PETITIONER:
M. JHANGIR BHATUSHA ETC. ETC.
Vs.
RESPONDENT:
UNION OF INDIA & ORS. ETC. ETC.
DATE OF JUDGMENT17/05/1989
BENCH:
PATHAK, R.S. (CJ)
BENCH:
PATHAK, R.S. (CJ)
RANGNATHAN, S.
MUKHARJI, SABYASACHI (J)
NATRAJAN, S. (J)
VENKATACHALLIAH, M.N. (J)
CITATION:
1989 AIR 1713 1989 SCR (3) 356
1989 SCC Supl. (2) 201 JT 1989 (2) 465
1989 SCALE (1)1458
CITATOR INFO :
F 1989 SC2054 (19)
RF 1991 SC1931 (1)
ACT:
Customs Act 1962: Section 25(2)--Edible Oil--Import of-
Concessional rate of customs duty in favour of State Trading
Corporation-Private importers complaining of differential
treatment-Held necessary in public interest to make special
order of exemption.
HEADNOTE:
The appellants/writ petitioners are private importers of
edible oils. Under the Import Policy of 1978-79, the Govern-
ment canalised the import of edible oils through the State
Trading Corporation. Some of the private importers who had
entered into firm commitments with foreign suppliers, and
were now being denied permission to import the edible oils,
filed writ petitions in various High Courts. These writ
petitions were allowed and they were granted licences to
import the edible oils, in order to honour their commit-
ments.
From March 17, 1979 the import of edible oils was sub-
jected to differential rates of customs duty at the hands of
private importers and the State Trading Corporation, inas-
much as c-
oncessional rate of customs duty was levied on the imports
by the State Trading Corporation under the order of exemp-
tion issued under section 25(2) of the Customs Act, 1962.
The order stated that in view of high international prices
of vegetable oils and in order to keep the domestic prices
at reasonable levels it was considered necessary to exempt
the State Trading Corporation from part of the Customs duty.
The appellants filed writ petitions in the High Court of
Delhi complaining of the differential treatment accorded
between the private importers and the State Trading Corpora-
tion. Similar writ petitions were filed in this Court di-
rectly. The High Court dismissed the writ petitions.
Before this Court it was contended on behalf of the
private importers that (i) there was no basis for the dif-
ferential duty set out in the exemption orders and no real
or substantial nexus between the
357
differentiation made and the object of s. 25(2); (ii) there
was no real or substantial distinction between the private
importers and the State Trading Corporation having regard to
the object of the statute, the nature of customs duty, the
rationale of s. 25 and the professed object of the exemption
orders under s. 25(2); (iii) the State Trading Corporation
could not be equated with the Central Government; (iv)
assuming that the State Trading Corporation could be equated
with the Central Government or that it was acting on behalf
of the Central Government, once the Government ventured into
the commercial field it donned the robes of a trader, and it
could not therefore claim any special attribute or prefer-
ence for differentiation; (v) the differentiation proceeded
on excessive classification, and that resulted in violation
of the doctrine of equality enshrined in Art. 14 of the
Constitution; (vi) the concession must relate to the goods
and not to the personality of the importer; and (vii) the
allegation that the international prices of edible oils were
high was inconsistent with the reality of the situation.
Dismissing the appeals. special leave petitions and the
writ petitions, this Court.
HELD: (1) The power conferred on the Central Government
under s. 25(2) of the Act is to be exercised by it in its
subjective satisfaction. The exercise of the power is con-
trolled by the requirement in the sub-section that the
exemption order must contain a statement stating the circum-
stances of an exceptional nature under which the special
exemption order has been considered necessary. The require-
ment is intended by the statute to ensure that the satisfac-
tion of the Central Government concerning the necessity of
the order is not reached arbitrarily but flows from material
relevant to the object for which the power has been con-
ferred. [361E-G]
(2) The limitations on the jurisdiction of the Court in
cases where the satisfaction has been entrusted to executive
authority to judge the necessity for passing orders is well
defined and has been long
accepted. [365E-F]
(3) Contracts by private importers concluded before 2
December, 1978 were allowed to be worked out after that date
without affecting the principle that as from December, 1978,
the business of importing such oils belonged exclusively to
the State Trading Corporation. This is the background in
which the questions raised before the Court need to be
considered. [364E]
358
(4) It is the Central Government which has to be satis-
fied, as the authority appointed by Parliament under s.
25(2), that it is necessary in the public interest to make
the special order of exemption. It has set out the reasons
which prompted it to pass the orders. It is not for this
Court to sit in judgment on the sufficiency of those rea-
sons. [365D-E]
(5) The reasons set forth in the exemption notifications
can constitute a reasonable basis for those notifications.
International prices were fluctuating, and although they may
have shown a perceptible fall there was the apprehension
that because of the history of fluctuations there was a
possibility of their rising in future. The need to protect
the domestic market is always present, and therefore encour-
agement had to be given to the imports effected by the State
Trading Corporation by reducing the rate of customs duty
levied on them. [364F-G]
(6) It is true that the State dons the robes of a trader
when it enters the field of commercial activity, and ordi-
narily it can claim no favoured treatment. But there may be
clear and good reason for making a departure. Viewed in the
background of the reasons for granting a monopoly to the
State Trading Corporation, acting as an agent or nominee of
the Central Government in importing the specified oils, it
will be evident that policy considerations rendered it
necessary to make consummation of that policy effective by
imposing a concessional levy on the imports. No such conces-
sion is called for in the case of private importers who, in
any event, are merely working out contracts entered into by
them with foreign sellers before 2 December, 1978. [365F-H]
S.T.C.v. Commercial Tax Officer, Vishakapatnam, [1964] 4
SCR 99; Heavy Engineering Mazdoor Union v. State of Bihar,
[1969] 3 SCR 995; Andhra Pradesh State Road Transport Corpo-
ration v. Income Tax Officer, [1964] 7 SCR 17; Vidarbha
Housing Board v. Income Tax Officer City & Refund Circle,
Nagpur, 92 ITR 430; L. 1. C.v. Escorts Ltd., [1986] 1 SCC
264, 344; State of J & K v.T.N. Khosa, [1974] 1 SCR 771,792;
Mohammad Shujat Ali v. Union of India, [1975] 1 SCR 449, 470
and In Re The Special Courts Bill, 1978, [1979] 2 SCR 476,
561-2, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1924-27
of 1980 etc. etc.
From the Judgment and Order dated 14.11.1979 of the
Delhi High Court in Civil Writ No. 1517 of 1979.
359
Soli J. Sorabjee, S.K. Mehta, H.N. Salve, A.N. Banatwa-
la, Rajiv Datta, R. Ravindran, K.K. Patel, Ujwal Rana, M.K.
Dua, S.M. Sarin, Aman Vachher, E.M.S. Anam, P.G. Gokhale,
P.B. Agarwala, R.B. Hathikhanawala, Ms. S. Manchanda, K.K.
Mohan, P.K. Chakravarty, S. Srinivasan, K.C. Agarwal, Madan
Lokur, A. Minocha, R.B. Datar, K.M.K. Nair, S.K. Gambhir,
Sanjay Sarin, Vivek Gambhir, M. Veerappa, Ms. Kamini Jais-
wal, M.K.D. Namboodiry, D.D. Gupta, E.C. Agrawala, V.K.
Pandita, Ms. Purnima Bhatt, Atul sharma, V.N. Ganpule, C.K.
Ratnaparkhi, M.M.L. Srivastava, M.C. Dhingra, V. Maya Krish-
nan, D.N. Misra, K.K. Gupta and Anis Ahmed Khan, for the
Appellants.
K. Parasaran, Attorney General, B. Datta, Additional
Solicitor General, and Kuldip Singh, Additional Solicitor
General, K.N. Bhatt, C.V. Subba Rao, Ms. A. Subhashini, Mrs.
Sushma Suri, A. Subba Rao, A.K. Srivastava, P.P. Singh, R.K.
Joshi and H.K. Gangwani for the Respondents.
The Judgment of the Court was delivered by
PATHAK, CJ. These appeals by special leave are directed
against the judgment and order of the High Court of Delhi
dismissing writ petitions complaining of discriminatory
treatment between the appellants and the State Trading
Corporation in regard to the rate of customs duty levied on
the import of edible oils. A number of writ petitions have
also been filed directly in this Court by other private
importers based on the same complaint. They pray for relief
in terms of the same rate of customs duty as has been ap-
plied to the import of edible oils effected by the State
Trading Corporation.
As common questions of law arise in these appeals and
writ petitions and the facts are substantially similar, we
proposed to treat Writ Petition No. 3800 of 1980, M/s Liber-
ty Oil Mills v. Union of India & Others, as the leading
case.
On 17 January, 1977 the Government of India issued a
Public Notice permitting private parties to import edible
oils for direct human consumption. It was not permissible to
use such imported oils for the manufacture of Vanaspati or
for any industrial purpose. Under the Import Policy of
1978-79, the Government canalised the import of edible oils
so that the State Trading Corporation alone was permitted to
import edible oils. Some of the private importers who had
entered into firm commitments with foreign suppliers, and
were now being denied permission to import the edible oils
filed writ petitions in vari-
360
ous High Courts, and these writ petitions were allowed and
they were granted licences to import the edible oils.
Prior to 1 March, 1979 the import of edible oils was
exempt from customs duty, but with effect from that date the
exemption was partially withdrawn and certain specified oils
were made liable to import duty at 12 1/2 per cent. Exemp-
tion was granted from additional duty chargeable under s. 3
of the Customs Tariff Act, 1975. Auxiliary duty chargeable
under the Finance Act was, however, payable. On 17 March,
1979 the Government passed an order of exemption in favour
of the State Trading Corporation under s. 25(2) of the
Customs Act, 1962 whereby the imports of the specified oils
by the State Trading Corporation were made liable to customs
duty at 5 per cent only, and there was a total exemption
from auxiliary and additional duty. The imports of the same
specified oils by private importers were made liable to
customs duty at 12.5 per cent ad valorem. The concessional
rate of customs duty in favour of the State Trading Corpora-
tion was restricted to imports aggregating 3 lakh tonnes
initially. That quantity was enlarged to 6 lakh tonnes on 26
June, 1979. On 31 October, 1979, a further order of exemp-
tion was made in favour of the State Trading Corporation
granting it exemption for imports of five lakh tonnes of the
specified oils, and this was followed on 31 March, 1981 by
another order of exemption in respect of an aggregate quan-
tity of 5 lakh tonnes of oil. It may be mentioned that on 12
May, 1981 the import of edible oil was exempted from the
levy of auxiliary duty.
On 18 July, 1981, the Government reduced the exemption
granted to the import of the specified oils by private
operators by raising the customs duty to 42 1/2 per cent.
The exemption in favour of the State Trading Corporation
continued without change. Thereafter on 26 July, 1981, by
Ordinance No. 9 of 1981 the Government raised the tariff
rate of customs duty to 200 per cent ad valorem by amending
the Customs Tariff Act, 1975. At the same time exemption was
granted insofar that the effective rate of duty on the
import of the specified edible oils, except Rape Seed oil
and Soybean oil, was fixed at 125 per cent. The exemption
from auxiliary duty was withdrawn. In the result a private
importer had to pay a basic duty of 125 per cent and auxil-
iary duty of 25 per cent on the import of edible oils. The
oil seeds imported by the State Trading Corporation contin-
ued to attract customs duty at 5 per cent.
Writ Petitions were filed in the High Court of Delhi by
private importers complaining of the differential treatment
accorded between
361
the private importers and the State Trading Corporation, but
these writ petitions were dismissed by the High Court, and
the appeals by special leave have now been placed before us.
As has been mentioned earlier, writ petitions have also been
filed directly.
At the outset learned counsel for the private importers
states that no objection is being taken to canalisation in
favour of the State Trading Corporation. Nor is there any
objection to the permission granted to the State Trading
Corporation to import 17 lakh tonnes of edible oils. The
complaint is directed against the differential treatment
meted out to the private importers in the rate of customs
duty.
The contention of the petitioners is that the discrimi-
natory treatment has no real or substantial nexus with the
proposed object of the exemption orders, having regard to
the terms of s. 25(2) under which the exemption orders in
favour of the State Trading Corporation have been made and,
therefore, there is a violation of Art. 14 of the Constitu-
tion. S 25(2) provides:
“(2) If the Central Government is satisfied
that it is necessary in the public interest so
to do, it may, by special order in each case,
exempt from the payment of duty, under circum-
stances of an exceptional nature to be stated
in such order, any goods on which duty is
leviable.”
It is apparent that the power conferred on the Central
Government under s. 25(2) of the Act is to be exercised by
it in its subjective satisfaction. It must be satisfied that
it is necessary in the public interest to pass a special
exemption order. The exercise of the power is controlled by
the requirement in the sub-section that the exemption order
must contain a statement stating the circumstances of an
exceptional nature under which the special exemption order
has been considered necessary. The requirement is intended
by the statute to ensure that the satisfaction of the Cen-
tral Government concerning the necessity of the order is not
reached arbitrarily but flows from material relevant to the
object for which the power has been conferred. The circum-
stances recited in the exemption orders are:
” ….. In view of high international prices
of vegetable oils and in order to keep the
domestic prices of vanaspati at reasonable
levels, it has been felt that certain speci-
fied vegetable non-essential oils imported by
the S.T.C. would need to be exempted from part
of the customs duty.”
362
The reasons set forth in this statement have been analy-
sed by learned counsel for the private importers and an
attempt has been made to establish that there is no justifi-
cation for relying on the international prices of vegetable
oils nor the stated desirability of keeping the domestic
prices of vanaspati at reasonable levels as grounds for
making the impugned exemption orders in favour of the State
Trading Corporation. In detailed argument, learned counsel
for the private importers urges that the public interest
which could be contemplated under s. 25(2) must be the
reduction of the landed cost in order to reduce the domestic
prices of the oils. That object, it is said, is not served
by conferring an advantage upon a particular importer even
if it be the State Trading Corporation, who is engaged in
the same activity in respect of the same goods. It is point-
ed out that the concession must relate to the goods and not
to the personality of the importer. Further, it is argued,
the allegation that the international prices of edible oils
were high is inconsistent with the reality of the situation;
on the contrary, it is pointed out, there had been a fall in
the international prices of various oils. In support of the
latter submission, reference has been made before us to the
pleadings of the parties and a P.A.C. report. Elaborating
his submission in regard to the stated need for maintaining
the domestic prices of vanaspati at reasonable levels,
learned counsel for the private importers urges that the
oils which were being imported by private importers were
intended for direct human consumption and could not have
been supplied to the vanaspati industry. Reference is made
to the affidavits of the parties to show that the oils
imported by the petitioners could not be utilised in the
manufacture of vanaspati as permission to do so had not been
granted. Accordingly, the private importers say, there is no
basis for the differential duty set out in the exemption
orders and no real or substantial nexus between the differ-
entiation made and the object of s. 25(2). Then, it is also
urged, there is no real or substantial distinction between
the private importers and the State Trading Corporation
having regard to the object of the statute, the nature of
customs duty, the rationale of s. 25 and the professed
object of the exemption orders under s. 25(2). The State
Trading Corporation, it is contended, cannot be equated with
the Central Government, and we are referred to S.T.C.v.
Commercial Tax Officer, Vishakapatnam, t19641 4 SCR 99. It
is a private limited company registered under the Companies
Act, 1956 and liable to be wound up under that Act, and that
although it functions under the supervision of the Govern-
ment of India and its Directors, it is not concerned with
the performance of any governmental functions, its functions
being entirely commercial and in the nature of a trading
activity. Reliance is also placed on Heavy Engineering
Mazdoor Union
363
v. State of Bihar, [1969] 3 SCR 995; Andhra Pradesh State
Road Transport Corporation v. Income Tax Officer, [1964] 7
SCR 17 and Vidarbha Housing Board v. Income Tax Officer,
City and Refund Circle, Nagpur & Others, 92 ITR 430. Assum-
ing, the private importers contend that the State Trading
Corporation can be equated with the Central Government or
that it is acting on behalf of the Central Government, once
the Government ventures into the commercial field it dons
the robes of a trader, and it cannot thereafter claim any
special attribute or preference for differentiation from
other traders. Learned counsel has placed before us the
observations of this Court in L.I.C. v. Escorts Ltd., [1986]
1 SCC 264,344. There is no rational basis, it is urged, for
making a distinction in the imposition of customs duty in
respect of the goods imported by the private importers and
the State Trading Corporation as both purchased the same
commodity in the open market for direct consumption, that
the sales effected by them are on a commercial basis, and
there is nothing to show that the State Trading Corporation
sold these oils at a price lower than the market price or at
subsidised prices. It is asserted that the Central Govern-
ment, like any other importer, is liable to customs duty,
and we are referred to s. 12 of the Customs Act. It is also
complained that the differential proceeds on excessive
classification, and that results in violating the doctrine
of equality enshrined in Art. 14 of the Constitution. Reli-
ance is placed on State of J & K v. T.N. Khosa,, [1974] 1
SCR 771, 792; Mohammad Shujat Ali v. Union of India, [1975]
1 SCR 449, 470 and In Re The Special Courts Bill, 1978,
[1979] 2 SCR 476, 561-2. And, finally, the private importers
claim that inasmuch as approximately 17 lakh tonnes of oil
were imported by the State Trading Corporation as against a
mere 1 lakh tonnes of oil imported by all the private im-
porters together, and the exemption from duty has been
granted in the public interest, namely, to control or reduce
the price of edible oils, the relief which should be granted
is to include the imports made by the private importers
within the particular customs duty rate of five per cent
already extended to the oils imported by the State Trading
Corporation. In some cases, it is alleged that if the im-
ports effected by the private importers has to bear the duty
levied upon them, the impact of the total duty would be so
impossible that it would cripple the business of those
private importers.
In reply, the learned Attorney General has laid great
stress on the submission that the State Trading Corporation,
in undertaking the imports, acts solely as an agent or
nominee of the Government of India and all the profits and
losses are on account of the Government of India, the State
Trading Corporation being entitled to service charges
364
only at one per cent irrespective of loss or profit. It is
submitted that the Central Government is not liable to
customs duty and we are referred to various considerations
in support of that claim. It seems to us unnecessary to
enter into that question because we have before us a situa-
tion where customs duty has in fact been imposed, even
though at the rate of five per cent only. In accepting the
imposition of customs duty, albeit at five per cent, neither
the State Trading Corporation nor the Central Government
rest their case on any claim to immunity of the Central
Government from the levy of customs duty. It is not neces-
sary, therefore, to construe the amendment made in s. 12 of
the Customs Duty Act, 1962, to which both learned counsel
have made reference.
The limited question before us is whether there is
justification for the differential treatment accorded be-
tween the State Trading Corporation and the private import-
ers. Now it is significant to note that the import of the
specified oils had been entrusted exclusively to the State’
Trading Corporation with effect from 2 December, 1978, and
because the private importers had already, prior to that
date, entered into contracts for purchase of the edible oils
with foreign sellers, they were permitted to make the im-
ports in question in order to honour their commitment. In
other words, contracts by private importers concluded before
2 December, 1978 were allowed to be worked out after that
date without affecting the principle that as from 2 Decem-
ber, 1978, the business of importing such oils belonged
exclusively to the State Trading Corporation. This is the
background in which the questions raised before us need to
be considered.
First, as to the contention that both the reasons set
forth: in the exemption notifications under s. 25(2) of the
Act are without foundation. It seems to us that the two
reasons set forth in the exemption notifications can consti-
tute a reasonable basis for those notifications. It does
appear from the material before us that international prices
were fluctuating, the although they may have shown a percep-
tible fall there was the apprehension that because of the
history of fluctuation there was a possibility of their
rising in the future. The need to protect the domestic
market is always present, and therefore encouragement had to
be given to the imports effected by the State Trading Corpo-
ration by reducing the rate of customs duty levied on them.
This involved a long term perspective, since the exclusive
monopoly to import these edible oils was now entrusted to
the State Trading Corporation. What appears to have dominat-
ed the policy of the Government in issuing the exemption
notifications was the consideration that the domestic prices
365
of vanaspati should be maintained at reasonable levels. It
cannot be doubted that the entire edible oil market is an
integrated one, and that it is not reasonable to treat
anyone of the edible oils or vanaspati in isolation. It is
well accepted fact that vanaspati manufacturers constitute a
powerful organised sector in the edible oil market, and a
high vanaspati price would encourage an unauthorised diver-
sion of the edible oils to vanaspati manufacturing units,
resulting in a scarcity in the edible oil market, giving
rise to erratic prices and depriving consumers of access to
edible oils. The need for preventing vanaspati prices ruling
high was also to prevent people normally using vanaspati
from switching over to other edible oils, thus leading to an
imbalance in the oil market. An overall view made it neces-
sary to ensure that domestic prices of vanaspati remained at
reasonable levels. To all these considerations the learned
Attorney General has drawn our attention, and we cannot say
that they are not reasonably related to the policy underly-
ing the exemption orders. So that the Government would have
sufficient supplies of edible oil at hand in order to feed
the market, the learned Attorney General says, it was con-
sidered desirable and in the public interest to reduce the
rate of customs duty to five per cent on the imports made by
the State Trading Corporation. Now it is the Central Govern-
ment which has to be satisfied, as the authority appointed
by Parliament under s. 25(2), that it is necessary in the
public interest to make the special orders of exemption. It
has set out the reasons which prompted it to pass the or-
ders. In our opinion, the circumstances mentioned in those
notifications cannot be said to be irrelevant or unreasona-
ble. It is not for this Court to sit in judgment on the
sufficiency of those reasons. The limitations on the juris-
diction of the Court in cases where the satisfaction has
been entrusted to executive authority to judge the necessity
for passing orders is well defined and has been long accept-
ed.
It is true that the State dons the robes of a trader
when it enters the field of commercial activity, and ordi-
narily it can claim no favoured treatment. But there may be
clear and good reason for making a departure. Viewed in the
background of the reasons for granting a monopoly to the
State Trading Corporation, acting as an agent or nominee of
the Central Government in importing the specified oils, it
will be evident that policy considerations rendered it
necessary to make consummation of that policy effective by
imposing a concessional levy on the imports. No such conces-
sion is called for in the case of the private importers who,
in any event, are merely working out contracts entered into
by them with foreign sellers before 2 December, 1978.
366
We are also not satisfied that any of the private im-
porters have made out that their business will be crippled
or ruined in view of the rate of customs duty visited on
their imports. The material before us is not sufficient to
warrant any conclusion in their favour.
As, in our opinion, the private importers are not enti-
tled to relief, no question arises of considering whether
the exemption orders should be struck down or their benefit
extended in favour of the private importers also.
The appeals and Petitions for Special leave to appeal as
well as the writ petitions before us are dismissed, but
there is no order as to costs.
R.S.S. Appeals and Petitions are
dismissed.
367