Validity of Notification issued by Government without power granted by Statute

PJ/Case Laws/2011-12/1433

Case: Rubfila International Ltd. versus Union of India

Citation: 2011 (270) ELT 159 (Ker.)

Issue:- Notification issued by Government without any power conferred by the Statute will not be legal and valid.

Brief Facts:- Petitioner is a public limited company engaged in manufacture of heat resistant Latex Rubber Threads. Petitioner is an approved exporter of the said product. They are challenging the validity of Ext. P1 Notification issued by the Union of India fixing the rate of cess on the Rubber produced in India and procured for export production by the Export Oriented Units (E0Us), Units in the Special Economical Zone (SEZ) and Units in the Export Processing Zone (EPZs) at "zero paise" per Kg in this writ petition.

Petitioner’s Contention:- Petitioner contended that through Ext. P1 an exemption from payment of 'Rubber Cess' is granted to certain industries based on the locality where such industries are set up and such an exemption is granted in violation of Article 14 of the Constitution of India. Further, it is issued by the Central Government without there being any power derived under the Rubber Act, 1947. If the Units engaged in export of Rubber products, such as EOUs, Units situated at SEZs and EPZs are made eligible for such an exemption, there is no reason for denying such exemption to the petitioner, who is also doing export of Rubber products.

Petitioner pointed that till 1960 the liability to pay excise duty under Section 12(1) was on the owner of the estate in which rubber is produced. But by an amendment to Section 12(2), the liability for payment was extended also to the manufacturer by whom such rubber is used. As per the amended provision the Rubber Board shall collect the duty either from the owner of the estate on which rubber is produced or from the manufacturer by whom such rubber is used. It is specifically pointed out that the incidence of taxation as prescribed under Section 12(1) is on production of the rubber within the country. The wording of Section 12(1) is to the effect that the cess shall be levied as a duty of excise on all rubber produced in India. Merely because the liability has been extended also to manufacturers, apart from the owners of the estate, the nature of levy or the incidence of taxation is in no way affected.

The following cases are relied upon:

- Jullunder Rubber Goods Manufacturers' Association v. The Union of India and Another [1969 (2) SCC 644]
- State of Kerala v. Madras Rubber Factory Ltd. [1998 (1) SCC 616]

Based on the above cases, Petitioner submitted that the Rubber Cess is not an excise duty attached to the manufacturers on their production, but it is the duty leviable on Rubber produced in the country. The duty of excise so collected being an amount credited to the 'Consolidated fund of India', and being paid by the Central Government to the Rubber Board for utilization for the purposes of the Act, the exemption granted to a group of manufacturers from payment of such duty is totally beyond the scheme of the Act, and it is totally lacking competence.

It is contended that fixation of "Zero paise per Kg" as rate of cess in Ext. P1, is virtually an exemption granted from payment of cess to certain manufacturers. It is evident from usage of such terms that the Central Government is aware about its inability to exempt any group of manufacturers. So the attempt is clear, that it is indirectly providing exemption to certain groups from payment of cess, which the Government cannot do directly. It is settled principle of law that the Government cannot do something which they could not do directly by any indirect means or method. Therefore the exemption granted through Ext. P1 is totally unsustainable.

Respondent’s Contention:- Revenue contended that Ext. P1 is intended at promotion of export of industrial rubber, which is hitherto been an import substitute, and it is intended to develop India as a regular exporter of this commodity. It is stated that the notification was issued as a sequal to the Government's "Export and Import (EXIM) Policy" order to boost export of rubber products and there is no discrimination in taking such a policy and it is not violative of Article 14 of the Constitution of India. It is contended that the benefit under the notification is allowed only to EOUs and units in EPZ and SEZ, which are 100% EOUs. The SEZs are deemed to be foreign territory for the purpose of trade operations, duties and tariffs as per Chapter VII of the new EXIM Policy. Thus these units are separate category and cannot be treated on par with other units engaged in manufacturing of rubber products for domestic consumption. The impugned notification is issued pursuant to economic policy of the Government to promote export of rubber products in the larger public interest and therefore the policy is not contrary to law or in any way main fide or illegal. Hence it is not appropriate to the court to go into the wisdom of the advisability of the economic policy of the Government that there being any such power provided under statute, is the contention.

Reasoning of Judgment:- The High Court noted that the Ext. P1 Notification was issued in exercise of power conferred on the Union Government by sub-section (1) of Section 12 of the Rubber Act, 1947.

Under Section 12(1) the Central Government is authorised (1) to fix the appointed day from which the levy of cess is to be collected, and (2) to fix the rate at which the duty of excise (cess), not exceeding two rupees per kilogram of rubber produced, is to be collected. Beyond the above quoted two specific powers, Section 12(1) does not confer any power on the Central Government to give exemption to anybody or to any class of manufacturers who are using rubber, or exporting Rubber products, from payment of such duty of excise (cess).

As per Section 12(7) of the Act, the duty of excise so collected, reduced by cost of collection as determined by the Central Government, shall first be credited to the 'Consolidated funds of India', and then be paid by the Central Government to the Board for being utilised for the purpose of the said Act, if Parliament by appropriation made by law in this behalf so provides.

Reliance was placed on the following cases: -

-DelhiDevelopment Authority and Another v. Joint Action Committee, Allottee of SFS Flats and Others
- P.J. Irani v. State of Madras (AIR 1961 SC 1731)
- Bombay Dyeing and Manufacturing Co. Ltd. v. Bombay Environmental Action Ground and Others [2006 (3) SCC 4341

It was held that the fixation of "Zero paise per kilogram" as duty of excise leviable from certain class of manufacturers as Rubber cess will clearly amount to granting of exemption. It is evident that fixation of "Zero paise" is only an indirect method of granting exemption, which the Government knows that they could not do directly. The question whether the Central Government has got competence in issuing an order exempting certain class of manufacturers from payment of excise duty as Rubber cess, can be answered only on the negative. It is evident from Ext.P1 that the Government themselves admitted that they had issued such a notification only by virtue of power conferred under Section 12(1) of the Act. But it is clear and evident that Section 12(1) of the Act does not empower the Government from issuing any order granting exemption to any category of estate owners or manufacturers from payment of the duty of excise. No other provision in the Act empowers the Government from granting such an exemption. Therefore Ext. P1 is issued beyond the power and competence of the Government and hence it is not sustainable.

On the issue that whether the Government is right in issuing such a notification in promotion of the "EXIM Policy"; it was held that it is settled law that a policy decision cannot be permitted to contradict the provisions of the statute or its legislative object. Therefore the exemption granted through Ext. P1 which is in violation of the provisions of the Act, and its legislation object could not be held valid, even if it is issued as a policy decision taken by the Government.

Decision:- Appeal allowed.

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PJ/Case Laws/2011-12/1433

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