According to section 25(1) of the Customs Act, amended notification no. 164 of 2003 is in compliance

Fact and issue of the case

This civil appeal arises from a judgment1of the Calcutta High Court which held the withdrawal of a customs notification invalid.

ABP Pvt Ltd (“assessee/respondent”) in October 2003, imported one set of high speed cold set (Universal 70) Web Offset printing machine along with the necessary parts and accessories and claimed exemption from payment of the duty relying upon the notification dated May 28, 2003 (hereinafter, “First Notification”).2The First Notification provided for levy of custom duty on the import of High Speed Cold-Set Web Offset Rotary Printing Machines with a minimum speed of 70,000 copies per hour (hereafter, “Imported Machine”) at a concessional rate of 5 %. Relying upon the first notification, the assessee caused an irrevocable letter of credit3 to be issued, for the purchase of the Imported Machine. This First Notification was subsequently amended by the Central Government through a fresh notification dated November 11, 20034 (hereafter, “Amended Notification”). The Amended Notification shifted the benefit of the concessional rate from “High Speed Cold-Set Web Offset Rotary Printing Machine with minimum speed of 70,000 copies per hour” to “High Speed Cold-set Web Offset Rotary Double Width Four Plate Wide Printing Machine with a minimum speed of 70,000 copies per hour”.

On 09.02.2004, the assessee filed a Bill of Entry claiming the benefit of a 5% concession (under the First Notification). However, owing to the Amended Notification, the assessee was ineligible for the benefit of the previously enjoyed concession, under the First Notification, and was liable to pay customs duty at 39.2% on the value of the Imported Machine amounting to ₹1,92,54,318. Assesee filed a writ before the High Court5 for declaring the Amended Notification ultra vires Section 25(1) of the Customs Act 1962 (hereafter, “the Act”) and thus sought, a declaration for withdrawal of the Amended Notification. On 18.03.2004, a single judge made an interim order6 directing the release of the imported machinery provisionally on payment of a concessional rate of duty against the bank guarantee for the differential amount of ₹ 1,67,98,410.

On December 5, 2005, a single judge bench7set aside the amended notification on the ground that no intelligible differentia existed for granting concession on one type of machinery and withdrawing concession to other types of machinery. The court therefore, directed that the exemption be granted to the imported machinery of the assessee. Aggrieved by the order of the single judge bench, the Union preferred an appeal to the Division Bench of the High Court. The Union contended that its power to grant exemption also includes the power to modify or alter any of the exemption, already granted and that delegation done is within the powers of the legislature. The Union further argued before the Division Bench that the subject matter involves economic policy over which the legislature has exclusive domain.

The High Court by its impugned judgment upheld the judgment and order of the single judge bench. The High Court observed that the imported machine was neither manufactured in any part of the country at the relevant point of time nor any copy of representation received from domestic manufacturers questioning the exemption granted to the imported machine was shown by the revenue.

The High Court relied upon the affidavit of the Union where it was contended that the imported machine has no indigenous angle. The High Court further placed reliance upon the decision of this court in Indian Express Newspapers v. Union of India8(hereafter, “Indian Express Newspapers”) and observed that actions of the Government under Section 25(1) of the Act are not immune from judicial scrutiny and the power must be exercised reasonably and in furtherance of “public interest”. In the absence of any intelligible differentia between the imported machine and newly exempted machine (as both have the same capacity of production and neither of them was manufactured in the country), no case for exemption in furtherance of ‘public interest’ is made out.

Observation of the court

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. In the present case, the impugned judgment has virtually conducted a merits review of the concerned economic measure [Vivek Narayan Sharma (Demonetisation Case-5 J.) v. Union of India18]:

“13.4.[..] That the court may not undertake a foray into the merits, demerits, sufficiency or lack thereof, success in realising the objectives, etc. of an economic policy, as such an analysis is the prerogative of the Government in consultation with experts in the field.”

This court is of the opinion, that the High Court, by the impugned judgment, erred in judging the merits of the reasons which led the executive government to issue the Amended Notification. No mala fides or oblique considerations were pleaded or urged; the exercise of power was in line with the provisions of the Act. 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.

For the above reasons, it is held that the impugned judgment cannot be sustained; it is accordingly set aside. The appeal is allowed, without order on costs.