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Govt. Of India v. Dhanalakshmi Paper And Board Mills
Factual and Procedural Background
The respondent, M/s Dhanalakshmi Paper and Board Mills, set up a factory to manufacture paper, paper boards and allied products. Although the premises were leased and the factory structure completed by August 1963, machinery arrived only in April 1964. A manufacturing licence was applied for on 27-4-1964 and granted on 6-5-1964, with production commencing on 7-5-1964.
A Central Government Notification dated 1-3-1964, issued under Rule 8(1) of the Central Excise Rules, 1944, granted concessional excise duty to manufacturers of straw-board and pulp-board. Clause (a) of Proviso (3) to this Notification denied the concession to any manufacturer who applied for a licence on or after 9-11-1963 unless the factory was already owned on that date. Because the respondent’s licence application was made after 9-11-1963, excise authorities refused the concession.
The respondent filed a writ petition before the Madras High Court under Article 226 of the Constitution. A learned Single Judge struck down clause (a) of Proviso (3) as arbitrary and granted consequential relief; a Letters Patent Appeal was dismissed in limine. The Union of India appealed to the Supreme Court by special leave.
Legal Issues Presented
- Whether clause (a) of Proviso (3) to the Notification dated 1-3-1964—fixing 9-11-1963 as the cut-off date—was arbitrary and violative of Article 14 of the Constitution.
- Consequently, whether the respondent was entitled to the concessional rate of excise duty under the Notification.
Arguments of the Parties
Appellants’ Arguments
- The cut-off date of 9-11-1963 could not be challenged as arbitrary because any date chosen for concessional schemes is inherently selective; reliance was placed on Union of India v. Parameswaran Match Works and other decisions.
- The date was allegedly linked to an earlier Notification No. 110 which required applications to be made on or after 9-11-1963 (though the appellants could not produce or detail this notification).
- Court scrutiny of governmental wisdom in choosing dates is impermissible; reference was made to Dr Sushma Sharma v. State of Rajasthan.
Respondent’s Arguments
- The date 9-11-1963 bore no rational nexus to the object of granting concession and was therefore arbitrary, creating an unreasonable classification within the same group of manufacturers.
- The absence of any explanation or material justifying the date rendered clause (a) ultra vires Article 14.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Parameswaran Match Works (1975) 1 SCC 305 | Validity of a cut-off date in fiscal concessions; date may be upheld if it has a rational basis (in that case, the date of the amending notification itself). | Distinguished; the impugned date (9-11-1963) was not the date of the notification (1-3-1964) and lacked demonstrated nexus, unlike Parameswaran. |
| Jagdish Pandey v. Chancellor, University of Bihar (1968) 1 SCR 231 | An arbitrary date that creates unreasonable classification violates Article 14. | Cited to support the proposition that, where no rational basis exists, the provision must fail. |
| UPMTSNA Samiti, Varanasi v. State of U.P. (1987) 2 SCC 453 | Cut-off dates must have a reasonable nexus with legislative objective. | Invoked to illustrate that valid differentiation requires rational nexus; reinforced the High Court’s view. |
| Dr Sushma Sharma v. State of Rajasthan 1985 Supp SCC 45 | Courts usually do not question legislative wisdom; referred to Parameswaran Match Works. | Relied on by appellants; Supreme Court found it inapplicable because no justification for date was produced in the present case. |
| D.S. Nakara v. Union of India (1983) 1 SCC 305 | Invalidity of an arbitrary date that unjustifiably excludes similarly placed persons. | Analogous reasoning accepted: impugned clause divided one homogeneous class without rational basis. |
Court's Reasoning and Analysis
The Supreme Court observed that the appellants failed to furnish any material explaining why 9-11-1963 was chosen. Unlike Parameswaran Match Works—where the cut-off coincided with the date of the amending notification—the date here pre-dated the Notification itself and appeared “taken from a hat.”
Relying on the principles in Jagdish Pandey, UPMTSNA Samiti and D.S. Nakara, the Court held that differentiation within the same class of manufacturers would be constitutionally sustainable only if the date had a rational nexus with the object of incentivising small or existing units. In the absence of such nexus, clause (a) was arbitrary, violated Article 14, and was therefore ultra vires.
The Court rejected the appellants’ invocation of legislative wisdom, holding that judicial deference does not extend to sustaining an unexplained and discriminatory classification.
Holding and Implications
Appeal Dismissed; clause (a) of Proviso (3) declared ultra vires.
Consequently, the respondent is entitled to the concessional excise duty under the Notification dated 1-3-1964. The decision affirms that fiscal concessions cannot employ arbitrary cut-off dates lacking rational nexus to their objective, reinforcing Article 14 scrutiny in taxation and exemption schemes. No costs were awarded.
L.M Sharma, J.— This appeal arises out of a writ application allowed by the Madras High Court striking down clause (a) of the Proviso (3) of the Notification dated 1-3-1964 issued by the Union of India in the Ministry of Finance, under Rule 8(1) of the Central Excise Rules, 1944 and granting consequential relief. The aforesaid notification granted certain exemptions from payment of excise duty, but the benefit was denied to the writ petitioner, respondent before this Court in view of the impugned clause.
2. The respondent assessee, a business concern functioning under the name of M/s Dhanalakshmi Paper and Board Mills, decided to set up a factory for the manufacture of paper and paper boards and allied products, and obtained a lease of certain premises in June 1963 and put up a suitable structure for the factory by August 1963. The necessary machineries for running the factory, however, were received in April 1964 and application for licence therefore was filed on 27-4-1964. The licence was granted on 6-5-1964 and production in the factory started the next day i.e 7-5-1964.
3. The respondent claimed that the duty in respect of the paper boards manufactured in the factory during the period 7-5-1964 to June 1966 was payable at the concessional rate allowed by the Notification, relevant portion whereof reads as follows:
“Government of India
Ministry of Finance (Department of Revenue)
New Delhi, 1-3-1964.Phalguna
11, 1885 (Saka)
Notification
Central Excise
GSR.— In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 57/60 Central Excise dated 20-4-1960 and No. 37/63 Central Excise dated 1-3-1963 the Central Government hereby exempts straw-board and pulpboard including, greboard, falling under sub-item (3) of item 17 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), taken together up to the quantity prescribed in column (1) of Table 1 (omitted), cleared by any manufacturer for home consumption during any financial year, from so much of the duty of excise leviable thereon as is in excess of the amount specified in the corresponding entry in column (2) of the same Table:
Table 1 (being not relevant, omitted)
Table 2 (being not relevant, omitted)
(3) nothing contained in this notification shall apply to a manufacturer who applied or applies for a licence on or after the 9th day of November, 1963, unless he satisfied the Collector of Central Excise.
(a) that the factory for which the licence was or is applied for was owned on the 9th day of November, 1963, by the applicant;”
The benefit of the notification claimed by the respondent assessee was denied by the appellants on the ground that the factory did not come into existence on or before 9-11-1963, the date mentioned in the impugned clause (a). The respondent moved the High Court in its writ jurisdiction under Article 226 of the Constitution, and the application was allowed by a learned Single Judge. An appeal therefrom under Clause 15 of the Letters Patent was dismissed in limine. The appellants have by special leave challenged the decision before this Court.
4. The ground urged on behalf of the assessee which found favour with the High Court is arbitrary nature of the date, “9-11-1963” mentioned in the impugned clause (a). It has been contended that the said date does not have any significance whatsoever and does not bear any rational relationship to the object sought to be achieved by the notification. The learned counsel for the appellants defended the validity of the impugned provision on the ground that the date (9-11-1963) was selected because an earlier notification bearing No. 110 had required applications to be made on or after 9-11-1963. This notification is not on the records of the case and the learned counsel has stated that he has also not been able to examine the same in spite of his unsuccessful request to tne department concerned for a copy thereof. He has mentioned about this notification in his argument on the basis of the reference in the judgment of the High Court. The High Court judgment does not throw any light on the nature of the Notification No. 110, and the learned counsel could not draw any inference about its provisions from the judgment. It is not claimed that the said notification was before the High Court or the judges had any occasion to examine it. The present appeal was filed in 1976 and even now the learned counsel for the appellants is not in a position either to produce it or to tell us what it was about. The result is that no explanation for the choice of the date in clause (a) is forthcoming.
5. Sri V.C Mahajan, learned counsel for the appellants, contended that a statutory provision has necessarily to be arbitrary in the choice of date and it cannot be challenged on that ground. He relied upon the observations of this Court in Union of India v. M/s Parameswaran Match Works (1975) 1 SCC 305, (1975) 2 SCR 573 at 578, AIR 1974 SC 2349 as quoted below:
“To achieve that purpose, the Government chose 4-9-1967, as the date before which the declaration should be filed. There can be no doubt that any date chosen for the purpose would, to a certain extent, be arbitrary. That is inevitable.”
Reliance was also placed on Jagdish Pandey v. Chancellor, University of Bihar (1968) 1 SCR 231, AIR 1968 SC 353 and UPMTSNA Samiti, Varanasi v. State of U.P (1987) 2 SCC 453, (1987) 3 ATC 557 We are afraid, the argument has no merit and has to be rejected.
6. In Union of India v. Parameswaran Match Works (1975) 1 SCC 305, (1975) 2 SCR 573 at 578, AIR 1974 SC 2349 the question related to concessional rate of excise duty leviable on the manufacture of match boxes. Match factories were classified on the basis of their output during the financial year and matches produced in different categories of factories were subject to varying rates of duty — higher rate being levied on matches produced in factories having higher output. In pursuance of a change in the policy, the match factories were later classified as mechanised units and non-mechanised units and by a notification dated 21-7-1967 a concessional rate of duty was allowed in respect of units certified according to the provisions therein. The notification also contained a proviso. The purpose of these provisions was to grant the benefit of concessional rate of duty only to small manufacturers. This Court while analysing the notification observed that the proviso “would have defeated the very purpose of the notification, namely, the grant of concessional rate of duty only to small manufacturers”. In order to cure this self-defeating position, the notification dated 21-7-1967 was amended by Notification No. 205 of 1967 dated 4-9-1967. The latter notification mentioned 4-9-1967 as the cut-off date. The attack on the choice of his date was met by the observations relied upon by the learned counsel for the appellants and quoted earlier. It will be observed that the date, 4-9-1967, was the date on which the amending notification itself was issued. The crucial date, therefore, could not be condemned as one “taken from a hat”. It was the date of the notification itself. A rule which makes a difference between past and present cannot be condemned as arbitrary and whimsical. In cases where choice of date is not material for the object to be achieved, the provisions arc generally made prospective in operation. In that sense this Court observed in s Parameswarun Mutch Works case (1975) 1 SCC 305, (1975) 2 SCR 573 at 578, AIR 1974 SC 2349 that the date chosen would to a certain extent be arbitrary and this was inevitable. In the present case the relevant notification was dated 1-3-1964 and not 9-11-1963. It is true that as mentioned in the High Court judgment some other notification required applications referred therein to be made on or after 9-11-1963, but unless the nature and contents of that notification and its relevance with reference to the present notification are indicated, it is futile to try to defend the choice of the date on its basis. The appellants have miserably failed to do so, in spite of more than a decade available to them.
7. The other two cases relied upon on behalf of the appellants, instead of supporting their case, indicate that the view taken by the High Court is correct. In UPMTSNA Samiti, Varanasi v. State of U.P (1987) 2 SCC 453, (1987) 3 ATC 557 this Court observed in para 1 of the judgment: “The legislature could not arbitrarily adopt 3-1-1984, as the cut-off date….” After examining the circumstances of the case it was held in para 2 :
“We agree with the High Court that fixation of the date 3-1-1984 for purposes of regularisation was not arbitrary or irrational but had a reasonable nexus with the object sought to be achieved.”
Similarly in Jagdish Pandey v. Chancellor, University of Bihar (1968) 1 SCR 231, AIR 1968 SC 353 it was held:
“There is no doubt that if the dates are arbitrary. Section 4 would be violative of Article 14, for then there would be no justification for singling out a class of teachers who were appointed or dismissed etc. between these dates and applying Section 4 to them while the rest would be out of the purview of that section.”
The Court then proceeded to examine the purpose of the legislation and the attendant circumstances and upheld the section.
8. Another learned counsel who appeared on behalf of the appellants for the final reply placed reliance on para 38, 44 and 45 of the judgment in Dr Sushma Sharma v. State of Rajasthan 1985 Supp SCC 45. In para 38 it was said that wisdom or lack of wisdom in the action of the Government or legislature is not justiciable by the court, and to find fault with the law is not to demonstrate its invalidity. We are afraid, this aspect is wholly irrelevant in the case before us. In para 44, the case of Union of India v. Parameswaran Match Works Ltd. (1975) 1 SCC 305, (1975) 2 SCR 573 at 578, AIR 1974 SC 2349 already discussed above, was mentioned. In paragraph 45 the case of D.S Nakara v. Union of India (1983) 1 SCC 305, was distinguished in the following words:
“But as we have mentioned hereinbefore, Nakara case (1983) 1 SCC 305 dealt with the problem of benefit to all pensioners. The choice of the date of 1-4-1979 had no nexus with the purpose and object of the Act. The facts in the instant case are, however, different.”
In the present case also benefit of concessional rate was bestowed upon the entire group of assessees referred therein and by clause (a) of Proviso (3) the group was divided into two classes without adopting any differentia having a rational relation to the object of the Notification, and the benefit to one class was withdrawn while retaining it in favour of the other. It must, therefore, be held that the impugned clause (a) of the Proviso (3) of the notification in question is ultra vires and the benefit allowed by the notification is available to the entire group including the respondent.
9. We, therefore, hold that there is no merit in this appeal which is dismissed without costs.
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