grant exemption under Section 25
        of the Customs Act is a legislative power and a notification issued by the        D
        Government thereunder amounts to a piece of subordinate legislation, even
        then the notification is liable to be questioned on the ground that it is an
        unreasonable one inasmuch as a piece of subordinate legislation does not
        carry the same degree of immunity which is enjoyed by a statute passed by
        a competent legislature. Subordinate legislation may be questioned on any of      E
        grounds on which plenary legislation can be challenged : (i) that it does not

.,      conform to the statute under which it is made; (ii) that it is contrary to some
        other statute inasmuch as subordinate legislation must yield to plenary
        legislation, (iii) that it is unreasonable in the sense that it is manifestly
        arbitrary. The embargo of arbitrariness is embodied in Article 14 of the
        Constitution. An enquiry into the vires of delegated legislation must be
                                                                                          F
        confined to the ground on which the plenary legislation may be questioned,
        except that subordinate legislation cannot be questioned on the ground of
        violation of the principle of natural justice on which administrative action
.....   may be questioned. In cases where power vested in the Government is a
        power which has got to be exercised in public interest, as is the case in the     G
        present case, the court may require the Government to exercise that power in
        a reasonable way in accordance with the spirit of the Constitution. The mere

--      fact that a notification issued under Section 25 of the Customs Act is required
        to be laid before Parliament under Section 159 of the Customs Act does not
        make any substantial difference as regards the jurisdiction of the court to
                                                                                          H
    1262                      SUPREME COURT REPORTS                   [2000] 2 S.C.R.
A   pronounce on its validity. Section 25 of the Customs Act under which                  _,
    notifications are issued confers a power on the Central Government coupled
    with a duty to examine the whole issue in the light of public interest. If the
    Central Government is satisfied that it is necessary in the public interest so
    to do, it may exempt generally either absolutely or subject to such conditions,
    goods of any description, from the whole or any part of the customs duty
B
    leviable thereon. Power exercisable under Section 25 of the Customs Act is
    no doubt discretionary, but it is not unrestricted. The pattern of the law
    imposing customs duties and the manner in which it is operated to a certain
    extent exposes the citizens who are liable to pay customs duties to the
    vagaries of executive discretion. While Parliament has imposed duties by
C   enacting the Customs Act and the Customs Tariff Act, 1975, the executive
    Government is given wide power by Section 25 of the Customs Act to grant
    exemption from the levy of customs duty. It is ordinarily assumed that while
    such wide power is given to the Government, it will consider all relevant
    aspects governing the question whether exemption should be granted or not.
D          Ms. Nisha Bagchi, learned counsel for respondents, relied on Union of
    India v. Indian Charge Chrome, (1999) 112 ELT 753 S.C .. In this case,
    however, the law stated in Kasinka Trading & Am: (i;:upra) is reiterated but
    there is no plea in the petition that the formation of opinion as to public
    interest is based on no material or was vitiated by malafides. In the present
E   case, the position is altogether different. Specific plea has been raised that
    there is no basis for formation of the opinion as to public interest calling for
    withdrawal or modification of the exemption already granted. Therefore, the
    principle stated in that case has no application to the facts of the present case.

          Relying upon a decision in Collector of Central Excise v. R.M.D.C.
F   Press Pvt. Ltd, (1997) 92 ELT 29 S.C., it was further submitted by the learned
    counsel for the respondents that public interest should be presumed to exist
    even when the judgment Under appeal does not expressly refer to public
    interest which moved the respondents to curtail the period of exemption.
    When a specific contention had been raised regarding non-existence of public
G   interest in curtailing the period of exemption, we fail to understand as to how
    this decision can be of any assistance to the learned counsel.

           In the present case, by issuing different set of notifications and granting
    exemption at different stages and limiting only to the extent of 75% for the
    period from December 30, 1986 to September 10, 1987 and for the reasons
H   stated earlier in the manner set out in the counter affidavit clearly indicate that
             DAI-ICHI KARKARIA LTD. v. U.O.I. [RAJENDRA BABU, J.]              1263
    the Goveniment has not taken into account all the relevant factors while            A
    issuing the impugned notifications reducing the exemption to 25% for the
    aforesaid period. We may state that the Government has failed to discharge
    its statutory obligation while issuing the impugned notifications. Justifications
    offered, to say the least, is far too naive to be accepted. The reason set out
    does not carry the case of the State Government further at all. However, Ms.
                                                                                        B
    Nisha Bagchi sought to distinguish the different notifications by stating that
    different notifications issued subsequently are in respect of different com-
    modities and it is always open to the Government to change its policy.
    Undoubtedly it is so, but those factors per se would not discharge the burden
    of the Government in establishing as to what public interest governed the
    Government in reducing the extent of exemption.                                     c
           We have already held that the Government has failed to discharge that
    burden. In the result, we have no hesitation in quashing the amended
    notifications which are applicable for the period from December 30, 1986 to
    September 10, 1987 reducing the extent of exemption. The notification issued
    earlier on September 10, 1982 and modified in 1983 shall be effective till          D
    September 10, 1987. The appellants should be subject to duty only in
    accordance with those notifications issued under the Customs Act.

         The appeal is allowed accordingly by setting aside the order made by
    the High Court in allowing the writ petition filed by the appellant in the
                                                                                        E
    manner indicated therein. There shall be no order as to costs.

    v.s.s.                                                         1\ppeal allowed.




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