Holding

Section 154, Finance Act 2003, is a constitutionally valid retrospective amendment and does not violate Articles 14, 19 or Section 11‑A of the Central Excise Act.

Summary

The petitioners, job‑workers manufacturing cigarettes under exemption notifications issued in 1999, were ordered by the High Court to receive refunds of excise duty. After the High Court upheld the refunds, Parliament enacted Section 154 of the Finance Act, 2003, retrospectively withdrawing the exemption and authorising recovery of the refunded duty. The petitioners challenged the constitutionality of Section 154 on grounds of violation of Articles 14 and 19, lack of notice, and conflict with Section 11‑A of the Central Excise Act. The Supreme Court held that Parliament may amend or repeal exemption notifications retrospectively provided it does not breach constitutional limits, and that the retrospective operation was not unduly oppressive, confiscatory, or discriminatory. The Court also found that Section 154 supplied its own procedural regime, rendering Section 11‑A’s notice and limitation provisions inapplicable. Consequently, the writ petitions were dismissed and the appeals were held infructuous.

Issues considered

The constitutionality of Section 154, Finance Act 2003, as a retrospective amendment under Articles 14 and 19 of the Constitution
Whether Section 154 violates Section 11‑A of the Central Excise Act, 1944 with respect to notice and limitation periods
Whether the retrospective operation of Section 154 is unreasonable, confiscatory or discriminatory
Whether the period and context of retrospectivity render the provision unconstitutional
Whether principles of natural justice (notice and hearing) apply to the recovery under Section 154

Legislation cited

Additional Duties of Excise (Goods of Special Importance) Act, 1957
Additional Duties of Excise (Textiles and Textile Articles) Act, 1978
Central Excise Act, 1944s. 11‑A, s. 11‑B, s. 5‑A
Constitution of Indias. Art. 14, s. Art. 19, s. Art. 265
Finance Act, 2003s. 154

Subjects

Excise dutyRetrospective legislationConstitutional validityArticle 14Article 19Section 154 Finance Act 2003Exemption notificationsNatural justiceLimitation periodTax recovery

Judgment

A R.C. TOBACCO PVT. LTD. AND ANR.
V.

UNION OF INDIA AND ANR.

SEPTEMBER 19, 2005

B [RUMA PAL AND TARUN CHATTERJEE, JJ.]

Excise Law:

Finance Act, 2003: Sei:tion 154 and Schedule IX.
c
Excise duty-Notifications Nos. 32199 dated 8. 7.1999, 45199 dated
31.12.1999 and 112001 dated 22.1.2001-Retrospective operation of-
Constitutionality-Exemption granted to cigarette manufacturers by the
Notifications retrospectively rescinded/withdrawn-Validity of-Held: Factors
D which are relevant to decide whether S. 154 is ex facie discriminatory, or so
unreasonable or confiscatory that it violated Articles 14 and 19 of the
Constitution, considered-Such/actors examined and retro~pective rescinding/
withdrawing of said exemption, not discriminatory-Constitutionality of S.
154 upheld-Constitution of India, 1950, Arts. 14 and 19-Central Excise
Act, 1944, S. 5-A.
E
Excise duty-Recovery of-Period of limitation-Held: The period of
limitation specified in S. 154 is applicable and not the one provided under S.
II-A of the Central Excise Act, 1944.

Excise duty-Recovery of-Requirement of notice-Necessity of-Held:
F Since notice of personal hearing was served on the petitioners, applicability
of the principles of natural justice, not considered.

Excise duty-Withdrawal of exemption-Recovery of duty-Raising of
demand-Validity of-Held: The consequences of the withdrawal ofexemption
of excise duty including the recove1y of excise duties have been provided for
G in S. 154 itself-Hence, retrospective withdrawal of exemption and recovery
of arrears of excise duty, although operated harshly in some cases, by itself
did not invalidate the demand.

The petitioners manufactured cigarettes and almost all of them were

H 342
R.C. TOBACCO PVT. LTD. v. U.0.1. 343
job workers for large tobacco companies. They set up their units under A
agreements with the large tobacco companies and admittedly produced
the cigarettes with the brand names of those companies. Under Notification
Nos. 32/99 and 33/99 dated 8.7.1999, the petitioners were entitled to
exemption from excise duty. The procedure envisaged for obtaining the
exemption under both the Notifications was that the manufacturer would B
have to pay the excise duty and subsequently claim refund from the excise
authorities. Subsequently, by Notification No. 45/99 dated 31.12.1999 the
excise exemption to cigarettes was withdrawn. However, the exemption
was reintroduced by Notification No. 1/2000 dated 17.1.2000. The
exemption was finally withdrawn by Notification No. 1.2001 dated
22.1.2001. c
A Single Judge of the High Court held that the petitioners were
entitled to refund of excise duty on the cigarettes manufactured from the
date of commercial production till the date the benefit was withdrawn by
the Central Government in January 2001. A Division Bench affim1ed that
decision. The Union of India had challenged the said decision before this D
Court.

Immediately after the decision of the Division Bench of the High
Court, Section 154 of the Finance Act, 2003 was enacted by Parliament.
The exemptions available to the manufacturers of cigarettes from 1999
up to 27.1.2001 (except for a short period between 31.12.1999 and E
17.1.2000 during which it was not available), was rescinded retrospectively.
This meant that the excise duties already refunded to the petitioners would
be liable to be recovered, no further refund would be made and the
petitioners would be liable to pay the excise duties not paid when the
exemption was in force i.e. between 8.7.1999 and 27.1.2001. p

A second batch of writ petitions was filed by the petitioners before
the High Court challenging Section 154 as being unconstitutional. These
writ petitions were transferred to this Court and listed for hearing along
with the appeals of the Central Government.
G
On behalf of the petitioners, it was contended that the
unreasonableness in the retrospective operation of Section 154 was evident
from the 'flip-flop' of the Central Government in issuing the notifications
granting, then withdrawing, again granting, before finally withdrawing
the benefit in respect of cigarettes in the short space of about a year and
a half; that when the legislature violated promises and representations H
344 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A made by the Government, it was a facet of unreasonableness that must
be taken into account in evaluating the constitutionality of the law under
Articles 14 and 19; that retrospective denial of exemption stood on a
different footing from a validating Act; that the justification for such
retrospective imposition of excise duty must be overwhelming and that no
such overriding consideration had been disclosed; that Section 154 violated
B Section 11-A of the Central Excise Act, 1944 as it did not envisage the
service of any notice and it sought to allow recoveries to be made after
the periods of limitation provided; that whether a statute provided for
notice or not, any proceedings taken without such notice would be against
the principles of natural justice; that the cigarette manufacturers had been
C unfairly discriminated against; and that the petitioners would be
financially crippled if they were called upon to pay the excise duty
particularly in respect of the units which had passed on the benefit of the
entire exemption to their customers.

On behalf of the respondent, it was contended that Section 154
D merely gave effect to what was all along the intention behind the
Notification No. 32 of 1999; that the large tobacco companies avoided all
the controls by setting up the industrial units and taking undue advantage
of the benefits granted by the exemption notification; that there was no
delay in Parliament stepping in since it clarified the law immediately after
E the decision of the Division Bench of the High Court; that the Central
Government which was exercising delegated power under Section 5-A of
the Central Excise Act, 1944 could not prevent Parliament from undoing
the clear error in the exercise of power by the Central Government in
granting the exemption or from correcting its vacillating attitude; that
there was no question of issuing a fresh show-cause notice after the
F enactment of Section 154; that the fact that Section 154 might operate
harshly in individual cases would not be sufficient reason for striking down
that Section as unreasonable; and that in the majority of cases the units
had not passed on the benefit~ granted by the exemption to their customers
and had on the other hand realized the duty from their customers.

G Dismissing the transfer petitions, the Court

HELD: 1.1. The competence of Parliament and State legislatures to
repeal, amend or supersede an exemption notification is unquestionable.
The power to do so retrospectively cannot be and is also not doubted. The
limitation on this power is that the legislation must not conflict with other
H
R.C. TOBACCO PVT. LTD. v. U.0.1. 345
provisions of the Constitution. As far as fiscal legislation is concerned, the A
limitation is implicit in Article 265 of the Constitution which provides that
no tax shall be levied or collected except by authority of law. (357-D-E-F]

1.2. A law cannot be held to be unreasonable merely because it
operates retrospectively. The unreasonability must lie in some other
additional factors. The retrospective operation of a fiscal statute would B
have to be found to be unduly oppressive and confiscatory before it can
be held to be so unreasonable as to violate constitutional norms.
(358-A-B-C]

Chhotabhai Jethabhai Patel v. Union of India, (1962] Supp. 2 SCR l
and Rai Ramkrishna v. State of Bihar, AIR (1963) SC 1667, relied on. C
2. The factors which are generally considered relevant in answering
the question whether Section 154 of the Finance Act, 2003, which is in
terms retrospective, is ex facie discriminatory, or so unreasonable or
confiscatory that it violates Articles 14 and 19 of the Cor.~titution are (i) D
the context in which retrospectivity was contemplated, (ii) the period of
such retrospectivity, and (iii) the degree of any unforeseen or unforeseeable
financial burden imposed for the past period. (358-D-EJ

Empire Industries ltd v. Union ofIndia, [1985) 3 SCC 314 and Ujagar
Prints v. Union of India, [1989] 3 SCC 488, relied on.
E
3. The context in which legislation is enacted is to be distinguished
from the motives which impelled it to act. The latter are irrelevant. The
justification put forward by the respondent for enacting Section 154 was,
therefore, really unnecessary. (358-E-F-G]

K.C. Gajapati Narayan Deo v. State of Orissa, [195411.SCR land F
R.S. Joshi v. Ajit Mills ltd, (1977] 4 SCC 98, relied on.

4.1. The particular context of Section 154 impugned in this case was
the industrial policy formulated by the Central and the State Government
of Assam for the development of the State. The obvious intention behind
the grant of the package of incentives including an exemption from G
payment of excise duties was to stimulate further industrial growth in the
area with enduring benefits not only to the local populace by way of
employment opportunities but also to the economic welfare of the State.
None of the industrial units manufacturing cigarettes were prepared to
contribute to this object and their investment in the manufacture of H
346 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A cigarettes was co-extensive with the period of exemption.
(358-G-H; 359-A-B-C]

Therefore, the respondent could contend that the words should have
been used in the exemption so as to provide for sufficient safeguards to
ensure that the benefit of exemption was granted only to those industries
B which would in turn permanently invest in the State. By the retrospective
enactment this defective expression of the object of the policy was rectified.
(359-D-E-F)

5. The Exemption Notifications were issued under Section 5-A of the
Central Excise Act, 1944 as a delegate of Parliament. In a Cabinet form
C of Government, the Executive is expected to reflect the views of the
legislature. Consequently, if the Executive has failed to carry out the object
of Parliament, such control may be exercised by retrospectively enacting
what the Executive ought to have achieved. [359-F-G-H; 360-A)

Sita Ram Bishamber Dayal v. State of U.P., (1972) 2 SCR 141, M.K.
0 Papiah v. Excise Commissioner, (1975) 1 SCC 492 and Epari Chinna Krishna
Moorthy v. State of Orissa, AIR (1964) SC 1581, relied on.
6. Although the length of time is not by itself decisive the effect of
the retrospectivity of the legislation in this case is less than two years. The
tussle between the excise authorities and the petitioners started almost
E immediately upon the latter claiming and obtaining refunds of the excise
duty paid by them on the manufacture of cigarettes. Therefore, between
2000 to 2003 the dispute as to the purport of the exemption notification
during the period of its operation from July 1999 to January 2001 was
pending in the High Court. While the proceedings were pending in this
F Court and the issue was still at large, Section 154 was enacted. In these
circumstances, the Parliament cannot be blamed for having at least
awaited the decision of the High Court, nor can the statutory provision
be questioned as being unreasonably retrospective. [361-A-EJ

Rai Ram Krishna v. State of Bihar, AIR (1963) SC 1667, relied on.

G National Agricultural Coop Marketing Federation ofIndia Ltd v. Union
of India, [2003) 5 SCC 23, referred to.
7. By enacting Section 154, Parliament has forestalled a decision by
this Court and in effect taken away the basis for the decisions of the High ,
1-'1
Court. In the circumstance, it could not be said that the financial burde~
H was unforeseen or unforeseeable. [361-F-GJ
R.C. TOBACCO PVT. LTD. v. U.0.1. 347
Chairman, Railway Boardv. C.R. Rangadhamaiah, [1997] 6 SCC 623, A
held inapplicable.

Kasinka Trading v. Union of India, (1995) I SCC 274, referred to.

8. The reasons for the retrospective enactment of Section 154 have
been given and are at least factually plausible. Therefore the petitioners' B
contention that unless the material is disclosed as to why there was an 'on
again and off again' exemption, Section 154 must be held to be arbitrary
and, therefore, unconstitutional is not tenable. (362-G; 363-A]

Tata Motors Ltd. v. State of Maharashtra, (2004] 5 SCC 783, held
inapplicable. C
Madan Mohan Pathak v. Union of India, (1978] 3 SCR 334 and Lohia
Machines Ltd. v. Union of India, (1985] 2 SCC 197, referred to.

9.1. The petitioners' contention is that Section 154 violated Section
11-A of the Central Excise Act, 1944 in that it did not envisage the service D
of any notice and it seeks to allow recoveries to be made after the periods
of limitation provided. As far as the question of limitation is concerned,
refund of duty under the Act has been provided for by Section 11-B of
the Act. It is neither of the parties' case that the refund made to the
petitioners of the excise duty by them was under that Section.
[364-F; 365-A-B] E
9.2. Although Section 11-A does not refer to Section 11-B, it speaks
of duties "erroneously refunded". It cannot, therefore, refer to the refunds
made to the petitioners under the notifications as there was no error in
the provisional refunds made under the notifications to the appellants. F
What was sough to be recovered under Section 154 was not an erroneous
refund but a benefit provisionally granted. (365-G-H]

9.3. Section 154(4) specifically and expressly allows amounts to be
recovered within a period of thirty days from the day the Finance Bill,
2003 received the assent of the President. It cannot but be held, therefore, G
that the period of six months provided under Section 11-A would not
apply. [366-E-F]

J.K. Cotton Spinning & Weaving Mills Ltd. v. Union of India, (19871
Supp. SCC 350 and National Agricultural Cooperative Marketing Federation
of India Ltd., v. Union of India, [2003[ 5 SCC 23, held inapplicable. H
348 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A 10. Assuming that the principles of natural justice were applicable
to the present case, in fact notices of personal hearing were served on the
petitioners by the Assistant Collector for a personal hearing before the
Assistant Collector passed the orders by which the petitioners were held .
liable to repay the refunds made and to pay the excise duty on the goods
B cleared for subsequent periods. [366-H; 367-A-B)

East India Commercial Co. Ltd. v. Collector of Customs, [1963) 3 SCR
338, referred to.

1 I. It is not possible to accept the petitioners' contention that the
cigarette manufacturers have been unfairly discriminated against. Firstly,
C there is a presumption iii favour of the constitutionality of a statute, a
presumption which only the clearest and weightiest evidence can displace.
Secondly, judicial notice cari be taken of the fact that cigarettes have been
treated as a class apart for the purposes of levy of excise duty with the
manufacture of cigarettes probable yielding the highest revenue to the
D exchequer. (367-C-D-E(

R.K. Garg v. Union of India, [1981) 4 SCC 675, relied on.

12. This is not a case where Section 154 has merely withdrawn the
exemptions. The consequences of the withdrawal have been statutorily
provided for in Section 154 itself including the recovery of the excise duties
E refunded or not paid. The effective period of such imposition is about eight
months. The Sate has been deprived of revenue without any corresponding
benefit. It may be that the retrospective operation may operate harshly
in some cases, but that would not by itself invalidate the demand.
(369-C-D-E)
F State of Rajasthan v. JK. Udaipur Udyog Ltd, (2004) 7 SCC 673, Epari
Chinna Krishna Moorthy v. State of Orissa, AIR (1964) SC 1581 and Land
Acquisition Officer v. H. Nc.rayanaiah, AIR (1976) SC 2403, relied on.

British Physical Lab (India) Ltd v. State of Karnataka, (19991 1 SCC
G 170, held inapplicable.
Texmaco Ltd. v. State of Andhra Pradesh, (200011 SCC 763, referred
to.

CIVIL APPELLATE JURISDICTION : Transfer Case (C) No. 27 of
H 2004.
R.C. TOBACCO PVT. LTD. v. U.0.1. [RUMA PAL J.] 349
(Under Article 139-A(I) of the Constitution of India.) A
WITH

C.A. Nos. 881-896 of 2004 and T.C. (C) Nos. 23-26, 28-36, I 51/2004.

Harish N. Salve, R.F. Nariman, Dushyant A. Dave, P.K. Goswami, B
A.K. Ganguli, Krishan Venugopal, Ravinder Narain, Ms. Sonu Bhatnagar,
Ms. Sushma Sharma, Ajay Agarwal, Sanjeev Dahiya, Ms. Kanika Gombar,
Rajan Narain, S. Bhandari, Ms. Pragya Baghel, Mrs. Manik Karanjawala,
O.P. Khaitan, A.T. Patra, Ms. Nisha Baghchi, Ramesh Singh, Nipun Malhotra,
Rajiv Mehta, B. Aggarwala, Ms. Radha Rangaswami, Siddhartha Chaudhary, C
P.S. Narasimha, Ananga Bhattacharya, Sunil Murarka, K. Swami, A. Subba
Rao, B. Krishna Prasad, P. Parmeswaran, Vivek Kohli, Subramonium Prasad,
Manoj Gupta, Anil K. Kher, Bhargava V. Desai, Kapil Kher, Sanjeev Kr.
Singh, Pradeep Kr. Malik and Ms. Sheenam Parwarda for the appearing
parties.
D
The Judgment of the ~ourt was delivered by

RUMA PAL, J. The dispute in these matters arises out of an exemption
which had been granted by the Central Government to new industries by
Notification No. 32/99-CE dated 8th July 1999 issued under Section SA of
the Central Excise Act, 1944 (referred to hereafter as 'the Act'). The parties E
in the various proceedings which are being disposed of by this judgment,
represent industries manufacturing cigarettes on the one hand (whom we will
refer to as "the petitioners") and the Union of India and the excise authorities
on the other (who are described as "the respondents"). Almost all the petitioners
are job workers for large tobacco companies. They set up their units under F
agreements with the large tobacco companies and admittedly produced the
cigarettes with the brand names of those companies. The few exceptions to
this are noted subsequently.

In December, I 997 the Government of India had announced a separate
industrial policy for the North Eastern Region of the country which proposed G
to stimulate 'synergetic' development of industries in the region by giving a
package of incentives which included exemption from excise duties, transport
. subsidies, capital investment subsidies, interest subsidies and other benefits.

Pursuant to this policy, a number of notifications were issued by the
concerned Ministries in the Government, the relevant ones for our purpose H
350 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A being the Excise Notifications Nos. 32/99 and 33/99 dated 8th July 1999 by
which diverse benefits were given. Briefly stated, under the first notification
all excisable goods were exempt from duty under the Act if the goods were
produced by new industrial units which commenced their commercial
production on or after 24th December 1997 and were located in defined areas
B specified in the annexure to the notification. The benefit was given for a
period of 10 years from the date of publication of the notification or from the
date of the commencement of commercial production whichever was later.
The second notification exempted goods produced in specified industries
located in areas outside the growth centres. The procedure envisaged for
obtaining the exemption under both notifications was that the manufacturer
C of goods in such industrial units would have to pay excise duty and
subsequently claim refund from the excise authorities.

A notification was issued on 31st December 1999, being Notification
No. 45 of 1999 withdrawing the excise exemption to cigarettes. However, the
exemption was re-introduced on 17th January 2000 by Notification No. 1 of
D 2001.

The petitioners set up units in a specified growth centre and claimed
the benefit of Notification No. 32/99. This was allowed to them initially for
the first few months. However, from July to October 2000 although some of
E the petitioners made payment of the excise duty, they were not refunded the
amount. Being aggrieved, the petitioners filed writ petitions before the Gauhati
High Court. An interim order was passed by the High Court on 19.1.2001
directing the provisional refund of the excise duty by the respondents to the
petitioners. Although the exemption was finally withdrawn in respect of
cigarettes by Notification No. 11200 I dated 22nd January 200 I, the
F respondents' prayer .for vacating the interim order was rejected by the High
Court by its order dated 8.2.200 I. While extending the time for the respondents
to comply with the interim order, the High Court directed that in verifying
the claims for refund, the State Government could not interfere with the
exercise of powers of the excise authorities but made it clear that:
G "This is not to say that the concerned Assistant Commissioner or
the Deputy Commissioner of Central Excise Department cannot take
in to account any material furnished by the State Govt. authorities in
deciding as to whether exemption is due to a manufacturer claiming
refund under the said Notification. He may consider such material
H but the judgment will be that of the Assistant Commissioner or the
R.C. TOBACCO PVT. LTD. v. U.0.1. [RUMA PAL, J.] 351
Deputy Commissioner of Central Excise Department on the question A
as to whether the amount claimed by the manufacturer under the said
Notification is entitled to exemption and refund under the Notification".

Relying on these observations separate orders were passed by the
Assistant Commissioner rejecting the claims for refund of the petitioners for
the months of July 2000 to January 200 I and also ordering recovery of the B
amounts already refunded during April to June 2000 forthwith.

He found that no unit without a Permanent Registration Certificate
(PMT) issued by the Directorate of Industries & Commerce, Government of
Assam could "legally" go into commercial production and that the earlier
order of refund passed "on the basis of such misinformation & C
misrepresentation of fact with regard to the date of commercial commencement
of production would also be unjust/incorrect and devoid of 'legal sanction".

The pending writ petitions were amended to incorporate a challenge to
this order. The writ petitions were allowed by the learned Single Judge on D
17th May 2002 who held that the petitioners were entitled to refund of excise
duty on the cigarettes manufactured from the date of commercial production
till the date the benefit was withdrawn by the Central Government in January
200 I. The judgment was affirmed on 4th April 2003 by the Division Bench
in the writ appeal filed by the Union of India. The Union of India has
challenged the decision before us in the above noted appeals. E
Immediately after the decision of the Division Bench of the Gauhati
High Court, Section 154 ofthe Finance Act, 2003 was enacted by Parliament.
The section reads as follows:

"154. Amendment of notifications issued under Section 5-A of the F
Central Excise Act.-{ I) The notifications of the Government of India
in the Ministry of Finance (Department of Revenue) Nos.
G.S.R.508(E), dated the 8th July, 1999 and G.S.R.509(E), dated the
8th July, 1999, issued under sub-section (I) of Section 5-A of the
Central Excise Act read with sub-section (3) of Section 3 of the
Additional Duties of Excise (Goods of Special Importance) Act, 1957 G
and sub-section (3) of Section 3 of the Additional Duties of Excise
(Textiles and Textile Articles) Act, 1978, by the Central Government
shall stand amended and shall be deemed to have been amended in
the manner as specified against each of them in column (3) of the
Ninth Schedule, on and from the corresponding date specified in H
352 :lUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A column (4) of that Schedule retrospectively, and accordingly,
notwithstanding anything contained in any judgment, decree or order
of any Court, Tribunal or other authority, any action taken or anything
done or purported to have been taken or done under the said
notifications, shall be deemed to be and always to have been, for all
purposes, as validly and effectively taken or done as if the notifications
B as amended by this sub-section had been in force at all material
times."

(2) For the purposes of sub-section(!), the Central Government shall
have and shall be deemed to have the power to amend the notifications
referred to in the said sub-section with retrospective effect as if the
c Central Government had the power to amend the said notifications
under sub-section (I) of Section 5A of the Central Excise Act read
with sub-section (3) of Section 3 of the Additional Duties of Excise
(Goods of Special Importance) Act, 1957 (58 of 1957) and sub-
section (3) of Section 3 of the Additional Duties of Excise (Textiles
D and Textile Articles) Act, 1978 (40 of 1978), retrospectively at all
material times.

(3) No suit or other proceedings shall be maintained or continued in
any court, tribunal or other authority for any action taken or anything
done or omitted to be done, in respect of any goods under the said
E notifications, and no enforcement shall be made by any court, tribunal
or other authority of any decree or order relating to such action taken
or anything done or omitted to be done as if the amendments made
by sub-section (I) had been in force at all material times.

(4) Recovery shall be made of all amounts of duty or interest or other
F charges which have not been collected or, as the case may be, which
have been refunded but which would have been collected or, as the
case may be, which would have not been refunded if the provisions
of this section had been in force at all material times, within a period
of thirty days from the day on which the Finance Bill, 2003 receives
the assent of the President, and in the event of nonpayment of duty
G or interest or other charges so recoverable, interest at the rate of
fifteen per cent, per annum shall be payable from the date immediately
after the expiry of the said period of thirty days till the date· of
payment.

H Exp/anation.-For the removal of doubts, it is hereby declared that
R.C. TOBACCO PVT. LTD. v. U.0.1. [RUMA PAL, J.] 353

no act or omission on the part of any person shall be punishable as A
an offence which would not have been so punishable if the notifications
referred to in sub-section (I) had not been amended retrospectively
by that sub-section.

The Ninth Schedule referred to in Section 154( 1) insofar as it is relevant
seeks to amend Notification No. 32/99 dated 8th July 1999 with effect from B
8th July 1999 by excluding cigarettes falling under Chapter 24 of the First
Schedule or the Second Schedule to the Central Excise Tariff Act, 1985. In
other words, the exemptions available to the manufacturers of cigarettes from
1999 upto 27th January, 200 I (except for a short period between 31st
December 1999 and 17th January 2000 during which it was not available), C
was rescinded retrospectively. This meant that the excise duties already
refunded to the petitioners would be liable to be recovered, no further refund
would be made and that the petitioners would be liable to pay the excise
duties not paid when the exemption was in force i.e. between 8th July 1999
and 27th January 200 I.
D
A second batch of writ petitions were filed by the petitioners before the
High Court challenging Section 154 as being unconstitutional. They were
transferred to this Court at the instance of the Union of India and listed for
hearing along with the appeals and are also being disposed of by this judgment.

If the challenge to the retrospective operation of Section 154 is rejected E
by us, any decision on the Union of India's appeals from the judgment of the
High Court would necessarily be rendered infructuous. The petitioners
challenge to Section 154, therefore, is considered at the outset.

Mr. Harish N. Salve appeared for Mis R.C. Tobacco Pvt. Ltd. (referred
to briefly as 'RCT') in Transfer Case No. 27 of 2004. RCT manufactures F
cigarettes as a job worker under an agreement with Mis Godfrey Philips India
Ltd. Mr. Salve said that there was no dispute that RCT was a new industrial
unit within the meaning of Notification No. 32 of 1999. It was also submitted
that the exemption was granted without any condition attached except that
the unit must be a new .unit and must be located in one of the growth centres G
etc. It is said that the High Court had correctly held that RCT fulfilled all the
pre-requisites for grant of the refund. It is said that the inclusion of tobacco
as an exempted industry was not by accident. In fact, when the exemption
was withdrawn in December 2000, it was consciously re-introduced in January
2001. Mr. Salve conceded the legislative competence of Parliament to enact
H
354 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A laws that have retrospective effect. However, it is contended the retrospectivity
particularly of subordinate legislation must be subjected to greater scrutiny.
No reasons were given for retrospectively removing a benefit consciously
granted. He says that where the retrospective legislation is unreasonable it
would violate Articles 14 and 19 of the Constitution and would have to be
struck down as unconstitutional. It is submitted that a change in policy,
B which is sought to be given a retrospective effect and which seeks to unsettle
settled rights and to deprive people of benefits already enjoyed and causes
financial burdens would clearly be unreasonable and arbitrary. The
unreasonableness was evident from the 'flip-flop' of the Union of India in
issuing notifications granting, then withdrawing, again granting, before finally
C withdrawing the benefit in respect of cigarettes in the short space of about a
year and a half. The final withdrawal of the exemption effected by Section
154 was also followed by the re-grant of exemptions from duties above 8%
to tobacco products other than cigarettes. This erratic behaviour was, according
to Mr. Salve, the ground on which this Court in Tata Motors v. Maharashtra,
D [2004] s sec 783 struck down retrospective legislation as arbitrary and
unconstitutional. It was further submitted that although promissory estoppel
operates only against the executive and not against statute, when the legislature
violates promises and representations made by the government, it is a facet
of unreasonableness that must be taken into account in evaluating the
constitutionality of the law under Articles 14 and 19. It is argued that ifthe
E Government subsequently goes back on the representations made in a tax
exemption Notification by causing Parliament to enact a law with retrospective
effect to reclaim the benefits so conferred, then the reasonableness of the law
must certainly be judged in the light of the representations made by the
Government.

F Mr. R. Nariman appearing on behalf of Kreesna Industries P. Ltd in
Transfer Case No. 32 of 2004 has supported Mr. Salve and adopted his
arguments. His client manufactures cigarettes under an agreement with ITC
Limited. Mr. Nariman's submission is that the fact that the industrial units
were set up by job workers under an agreement was an irrelevant consideration
as far as the industrial policy as declared by the Central Government and the
G Notification No. 32of1999 were concerned. This was the concurrent finding
of both the courts below. It is said that the Union of India had full knowledge
of the circumstances under which his client set up the industrial unit and gave
the industry the benefit of the notification after being satisfied that all pre-
requisites under the notification had been fulfilled. As far as the retrospective
H denial of the exemption is concerned, it is said that it stands on a different
R.C. TOBACCO PVT. LTD. v. U.0.1. [RUMA PAL, J.] 355
footing from a validating act. The former amounted to an imposition of tax A
for the first time whereas .the latter merely rectified a defect in the statute by
which the assessee was, from the outset, intended to be made liable. Reliance
has been placed on the observations of Beg, CJ in Madan Mohan Pathak v.
Union of India, (1978] 3 SCR 334 at 344 as well as the dissenting view of
AN Sen, Jin Lohia Machines Ltd. v. Union of India, [1985] 2 SCC 197. It B
is submitted that in the present case the retrospectivity was harsh and excessive
since there is in fact a retrospective imposition of excise duty. It is contended
that the justification for such retrospective imposition of a tax must be
overwhelming. No such overriding consideration had been disclosed.
Furthermore, the unit would be crippled if it were asked to pay the excise
duty now. In any event, it is submitted that after the enactment of Section C
154, a demand was made for the amount refunded and for payment of excise
duty for the remaining period. According to Mr. Nariman, the demand which
was raised cannot be sustained as it was made without issuing any show
cause notice and in contravention of Section 1 ! A of Central Excise Act,
1944. He has relied on the decisions in East India Commercial Co. Ltd. v.
The Collector of Customs, Calcutta, [1963] 3 SCR 338 as well as Mis. J.K D
Cotton Spinning and Weaving Mills Ltd. v. Union of India [1987] Supp. SCC
350 para 31, National Agricultural Co-operative Marketing Federation of
India Ltd. v. Union of India and Ors., (2003] 5 SCC 23 para 29 in support
of the submission.
E
Mr. Dave appearing on behalf of North East Tobacco Company in
Transfer Case No. 25 of 2004 has claimed not to be a job worker for any
other company. H_e says that unlike most other units his clients had not left
the State of Assam after the denial of exemption of excise duty. While adopting
the arguments of Mr. Salve and Mr. Nariman, it is his submission that Section
I IA of the Central Excise Act, 1985 was clearly attracted to the case and the F
non-compliance with the provisions thereof rendered the demand inoperative.
This argument of Mr. Dave is sought to be sustained by the decision in
Mis. J.K. Cotton Spinning and Weaving Mills Ltd. v. Union of India and
Ors., [1987] Supp SCC 350. The benefit of the exemption as opposed to
other units had been passed on to his client's customers and, it is submitted, G
it would be inequitable to impose excise duty retrospectively at this stage.

Mr. Goswami appeared on behalf of M/s. Kaziranga Tobacco Products
(P) Ltd. and New Zone India (P) Ltd. in Transfer Case Nos. 23 and 24 of
2004. The two companies are job workers for Vazir Sultan. It is claimed that
the units were set up by local persons who had made huge investments after H
356 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A borrowing money for land and machinery and had been granted the relief of
exemption after a full disclosure of all the facts to the excise authorities. In
fact whatever benefits had been obtained, had been utilized by the unit to
promote other industries in the State. Mr. Goswami also submitted that the
retrospective imposition of excise duty after three years was unreasonable as
B has been held in Chairman, Railway Board and Ors. v. C.R. Rangadhamaiah
and Ors., [1997) 6 SCC 623 at 638. The policy of granting such exemption
was the outcome of experts opinion and after the exemption was reintroduced
in respect of cigarettes in January, 2000, it was extended to four other North
Eastern States namely Meghalaya, Mizoram, Nagaland and Manipur before
its final withdrawal in January 200 I.
c Similarly, the A.S.S Cigarette Company which was a job worker under
an agreement with Godfrey Phillips India has stated in TC No. 26 of 2004
that their Unit was set up by local industrialists and that they had deposited
the excise duty after borrowing and since the withdrawal of the exemption in
2001 they had been manufacturing non-tobacco products.
D
New Tobacco Company in TC No. 36 of 2004 has claimed that it is not
a job worker and in fact the unit still continues to operate in Assam but has
stopped the manufacture of cigarettes .

ABN Company in TP ©No. 151 of 2004 has said that it has closed
E down the manufacture of cigarettes after the withdrawal of the exemption.
Mr. A.K. Ganguly has appeared on behalf of Union of India and sought
to justify the validity of Section 154 by saying that the Section merely gave
effect to what was all along the intention behind the Notification No. 32 of
1999. The object of the industrial policy declared in 1997 was to give long
F lasting benefit to the State in the form of increased investments in industries
with consequential benefits by way of increased employment opportunities to
the local population. The grant of benefits was part of a package deal with
the State getting enduring benefits in return for a sh01t term loss of revenue.
The operation of the notification did not attain this objective. The manufacture
G of cigarettes was a controlled industry. The large tobacco companies avoided
all the controls by setting up these industrial units and taking undue advantage
of the benefits granted by the exemption Notification. There was no delay in
Parliament stepping in since it clarified the law immediately after the decision
of the Division Bench. The Central Government which was exercising
delegated power under Section 5-A of the Act could not prevent Parliament
H from undoing the clear error in the exercise of power by the Central
R.C. TOBACCO PVT.LTD. v. U.O.l. [RUMA PAL, J.] 357
Government in granting the exemption or from correcting its vacillating A
attitude. Parliament's right to legislate was unimpeded. It was contended that
the retrospective levy of excise duty was justified in the circumstances
particularly when the liability to pay excise duty was merely suspended by
the exemption notifications. The further argument is that there was no question
of issuing a fresh show cause notice after the enactment of Section 154, as
the demand related to and arose out of proceedings which culminated in the B
orders of the Asstt. Commissioner impugned before the High Court. The
orders had not been appealed from under the Act. According to Mr. Ganguly,
the previous orders of refund were only provisional and the subsequent orders
of the Assistant Commissioner were the final orders rejecting the claims of
refund. The setting aside of the order by the High Court was immediately C
followed by the enactment of Section 154. It is said that Section 154 stands
by itself and provides for the method of recovery and that the section could
not be said to be unreasonable. It is submitted that the fact that the section
may operate harshly in individual cases would not be sufficient reason for
striking down the Section as unreasonable. In the majority of cases the units
had not passed on the benefits granted by the exemption to their customers D
and had on the other hand realized the duty from their customers.

The competence of Parliament and State legislatures to repeal, amend
or supersede an exemption notification is unquestionable. The power to do so
retrospectively cannot be and is also not doubted. The limitation on this E
power is that the legislation must not conflict with other provisions of the
Constitution. As far as fiscal legislation is concerned, the limitation is implicit
in Article 265 of the Constitution which provides that no tax shall be levied
or collected except by authority of law. As was held by this Court in
Chhotabhai Jethabhai Patel and Co. v. The Union of India and Anr':
F
"If by reason of Art. 265 every tax has to be imposed by "law" it
would appear to follow that it could only be imposed by a law which
is valid by conforn1ity to the criteria laid down in the relevant Articles
of the Constitution. These are that the law should be (I) within the
legislative competence of the legislature being covered by the
legislative entries in Schedule Vil of the Constitution; (2) the law G
should not be prohibited by any particular provision of the Constitution
such as for example Arts. 276(2), 286 etc. and (3) the law or the
relevant portion thereof should not be invalid under Article 13 for
repugnancy to those freedoms which are guaranteed by Part III of the
'[1963] Supp.2SCR I. H
358 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A Constitution which are relevant to the subject matter of the law. (pg.30)

A law cannot be held to be unreasonable merely because it operates
retrospectively. Indeed even judicial decisions are in a sense retrospective.
When a statute is interpreted by a court, the interpretation is, by fiction of
law, deemed to 'be part of the statute from the date of its enactment. The
B unreasonability must lie in some other additional factors. The retrospective
operation of a fiscal statute would have to be found to be unduly oppressive
and confiscatory before it can be hel.d to be so unreasonable as to violate
constitutional norms. "Where for instance it appears that the taxing statute is
plainly discriminatory or provides no procedural machinery for assessment
C and levy of the tax, or that it is confiscatory, courts would be justified in
striking down the impugned statute as unconstitutional. In such cases, the
character of the material provisions of the impugned statute is such that the
court would feel justified in taking the view that, in substance, the taxing
statute is a cloak adopted by the legislature for achieving its confiscatory
purposes". (Rai Ramkrishna v. State of Bihar, AIR (1963) SC 1667). The
D question to be answered therefore is whether Section 154, which is in terms
retrospective, is ex facie discriminatory, or so unreasonable or confiscatory
that it violates Articles 14 and 19 of the Constitution.

The factors which are generally considered relevant in answering this
question are (i) the context in which retrospectivity was contemplated, (ii) the
E period of such retrospectivity, and (iii) the degree of any unforeseen or
unforeseeable financial burden imposed for the past period.'

The context in which legislation is enacted is to be distinguished from
the motives which impelled it to act. The latter are irrelevant (See K.C.
F Gajapati Narayan Deo and Ors. v. The State o/Orissa, (1954] I SCR 1,11
and RS Joshi v. Ajit Mills Ltd, (1977] 4 SCC 98,108). The justification put
forward by the respondent for enacting Section 154 was therefore really
unnecessary. Nevertheless, while we cannot for that reason analyse the
justification, we may at least consider the plea as setting out the background
in which the Section was passed.
G
The particular context of the section impugned in this case was the
industrial policy formulated by the Central and the State Government of
Assam for the development of that State. The obvious intention behind the

2. Empire Industries ltd. v. Union of India, [1985] 3 SCC 314 and Ujagar Prints v. Union of
H India, [1989] 3 sec 488. 517.
R.C. TOBACCO PVT.LTD. v. U.0.1. [RUMA PAL, J.] 359

grant of the package of incentives including an exemption from payment of A
excise duties was to stimulate further industrial growth in the area with
enduring benefits not only to the local populace by way of employment
opportunities but also to the economic welfare of the State. The State
Government's insistence from the very outset on the need to regulate the
industries which were claiming the benefit of the exemption was to ensure B
that these objects were attained. According to the Union oflndia the exemption
notification, at least as interpreted by the High Court, did not effectuate that
intent. As it transpired none of the industrial units manufacturing cigarettes
were prepared to contribute to this object and their investment in the
manufacture of cigarettes was co-extensive with the period of the exemption.
The loss of revenue suffered by the Union and the State by the various C
subsidies and exemptions granted was the quid in return for which the
petitioners were not prepared to suffer any quo. With the withdrawal of the
exemption, all of them without exception immediately closed down their
cigarette manufacturing units and a large majority have shifted out of the
. State. Clearly if the grant of the exemption had operated as it was intended D
to, it would have been unnecessary to enact Section 154.

The High Court may have been right in construing the exemption
notification as it stood. Yet the respondent can contend that that the words
should have been used in the exemption so as to provide for sufficient
safeguards to ensure that the benefit of exemption was granted only to those E
industries which would in tum permanently inve3t in the State. By the
retrospective enactment this defective expression of the object of the policy,
was rectified.

The Exemption Notifications were issued under Sectwn SA of the Central
Excise Act, 1944 as a delegate of Parliament. In a Cabinet form of Government, F
the Executive is expected to reflect the views of the legislature. It would be
impossible for Legislatures to deal in detail and cater to the innumerable
problems which may arise in implementing a statute. When the power of
subordinate legislation is conferred by Parliament in certain matters it can
only lay down the policy and guidelines and expect that what is done by the G
Executive is in keeping with such policy. It does of course retain control over
its delegate and can exercise that control by repealing the action of the
delegate3 • Consequently if the Executive has failed to carry out the object of
Parliament, such control may be exercised by retrospectively enacting what

3. Sita Ram Bishamber Dayalv. State of UP. [1972] 2 SCR 141: [197214 SCC 48; and MK. H
Papiah and Sons v. The Excise Commissioner and Anr.. (1975] 1 SCC 492.
360 SUPREME COURT REPORTS (2005] SUPP. 3 S.C.R.

A the Executive ought to have achieved.
A somewhat similar situation arose in the case of Epari Chinna Krishna
Moorthy v. State of Orissa and Ors., AIR (1964) SC 1581. In that case the
State Government had issued an exemption notification under Section 6 of
the Orissa Sales Tax Act, 1947 for which gold ornaments were ordered to be
B exempted from sales tax "when the manufacturer selling them charges
separately for the value of gold and the cost of manufacture". The Notification
was issued on !st July, 1949. The petitioners, who were registered dealers
under the Orissa Sales Tax Act filed returns claiming exemption from sales
tax. Up to June, 1952 the claims for exemption were allowed by the
C Department. Subsequently, the assessments were reopened on the ground that
the exemption had been wrongly granted. The matter ultimately came up
before the High Court. The High Court allowed the petitioners' claim for
exemption under the notification in question holding that the expression
"manufacturer" meant the first owner of the finished products for whom the
ornaments were made either by his pre-paid employee or even by independent
D artisans on receipt of the raw materials and labour charges from him. On 1st
August, 1961 the Orissa Sales Tax Validation Act, 1961 was passed. It
provided that notwithstanding anything contained in any judgment, decree or
order of any Court, the word "manufacturer" meant and was always to be
deemed to have meant a person who by his own labour produces the ornaments
E or a person, who owns or runs manufactories for that purpose. The petitioners
did not fall within this definition of manufacturer. They accordingly challenged
the 1961 Act on three grounds : 1) that since the exemption had been granted
by the State Government, it was not open to the legislature to take away the
exemption notification; 2) that the provisions of 1961 Act contravened Article
14; and 3) that the retrospective operation of the impugned Section was
F unconstitutional because it imposed an unreasonable restriction on the
petitioners fundamental rights under Article 19( I )(g). In negativing these
arguments a Constitution Bench of this Court said:-

"What the legislature has purported to do by S. 2 of the impugned
Act is to make the intention of the notification clear. Section 2 in
G
substance declares that the intention of the delegate in issuing the
notification granting exemption was to confine the benefit of the said
exemption only to persons who actually produce gold ornaments or
employ artisans for that purpose. We do not see how any question of
legislative incompetence can come in the present discussion. And, if
H the State Government was given the power either to grant or withdraw
R.C. TOBACCO PVT. LTD. v. U.0.1. [RUMA PAL. J.] 361
the exemption, that cannot possibly affect the legislature's competence A
to make any provision in that behalf either prospectively or
retrospectively."
Although the length of time is not by itself decisive' the effect of the
retrospectivity of the legislation in this case is less than two years. The tussle
between the excise authorities and the petitioners started almost immediately B
upon the latter claiming and obtaining refunds of the excise duty paid by
them on the manufacture of cigarettes. The refusal of the excise authorities
to refund, on their interpretation of the notification, led to the filing of the
writ petitions. The writ petitions were allowed on 17th May, 2002. In the
meanwhile the exemption was already withdrawn in January 2001. The
decision was then challenged in appeals by the Union of India which were C
finally dismissed by the Division Bench on 4th April, 2003. Therefore between
2000 to 2003 the dispute as to the purport of the exemption notification
during the period of their operation from July 1999 to January 200 I was
pending in Court. The matters were then carried to this Court by the Union
of India. While the proceedings were pending and the issuP was still at large, D
Section 154 was enacted. In these circumstances, the Parliament cannot be
blamed for having at least awaited the decision of the High Court, nor can
the statutory provision be questioned as being unreasonably retrospective.
(See in this connection Rai Ram Krishna v. State of Bihar, AIR (1963) SC
1667, 1675 para 18).
E
The pendency of the proceedings before the Courts meant that there
was a possibility of an outcome adverse to the petitioners however strong the
petitioners may have considered their case to be. If this Court had reversed
the view of the High Court, the petitioners would have had to bear the burden
of the excise duty for the period they had manufactured the cigarettes. It p
could not have been predicted with any certainty that the appeals of the
Union of India would fail. By enacting Section 154, Parliament has forestalled
a decision by this Court and in effect taken away the basis for the decisions
of the High Court. In the circumstances, it could not be said that the financial
burden was unforeseen or unforeseeable.
G
In Chairman Railway Board v. C.R. Rangadhamaiah, (supra) the
impugned notifications had sought to curtail pensionary rights with
· retrospective effect. The notifications were held to be unconstitutional on the
grounds that when the pension had been granted to the employees, Articles
4. National Agricultural Coop Marketing Federation of India Ltd. v. Union of India. [2003] H
s sec 23.
362 SUPREME COURT REPORTS (2005) SUPP. 3 S.C.R.

A 31 (1) and 19(1 )(t) were available, both of which were violated by such
retrospective operation. It was also held that it was violative of Articles 14
and 16 of the Constitution because it had the effect of reducing the amount
of pension that had become payable to employees who had already retired
from service on the date of issuance of the impugned notifications according
B to the rules in force at the time of their retirement. However the right of the
petitioners to the exemption in the present case can at best be described as
a precarious one. It is established law that benefits granted by exemptions
may be modified or withdrawn. By the notification the accrued liability to
pay excise duty is merely suspended. Such an exemption by its very nature
is susceptible to being revoked or modified or subjected to other conditions.'
C The Government and a fortiori the Parliament is free to determine the priorities
in the matter of utilization of finances and the courts cannot place an embargo
on the Government or on the plenary power of Parliament to withdraw the
benefit on the basis of any principle of promissory estoppel. It has been said:

"It is necessary that the Legislature should be able to cure inadvertent
D defects in statutes or their administration by making what has been
aptly called 'small repairs'. Moreover, the individual who claims that
a vested right has arisen from the defect is seeking a windfall since
had the legislature's or administrator's action had the effect it was
intended to and could have had, no such right would have arisen.
E Thus, the interest in the retroactive curing of such a defect in the
administration of government outweighs the individual's interest in
benefiting from the defect .... The Court has been extremely reluctant
to override the legislative judgment as to the necessity for retrospective
taxation, not only because of the paramount governmental interest in
obtaining adequate revenues, but also because taxes are not in the
F nature of a penalty or a contractual obligation but rather a means of
apportioning the costs of government among those who benefit from
it ." 6

As we have said, Mr. Salve relied on Tata Motors Ltd. v. State of
G Maharashtra and Ors., [2004] 5 SCC 783 to contend that despite the enormous
powers of Parliament to legislate prospectively or retrospectively, unless the

5. Kasinka Tradingv. Union of India, (1995] l SCC 274, 287.

6. The Supreme Court and the Constitutionality of Retroactive Legislation". Charies B.
Hochman 73'' Harvard Law Review p. 692, 706 noted with approval in Empire industries
H limited and Ors. v. Union of India and Ors., [ 1985] 3 sec 314
R.C. TOBACCO PVT. LTD. v. U.0.1. [RUMA PAL, J.] 363
material is disclosed why there was an 'on again and off again' exemption, A
Section 154 must be held to be arbitrary and therefore unconstitutional. In
that case Rule 4 IE of the Bombay Sales Tax Rules 1959 allowed benefit of
set-off in respect of all waste goods or scrap goods or bye- products. This
benefit was sought to be taken away by Section 26 of the Maharashtra Tax
Laws (Levy Amendment and Repeal) Act, 1989 which amended Rule 41E. B
The validity of such retrospective amendment to Rule 41 E was challenged.
It was contended that as a result of the amendment the assessee was deprived
of the benefit for a period 8 years after which the benefit was reintroduced
by another amendment of Rule 41 E in 1992. This Court held that in absence
of any material as to why the benefit under Rule 41 E had been denied for a
particular period, Section 26 of the 1989 Amendment Act deserved to be C
quashed. The Court found in favour of the assessee because there was no
reason whatsoever forthcoming for the withdrawal of the benefit retrospectively
for a limited period.

The decision is distinguishable. In this case, the reasons for the
retrospective enactment of Section 154 have been given and as we have also D
said, those reasons are at least factually plausible.

The next challenge of the petitioners is based on Section I IA of the
Act, the relevant extracts of which reads:

"11-A RECOVERY OF DUTIES NOT LEVIED OR NOT PAID E
OR SHORT LEVIED OR SHORT-PAID OR ERRONEOUSLY
REFUNDED - (!) When any duty of excise has not been levied or
paid ~r has been short levied or short paid or erroneously refunded,
a Central Excise Officer may, within six months from the relevant
date, serve notice on the person chargeable with the duty which has F
not been levied or paid or which has been short levied or short-paid
or to whom the refund has erroneously been made, requiring him to
show cause why he should not pay the amount specified in the notice:

Provided that where any duty of excise has not been levied or
paid or has been short-levied or short-paid or erroneously refunded G
by reason offraud, collusion or any wilful mis-statement or suppression
of facts, or contravention of any of the provisions of this Act or of
the rules made thereunder with intent to evade payment of duty, by
such person or his agent, the provisions of this sub-section shall have
effect, for the words "six months", the words "five years" were H
substituted.
364 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

/\. (2) xxx xxx xxx xxxx

(3) For the purposes of this section,

(i) xxx xxx xxx xxx

(ii) "relevant date" means:
B
(a) in the case of excisable goods on which duty of excise
has not been levied or paid or has been short-levied or short-
paid-

(A) where under the rules made under this Act a periodical
c return, showing particulars of the duty paid on the excisable
goods removed during the period to which the said return
relates, is to be filed by a manufacturer or a producer or a
licensee of a warehouse, as the case may be, the date on
which such return is so filed;

D (B) where no periodical return as aforesaid is filed, the last
date on which such return is to be filed under the said rules;

(C) in any other case, the date on which the duty is to be
paid under this Act or the rules made thereunder.

E (b) in a case where duty or excise is provisionally assessed
under this Act or the rules made thereunder, the date of
adjustment of duty after the final assessment thereof;

(c) in the case of excisable goods on which duty of excise
has been erroneously refunded, the date of such refund.
F
The contention is that Section 154 violates Section 11 A in that it does
not envisage the service of any notice and it seeks to allow recoveries to be
made after the periods of limitation provided.

According to the respondents the refunds granted under the notifications
G dated 8th July, 1999 were not the "normal" refunds made under the Act but
were of a special kind for which the complete machinery was provided under
the Notifications. The submission is that since the exemption notifications
themselves had been withdrawn by Section 154, the amounts refunded
thereunder were recoverable independently of Section I IA under Section
H 154(4).
R.C. TOBACCO PVT. LTD. v. U.0.1. [RUMA PAL, J.] 365
There are two aspects to this dispute. The first is the question of limitation A
and the second the question of notice. As far as the first aspect is concerned
refund of duty under the Act has been provided for by Section 11 B. The
Section specifies the manner and circumstances under which refunds of duty
may be made. It is neither of the parties' case that the refund made to the
petitioners of the excise duty paid by them was under this Section.
B
In the present case Paragraph 2 of the Notification 32/99 prescribed for
the method for giving effect to the exemption. It provided:

(a) The manufacturer shall submit a statement of the duty paid from
the said account current to the Assistant Commissioner of Central
Excise or Deputy Commissioner of Central Excise, as the case C
may be, by the 7th of the next month in which the duty has been
paid from the account current.
(b) The Assistant Commissioner or Deputy Commissioner of Central
Excise, as the case may be, after such verification, as may be
deemed necessary, shall refund the amount of duty paid from the D
account current during the month under consideration to the
manufacturer by the 15th of the next month.
(c) If there is likely to be any delay in the verification, the Assistant
Commissioner or Deputy Commissioner of Central Excise, as
the case may be, shall refund the amount on provisional basis by E
the 15th of the next month to the month under consideration, and
thereafter may adjust the amount of refund by such amount as
may be necessary in the subsequent refunds admissible to the
manufacturer.

The claim for refund is subject to verification but the refund must be F
granted even before such verification on a provisional basis. It was for that
reason that the learned single Judge had directed the refund by an interim
order but allowed the Assistant Commissioner to independently verify the
claims.

Although Section 11 A does not refer to Section 11 B, it speaks of duties G
"erroneously refunded". It cannot therefore refer to the refunds made to the
petitioners under the, notifications as there was no error in the provisional
refunds made under the notifications to the appellants. What was sought to
be recovered under Section 154 was not an erroneous refund but a benefit
provisionally granted. H
366 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A In J.K. Cotton Spinning & Weaving Mills Ltd v. Union ofIndia, (1987]
Supp. SCC 350 relied upon by the petitioners, by virtue of the retrospective
amendment of Rules 9 and 49 of the Central Excise Rules in 1982,
commodities obtained at an intermediate stage of manufacture in a continuous
process were deemed to have been 'removed' within the meaning of Rule
B 9(1) thereby making such intermediate products dutiable under the Act with
effect from the commencement of the Act i.e. 1944. In this context the Court
held that the amended Rules 9 and 49 would take effect subject to Section
11 A. The decision is distinguishable. The circumstances in which the Court
held that the demands for duty could only be limited to six months prior to
the amendment was unquestionably different from those present in the case
C before us. What we have to consider here is whether the benefit granted in
1999 could be withdrawn in 2003. Besides the Court in J.K. Cotton Spinning
& Weaving Mills Ltd's case rejected the contention of the Union oflndia that
Section 51 of 1982 Finance Act by which the amendments were made to
Rules 9 and 49 overrode the provisions of Section I IA saying 'if the intention
of the legislature was to nullify the effect of Section 11 A,.., the legislature
D would have specifically provided for the same'. Similarly our decision in
National Agricultural Cooperative Marketing Federation of India Ltd v.
Union of India (2003] 5 SCC 23 which dealt with an amendment to Section
80P(2)(a)(iii) of the Income Tax Act, 1961 noted that 'the amendment does
not seek to touch on the periods of limitation provided in the Act, and in the
E absence of such express provision or clear implication, the legislature clearly
could not be taken to intend that the amending provisions authorizes the
Income Tax Officer to commence proceedings which before the new Act
came into force, had, by the expiry of the period provided become barred".
In the present case Section 154(4) specifically and expressly allows amounts
to be recovered within a period of thirty days from the day the Finance Bill,
F 2003 received the assent of the President. It cannot but be held therefore that
the period of six months provided under Section I IA would not apply.

On the question of notice prior to the recovery irrespective of Section
11 A, it is contended by the petitioners relying on the decision of this Court
G in East India Commercial Co. Ltd. v. The Collector a/Customs (1963] 3 SCR
338, 361 that whether a statute provides for notice or not, it was incumbent
upon the respondents to issue notice to the petitioners disclosing the
circumstance under which proceedings are sought to be initiated against them
and that any proceedings taken without such notice would be against the
-
principles of natural justice. Assuming that the principle were applicable to
H the case before us, in fact notices of personal heari_ng were served on the
R.C. TOBACCO PVT.LTD. v. U.0.1. [RUMA PAL, J.] 367
petitioners by the Assistant Collector for a personal hearing before the Assistant A
Collector passed the orders by which the petitioners were held liable to repay
the refunds made and to pay the excise on the goods cleared for the subsequent
periods. The High Court's decision setting aside the orders as being contrary
to the Exemption Notification was sought to be overcome by Section 154(1 ).
In other words, by virtue of Section 154( I), notwithstanding the decision of B
the High Court, the orders of the Assistant Collector, which were purported
to have been taken under the notifications, were validated as if the notifications
as amended had been in force when the orders were passed.

A grievance has been raised by the petitioners that cigarette
manufacturers have been unfairly discriminated against. We are unable to C
accept the submission for several reasons.

First, there is a presumption in favour of constitutionality of a statute,
a presumption which only the clearest and weightiest evidence can displace.

Second, we can take judicial notice of the fact that cigarettes have been D
treated as a class apart for the purposes of levy of excise duty with the
manufacture of cigarettes probably yielding the highest revenue to the
exchequer.

As was said in R.K. Garg v. Union of India, [1981] 4 SCC 675 by the E
following words:

"The presumption of constitutionality is indeed so strong that in order
to sustain it, the Court may take into consideration matters of common
knowledge, matters of common report, the history of the times and
may assume every state of facts which can be conceived existing at F
the time of legislation."

Third "another rule of equal importance is that laws relating to economic
activities should be viewed with greater latitude than laws touching civil
rights such as freedom of speech, religion etc." (ibid).
G
The final question is that of the relief to be granted.

The petitioners can be broadly classified into three groups:

A. Job workers for large cigarette companies which have closed
down the units with the withdrawal of the exemption and left the H
State of Assam.
368 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A B. Job workers for large cigarette companies which have closed
down their cigarette manufacturing units but started new business
in other products.
C. Industrial units which have set up their own units and have
reinvested their earnings in their businesses in the State after
B closing down the manufacture of cigarettes.

Some units have admittedly not passed on the excise duty benefits to
their customers. On the other hand the large cigarette companies have
recovered the excise duty from the customers. Other units claim to have
passed on the benefit of the entire exemption to their customers.
c
All the petitioners however claim that they would be financially crippled
if they were called upon to repay the refund of the excise duties or pay the
excise duty on the cigarettes manufactured by them. According to them the
quantum of excise duties would far exceed their profits from the manufacture
D of cigarettes.
The respondents on the other hand have urged that the petitioners were
merely fronts for the large cigarette companies which had misused the '\
notification to avoid the excise duty otherwise payable by them. This was
clear from the agreements entered into between them and the various industrial
r
E units through which they claimed the benefits. The agreements showed inter
alia that the entire set up was financed by the large companies. The
arrangement was back to back so that with the withdrawal of the exemption,
the units would be closed down. The promptness with which a unit went into
commercial production after it was set up in a few days showed that there
F was no real investment by the petitioners. Many of the units had not even got
permanent registration before they went into production and claimed refund
of large amounts of excise duty. Admittedly the large cigarette companies
had not only not passed on the benefit of exemption but had levied and
retained the excise duty on the cigarettes manufactured by the petitioners for
the customers of the large companies.
G
The petitioners who were admittedly in group A have refuted this and
contend that their relationship with the large cigarette companies was on a
principal to principal basis and that under their agreements they alone would
be liable to pay the excise duty now demanded by the respondents under
H Section 154.
R.C. TOBACCO PVT. LTD. v. U.0.1. [RUMA PAL, J.] 369
We are not in a position to determine the disputes raised. However we A
cannot lose sight of the fact that although excise duty like other indirect taxes
may be passed on to the customer of the goods under the law as it now
stands, it is the manufacturer of the excisable goods to whom the excise
authorities will look for payment. How the manufacturer will adjust its liability
with its customers does not concern the respondents nor can they be asked B
to recover their dues from persons who may have ultimately taken on the
responsibility to pay the excise duty as a result of an agreement with the
manufacturer. (See in this connection State of Rajasthan v. J.K. Udaipur
Udyog Ltd., [2004] 7 sec 673, 692).

Furthermore having upheld the constitutional validity of Section 154 it C
would be a pyrrhic victory for the Union of India if they could not in fact
recover the tax. It is not a case where the legislation has merely withdrawn
the exemptions. The consequences of the withdrawal have been statutorily
provided for including the recovery of the excise duties refunded or not paid ..
The effective period of such imposition is about eight months. The State has
been deprived of revenue without any corresponding benefit. It may be that D
the retrospective operation may operate harshly in some cases, but that would
not by itself invalidate the demand. [See: Epari Chinna Krishna Moorthy v.
State of Orissa, (supra)] It needs to be emphasized that in effect the
retrospective operation extended over a very short period and principles of
equity must give way to express statutory provision. As was said in Story on E
- Equity (3rd Eng. Ed. l 920)p. 34:-

"Where a rule, either of the common or the statute law, is direct, and
governs the case with all its circumstances, or the particular point, a
court of equity is as much bound by it as a court of law, and can as
little justify a departure from it" 7• F
No doubt in British Physical Lab India Ltd. v. State of Karnataka and
Ors., [ 1999] I SCC 170 relied upon by the petitioners the Sales Tax Authorities
proposed to recover the difference in duty from manufacturers within the
State having regard to the fact that the notifications giving them the benefit
of a lower rate of tax had been struck down. This court held that they should G
not do so. The rationale behind the decision has been explicitly stated in
Texmaco Ltd. v. State of Andhra Pradesh, (2000) 1 SCC 763. In directing
that the State shall not collect the amount of sales tax that had become

7. See also the Land Acquisition Officer v. H. Narayanaiah: AIR (i976) SC 2403, 2412 para
D. H
370 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A payable by reason of the quashing of the notifications, this Court noted that
the notifications had been intended to protect the local cement industries. The
quashing of the notifications should have the effect of putting the local cemeqt
industry and the same industry outside the State on par. It could not place the
former in a disadvantageous position qua the later. Apart from this, the
B respondent-State had also not contested the factual position. The circumstances
in which this Court directed the State not to collect amount of sales tax which
had become payable only by reason of the Order quashing the notifications
issued under the State Sales Tax Act do not exist here. What we are considering
in this case is a positive statutory mandate directing the consequences of the
withdrawal of the exemption notifications.
c For the reasons stated we dismiss the transferred writ petitions without
any order as to costs.

v.s.s. Transferred writ Petitions dismissed.

ORDER
D
In view of our judgment pronounced today in T.C.(C) No. 27 of 2004
etc., these appeals are dismissed as infructuous.

v.s.s. Appeals dismissed.