UNION OF INDIA & ORS.versusMIS. N.S. RATHNAM & SONS

                     (2015] 8 S.C.R. 751


                  UNION OF INDIA &ORS.                            A
                              v.
               MIS. N.S. RATHNAM & SONS
               (Civil Appeal No.1795 of 2005)
                       JULY29, 2015                               B

           [A.K. ~IKRI AND N.V. RAMANA, JJ.]

    · Central Excise rules, 1944 - Exemption Notification
 under~ Validity of - Notifications Nos. 102187-CE and 1031
 87-CEdated 27.03. 1987 ~Exemption from excise duty under         C
- In respect of iron and steel scrap obtained by breaking the
ship subject to certain condition - Vide Notification Nos. 1021
 87-CE customs duty levied at the rate of Rs.1,0351-perLDT
 along with additional duty leviable thereon, the excise duty
                                                                  0
payable at the rate of Rs.3651- per tonne, exempting' the
 remainder as specified in the Schedule - Vide Notification
 No.103/87cCE, customs duty paid at the rate of Rs.14001-
per LDT, scrap obtained exempted from the entire excise
duty - Whether the two categories are identical or there is a     E
reasonable classification based on intelligible differentia -
Held: When the goods are same, they fall under the same
Heading and the custom duty is leviable as per the Act which
has been paid - Notification giving exemption only to those
persons who paid a particular amount of duty-Rs. 1, 4001- per     F
LDT, would not mean that such persons belong to a different
category and would be entitled to exemption and not other
persons like the assessee who paid the duty on the same
goods but on the formula whereby rate of duty comes to
Rs.1,0351- per LDT - Order by the High Court quashing the         G
Notification to be violative of Art. 14 modified to the extent
that assessee would also be entitled to the benefit of
exemption Notification subject to the condition that duty

                             751                                  H
752         SUPREME COURT REPORTS                 [2015] 8 S.C.R.

A     already paid by it on LDT, would be taken into account and
      only the balance out of it would be subject to excise duty -
      Constitution of/ndia, 1950-Art. 14 - Customs Tariff Act- s.
      3.
           Disposi.ng of the appeal, the Court
B
           HELD: 1.1 When the exemption is granted to a
      particular class of persons, then the benefit thereof is to
      be extended to all similarly situated person. The
      Notification has to apply to the entire class and the
C     Government cannot create sub-classification thereby
      excluding one sub-category, even when both the sub-
      categories are of same genus. If that is done, it would be
      considered as violating the equality clause enshrined in
      Article 14 of the Constitution. Therefore, judicial review
D     ofs1,1ch Notifications is permissible.in order to undertake
      the scrutiny as to whether the Notification results in
      invidious discrimination between two persons though
      they belong to the same class. The justiciability of
      particular Notification can be tested on the touchstone
E     of Article 14 of the Constitution. The person challenging
      the act of the State as violative of Article 14 has to show
      that there is no reasonable basis for the differentiation
      between the two classes created by the State. Article 14
F     prohibits class legislation and not reasonable
      classification. If the government fails to support its action
      of classification on the touchstone of the principle
      whether the classification is reasonable having an
      intelligible differentia and a rational basis germane to the
G     purpose, the classification has to be held as arbitrary
      and discriminatory. [Para 15, 16] [766-D-F; 767-H; 768-A,
      E, G-H]

      1.2 ·The two Notifications both dated 27 .03.1987
H pertain to same goods namely those falling under
  Heading 72'.15 and 73.09 of the second Schedule to the
    UNION OF INDIA& ORS. v. N.S. RATHNAM & SONS               753


 Act. Customs duty is leviable ori these goods u.nder          A
 Section 3 of the Customs Tariff Act. The said duty can
 be paid under any of the two methods. When two
 methods are permissible under the statutory scheme
 itself, obviously option is that of the assessee to choose
 in all those methods to pay the custom duty. Duty, thus,      B
·paid is to be naturally treated as validly paid. Merely
 because with the adoption of one particular method the
 duty that becomes payable is lesser would not mean that
 two such persons belong to different categories. When
 the goods are same; they fall under the same Heading          C
 and the custom duty is leviable as per the Act which has
 been paid. Therefore, the impugned Notification giving
 exemption only to those persons who paid a particular
 amount of duty, namely Rs.1,400/- per LDT, would not
                                                               0
 mean that such persons belong to a different category
 and would be entitled to exemption and not other
 persons like the respondent who paid the duty on the
 same goods under the same Act but on the formula. which
 he opted and which is permissible, which rate of duty         E
 comes to Rs.1,035/- per LDT. [Para 18] [771-D-H; 772-A]

   · 1.3 It was sub!Tlitted that purpose was to give
exemption only to those who paid custom duty at
Rs.1,400/- per LDT and since the duty paid by the F
 respondent was lesser in amount, respondent could not
ask for exemption. That may be so. In such a case, the
only option to bring parity was to demand duty on
differential amount. That provision should have been
incorporated to save the impugned Notification from the G
vice of arbitrariness. In fact, that would bring both the
sub-categories completely at par. Thus, while upholding .
the view taken by the High Court, the same is modified
only to the extent that the respondent would also be
entitled to the benefit of the exemption Notification H
754         SUPREME COURT REPORTS                [2015) 8 S.C.R.


A     subject to the condition that the duty already paid by
      the respondent on LDT, would be taken into account and
      only the balance out of it would be subject to excise duty.
      [Para 23] [775-A-D]

8      Kasinka Trading and Another v. Union of India and
  Another 1994 (4) Suppl. SCR 448: (1995) 1 SCC 274;
  Shrijee Sales Corporation and Another v. Union of India 1996
  (10) Suppl. SCR 888: (1997) 3 SCC 398; Reliance Industries
  Ltd. v. Pravinbhai Jasbhai Patel and Others 1997 (3) Suppl.
C SCR 636: (1997) 7 SCC 300; Aashirwad Films v. Union of
  India and Others 2007 (7) SCR 310:(2007) 6 SCC 624; Sube
  Singh v. State of Haryana (2001) 7 SCC 545; Roopchand
  Adlakha v. D.D.A. 1988 (3) Suppl. SCR 253: (1989) 1 Supp.
  SCC 116; Secretary to Govt. of Madras v. PR. Sriramulu
D 1995 (5) Suppl. SCR 551:(1996)1 SCC 345; State of UP
  v. Deepak Fertilizers & Petrochemical Corporation Ltd. 2007
  (6) SCR 525: (2007) 10 SCC 342 - referred to.

                        Case Law Reference
E
         1994 (4) Suppl. SCR 448     referred to.   Para 10

         1996 (10) Suppl. SCR 888 referred to.       Para 12

         1997 (3) Suppl. SCR 636     referred to.    Para 12
F
         2007 (7) SCR 310            referred to.    Para 15

         (2001) 1 sec 545            referred to.    Para 16

         1988 (3) Suppl. SCR 253     referred to.    Para 20
G
         1995 (5) Suppl. SCR 551     referred to.    Para 21

         2007 (6) SCR 525            referred to.    Para 22


H
    UNION OF INDIA& ORS. v. N.S. RATHNAM & SONS                   755


    CIVILAPPELLATEJURISDICTION :CivilAppeal No. 1795 A
of2005.                            . ....

    From the Judgment and Order dated 08.08.2003 of the
High Court of Judicature at Madras in W.A. No. 785 of 1998.
                                                                   B
     A. K. Panda, Rajiv Nanda, Aruna Gupta, B. Krishna Prasad
for the Appellants.

    Dr. A. Francis Julian, Danish Zubair Khan, (Arputham
Aruna & Co.,) for the Respondent.
                                                                   c
    The Judgment of the Court was delivered by

     A.K. SIKRI, J. 1. The respondent herein impugned the
validity of Notifications Nos.102/87-CE and 103/87-CE, both
dated 27 .03.1987, whereby whole of the duty of excise was D
exempted in respect of iron and steel scrap obtained by
breaking the ship subject to the condition th.at customs duty
should have been levied at the rate of Rs.1400/- per Light
Displacement Tonnage (LDT). With the stipulation of such a
condition, giving the exemption of payment of excise duty only E
to those who had paid customs duty at Rs.1400/- per LDT,
another class of persons who also paid custom duty under
Section 3 of the Customs Tariff Act, 1975, albeit at a lesser
rate, was excluded. The respondent who belonged to excluded
category, had challenged the said Notification as arbitrary and F
violative of Article 14 of the Constitution. Though the learned
Single Judge dismissed the writ petition, the Division Bench
in appeal has accepted the aforesaid plea of the respondent
and vide judgment dated 18.08.2003 held that the second
category of persons shall also be entitled to the benefit of this G
Notification. It is this judgment which is impugned by the Union
of India and is the subject matter of the instant appeal.

   2. The facts which are relevant to the aforesaid controversy
need to be traversed at this stage. These are as follows:          H
756          SUPREME COURT REPORTS                   [2015] 8 S.C.R.


A         The respondent herein is engaged in the business of ship
          breaking activities. It had imported a foreign vessel "M.V.
          Gonong Mass" for the purpose of breaking it and selling it
          as scrap. This ship was purchased by the respondent as
          a successful tenderer for a sum of Rs.61 lakhs and at the
8         time of import, the Collector of Customs, Cochin,
          assessed the custom duty and additional duty payable
          under Section 3 of the Customs Tariff Act, 1975 on this
          ship on ad-valorem basis and customs duty in the sum of
          Rs.62,16,796.55 was levied on the movable articles in
c         the ship; body of the ship was assessed at 30% and 50%
          ad-valorem and additional custom duty i.e. countervailing
          duty at 12% ad-valorem. The respondent also paid a sum
          of Rs.5,68,660/- as sales tax.

D          3. After import of the ship, the same was dismantled and
      broken from which iron and steel scrap was taken out. This
      iron and steel scrap is exigible to excise duty. The respondent
      has registered itself under the Central Excise Act. The
      aforesaid iron and steel scrap which was obtained by breaking
E     the ship was cleared by the respondent on payment of central
      excise duty at the rate of Rs.365/- per tonne as per Notification
      No.146/86-CE dated 01.03.1986. Upto this point, there is no
      dispute. The relevant period with which we are concerned is
F     from 08.08.1986 to 27.07.1987. During this period, the
      following materials were cleared:

      09.08.1986 to 26.03.1987                          3058.49 MT
      f----------·-              ---- -

      27.03.1987 to 30.06.1987                          1249.715MT
G
      01.07.198~0_2!.0~~987.          ____ 1__- ..      408~8~~T I


          4. There are certain exemption Notifications issued by the
H
    Ut:JION OF INDIA& ORS. v. N.S. RATHNAM & SONS                     757
                     [AK. SIKRI, J.]

Government of India under sub-rule ( 1) of Rule 8 of the Central       A
Excise Rules, 1944: The details of these No.t!fi~ations are as
under:

     Notification No.146/86-CE dated 01.03.1986 which
pertains to "iron and steel from breaking the ship". It provides B
for exemption of goods falling under Heading No. 72.15 and
73.09 of the Schedule to the Central Excise Tariff Act, 1985,
from so much of the duty or excise leviable thereon, which is
specified in the said Schedule, as in excess of the amount·
calculated at the rate of Rs.305 per tonne. Proviso to the said C
Notification lays down the conditions which need to be fulfilled
to avail the benefit of this Notification. This proviso reads as
under:

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

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


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

      5. The aforesaid Notification was superseded by another
Notification No.386/86-CE dated 20.08.1986. Under this
Notification, whole of the duty of excise stood exempted on
meeting the conditions mentioned in proviso thereto, provided G
that the said goods have been obtained from breaking of ships,
boats and other floating structures-

  (i)     on which duty of customs leviable thereon under the
          First Schedule to the Customs Tariff Act, 1975 (51 of        H
758            SUPREME COURT REPORTS                 [2015] 8 S.C.R.


A              1975) has been paid at the rate of Rs.1,400/- per LDT;
               or

        (ii)    imported on or before the 28th day of February, 1986
               and on which appropriate additional duty leviable
B              thereon under Section 3 of the Customs Tariff Act, 1975
               (51of1975), has been paid.

          6. Within few months, another Notification No.102/87-CE
      dated 27.03.1987 was issued which superseded Notification
c     No.386/86-CE dated 20.08.1986 as well. In this Notification,
      again partial exemption was provided. This exemption was
      from so much of the duty of excise leviable thereon, which is
      specified in the Schedule to the Central Excise Tariff Act, as in
      excess of the amount calcutated at the rate of Rs.365 per tonne.
D     However, in the proviso, ihe condition that was stipulated which
      had to be met to avail the exemption, reads as under:

           "Provided that the said goods have been obtained from
           breaking of ships, boats and other floating structures on
E          which has been paid the duty of customs leviable under
           the First Schedule to the customs Tariff Act, 1975 (51 of
           1975) at the rate of Rs.1,035/- per Light Displacement
           Tonnage and also the additional duty leviable thereon
           under Section 3 of the said Customs Tariff Act atthe rate
F          of Rs.365 per Light Displacement Tonnage."

       7. On the same day, another Notification No.103/87-CE
  dated 27.03.1987 was also issued. Vide this Notification,
  goods were exempted from whole of the duty or excise leviable
G thereon as specified in the Schedule to the Act falling under           ;
  the same Heading Nos. i.e. 72.15 and 73.09 on the fulfillment
  of the condition contained in proviso to this Notification, which
  reads as follows:

           "Provided that the said goods have been obtained from
H
    UNION OF INDIA& ORS. v. N.S. RATHNAM & SONS                   759
                   [A.K. SIKRI, J.]

     breaking of ships, boats and other floating structures on      A
     which the duty of customs leviable thereon under the First
     Schedule to the Customs Tariff Act, 1975 (51 of 1975)
     has been paid at the rate of Rs.1,400/- per Light
     Displacement Tonnage."
                                                                    B
      8. These two Notifications, both dated 27. 03.1987, pertain
 to same goods, namely, those falling under Headings 72.15
  and 73.09 of the said Schedule to the Act. However, vide first
  Notification No.102/87-CE, if the customs duty leviable on the
  import of ship for the purpose of breaking is paid at the rate of C
. Rs.1,035/- per LDT along with additional duty leviable thereon
  under Section 3 of the Customs Tariff Act, the excise duty
  payable is at the rate of Rs.365/- per tonne, exempting the
  remainder as specified in the Schedule. On the other hand,
  as per Notification No.103/87-CE, if the customs duty has been D
  paid at the rate of Rs.1400/- per LDT, the scrap obtained from
  breaking of such ships is exempted from the entire excise duty.

     9. The respondent herein had pa.id the duty at the rate of
Rs.1035/- per LDT, albeit, as leviable under the first Schedule     E
to the Customs Tariff Act. However, as the respondent had
cleared the goods without payment of any excise duty on the
assumption that there was exemption of payment of entire
excise duty, appellant herein issued show cause notice dated
28.07.1987 calling upon the respondent to show cause as to          F
why an amount of Rs.25,73,487/-towards excise duty be not
demanded under Section 11 A of the Central Excise Act.
Receipt of the aforesciid show cause notice prompted the
respondent to file the writ petition in the High Court of Madras
and challenge the validity of Notification dated 27.03.1987 on      G
the ground that by this Notification, total exempfion was granted
only to those persons who had paid customs duty at the rate of
Rs.1400/- LDT. It was pleaded that by a Notification dated
20.08.1986, the whole of the duty of excise levied was              H
760         SUPREME COURT REPORTS                  [2015] 8 S.C.R.


A exempted if the two conditions as set out above are satisfied.
  The limited exemption in excess of Rs.365/- per tonne was
  restored by the third Notification dated 27.03.1987. However,
  by the impugned Notifications issued on the very same day,
  total exemption was granted only to those persons who have
B paid customs duty at Rs.1,400/- per LDT. According to the
  respondent, it has resulted in a distinction between two
  categories of persons who have paid customs duty, viz. one
  set of persons who have paid customs duty at the rate of
  Rs.1,400/- per LDT and the second set of persons who have
C paid customs duty of lesser amount though as per Section 3
  of the Customs Tariff Act, 1975. This distinction, pleaded the
  respondent, was arbitrary, artificial and has no nexus with the
  object that is sought to be achieved. When customs duty is
D payable under either of the two methods, it is not understood
  why exemption is granted only to one set of persons paying
  customs duty in a particular method of assessment.

       10. The learned Single Judge was not convinced with the
  aforesaid case set up by the respondent. He reasoned that
E the Court could not direct the Central Government to extend
  the Notification to a class to whom it has not been extended
  as that was a matter which was entirely within the discretion of
  the Central Government. Sustenance was drawn from the
F judgment of this Court in Kasinka Trading and Another v.
  Union of India and Another' wherein this Court has held
  that wide discretion is available to the Government in the matter
  of granting, curtailing, withholding, modifying or repealing the    •
  exemptions granted by earlier notifications and the Government      ·
G was not bound to grant exemption to anyone if it so desires.

          11. The respondent preferred writ appeal against the said
      judgment. The Division Bench vide impugned judgment has


H ' (1995) 1 sec 274
   UNION OF INDIA& ORS. v. N.S. RATHNAM & SONS                       761
                  [A.K. SIKRI, J.]

reversed the decision of the learned Single Judge finding A
sufficient merit in the case set up and pleaded by the
respondent. It is held by the Division Bench that when the
benefit of concessional right is restored by a notification, there
cannot be any discriminatory treatment to some persons who
fall in the same category. According to the Division Bench, B
both the categories of importers paid the duty as leviable under
Customs Tariff Act. Once a choice is given under the said Act
and the duty is paid accordingly, merely because the rate of
duty arrived at is different would not be rational basis for
excluding the other class. This reasoning of the High Court C
can be found in paras 10 and 11 of the impugned judgment
which are reproduced hereinbelow:

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

    11. The Supreme Court, in Government of India Vs. · H
762         SUPREME COURT REPORTS                       (2015] 8 S.C.R.


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

           12. Mr. Panda, learned senior counsel appearing for the
      appellants, submitted that it was entirely within the domain of
      the Government to give exemption to particular class of
E     assessees and it being a policy decision, it would not be open
      to the High Court to tinker with the same. For this purpose, he
      relied on the judgment of this Court in Kasinka Trading's
      case, and in particular paras 8 and 21 thereof, which are as
F     follows:

          8. Section 12 of the Customs Act, which is the charging
          section, provides that duties of customs shall be levied at
          such rates as may be specified under the Customs Tariff
          Act, 1975 or any other law for the time being in force on
G         the goods imported into India. Section 2 of the Customs
          Tariff Act, 1975 read with the First and Second Schedules
          thereto lays down the rates at which duties of customs
          shall be levied under the Customs Act on various goods
          imported into India. Section 25 of the Act, with which we
H
          are primarily concerned in this batch of appeals, confers
UNION OF INOIA& ORS. v. N.S. RATHNAM & SONS                       763
               [AK. SIKRI, J.]

powers on the Central Government to grant exemptions               A
from levy of duty in "public interest". Sub-sections (1) and
(2) of Section 25 which are relevant for our purposes
provide as under:

"25. Power to grant exemption from duty- (1) If the B
Central Government is satisfied that it is necessary in the
public interest so to do it may, by notification in the Official
Gazette, exempt generally either absolutely or subject to
such conditions (to be fulfilled before or after clearance),
as may be specified. in the notification goods of any C
specified description from the whole or any part of duty of
customs leviable therein,

(2) If the Central Government is satisfied that it is necessary
in the public interest so to do, it may, by special order in       o
each case, exempt from the payment of duty, under
circumstances of an exceptional nature to be stated in
such order, any goods on which duty is leviable."

The power to grant exemption from duty, wholly or in part,         E
on the plain language of Section 25 (supra) is contingent
upon the satisfaction of the Government that it would •be in
"public interest" to do so. Thus, "public interest" is the
guiding criterion for exercising the power under Section
25 (supra).                                                        F

xx                                xx                     xx
21. The power to grant exemption from payment of duty,
additional duty etc. under the Act, as already noticed, flows
from the provisions of Section 25( 1) of the Act. The power G
to exempt includes the power to modify or withdraw the
same. The liability to pay customs duty or additional duty
under the Act arises when the taxable event occurs. They
are then subject to the payment of duty as prevalent on H
the date of the entry of the goods. An exemption notification
764     SUPREME COURT REPORTS                     (2015] 8 S.C.R.


A      issued under Section 25 of the Act had the effect of
       suspending the collection of customs duty. It does not make
       items which are subject to levy of customs duty etc. as
       items not leviable to such duty. It only suspends the levy
      and collection of customs duty, etc., wholly or partially and
B      subject to such conditions as may be laid down in the
       notification by the Government in "public interest". Such
       an exemption by its very nature is susceptible of being
       revoked or modified or subjected to other conditions. The
      supersession or revocation of an exemption notification
c     in the "public interest" is an exercise of the statutory power
      of the State under the law itself as is obvious from the
      language of Section 25 of the Act. Under the General
      Clauses Act an authority which has the power to issue a
      notification has the undoubted power to rescind or modify
D
      the notification in a like manner. From the very nature of
      power of exemption granted to the Government under
      Section 25 of the Act, it follows that the same is with a
      view to enabling the Government to regulate, control and
E     promote the industries and industrial production in the
      country. Notification No. 66 of 1979 in our opinion, was
      not designed or issued to induce the appellants to import
      PVC resin. Admittedly, the said notification was not even
      intended as an incentive for import. The notification on
F     the plain language of it was conceived and issued on the
      Central Government "being satisfied that it is necessary
      in the public interest so to do". Strictly speaking, therefore,
      the notification cannot be said to have extended any
      'representation' much less a 'promise' to a party getting
G     the benefit of it to enable it to invoke the doctrine of
      promissory estoppel against the State. It would bear
      repetition that in order to invoke the doctrine of promissory
      estoppel, it is necessary that the promise which is sought
      to be enforced must be shown to be an unequivocal
H
    UNION OF INDIA& ORS. v. N.S. RATHNAM & SONS                   765
                   [A.K. SIKRI, J.]

     promise to the other party intended to create a legal A
     relationship and that it was acted upon as such by the
     party to whom the same was made. A notification issued
     under Section 25 of the Act_cannot be said to be holding
     out of any such unequivocal promise by the Government
     which was intended to create any legal· relationship B
     between the Government and the party drawing benefit
     flowing from of the said notification. It is, therefore, futile
     to contend that even if the public interest so demanded
     and the Central Government was satisfied that the
     exemption did not require to be extended any further, it C
     could still not withdraw the exemption.

    He stated that the principle laid down in the aforesaid
judgment is followed and reiterated in Shrijee Sales
Corporation and Anotherv. Union of/ndia2 and Reliance              D
Industries Ltd. v. Pravinbhai Jasbhai Patel and 0thers 3 .

     13. He also referred to Ground A in the writ petition and
submitted that the plea of the respondent was that the duty
already paid by the respondent should have been taken into         E
account and only the balance out of it should have been the
rate of duty. He, thus, submitted that this aspect has not been
taken into consideration by the High Court in the impugned
judgment.
                                                                   F
      14. Learned counsel for the respondent, on the other hand,
 argued that all those who paid excise duty as per the provisions
 of the Act constitute one single class and, therefore, by
 restricting the benefit to only those who had paid custom duty
 at the rate of Rs.1,400/- per LDT and excluding other sets of G
 persons like appellants amounted to hostile discrimination and,
·therefore, the High Court rightly held the Notification to be

2 (1997) 3sec 398
'(1997) 7 sec 300                                                  H
766          SUPREME COURT REPORTS                    [2015) 8 S.C.R.


A     violative of Article 14 of the Constitution.

            15. The judgment of this Court in Kasinka Trading's case,
      no doubt, lays down the principle that there is wide discretion
      available to the Government in the matter of granting, curtailing,
B     withholding, modifying or repealing the exemptions granted
      by earlier Notifications. It is also correct that the Government
      is not bound to grant exemption to <myone to which it so
      desires. When the duty is payable under the provisions of the
      Act, grant of exemption from payment of the said duty to
C     particular class of persons or products etc. is entirely within
      the discretion of the Government. This discretion rests on
      various factors which are to be considered by the Government
      as these are policy decisions. In the present case, however,
      the issue is not of granting or not granting the exemption. When
D     the exemption is granted to a particular class of persons, then
      the benefit thereof is to be extended to all similarly situated
      person. The Notification has to apply to the entire class and
      the Government cannot create sub-classification thereby
      excluding one sub-category, even when both the sub-
E     categories are of same genus. If that is done, it would be
      considered as violating the equality clause enshrined in Article
      14 of the Constitution. Therefore, judicial review of such
      Notifications is permissible in order to undertake the scrutiny
      as to whether the Notification results in invidious discrimination
F
      between two persons though they belong to the same class.
      In Aashirwad Films v. Union of India and Others•, this
      aspect has been articulated in the following manner:

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


H • (2007J 6 sec 624
    UNION OF INDIA& ORS. v. N.S. RATHNAM & SONS                   767
                   [A.K. SIKRI, J]

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

     11. In Chhotabhai Jethabhai Patel & Co. v. Union of India,
   . AIR 1962 SC 1006 it was stated: (AIR p. 1021, para 37)         B

    "37. But it does not follow that every other article of Part Ill
    is inapplicable to tax laws. Leaving aside Article 31 (2)
    that the provisions of a tax law ' within legislative
    competence could be impugned as offending Article 14 c
    is exemplified by such decisions of this Court as Sura}
    Mall Mohta ~ Co. v. A. V. Vishvanatha Sastri (AIR 1954
    SC 545: (1955) 1 SCR 448) and Meenakshi Mills Lid. v.
    A. V Visvanatha Sastri (AIR 1955 SC 13: (1955) 1 SCR
    787). In K. T. Moopil Nairv. State of Kera/a (AIR 1961 SC o
    552) the Kerala Land Tax Act was struck ·down ·as
    unconstitutional as violating the freedom guaranteed by
    Article 14. It also goes without saying that if the imposition
    of the tax was discriminatory as contrary to Article 15, the
    levy would be invalid."                                          E

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

    16. It is, thus, beyond any pale of doubt that the justiciability
of particular Notification can be tested on the touchstone of H
768          SUPREME COURT REPORTS                    [2015) 8 S.C.R.


A     Article 14 of the Constitution. Article 14, which is treated as
      basic feature of the Constitution, ensures equality before the
       law or equal protection of laws. Equal protection means the
       right to equal treatment in similar circumstances, both in the
       priviliges conferred and in the liabilities imposed. Therefore,
B      if the two persons or two sets of persons are similarly situated/
       placed, they have to be treated equally. At the same time, the
      principle of equality does not mean that every law must have
      universal application for all persons who are not by nature,
      attainment or circumstances in the same position. It would
C     mean that the State has the power to classify persons for
      legitimate purposes. The legislature is competent to exercise
      its discretion and make classification. Thus, every
      classification is in some degree likely to produce some
      inequality but mere production of inequality is not enough.
0
      Article 14 would be treated as violated only when equal
      protection is denied even when the two persons belong to same
      class/category. Therefore, the person challenging the act of
      the State as violative of Article 14 has to show that there is no
E     reasonable basis for the differentiation between the two
      classes created by the State. Article 14 prohibits class
      legislation and not reasonable classification. What follows
      from the above is that in order to pass the test of permissible
      classification two conditions must be fulfilled, namely, (i) that
F     the classification must be founded on an intelligible differential
      which distinguishes persons or things that are grouped
                                                                           •
                                                                           •



      together from others left out of the group and (ii) that, that
                                                                           Ii-
      differential must have a rational relation to the object sought to
      be achieved by the statute in question. If the governmentfails
G     to support its action of classification on the touchstone of the
      principle whether the classification is reasonable having an
      intelligible differentia and a rational basis germane to the
      purpose, the classification has to be held as arbitrary and
      discriminatory. In Sube Singh v. State of Haryana 5 , this
H
      • (2001) 1 sec 545
   UNION OF IN,DIA& ORS. v. N.S. RATHNAM & SONS                      769
                   [AK. SIKRI, J.]

aspect is highlighted by the Court in the following manner:           A

    10. In the counter and the note of submission filed on behalf
    of the appellants it is averred, inter alia, that the Land
    Acquisitior:i Collector on considering the objections filed
    by the appellants had recommended to the State                    B
    Government for exclusion of the properties of appellants
    1 and 3 to 6 and the State Government had not accepted
    such recommendations only on the ground that the
    constructions made by the appellants were of 'B' or 'C'
    class and could not be easily amalgamated into the                C
    developed colony which was proposed to be built. There
    is no averment in the pleadings of the respondents stating
    the basis of classification of structures as 'A' 'B' and 'C'
    class, nor is it stated how the amalgamation of all 'Pi class
    structures was feasible and possible while those of 'B'           D
    and 'C' class structures was not possible. It is notthe case
    of the State Government and also not argued before us
    that there is no policy decision of the Government for
    excluding the lands having structures thereon from
    acquisition under the Act. Indeed, as noted earlier, in these     E
    cases the State Government has accepted the request of
    some land owners for exclusion of their properties on this
    very ground. It remains to be seen whether the purported
    classification of existing -structures into 'A', 'B' and 'C'      F
    class is a reasonable classification having an intelligible
    differential and a rational basis germane to the purpose.
    If the State Government fails to support its action on the
    touchstone of the above principle then this decision has
    to be held as arbitrary and discriminatory. It is relevant to     G
    note here that the acquisition of the lands is for the purpose
    of planned development of the area which includes both
    residential and commercial purposes. That being the
    purpose of acquisition it is difficult to accept the case of
    the state Government that certain types of structures which       H
770       SUPREME COURT REPORTS                   . [2015] 8 S.C.R.


A       according to its own classification are of 'A' class can be
        allowed to remain while other structures situated in close
        vicinity and being used for same purposes (residential or
        commercial) should be demolished. At the cost of
        repetition, it may be stated here that no material was placed
B       before us to show the basis of classification of the existing
        structures on the land proposed to be acquired. This
        assumes importance in view of the specific contention
        raised on behalf of the appellants that they have pucca
        structures with R.C. roofing, Mozaic flooring etc. No
c       attempt was also made from the side of the State
        Government to place any architectural plan of different
        types of structures proposed to be constructed on the land
        notified for acquisition in support of its contention that the
        structures which exist on the lands of the appellants could
D
        not be amalgamated into the plan.

       17. The question, therefore, that arises is as to whether
  the two categories, one mentioned in Notification No.386/86-
  CE dated 20.08.1986, which is given the benefit and removal
E of the second category, which was initially granted same benefit
  vide Notification No.102/87-CE dated 27 .03.1987, is
  discriminatory. To put it otherwise, we have to see as to whether
  the two categories are identical or there is a reasonable
F classification based on intelligible differentia which has nexus
  with some objective that is sought to be achieved. The test in
  this behalf that is to be applied can again be culled out from
  the judgment in Aashirwad's case. It is summarized in para
  14, after taking note of various earlier judgments. This para
G reads as under:

        14. It has been accepted without dispute that taxation
        laws must also pass the test of Article 14 of the Constitution
        of India. It has been laid down in a large number of
        decisions of this Court that a tuxation statute for the
H
        reasons offunctional expediency and even otherwise, can
   UNION OF INDIA& ORS. v. N.S. RATHNAM & SONS                  771
                  [AK. SIKRI, J]

    pick and choose to tax some. Importantly, there is a rider . A
    operating on this wide power to tax and even discriminate
    in taxation that the classification thus chosen must be
    reasonable. The extent of reasonability of any taxation
    statute lies in its efficiency to achieve the object sought to
    be achieved by the statute. Thus, the classification must B
    bear a nexus with the object sought to be achieved. (See
    Moopil Nair v. State of Kera/a, AIR 1961 SC 552, East
    India Tobacco Co. v. State ofA.P., AIR 1962 SC 1733, N.
    Venugopala Ravi Varma Rajah v. Union of India ( 1969) C
    1 SCC 681 : AIR 1969 SC 1094, Asstt. Director of
    Inspection Investigation v. AB. Shanthi, (2002) 6 SCC
    259 : AIR 2002 SC 2188 and Associated Cement
    Companies Ltd. v. Govt. ofA.P., (2006) 1 SCC 597: AIR
    2006 SC 928).
                                                                   D
      18. In the present case, we find that the two Notifications
both dated 27 .03.1987 pertain to same goods namely those
falling under Heading 72.15 and 73.09 of the second Schedule
to the Act. Customs duty is leviable on these goods under
Section 3 of the Customs Tariff Act. The said duty can be paid E
under any of the two methods. When two methods are
permissible under the statutory scheme itself, obviously option
is that of the assessee to choose in all those methods to pay
the custom duty. Duty, thus, paid is to be naturally ireated as F
validly paid. Merely because with the adoption of one particular
method the duty that becomes payable is lesser would not
mean that two such persons belong to different categories.
The important factors for the purposes of parity are same in
the instant case, viz. the goods are same; they fall under the G
same Heading and the custom duty is leviable as per the Act
which has been paid. Therefore, the impugned Notification
giving exemption only to those persons who paid a particular
amount of duty, namely Rs.1,400/- per LDT, would not mean
that such persons belong to a different category and would be H
772          SUPREME COURT REPORTS                    [2015] 8 S.C.R.


A. entitled to exemption and not other persons like the respondent
   herein who paid the duty on the same goods under the same
   Act but on the formula which he opted and which is permissible,
   which rate of duty comes to Rs.1,035/- per LDT.

B        19. It is also importantto bear in mind thatthe appellants
   have not supported the withdrawal of exemption by any cogent
   explanation. The High Court has noted, and rightly so, that
   Ground C was taken by the respondent in the writ petition
 · specifically urging that no rational policy is mentioned for
C creating two different classes and no reply to this was given
   by the appellants even in the counter affidavit filed to the said
   petition. On the other hand, the specific case made out by the
   respondent was that the purpose behind Notification No.146/
   86-CE dated 01.03.1986 and Notification No.386/86-CE
D dated 20.08.1986 was to treatthe ships imported on or before
   28.02.1986 differently and to avoid double taxation and
   additional duty equivalent to excise duty. For this reason,
   exemption Notification became necessary which provided
   exemption from excise duty. It was argued that the withdrawal
E of the exemption duty in the cases like that of the respondent
   amounted to double taxation. Even this could not be refuted
   by the appellants.

       20. We are conscious of the principle that the difference
F which will warrant a reasonable classification need not be great.
  However, it has to be shown that the difference is real and
  substantial and there must be some just and reasonable
  relation to the object of legislation or notification. Classification
  having regard to microscopic differences is not good. To
G borrow the phrase from the judgment in Roopchand Adlakha
  v. D.D.A. 6 : ''To overdo classification is to undo equality."

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

H     '(1989) 1 supp. sec 116
       UNION OF INDIA & ORS. v. N.S. RATHNAM & SONS                773
                       [AK. SIKRI, J.]

of taxation, the Legislature has an extremely wide discretion A
to classify items for tax purposes, so long as it refrains from
clear and hostile discrimination against particular persons or
classes (See Secretary to Govt. of Madras v. P.R.
Sriramu/u7 ). However, at the same time, when a substantive
unreasonableness is to be found in a taxing statute/notification, B
it may have to be declared unconstitutional. Although the Court
may not go into the question of a hardship which may be
occasioned to the tax payers but where a fair procedure has
not been laid down, the validity thereof cannot be upheld. A
statute which provides for civil or evil consequences must C
conform to the test of reasonableness, fairness and non-
arbitrariness.

      22. In State of U.P. v. Deepak Fertilizers &
Petrochemical Corporation Ltd.6, this aspect is succinctly D
brought about as is apparent from the following passages in
that judgment:     ·

       "15. The learned counsel.appearing for the State relying
       heavily on Kera/a Hotel and Restaurant Assn. v. State E
       of Kera/a, (1990) 2 SCC 502, contended that the State
       has widest latitude where measures of economic and
       fiscal regulation are concerned. There is no dispute on
       this principle of law as enumerated in the aforesaid
            ..
       decision of this Court. However, this same law must not F
      ·be repugnant to Article 14 of the Constitution i.e. it must
       not violate the right to equality of the people of India, and if
       such repugnancy prevails then, it shall stand void up to
       the level of such repugnancy under Article 13(2) of the
       Constitution of India. Therefore,. every law has to pass G
       through the test of constitutionality, which is nothing but a
       formal name of the test of rationality. We understand that

1
    (1996) 1 sec 345
a (2007) 10 sec 342                                                  H
774     SUPREME COURT REPORTS                      (2015] 8 S.C.R.


A     whenever there is to be made any type of law for the
      purpose of levying taxes on a particular commodity or
      exempting some other commodity from taxation. a sought
      of classification is to be made. Certainly, this classification
      cannot be a product of blind approact"i by the
8     administrative authorities on which the responsibility of
      delegated legislations is vested by the Constitution. In a
      nutshell, the notifications issued by the Trade Tax
      Department of the State of U.P., dated 10.04.1995 and
      15.05.1995 lack the sense of reasonability because it is
c     not able to strike a rational balance of classification
      between the items of the same category. As a result of
      this, NPK 23:23:0 is not given exemption from taxation
      whereas all other NPK fertilisers of the same category
      like that of NPK 20:20:0 are provided with the exemption
D
      from taxation.

      16. The reasonableness of this classification must be
      examined on the basis, that when t;ie object of the taxing
      provision is not to tax the sale of certain chemical fertilisers
E     included in the list, which clearly points out that all the
      fertilisers with the similar compositions must be included
      without excluding any otner chemical fertiliser which has
      the same elements and compositions. Thus, there is no
      reasonable nexus of such classification among various
F
      chemical fertilisers of the same class by the state. This
      court in Ayurveda Pharmacy ((1989) 2 SCC 285], held
      that two items of the same category cannot be
      discriminated and where such a distinction is made
      between items falling in the same category it should be
G
      done on a reasonable basis, in order to save such a
      classification being in contravention of Article 14 of the
      Constitution of India."

      23. It was contended by the learned senior counsel for the
H
    UNION OF INDIA& ORS. v. N.S. RATHNAM & SONS                 775
                   [AK. SIKRI, J.]

appellants that purpose was to give exemption only to those A
who paid custom duty at Rs.1,400/- per LDT and since the
duty paid by the respondent herein was lesser in amount,
respondent could not ask for exemption. That may be so. In
such a case, the only option to bring parity was to demand
duty on differential amount, which was even contended by the B
respondent herein. That provision should have been
incorporated to save the impugned Notification from the vice
of arbitrariness. In fact, that would bring both the sub-
categories completely at par. Thus, while upholding the view
taken by the High Court, we modify the same only to the extent C
that the respondent herein shall also be entitled to the benefit
of the exemption Notification subject to the condition that the
duty already paid by the respondent herein on LDT, would be
taken into account and only the balance out of it would be D
subject to excise duty.

    24. The appeal is disposed of in the aforesaid terms
without any order as to cost.

Nidhi Jain                                 Appeal disposed of