Supreme Court Upholds Withdrawal Of Customs Notification Granting Concession On Import Of Printing Machinery, On The Ground Of Indigenous Angle

The Supreme Court has upheld the withdrawal of a customs notification which granted customs duty concession to “Rotary Printing Machine” of ‘single width two plate variety’, on the ground of indigenous angle, i.e., availability of the equipment in India. The top court remarked that the same cannot be characterized as an irrelevant factor for withdrawing tax concession.

Vide an Amended Notification dated 11.02.2003, the concessional rate of customs duty was shifted to rotary printing machines of ‘double width four plate variety’, and the concessions granted to ‘single width two plate variety’ were withdrawn in view of the representations received from the domestic manufacturers of the said equipment.

The bench of Justices S. Ravindra Bhat and Dipankar Datta was hearing an appeal against the decision of the Calcutta High Court who had quashed the Amended Notification on the ground that there was no intelligible differentia for granting concession on one type of machinery and withdrawing the concession from other type of machinery. The High Court had further held that the indigenous angle was not germane to withdrawal of exemption.

Setting aside the decision of the High Court, the bench remarked that grant of exemption to a class of goods, which are similar to those manufactured within the country, is likely to adversely impact such manufacturers or producers. Thus, the same is a germane and relevant factor for withdrawal of such exemption.

While holding that the High Court had virtually conducted a merits review of the economic measure, the court held that the executive has an exclusive domain in fiscal and economic matters, including determining the relevant factors for granting, refusing or amending exemptions. Thus, the role of the court is confined to decide if the executive’s decision is backed by germane and not irrelevant reasons.

The assessee, ABP Pvt Ltd, imported a printing machine and claimed exemption from payment of customs duty relying upon Notification No. 86 of 2003 (Cus) Classification 844 311 00, dated 28.05.2003. The said Notification provided for levy of customs duty on the import of ‘High Speed Cold-Set Web Offset Rotary Printing Machines with a minimum speed of 70,000 copies per hour’ at a concessional rate of 5 %.

The assessee alleged that it had paid advances to a French supplier through an irrevocable letter of credit for the purchase of the imported machine. The said Notification was subsequently amended by the Central Government through a fresh notification dated 11.02.2003. The Amended Notification shifted the benefit of the concessional rate to “Rotary Double Width Four Plate Wide Printing Machine”.

On 09.02.2004, the assessee filed a Bill of Entry claiming the benefit of the concessional rate under the first Notification. The assessee, however, was held to be ineligible to claim the said benefit and was held liable to pay customs duty at 39.2% on the value of the imported machine.

The assessee filed a writ petition before the Calcutta High Court for declaring the Amended Notification ultra vires Section 25(1) of the Customs Act, 1962, and sought its withdrawal.

The Single Judge set aside the Amended Notification and directed the revenue department to grant concession to the imported machinery of the assessee. The Division Bench in appeal upheld the decision of the Single Judge.

In an appeal filed by the revenue department before the Supreme Court, the department argued that the ‘single width two plate machines’ were excluded from the concession/ exemption as they were manufactured in the country, and thus there was a rationale to exclude such machines from the scope of concessions.

Placing reliance on Section 21 of the General Clauses Act, 1897, it further argued that the Union’s power to issue a notification includes the power to withdraw the same.

At the outset, the Supreme Court took note that on 25.03.2004, the Tax Research Unit of the Revenue Department had issued a letter, justifying the withdrawal of tax exemption on account of the representations received from domestic manufacturers of printing machines.

The department had specified that its intention was to restrict the concessional customs duty of 5% only to those high - speed cold - offset printing machines which have no indigenous angle.

It was the case of the department that the Central Government had received representations from the Indian Printing and Packaging and Allied Machinery Manufacturer’s Association (IPPAMMA) for reconsidering the exemption granted under the first Notification since the domestic industry had the capacity to produce such machines. The representation requested that in view of such indigenous capacity, concessional duty should not be given to ‘single width two plate wide machines’, and it should be restricted to ‘four plate wide double width high speed offset printing machines’.

While observing that the Central Government’s exercise of power to grant or withdraw tax exemption should be suffused with public interest, the Supreme Court referred to the decision of the Division Bench of the High Court and reckoned that the court had set aside the Amended Notification on the sole ground that the withdrawal of the concession could not be said to have facilitated indigenous manufacturers. “It was also held that “Indigenous angle therefore was not germane to withdrawal of exemption” and therefore, “public interest which must govern in the case of grant or withdrawal of the grant is lost.” The third ground was that there was no “distinction between the two types of machines as both were having the same technology.”, the top court observed.

The bench remarked, “Once it is recognized that it is the executive’s exclusive domain, in fiscal and economic matters to determine the nature of classification, the extent of levy to be imposed, and the factors relevant for either granting, refusing or amending exemptions, the role of the court is confined to decide if its decision is backed by reasons, germane, and not irrelevant to the matter. Judicial scrutiny can also extend to consideration of legality, and bona fides of the decision. The wisdom or unwisdom, and the soundness of reasons, or their sufficiency, cannot be proper subject matters of judicial review.”

The court concluded that the High Court had virtually conducted a merits review of the concerned economic measure and had erred in judging the merits of the reasons which led the executive government to issue the Amended Notification.

Noting that no mala fides or oblique considerations were pleaded or urged before the High Court, the bench concluded that the exercise of the power was in line with the provisions of the Act.

It further ruled that the indigenous angle cannot be characterized as an irrelevant factor or consideration. “The indigenous angle, i.e. availability of equipment, cannot be characterized as an irrelevant factor or consideration, since grant of exemption to a class of goods, which are similar to those manufactured within the country, and its likely adverse impact on such manufacturers or producers, is germane and relevant,” said the court.

The court thus set aside the decision of the High Court and allowed the appeal.

Case Title: Union of India & Ors. vs A. B. P. Pvt Ltd & Anr.

Citation : 2023 LiveLaw (SC) 430

Counsel for the Appellant: Mr. Mukesh Kumar Maroria, AOR

Counsel for the Respondent: M/S. Karanjawala & Co.

Customs Act, 1962- The Supreme Court has upheld the withdrawal of customs notification which granted customs duty concession to “Rotary Printing Machine” of ‘single width two plate variety’, on the ground of indigenous angle, i.e., availability of the equipment in India. The top court remarked that the same cannot be characterized as an irrelevant factor for withdrawing tax concession.

The bench remarked that grant of exemption to a class of goods, which are similar to those manufactured within the country, is likely to adversely impact such manufacturers or producers. Thus, the same is a germane and relevant factor for withdrawal of such exemption.

The court held that the executive has an exclusive domain in fiscal and economic matters, including determining the relevant factors for granting, refusing or amending exemptions. Thus, the role of the court is confined to decide if the executive’s decision is backed by germane and not irrelevant reasons.

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