IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 32857 of 2009(B)
1. ZION INDUSTRIES, ZION HILL,
... Petitioner
2. ZION VENEER INDUSTRIES, ZION HILL,
Vs
1. UNION OF INDIA, REPRESENTED BY
... Respondent
2. DIRECTOR GENERAL OF FOREIGN TRADE,
3. THE RUBBER BOARD,
For Petitioner :SRI.BECHU KURIAN THOMAS
For Respondent :SRI.T.P.M.IBRAHIM KHAN,ASST.S.G OF INDI
The Hon'ble the Chief Justice MR.J.CHELAMESWAR
The Hon'ble MR. Justice P.R.RAMACHANDRA MENON
Dated :21/10/2010
O R D E R
J. CHELAMESWAR, CJ &
P.R. RAMACHANDRA MENON, J.
..............................................................................
W.P.(C) No.32857 OF 2009
&
W.A.No. 1883 OF 2009
.........................................................................
Dated this the 21st October, 2010
J U D G M E N T
J. Chelameswar, CJ.
This Writ Appeal is filed by the Union of India and others,
who are the respondents in W.P.(C)No. 592 of 2004, whereas in
W.P.(C)No. 32857 of 2009, the Union of India and others are
respondents. Since the questions raised in the Writ Petition is
identical to the questions raised in the W.A.1883 of 2009, the
Writ Petition was referred to the Division Bench to be heard along
with the Writ Appeal No.1883 of 2009.
2. The first respondent in W.A.No.1883 of 2009 is a Public
Limited Company engaged in the manufacture of heat resistant
Latex Rubber threads. the Writ Petition was filed with the
following prayers.
“i) issue a writ in the nature of declaration
declaring that petitioner is also entitled to the
benefit of zero paise cess for the rubber products
exported as stated in Ext.P1 issued under Section
12 of the Rubber Act,
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
2Or
ii) issue a writ of certiorari or other appropriate
writ order or direction quashing Ext. P1 in so far as
it confers benefit of zero paise cess for rubber
procured for export production by the Export
Oriented Units (EOU’s) or industries situated in
Special Economic Zones (SEZ), units in Export
Processing Zone (EPZ’s);
iii) issue a writ in the nature of a declaration
declaring that no person is entitled to an
exemption from payment of cess.
iv) issue such other appropriate writ, order or
direction that may be deemed to be just and
equitable in the facts and circumstances of the
case. “
3. The factual background of the case is as follows: It
was thought expedient by the Legislature to establish a
Board/Body to make appropriate measures for the rubber
development in the Country. Accordingly, an enactment called,
Rubber Act came to be made. Under Section ‘4’ of the said Act,
the Board is constituted with various functions as specified
under section ‘8’ of the Act. Section 8 authorises the Board to
undertake, assist or encourage scientific, technological and
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
3
economic research, to train the students in improved methods
of planning, cultivation, manuring and spraying and also to
improve the marketing of the rubber business. Under Section ‘9’
of the Act, the above mentioned Board is required to maintain
two funds, known as a General Fund and a Pool Fund .
Under Section 9A and 9B, the purposes of the said funds are
also specified. Under Section 12 of the Act, levy of cess is
authorised . Section 12(1) reads as follows:
“(1) With effect from such date as the Central
Government may, by notification in the Official
Gazette appoint, there shall be levied as a cess for
the purposes of this Act, a duty of excise on all
rubber produced in India at such rate, not
exceeding two rupees per kilogram of rubber so
produced, as the Central Government may fix.”
4. It is stipulated further in sub-section (2) of Section 12
that the duty of excise levied under sub-section(1) shall be
collected by the Board in accordance with the rules made in that
behalf, either from the owner of the estate on which the rubber
is produced or from the manufacturer by whom such rubber is
used.
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
4
5. Further details of other sub-sections of Section 12 are
not necessary having regard to the nature of the dispute in this
Writ Petition, except sub-section (7), which reads as follows;
“(7) The proceeds of the duty of excise collected
under this section reduced by the cost of collection
as determined by the Central Government shall
first be credited to the Consolidated Fund of India,
and then be paid by the Central Government to the
Board for being utilised for the purposes of this Act,
if Parliament by appropriation made by law in this
behalf so provides.”
6. It may also be mentioned herein that the Rubber Act
came to be amended by the Act of Parliament (Act 4 of 2010).
Section 7 of the Rubber (Amendment)Act, 2009 inter alia seeks
to introduce a proviso to Section 12 , which reads as follows:
” provided that the Central Government may, if
considered necessary in the public interest, by
order for reasons to be recorded in writing,
exempt or reduce the duty of excise on rubber
exported on such terms and conditions as it deems
fit.”
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
5
7. The appellant issued the impugned notification dated 7th
December, 2001 in exercise of the powers under Section 12(1)
of the Rubber Act. The relevant portion reads as follows:
“In exercise of powers conferred by sub-section
(1) of Section 12 of the Rubber Act, 1947 (24 of
1947), the Central Government hereby specifies
zero paise per kg. as the rate of cess on rubber
produced in India and procured for export
production by the Export Oriented Units (EOU’s) ,
Units in the Export Processing Zones (EPZ’s ) and
Units in the Special Economic Zones (SEZ’s ) with
immediate effect.”
8. It can be seen from the above extract that by the
impugned notification, the appellant purported to specify the
duty to levy cess at zero paise per kg on the rubber produced
in India and procured for export production by (i) the Export
Oriented Units (EOU’s), (ii) Units in the Export Processing
Zones (EPZ’s) and (iii) Units in the Special Economic Zones with
effect from the date of notification. We wish to straight away
point out here that the Rubber Act itself is not very consistent in
its language. Section 12(1) speaks about the levy of cess,
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
6
whereas Section 12(2) speaks about the duty of excise levied
under sub-section (1). However, that discrepancy need not
deter us from examining the question involved in the instant
appeal.
9. The petitioners in W.P.(C) No. 32857 of 2009 and the
petitioner in W.P.(C)No.592 of 2004, (the first respondent in
W.A.No. 1883 of 2009) challenged the said notification on two
grounds:
(i) that such exemption is without any
authority of law; and
(ii) granting of such concession as the one
provided under the impugned notification has
the effect of immediate discrepancy against
those industries which procure rubber, but not
entitled for the benefit of zero rate taxation
extended to some of the Units specified in the
impugned notification based on the location of
such units or based on the fact that the units
export their product out of India.
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
7
10. By the judgment under appeal it was held that the
impugned notification is without any authority of law. At
paragraph No.10 of the judgment, it was held as follows:
“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 provisions 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. Thirdly, whether the Government is
right in issuing such a notification in promotion of
the “EXIM Policy”. It is settled law that a policy
decision cannot be permitted to contradict the
provisions of the statute or the legislative object.
Therefore the exemption granted through Ext.P1
which is in violation of the provisions of the Act
and its legislative object, could not be held valid,
even if it is issued as a policy decision taken by the
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
8
Government.”
11. The judgment under appeal does not record any
specific finding on the submission that the impugned notification
is violative of Article 14 of the Constitution of India. Hence the
appeal.
12. We may point out that at the relevant point of time
when the impugned notification came to be issued, there was no
express provision under the Rubber Act, which enable the first
respondent/Central Government to exempt any industry or
manufacturer of rubber from the liability to pay cess/excise
duty contemplated under Section 12 of the Act. But, Mr. T.P.M.
Ibrahim Khan, the learned Asst. Solicitor General argued that
the impugned notification is not a notification of exemption from
tax. According to him, the prescription of zero paise per kg is
also a prescription of rate of tax and therefore the impugned
notification cannot be described as an exemption notification.
We are of the opinion that the said submission is to be taken
note of only to be rejected as the Parliament itself on
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
9
realisation of the fact, (that the Rubber Act did not provide
necessary authority of law in favour of Union of India to grant
any exemption in appropriate cases) amended the Act (Act 4
of 2010 ) by introducing a proviso to Section 12, which we have
already taken note of earlier.
13. However, the learned Asst. Solicitor General also
brought to our notice that though the Rubber Act did not contain
a provision authorising the Union of India to grant exemption
from the levy of tax under Section 12, Section 7 of the Special
Economic Zones Act, 2005 categorically exempts certain
goods or services from the enactments specified under the First
Schedule of the said Act and that levy under Section 12 of the
Rubber Act is one of the levies specified in the First Schedule of
the Special Economic Zones Act 2005 (under item 4). Therefore,
notwithstanding the fact that the Rubber Act does not
expressly authorise the Union of India to grant exemption, by
virtue of operation of Section 7 of the Special Economic Zones
Act, 2005, the impugned notification stands authorised by law.
14. On the other hand, the learned Counsel for the writ
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
10
Petitioner Mr. Bechu Kurian Thomas submitted that the Special
Economic Zones Act, 2005 is of the year 2005 and Sections 1 to
19 came into force w.e.f. 10.02.2006, whereas the impugned
notification is dated 7th December, 2001 and therefore, the
submission of the learned Asst. Solicitor General that the
impugned notification could derive authority of law from the
Special Economic Zones Act, 2005 is untenable as the said Act
came into force after 4 = years of the issuance of the impugned
notification.
15. Section 7 of the Special Economic Zones Act reads as
follows:
“7. Exemption from taxes, duties or cess:
Any goods or services exported out of, or imported
into, or procured from the Domestic Tariff Area
by,-
(i) a Unit in a Special Economic Zone; or
(ii) a Developer,
shall, subject to such terms, conditions and
limitations, as may be prescribed, be exempt from
the payment of taxes, duties or cess under all
enactments specified in the First Schedule.”
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
11
16. It can be seen from Section 7 that it purports to
exempt either the goods or services exported out of, or
imported into, or procured from the “Domestic Tariff Area”. The
term/expression “Domestic Tariff Area” is defined under
Section 2(i) of the Special Economic Zones Act, 2005, as follows:
“(i) “Domestic Tariff Area” means the whole of
India (including the territorial waters and
continental shelf) but does not include the areas of
the Special Economic Zones.”
The expression “Special Economic Zone” itself is defined under
Section 2(za) of the Act as follows:
“(za) “Special Economic Zone” means each Special
Economic Zone notified under the proviso to sub-
section (4) of section 3 and sub-section(1) of
Section 4 (including Free Trade and Warehousing
Zone) and includes an existing Special Economic
Zone.” ;
whereas the expression “Developer” is defined under Section 2
(g) of the Act as follows:
“(g) “Developer” means a person who, or a State
Government which, has been granted by the
Central Government a letter of approval under
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
12sub-section (10) of section 3 and includes an
Authority and a Co-Developer”.
17. It may be noticed here that while the impugned
notification purports to reduce the rate of tax, whether it is an
exemption or not, in so far as the rubber procured either by the
Export Oriented Units (EOU’s) irrespective of their location or
Units in the Export Processing Zones (EPZ’s ) or Units in the
Special Economic Zones (SEZ’s). Section 7 grants exemption
only in cases of units of Special Economic Zones. We are not
examining the full implications of the expression “Special
Economic Zone”. Whether by definition it includes the units
located in the Export Processing Zones contemplated under the
impugned Notification or whether it also includes Export
Oriented Units, is a question that may have to be decided as
and when occasion arises.
18. Therefore, we are of the opinion that the submission
of the appellant that the impugned notification could be
sustained on the basis of authority of law as provided under
Section 7 of the Special Economic Zones Act, 2005, cannot be
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
13
accepted, in so far as it relates to a period anterior to the
commencement of the Special Economic Zones Act or the
Rubber (Amendment Act) 2009. In so far as the period
between, ie., after commencement of the Special Economic
Zones Act, 2005 and the Rubber Amendment Act, 2009 is
concerned, the implications of Section 7 of the Special Economic
Zones Act are required to be examined further in the light of
our discussion as above. However, in view of the fact that the
impugned notification did not have the requisite authority of law
on the date of its issuance, we are of the opinion that the
notification is void ab initio. Neither the Special Economic Zones
Act, 2005 nor the Rubber (Amendment )Act would validate the
impugned notification.
19. Further from the judgment under appeal, it appears
that an attempt was made to justify the impugned notification on
the basis of the “EXIM Policy” of the Government of India,
which submission was rejected by the learned single Judge for
the reasons stated in paragraph 10 of the judgment. We do
not find any reason to interfere with the said conclusion also, as
W.P.(C) No.32857 OF 2009 &
W.A.No. 1883 OF 2009
14
no further submission is made before us in this regard.
However, we may point out that in both the Writ Petitions,
except for a declaration that the impugned notification is illegal
no consequential directions is sought for, nor can any
consequential relief be granted as the beneficiaries of the
notification are before us. Therefore we are of the opinion that
the above exercise is in a way of academic and for that reason,
the Writ Petitions are required to be dismissed.
The Writ Petition and the Writ Appeal are disposed of as
above.
J. CHELAMESWAR,
CHIEF JUSTICE.
P.R. RAMACHANDRA MENON,
JUDGE.
lk