Goods & Services Tax (GST) in IndiaNotification shall come into force by Publication in Official Gazette and not on the date of issue

GUJARAT HIGH COURT

Ruchi Soya Industries Ltd. v. Union Of India & Ors.

Special Civil Application no. 11063 of 2018 | Date: 12.03.2020

FACTS

The case involves a number of petitions on analogous issues. The main contention is with respect to the applicability of Section 25(4) of the Customs Act, 1962 (hereinafter, the Act) and the allied notification therein which raises the custom duty to be paid. The Act states that a notification shall be in effect from the date of its issue by the Central Government for publication in the official Gazette.

The contentions between the Parties primarily are with respect to the fact that the Gazette Notifications were neither in existence nor were made available to the public for levy of custom duty when the bill of entry was made. The Authorities levied the duty even before the Notification was well within the knowledge of the public and published in the official Gazette, whereas the Petitioners were opposed to the view. The facts of the individual petitions are as follows:

Facts of SCA No.11063 of 2018

The Petitioner is a limited company engaged in the business of solvent extraction, manufacture of soya foods products, refining of edible oils, import, export and trading of agri commodities (subject goods). The Petitioner purchased edible grade Crude Palm Oil in bulk on High Seas Sales basis from M/s, S.N. Overseas, Bathinda, vide High Seas Sale Agreement dated 8^th February 2018.

The Petitioner filed three bills of entry for the same, dated 1^st March 2018 under Section 46 of the Customs Act, 1962 seeking clearance of the said imported goods for home consumption in order to pay customs duty as prescribed under Section 15(1)(a) of the Customs Act. Section 15(1)(a) talks about the date for determining the rate of duty and tariff valuation of the imported goods.

According to the Petitioner, the bills of entry filed by them would not be governed by Section 15(1)(a) of the Customs Act as the bills were filed under Section 46 of the Customs Act. On assessment by the Customs Authorities on 1^st March 2018, the basic customs duty was assessed at 30% plus social welfare surcharge of 10%. The same was discharged by the Petitioner along with the payment of IGST.

The Customs Department issued a Notification no. 29 dated 1^st March 2018 under Section 25(1) of the Customs Act thereby increasing the basic customs duty to 44% from 30%. In accordance to this, the Customs Department insisted upon the Petitioner to pay the difference and calculated IGST for clearance of the subject goods accordingly.

Therefore, the Petitioner was required to pay an increased basic custom duty and IGST in order to get the release of the goods even though the Petitioner was not required to pay the increased amount as according to the Petitioner, such increased duty would not be applicable for the said goods as such increased duty would come into force from the date of uploading the notification on the website which was 6^th March 2018.

Facts of SCA No.23341 of 2017

The Petitioner imported edible oil on 17^th November 2017 and filed bills of entry on 15^th and 16^th November 2017 for home consumption. The Risk Management System (RMS) assessed the bill of entry at the rate applicable in the system i.e. 17.5%. The Deputy Commissioner of Customs (Gr.VII), Kandla informed that such Bill of Entry needs to be re-assessed on the ground of issuance of Notification No.87/2017Cus dated 17^th November 2017 which was not published till 20^th November 2017. Vide a letter dated 21^st November 2017, the Petitioner explained the said issue to the Deputy Commissioner and requested not to recall and reassess the bill of entry as per the higher rate of customs duty i.e. 30%.

Facts of SCA No.1919 of 2018

The Petitioner had imported edible oil on 17^th November 2017 and filed bills of entry dated 16^th November for home consumption. The Petitioner had to make the payment of duty @ 17.5% for half of the bills of entry i.e. bill no. 4032303, 4032304, 4032289 and 4032290 and @15% for the other half of the bills of entry i.e. bill no. 4031615, 4031616, 4031635 and 4031637 in accordance with Notification no. 50/2017 dates 30^th June 2017.

The Risk Management System (RMS) on 17^th November assessed the bill of entry at the rate applicable in the system i.e. 17.5% and informed the Petitioner that they would be assessed at the higher rate of 30% under Notification no. 87/2017- Customs as in spite of the bills of entry having inward on 17^th November 2017; the bills were kept pending for assessment.

The Deputy Commissioner of Customs (Grade. 1), Kandla vide notice dated 24^th November 2017 informed that the Bills of Entry no. 4032303, 4032304, 4032289 and 4032290 dated 16th November 2017 needs to be reassessed on the ground of issuance of Notification No. 87/2017Cus dated 17^th November 2017.

Vide letter dated 24^th November 2017 and 27^th November 2017, the Petitioner explained the said issue to the Deputy Commissioner and requested not to recall and reassess the bill of entry as per the higher rate of customs duty i.e. 30%.

Facts of SCA No.23356 of 2017

The Petitioner imported edible oil 17^th November 2017and filed bills of entry no. 4014311, 4016027 and 4014597 dated 15^th November 2017 and bill of entry no. 4031148 and 4031633 dated 16^th November 2017 for home consumption.  The Risk Management System (RMS) on 17^th November assessed the bill of entry at the rate applicable in the system i.e. 17.5% and informed the Petitioner that they would be assessed at the higher rate of 30% under Notification no. 87/2017- Customs as in spite of the bills of entry having inward on 17^th November 2017; the bills were kept pending for assessment.

The Deputy Commissioner of Customs (Grade. 1), Kandla vide notice dated 23^rd November 2017 and 24^th November 2017 informed that the bills of entry need to be reassessed on the ground of issuance of Notification No. 87/2017Cus dated 17^th November 2017 which was not published till 20^th November 2017 and so the effect of notification was also not given in RMS at the time of assessment of the bills of entry.

Vide letter dated 24^th November 2017 and 27^th November 2017, the Petitioner explained the said issue to the Deputy Commissioner and requested not to recall and reassess the bill of entry as per the higher rate of customs duty i.e. 30%.

Facts of SCA No.732 of 2018

The Petitioner purchased 500 MTs of Crude Degummed edible grade Soyabean Oil in bulk from M/s. Kanpur edibles Pvt. Ltd. Vide High Seas Sale Agreement dated 2^nd November 2017. The Petitioner imported the subject goods vide bills of lading no. KE5 and KE6 dated 2^nd October 2017.

The Petitioner filed bill of entry dated 15^th November 2017 under Section 46 of the Customs Act, 1962 seeking clearance of the said imported goods for home consumption. The Petitioner was required to pay the basic customs duty @ 17.5%. Accordingly, the customs duty was discharged by the Petitioner on 15^th November 2017 and the IGST was paid on 16^th November 2017. The clearance of the subject goods was held up as per revenue based on the ground that the basic customs duty vide notification 87/2017- Cus dated 17^th November 2017; had increased to 30% from 17.5%. The said notification was published in the Official Gazette on 20^th November 2017.  

The Petitioner took the issue to the revenue for clearance of the subject goods but on 23^rd November 2013, the revenue issued a letter stating that the rate of basic custom duty payable on import of subject goods was increased vide the aforesaid notification and so reassessment of the bill of entry was required. The Petitioner vide letter dated 6^th December 2017 stated that the notification was made public on 20^th November 2017 and therefore was not applicable to the subject goods and therefore, the Petitioner is not liable to pay the increased rate of duty.

Facts of SCA No.958 of 2018

On 5^th April 2017, the Petitioner entered into three contracts for import of 3060 MTs of edible grade Crude Degummed Soyabean Oil in bulk. For this supply, bill of lading nos. ED1 to ED9 were dated 30^th September and ED10 to ED14 were dated 2^nd October 2017. The Petitioner sold 1750MTs of subject goods on High Seas Sale basis out of the 3060 MTs of subject goods covered by bill of lading nos. ED1 to ED7.

The Petitioner filed bill of entry dated 15^th November 2017 under Section 46 of the Customs Act seeking clearance of the remaining 1310 MTs of the subject goods for home consumption. The subject goods were assessed on 15^th November 2017 and the Petitioner was required to pay the customs duty @17.5% along with 3% education cess. The customs duty was discharged by the Petitioner on 15^th November 2017 and IGST paid on 17^th November. The clearance of the subject goods was held up as per revenue based on the ground that the basic customs duty vide notification 87/2017- Custom dated 17^th November 2017 under Section 25(1) of the Customs Act.

The said notification was published in the Official Gazette on 20^th November 2017. The Petitioner took the issue to the revenue for clearance of the subject goods but on 23^rd November 2013, the revenue issued a letter stating that the rate of basic custom duty payable on import of subject goods was increased vide the aforesaid notification and so reassessment of the bill of entry was required.

The Petitioner was in urgent need of the subject goods on account of its business commitments and was incurring a lot of expenses due to non-clearance by the revenue and the subject goods had also started losing utility and life because of the delay. The subject Bill of Entry dated 15^th November 2017 was reassessed by the revenue on 1st December 2017 while demanding the Petitioner to pay the increase difference. The Petitioner paid an excess amount of Rs. 99,83,741 as a result of re-assessment of the above-mentioned bills of entry.   

Facts of SCA No.21675 of 2018 & SCA 21869 of 2017

The Petitioner entered into purchase contracts with certain foreign sellers during the period from 30^th September 2016 to 7^th April 2017 for the purpose of importing edible grade Crude Degummed Soyabean Oil under Customs Tariff Act, 1975. The Petitioner filed the bills of entry on 15^th November and paid the required basic customs duty @17.5% and the payable cess @ 3% and also paid the IGST was import of the subject goods.

A notification No. 87/2017-Cus was issued on 17^th November 2017 under Section 25(1) of the Customs Act which provided for an increase of the basic custom duty to 30% from 17.5%. the said notification was published in the office gazette on 20^th November. Since, the Petitioner had already paid the customs duty and IGST on 15^th November 2017 and 17^th November 2017 respectively; the Petitioner is not liable to pay the increased rate of duty.

ISSUES BEFORE THE HIGH COURT OF GUJARAT

1. Whether the Petitioners would be liable to pay increased rate of Duty as per the Notification issued under Section 25 (1) of the Customs Act?

2. Whether the provisions of Section 25(4) of the Customs Act, 1962 as amended by the Finance Act, 2016 is arbitrary, illegal, ultra vires and unconstitutional?

CONTENTION OF THE PARTIES

Firstly, the Petitioners contended that a law becomes binding on the public when it is published. Reference was made to the case of Harla v. State of Rajasthan (AIR 1951 SC 467) wherein the Supreme Court observed that before a law is brought into force it should be made known to public and penalising a person by laws which came into effect at a later date would be considered against the principle of natural justice.

Secondly, the Petitioners highlighted the manner in which laws are made by administrative authorities and how it is different from that of a law made by parliament. Accordingly, reference was made to the case of B.K. Srinivasan v. State of Karnataka (1978 (1) SCC 658) wherein the Supreme Court observed that in case where law is made by the parliament, there is a lot of discussions and debate in the public domain. However, in the case of delegated legislation law is made by executives in their offices without giving the hint of the same to the general public.

Lastly, reliance was made to the case of Union of India v. Param Industries wherein the Supreme Court laid down two essentials for bringing the notification into force and making it effective:

1. Publication of the notification in the official gazette;

2. The notification should be offered for sale on the date of its issue.

Section 25 of the act is as given under:

“ (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally either absolutely or subject to such conditions (to be fulfilled before or after clearance) as may be specified in the notification goods of any specified description from the whole or any part of duty of customs leviable thereon.

[(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 circumstances of an exceptional nature to be stated in such order, any goods on which duty is leviable.

 [(2A)  The Central Government may, if it considers it necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2), insert an explanation in such notification or order, as the case may be, by notification in the Official Gazette, at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be.]

[(4)   Every notification issued under sub-section (1) or sub-section (2A) shall, unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette.]

The Respondents on the other hand contended that as per the scheme of Section 25(4) of the Act, the notification so issued shall come into force on the date of its issue and not the date of its publication i.e. the date notified in the notification and not the date on which it was published in the official gazette. Further, the Respondents contended that there are very limited grounds available to challenge a statue and declaring it as unconstitutional. These grounds are:

1. lack of legislative competence; and

2. Violation of fundamental rights guaranteed under part II of the constitution.

The Respondents relied upon the case of K.T. Plantation (P) Ltd. v. State of Karnataka ((2011) 9 SCC) wherein the Supreme Court observed that no law made by parliament can be struck down on the ground that it is arbitrary or unreasonable. Violation must be of such nature which results into undermining the basic structure of the Constitution. When a law is enacted there is an assumption in the favour of its constitutionality and the onus of proving it unconstitutional lies on the party who claims it to be unconstitutional.

Further, the Respondents contended that the parliament has acted in its legislative competence by enacting a taxation statue as per Article 246 and 248 read with schedule VII, List I, Entry No. 97.

Further, the Respondents contended that Eminent Domain is not subject to judicial review by the Courts. Reference was made to the case of Venkateshwara Theatre v. State of A.P. ((1993) 3 SCC 677) wherein the Supreme Court interpreted the scheme of Article 14 of the Constitution in the light of taxing statues. The Court was of a view that the phrase ‘equal protection of laws’ connotes that equals shall be treated equally and state can make laws having different effect on different group of persons, provided that it is based on intelligible differentia. It follows that, in the matter of taxation the legislature has a very wide discretion in classifying items for taxation purpose and the same cannot be challenged unless there is a clear and intended discrimination against a group of persons.

DECISION AND FINDINGS

The Court based its decision on the view taken by the High Court of Andhra Pradesh in Ruchi Soya Industries Ltd. The relevant legal proposition which the Court took into consideration while deciding the case are discussed here under:

1. Section 25 (4) is contrary to Sub-section (1) & (2A) of the Act

The Court observed that as per the scheme of Section 25(1) and (2A) of the Act, the notification issued is required to be published in the official gazette and then only it can be considered as a valid one. However, Section 25(4) of the Act states that notification is brought into force when it is notified and not when it is published in the official gazette.

The Court noted that the main reason for publication in gazette is to ensure that the general public is aware of the same. The Court further highlighted the pre amendment and post amendment effects under Section 25(4). As per the pre amendment position every notification issued was effective only when it was notified for publication in the official gazette and the notification is also required to be published and offered for sale. However, after the amendment the second condition is omitted and as a result of that notification come into force when it is notified.

2. Adopting the rule of Harmonious Construction

As aforementioned, the Court observed that Section 25(4) is not in consonance with sub section (1) and (2A) of the Act. Further, the Court adopted the Rule of Harmonious Construction and noted that where there is a friction between two provisions and alternative constructions are possible, the alternative which is in line of the statue will be considered. It follows that, after amendment Section 25 (1) remained same and it provides for the exemption from duty but as per sub section (4), the notification issued under sub-section (1) provides that the notification for exemption will come into force on the date of issue of such notification.

The Court further observed that the purpose of publication in official gazette is to make general public aware about the notification issued and unless the public is aware about it no person can be held liable for the same. Sub-section (1) provides that the notification comes into force when it is published and sub section (4) runs contrary to it. Thus, it creates confusion in the mind of general public.

3. The rule should be certain and predictable

The Court was of a view that in India we follow rule of law wherein certainty, predictability and equality are some of the facets of it. The rule should be free from arbitrariness and absurdity and citizens while deciding any issue must be aware of the rule which is certain in nature. The Court further accepted the contention of the Petitioners that there is a difference between the way in which laws are made by parliament and administrative authorities. In the former case the information about the law is available in the public domain through discussions and debates. However, in the latter there is no information available to the general public till the time when the law is published in the official gazette.

The Court affirmed the findings of the Andhra Pradesh High Court and observed that consistency should be maintained for implementation of the Customs Act, 1962 which is a central legislation.

Accordingly, Section 25(4) of the act was considered to be arbitrary and declared ultra vires and the Respondents were directed to refund the excess amount of tax collected from the Petitioners.

AMLEGALS REMARKS

The decision of the High Court was based on upholding the principle of natural justice and the rule of law. Canon of certainty and reliability are the fundamental principle on which law of taxation is based on and any deviation from the same will result into arbitrariness. An individual cannot be held liable for non-compliance of a rule which was not in existence when the transaction took place. The Respondent authorities acted in an arbitrary manner by imposing liability on the Petitioners of which they were not aware of.

The scope of delegated legislation cannot be beyond the powers assigned to the authorities by the primary legislation and the rule made by the authorities is used for smooth implementation of the act and not to surpass the object of the act. The circumstances in the present case raise some serious concern in the ways which subordinate legislations are made and implemented in the country.

Nonetheless, the Court directed to refund the excess duty and the differential IGST amount collected from the petitioners for clearance of the imported goods for home consumption as per the Notification published subsequently to the date of filing of bills of entry with simple interest @ 6% p.a. from the date of deposit till the date of payment.

We AMLEGALS represented 3 SCAs in the present matter and were argued by Mr. Anandodaya Mishra, Founder & Managing Partner, AMLEGALS.

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