# 13 (ADDL.) S.C.R. 26 UNION OF INDIA AND ORS v. M/S NITDIP TEXTILE PROCESSORS PVT. LTD. AND ANOTHER

- **Citation:** [2011] 13 S.C.R. 26
- **Court:** Supreme Court of India
- **Decided:** 2011-11-03
- **Case number:** Civil Appeal No. 2960 of 2006
- **Bench:** H.L. Dattu, Chandramauli Kr. Prasao
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/13-addl-s-c-r-26-union-of-india-and-ors-v-m-s-nitdip-textile-processors-pvt-ltd-27270
- **Pages:** 50

## Headnote

FINANCE (NO. 2) ACT, 1998:
ss. 87 (m) (ii)(a) and (b) - Tax arrears' - Connotation of
- Application of Kar Vivad Samadhana Scheme, 1998 to 'tax
arrears' in respect of the amount of excise duty, interest, fine
or penalty determined as due or payable as on 31.3.1998, or
D which constituted the subject matter of the demand notice or
a show cause notice issued on or before 31.3.1998, but
remaining unpaid as on the date of making a declaration u/s
88 - High Court declared s. 87(m)(ii)(;;) as violative of Article
14 of the Constitution in so far as it seeks to deny the benefit
E of -the Scheme to those who were in arrears of duties etc. as
on 31. 3. 1998, but to whom notices were issued after
31.3.1998, and struck down the expression "on or before the
31st day of March 1998" - HELD: The classification made by
the legislature appears to be reasonable for the reason that
F
the legislature has grouped two categories of assesses,
namely, the assessees whose dues are quantified but not
paid and the assessees who are issued with the Demand and
Show Cause Notice on or before a particular date - The
Legislature has not extended this benefit to those persons who
do not fall under this category or group -
The distinction so
G made cannot be said to be arbitrary or illogical which has no
nexus with the purpose of legislation - The findings and the
conclusion reached by the High Court cannot be sustained
- The impugned common judgment and order is set aside -
H
26
UNION OF INDIA AND ORS. v. NITDIP TEXTILE
27
PROCESSORS PVT. LTD.
Central Excise Act, 1944 - s. 11 A - Constitution of India, 1950 A
- Article 14 - Interpretation of Statutes - Legal fiction.
CONSTITUTION OF IND/A, 1950:
Article 14 -
Classification in taxation -
HELD: In
taxation, there is a broader power of classification than in 8
some other exercises of legislation' - When the wisdom of the
legislation while making classification is questioned, the role
of the courts is very much limited - It is not re viewable by the
courts unless palpably arbitrary - It is not the concern of the
courts whether the classification is the wisest or the best that C
could be made - However, a discriminatory tax cannot be
sustained if the classification is wholly illusory -
Discrimination resulting from fortuitous circumstances arising
out of particular situations, in which some of the tax payers
find themselves, is not hit by Article 14 if the legislation, as D
such, is of general application and does not single them out
for harsh treatment - In the instant case, keeping in view the
Scheme, the legislation is based on a reasonable
classification - Finance (No. 2) Act, 1998 - ss.87(m)(ii)(b)
and 88. - Cut-off date - Kar Vivad Samadhana Scheme,
E
1998.
TAXATION:
Kar Vivad Samadhana Scheme, 1998 - Nature and
scope of - Held: The Scheme is a step towards the settlement
F
of outstanding disputed tax liability - The Scheme is a
complete Code in itself and exhaustive of the matter dealt with
therein - It is statutory in nature and character -
While
implementing the Scheme, liberal construction may be given
but it cannot be extended beyond conditions prescribed in the G
statutory scheme - Therefore, the courts must construe the
provisions of the Scheme with reference to the7anguag~ used
therein and ascertain what their true scope is by applying the
normal rule of construction - Further, the object ,JJf the
H
28
SUPREME COURT REPORTS [2011] 13 (ADDL:) S.C.R.
A Scheme and its application to Customs and Central Excise
cases involving arrears of taxes has been explained in detail
by the Trade Notice No. 7 4198 dated 17. 8. 1998 - It is a settled
law that the Trade Notice, even if it is issued by the Revenue
Department of any one State, is binding on all the other
B departments with equal force all over the country - However,
the Trade Notice, as such, is not binding on the courts but is
certainly binding on the assessee and can be contested by
him - Interpretation of Statute - Finance (N0.2) Act, 1998 -
ss. 87(m

## Text

_Characters 0–39,967 of 95,990. This is a partial read: ask again with offset=39967 for what follows._

A
B
c
[2011] 13 (ADDL.) S.C.R. 26
UNION OF INDIA AND ORS.
v.
M/S NITDIP TEXTILE PROCESSORS PVT. LTD. AND
ANOTHER
(Civil Appeal No. 2960 of 2006)
NOVEMBER 03, 2011.
[H.L. DATTU AND CHANDRAMAULI KR. PRASAO,JJ.]
FINANCE (NO. 2) ACT, 1998:
ss. 87 (m) (ii)(a) and (b) - Tax arrears' - Connotation of
- Application of Kar Vivad Samadhana Scheme, 1998 to 'tax
arrears' in respect of the amount of excise duty, interest, fine
or penalty determined as due or payable as on 31.3.1998, or
D which constituted the subject matter of the demand notice or
a show cause notice issued on or before 31.3.1998, but
remaining unpaid as on the date of making a declaration u/s
88 - High Court declared s. 87(m)(ii)(;;) as violative of Article
14 of the Constitution in so far as it seeks to deny the benefit
E of -the Scheme to those who were in arrears of duties etc. as
on 31. 3. 1998, but to whom notices were issued after
31.3.1998, and struck down the expression "on or before the
31st day of March 1998" - HELD: The classification made by
the legislature appears to be reasonable for the reason that
F
the legislature has grouped two categories of assesses,
namely, the assessees whose dues are quantified but not
paid and the assessees who are issued with the Demand and
Show Cause Notice on or before a particular date - The
Legislature has not extended this benefit to those persons who
do not fall under this category or group -
The distinction so
G made cannot be said to be arbitrary or illogical which has no
nexus with the purpose of legislation - The findings and the
conclusion reached by the High Court cannot be sustained
- The impugned common judgment and order is set aside -
H
26
UNION OF INDIA AND ORS. v. NITDIP TEXTILE
27
PROCESSORS PVT. LTD.
Central Excise Act, 1944 - s. 11 A - Constitution of India, 1950 A
- Article 14 - Interpretation of Statutes - Legal fiction.
CONSTITUTION OF IND/A, 1950:
Article 14 -
Classification in taxation -
HELD: In
taxation, there is a broader power of classification than in 8
some other exercises of legislation' - When the wisdom of the
legislation while making classification is questioned, the role
of the courts is very much limited - It is not re viewable by the
courts unless palpably arbitrary - It is not the concern of the
courts whether the classification is the wisest or the best that C
could be made - However, a discriminatory tax cannot be
sustained if the classification is wholly illusory -
Discrimination resulting from fortuitous circumstances arising
out of particular situations, in which some of the tax payers
find themselves, is not hit by Article 14 if the legislation, as D
such, is of general application and does not single them out
for harsh treatment - In the instant case, keeping in view the
Scheme, the legislation is based on a reasonable
classification - Finance (No. 2) Act, 1998 - ss.87(m)(ii)(b)
and 88. - Cut-off date - Kar Vivad Samadhana Scheme,
E
1998.
TAXATION:
Kar Vivad Samadhana Scheme, 1998 - Nature and
scope of - Held: The Scheme is a step towards the settlement
F
of outstanding disputed tax liability - The Scheme is a
complete Code in itself and exhaustive of the matter dealt with
therein - It is statutory in nature and character -
While
implementing the Scheme, liberal construction may be given
but it cannot be extended beyond conditions prescribed in the G
statutory scheme - Therefore, the courts must construe the
provisions of the Scheme with reference to the7anguag~ used
therein and ascertain what their true scope is by applying the
normal rule of construction - Further, the object ,JJf the
H
28
SUPREME COURT REPORTS [2011] 13 (ADDL:) S.C.R.
A Scheme and its application to Customs and Central Excise
cases involving arrears of taxes has been explained in detail
by the Trade Notice No. 7 4198 dated 17. 8. 1998 - It is a settled
law that the Trade Notice, even if it is issued by the Revenue
Department of any one State, is binding on all the other
B departments with equal force all over the country - However,
the Trade Notice, as such, is not binding on the courts but is
certainly binding on the assessee and can be contested by
him - Interpretation of Statute - Finance (N0.2) Act, 1998 -
ss. 87(m) (ii) and 88 - Trade Notice No. 74198 dated
c 17.8.1998 issued by the Commissioner of Central Excise and
Customs, Ahmedabad-1 - Practice and Procedure:
The respondents in C. A. No. 2960 of 2006, engaged
in the manufacture of textile fabrics, were found, on
5.9.1997, to have cleared the Man Made Fabric of Rs.
D 5,38,449/- without the payment of excise duty of Rs.
84,290/-. A show cause notice dated 06.01.1999 was
issued to the respondents demanding a duty of
Rs.84,290/- uls 11A of the Excise Act, 1944' along with
penalties and interest under the relevant provisions for
E non-payment of excise duty on clandestine clearance of
the said fabrics. Kar Vivad Samadhana Scheme, 1998, as
contained in the Finance (No.2) Act of 1998, was made
applicable to tax arrears outstanding as on 31.3.1998. The
benefit was also given to those assesses who had been
F issued show cause notice on or before 31.3.1998. The
benefits of the Scheme could be availed by any eligible
assessee by filing a declaration of his arrears u/s 88 of
the Act between 1.9.1998 and 31.12.2998 (subsequently
extended to 31.1.1999). Since the show cause notice to
G the respondents was issued on 6.1.1999, and, as such,
they were not entitled to the benefit of the Scheme, they
filed a writ petition, which was allowed by the High Court,
by its judgment dated 25.7.2005. The High Court declared
that s.87(m)(ii)(b) of Finance (No.2) Act,1998 was violative
H of Article 14 of the Constitution, and struck down the
UNION OF INDIA AND ORS. v. NITDIP TEXTILE
29
PROCESSORS PVT. LTD.
expression "on or before the 31st day of March, 1998" in A
s. 87 (m) (ii) (b) as being unconstitutional. It further
directed the competent authority to entertain and decide
the declarations made by the assessees in terms of the
Scheme. Aggrieved, the Revenue filed the appeals.
Allowing the appeals, the Court
'
HELD: 1.1 Kar Vivad Samadhan Scheme, 1998, as
contained in Chapter IV of the Finance (N0.2) Act, 1998,
B
is a step towards the settlement of outstanding disputed
tax liability. The object and the purpose of the Scheme is C
to minimise the litigation and to realize the arrears by way
of settlement in an expeditious manner. The Scheme is a
complete Code in itself and exhaustive of the matter dealt
with therein. It is statutory in nature and character. While
implementing the Scheme, liberal construction may be D
given but it cannot be extended beyond conditions
prescribed in the statutory scheme. Therefore, the courts
must construe the provisions of the Scheme with
reference to the language used therein and ascertain
what their true scope is by applying the normal rule of E
construction. [para 6, 12 and 29] [44-F; 46-F; 60-A-B]
Regional Director, ES/ Corpn. v. Ramanuja Match
Industries, 1985 (2) SCR 119 = (1985) 1 SCC 218;
Hemalatha Gargya v. Commissioner of Income Tax, A.P., F
2002 (4) Suppl. SCR 382 =(2003) 9 SCC 510; Union of
India v. Charak Pharmaceuticals (India) Ltd., (2003) 11 SCC
689; Deepal Girishbhai Soni v. United India Insurance Co.
Ltd., (2004) 5 SCC 385; Maruti Udyog Ltd. v. Ram Lal, 2005
(1) SCR 790 = (2005) 2 SCC 638; Pratap Singh v. State of
Jharkhand, 2005 (1) SCR 1019 =(2005) 3 SCC 551; Sushi/a G
Rani v.
Commissioner of Income Tax, 2002 (1)
SCR 809 =(2002) 2 SCC 697; Killick Nixon Ltd., Mumbai v.
Deputy Commissioner of Income Tax, Mumbai, 2002 (4)
Suppl. SCR 348 =(2003) 1 SCC 145; CIT v. Shatrusailya
Digvijaysingh Jadeja, 2005 (2) Suppl. SCR 1119 = (2005) H
30
SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A 7 SCC 294; and Master Cables (P) Ltd. Vs. State of Kera/a
(2007) 5 sec 416 - relied on.
B
Speech of the Finance Minister dated 17 7. 1998, 232 ITR
1998(14) - referred to.
1.2 Further, the object of the Scheme and its
application to Customs ,and Central Excise cases
involving arrears of taxes has been explained in detail by
the Trade Notice No. 74/98 dated 17.8.1998 issued by the
Commissioner of Central Excise and Customs,
C Ahmedabad-1. It is a settled law that the Trade Notice,
even if it is issued by the Revenue Department of any one
State, is binding on all the other departments with equal
force all over the country. The Trade Notice guides the
traders and business community in relation to their
D business, and how to regulate it in accordance with the
applicable laws or schemes. However, the Trade Notice,
as such, is not binding on the courts but is certainly
binding on the assessee and can be contested by him.
[para 18, 19 and 21] [49-F; 52-D-F; 53-E]
E
Steel Authority of India v. Collector of Customs, (2001)
9 SCC 198; and Purewa/ Associates Ltd. v. CCE, 1996 (7)
Suppl. SCR 117 = (1996) 10 SCC 752; CCE v. Kores (India)
Ltd., (1997) 10 SCC 338; Union of India v. Pesticides
F Manufacturing and Formulators Association of India, 2002 (
3 ) Suppl. SCR 231 = (2002) 8 sec 410; and CCE v.
Jayant Dalal (P) Ltd., (1997) 10 sec 402) - relied on.
1.3 The Scheme in s. 87 (m) (ii) defines the meaning
of the expression 'tax arrear', in relation to indirect tax
G enactments. It would mean the determined amount of
duties, as due and payable which would include
drawback of duty, credit of duty or any amount
representing duty, cess, interest, fine or penalty
determined. The legislation, by using its prerogative
H power, has restricted the dues of duties quantified and
UNION OF INDIAAND ORS. v. NITDIP TEXTILE
31
PROCESSORS PVT. LTD.
payable as on 31st day of March, 1998 and remaining A
unpaid till a particular event has taken place, as
e!"visaged under the Scheme. The date has relevance.
The definition is inclusive definition. It also envisages
instances where a Demand Notice or Show Cause Notice
issued under indirect tax enactment on or before 31st day B
of March, 1998 but not complied with the demand made,
to Ile treated as tax arrears by legal fiction. [para 28) [58H; 59-A-C]
1.4 Thus, legislation has carved out two categories
of assessees viz. where tax arrears are quantified but not C
paid, and where Demand Notice or Show Cause Notice
issued but not paid. In both the circumstances, legislature
has taken cut-off date as on 31st day of March 1998. It
cannot be disputed that the legislation has the power to
classify. [para 28] [59-C-D]
D
2.1 It is now well settled by catena of decisions of this
Court that a particular classification is proper if it is based
on reason and is not purely arbitrary, capricious or
vindictive. On the other hand, while there must be a E
reason for the classification, the reason need not be good
one, and it is immaterial that the Statute is unjust. The test
is not wisdom but good faith in the classification. The
tests adopted to determine whether a classification is
reasonable or not are, that the classification must be
F
founded on an intelligible differentia which distinguishes
person or things that are grouped together from others
left out of the groups and that the differentia must have
a rational relation to the object sought to be achieved by
Statute in question. [para 28 and 30) [59-C-G; 60-C-D]
G
2.2 The concept of Article 14 of the Constitution of
India vis-a-vis fiscal legislation is explained by this Court
in several decisions. It has been time and again observed
by this Court that the Legislature has a broad discretion
H
32
SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.
A in the matter of classification. In taxation, 'there is a
broader power of classification than in some other
exercises of legislation'. When the wisdom of the
legislation while making classification is questioned, the
role of the courts is very much limited. It is not reviewable
B by the courts unless palpably arbitrary. It is not the
concern of the courts whether the classification is the
wisest or the best that could be made. However, a
discriminatory tax cannot be sustained if the classification
is wholly illusory. [para 28 and 30] [59-F-H; 61-F]
c
Amalgamated Tea Estates Co. Ltd. v. State of Kera/a,
1974 (3) SCR 820 = (1974) 4 SCC 415; Anant Mills Co. Ltd.
v. State of Gujarat, 1975 (3) SCR 220 = (1975) 2 SCC 175;
Jain Bros v. Union of India, 1970 (3) SCR 253 = (1969) 3
SCC 311; Murthy Match Works v. CCE, 1974 (3) SCR 121 =
D (1974) 4 SCC 428; R.K. Garg v. Union of India, 1982 (1)
SCR 947 = (1981) 4 SCC 675; E/el Hotels and Investments
Ltd. v. Union of/ndia, 1989 (2) SCR 880 =(1989) 3 SCC 698;
P.M. Ashwathanarayana Setty v. State of Karnataka, (1989)
Supp. (1) SCC 696; Kera/a Hotel and Restaurant Assn. v.
E
State of Kera/a, 1990 (1) SCR 516 =(1990) 2 SCC 502;
Spences Hotel (P) Ltd. v. State of W.B., 1991 (1) SCR
429 =(1991) 2 SCC 154; Venkateshwara Theatre v. State of
A. P., 1993 (3) SCR 616 = (1993) 3 SCC 677; State of Kera/a
v. Aravind Ramakant Modawdakar, (1999) 7 SCC 400; State
F
of U.P. v. Kam/a Palace, 1999 (5) Suppl. SCR 452 = (2000)
1 SCC 557; Aashirwad Films v. Union of India, 2007 (7)
SCR 310 = (2007) 6 SCC 624; and Jai Vijai Metal Udyog
Private Limited, Industrial Estate, Varanasi v. Commissioner,
Trade Tax, Uttar Pradesh, Lucknow, (2010) 6 SCC 705 -
G relied on
2.3 However, it is well settled that the Legislature
enjoys very wide latitude in the matter of classification of
objects, persons and things for the purpose of taxation
H in view of inherent complexity of fiscal adjustment of
UNION OF INDIA AND ORS. v. NITDIP TEXTILE
33
PROCESSORS PVT. LTD.
diverse elements. The power of the Legislature to classify A
is of wide range and flexibility so that it can adjust its
system of taxation in all proper and reasonable ways.
Even so, large latitude is allowed to the State for
classification upon a reasonable basis and what is
reasonable is a question of practical details and a variety
B
of factors which the court will be reluctant and perhaps
ill-equipped to.investigate. It has been laid down in a large
number of decisions of this Court that a taxation Statute,
for the reasons of functional expediency and even
otherwise, can pick and choose to tax some assessees. c
A power to classify being extremely broad and based on
diverse considerations of executive pragmatism, the
Judicature cannot rush in where even the Legislature
warily treads. All these operational restraints on jJdicial
power must weigh more emphatically where the subject D
is taxation. [para 45] [73-F-H; 7 4-A-C]
2.4 Discrimination resulting from fortuitous
circumstances arising out of particular situations, in
which some of the tax payers find themselves, is not hit
by Article 14 if the legislation, as such, is of general
E
application and does not single them out for harsh
treatment. Advantages or disadvantages to individual
assessees are accidental and inevitable and are inherent
in every taxing Statute as it has to draw a line somewhere
and some cases necessarily fall on the other side of the
F
line. [para 45] [74-C-D]
Khandige Sham Bhat vs. Agricultural Income Tax Officer,
Kasaragod and Anr. AIR 1963 SC 591 - relied on
2.5 As regards the instant matters, the Legislature in
G
relation to 'tax. arrears' has classified two groups of
assessees. The first one being those assessees in whose·
cases duty is quantified and not paid as on the 31st day
of March, 1998 and those assessees who are served with
H
34
SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A Demand or Show Cause Notice issued on or before the
31st day of March, 1998. The Scheme is not made
applicable to such of those assessees whose duty dues
are quantified but Demand Notice is not issued as on
31st day of March, 1998 intimating the assessee's dues
B payable. The same is the case of the assessees who are
not issued with the Demand or Show Cause Notice as
on 31.03.1998. [para 30] [60-C-F]
2.6 The Legislature, in its wisdom, has thought it fit
C to extend the benefit of the Scheme to such of those
assessees whose tax arrears are outstanding as on
31.03.1998, or who are issued with the Demand or Show
Cause Notice on or before 31st day of March, 1998,
though the time to file declaration for claiming the benefit
is extended till 31.01.1999. The classification made by the
D legislature appears to be reasonable for the reason that
the legislature has grouped two categories of assesses,
namely, the assessees whos1: dues are quantified but
not paid and the assessees who are issued with the
Demand and Show Cause Notice on or before a
E particular date. The Legislature has not extended this
benefit to those persons who do not fall under this
category or group. This position is made clear by s. 88
of the Scheme which provides for settlement or tax
payable under the Scheme by filing declaration after 1st
F day of September, 1998 but on or before the 31st day of
December, 1998 in accordance with s.89 of the Scheme,
which date was extended upto 31.01.1999. The
distinction so made cannot be said to be arbitrary or
illogical which has no nexus with the purpose of
G legislation. [para 30] [60-F-H; 61-A-C]
2.7 In determining whether classification is
reasonable, regard must be had to the purpose for which
legislation is designed. Keeping in view the Scheme, the
H legislation is based on a reasonable basis which is firstly,
UNION OF INDIA AND ORS. v. NITDIP TEXTILE
35
PROCESSORS PVT. LTD.
the amount of duties, cesses, interest, fine or penalty
A
must have been determined as on 31.03.1998 but not paid
as on the date of declaration; and secondly, the date of
issuance of Demand or Show Cause Notice on or before
31.03.1998, which is not disputed, but the duties remain
unpaid on the date of filing of declaration. Therefore, the
B
Scheme 1998 does not violate the equal protection clause
where there is an essential difference and a real basis for
the classification which is made. The mere fact that the
line dividing the classes is placed at one point rather than
another will not impair the validity of the classification. C
[para 30] [61-C-F]
2.8 The findings and the conclusion reached by the
High Court cannot be sustained. The impugned common
judgment and order is set aside. [para 46] [75-C]
D
Union of India v. M. V. Va/liappan, (1999) 6 SCC 259,
Sudhir Kumar Consul v. Allahabad Bank, (2011) 3 SCC 486
and Government of Andhra Pradesh v. N. Subbarayudu,
(2008) 14 SCC 702 Government of India v. Dhanalakshmi
Paper and Board Mills, 1989 Supp. (1) SCC 596 State of E
Jammu and Kashmir v. Triloki Naths Khosa, (1974) 1 SCC
19 - cited.
Case Law Reference:
1985 (2) SCR 119
relied on
para 6
F
2002 (4) Suppl. SCR 382
relied on
para 7
(2003) 11 sec 689
relied on
para 8
(2004) 5 sec 385
relied on
para 9
G
2005 (1) SCR 790
relied on
para 19
2005 (1) SCR 1019
relied on
para 11
2002 (1) SCR809
relied on
para 14
H
36
SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A
2002 (4) Suppl. SCR 348
relied on
para 15
2005 (2) Suppl. SCR 1119
relied on
para 16
(2007) 5 sec 416
relied on
para 17
B
2001 (9) sec 198
relied on
para 19
1996 (7) Suppl. SCR 117
relied on
para 20
1997 (10) sec 338
relied on
para 21
2002 (3) Suppl. SCR 231
relied on
para 21
c
1997 (10) sec 402
relied on
para 21
232 ITR 1998(14)
referred to
para 23
(1999) 6 sec 259
cited
para 23
D
(2011) 3 sec 486
cited
para 23
(2008) 14 sec 102
cited
para 23
(1974) 1 sec 19
cited
para 24
E
1989 supp. (1) sec 596
cited
para 24
1974 (3) SCR 820
relied on
para 31
1975 (3) SCR 220
relied on
para 32
1970 (3) SCR ·253
relied on
para 33
F
1974 (3) SCR 121
relied on
para 34
1982 (1) SCR 947
relied on
para 35
1989 (2) SCR 880
relied on
para 36
G
1990 (1) SCR 516
relied on
para 37
(1989) supp. (1) sec 696
relied on
para 38
1991 (1) SCR 429
relied on
para 39
H
1993 (3) SCR 616
relied on
para 40
UNION OF INDIA AND ORS. v. NITDIP TEXTILE
37
PROCESSORS PVT. LTD.
1999 (7) sec 400
relied on
para 41
1999 (5) Suppl. SCR 452
relied on
para 42
2007 (7) SCR 310
relied on
para 43
201 o (6) sec 10s
relied on
para 44
AIR 1963 SC 591
relied on
para 45
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
2960 of 2006.
A
8
From the Judgment & Order dated 25.07.2005 of the High C
Court of Gujarat at Ahmedabadm, in Special Civil Application
No. 735 of 1999.
WITH
C.A. Nos. 2961, 2962, 2963, 2964, 3659 & 5616 of 2006 and D
990 of 2007.
R.P. Bhatt, Shalini Kumar, Arijit Prasad, Sunita Rani Singh,
8. Krishna Prasad for the Appellants.
Prasas Kuhad, Heman! Sharma, Jitin Chaturvedi, lndu E
Sharma, Sheela Goel for the Respondents.
The Judgment of the Court was delivered by
H.L. DATTU, J. 1. The present batch of eight appeals F
arises out of the common Judgment and Order dated
25.07.2005 passed by the High Court of Gujarat at Ahmedabad
in the Special Civil Application No.735 of 1999 and connected
applications filed under Article 226 of the Constitution of India.
Since these appeals involve common question of law, they are G
disposed of by this common Judgment and Order.
2. All the parties in these present appeals before us were
duly served but none appeared for the respondents except one
in Civil Appeal No. 5616 of 2006.
H
36
SUPREME COURl REPORTS [2011) 13 (ADDL.) S.C.R.
A
3. The High Court, vide its impugned Judgment and Order
dated 25.07.2005, has declared that Section 87(m)(ii)(b) of
Finance (No.2) Act, 1998 is violative of Article 14 of the
Constitution of India insofar as it seeks to deny the benefit of
the 'Kar Vivad Samadhana Scheme; 1998 (hereinafter referred
B
to as "the Scheme") to those who were in arrears of duties etc.,
as on 31.03.1998 but to whom the notices were issued after
31.03.1998 and further, has struck down the expression "on or
before the 31st day of March 1998" under Section 87(m)(ii)(b)
of the Finance (No. 2) Act, 1998 as ultra vires of the
C
Constitution of India and in particular, Article 14 of the
Constitution on the ground that the said expression prescribes
a cut-off date which arbitrarily excludes certain category of
persons from availing the benefits under the Scheme. The High
Court has further held that as per the definition of the 'tax
D
arrears' in Section 87(m)(ii)(a) of the Act, the benefit of the
Scheme was intended to be given to all persons against whom
the amount of duties, cess, interest, fine or penalty were due
and payable as on 31.3.1998. Therefore, this cut-off date in
Sectien 87(m)(ii)(b) arbitrarily denies the benefit of the Scheme
to those who were in arrears of tax as on 31.03.1998 but to
E
whom notices were issued after 31.3.1998. This would result
in unreasonable and arbitrary classification between the
assessees merely on the basis of date of issuance of Demand
Notices or Show Cause Notices which has no nexus with the
purpose and object of the Scheme. In other words, the persons
F
who were in arrears of tax on or before 31.03.1998 were
classified as those, to whom Demand Notices or Show Cause
Notices have been issued on or before 31.03.1998 and, those
to whom such notices were issued after 31.3.1998. The High
Court observed that this classification has no relation with the
G
purpose of the Scheme to provide a quick and voluntary
settlement of tax dues. The High Court further observed that this
artificial classification becomes more profound in view of the
fact that the Scheme came into operation with effect from
1.9.1998 which contemplates filing of declaration by all persons
H
on or after 1.9.1998 but on or before 31.1.1999. The High
UNION OF INDIA AND ORS. v. NITDIP TEXTILE
39
PROCESSORS PVT. LTD. [H.L. DATTU, J.]
Court further held that all persons who are in arrears of direct
A
as well as indirect tax as on 31.3.1998 constitute one class,
and any further classification among them on the basis of the
date of issuance of Demand Notice or Show Cause Notice
would be artificial and discriminatory. The High Court concluded
by directing the Revenue to consider the claims of the
B
respondents for grant of benefit under the Scheme, afresh, in
terms of the Scheme. The relevant portions of the impugned
judgment of the High Court is extracted below:
"In the light of the above, we shall now consider whether
definition of "tax arrears" contained in Section 87 (m)(ii)(b)
C
is arbitrary, irrational or violative of the doctrine of equality
enshrined under Article 14 of the Constitution and whether
the petitioners are entitle to avail benefit under Scheme ..
A reading of the speech made by the Finance Minister and
the objects set out in memorandum to Finance (No. 2) Bill,
D
1998 shows that the Scheme was introduced with a view
to quick and voluntary settlement of tax dues outstanding
as on 31.3.1998 under various direct and indirect tax
enactments by offering waiver of a part of the arrears of
taxes and interest and providing immunity against
E
prosecution and imposing of penalty. The definition of 'tax
arrear' contained in Section 87 (m)(i) in the context of direct
tax enactment also shows that the legislation was intended
to give benefit of the scheme to the assessee who were
in arrears of tax on 31.3.1998. The use of the words as
F
on "31st day of March, 1998" in Section 87(m)(ii) also
shows that even in relation to indirect tax enactments, the
benefit of the scheme was intended to be given to those
against whom the amount of duties, cess, interest, fine or
penalty were due or payable upto 31.3.1998. Viewed in
G
this context it is quite illogical to exclude the persons like
the petitioners from whom the amount of duties, cess,
interest, fine, penalty, etc. were due as on 31.3.1998 but
to whom Demand Notices were issued after 31.3.1998.
In our opinion, the distinction made between those who
H
40
SUPREME COURT REPORTS (2011) 13 (ADDL.) S.C.R.
A
were in arrears of indirect taxes as on 31.3.1998 only on
the basis of the date of issuance of notice is wholly arbitrary
and irrational. The classification sought to be made
between those Demand Notices or Show Cause Notices
may have been issued on or before 31st day of March,
B
1998 and those to whom such notices were issued after
31.3.1998 is per se unreasonable and has no nexus with
the purpose of the legislation, namely to provide a quick
and voluntary settlement of tax dues outstanding as on
31.3.1998.
c
D
E
F
The irrationality of the classification becomes more
pronounced when the issue is examined in the backdrop
of the fact that the scheme was made applicable with
effect from 1.9.1998, and in terms of Sections 88
(amended) a declaration was required to be filed on or
after first day of September, 1998 but on or before
31.1.1999. In our opinion, all persons who were in arrears
of direct or indirect taxes as on 31.3.1998 constituted one
class and no discrimination could have been made among
them by introducing an artificial classification with reference
to the date of Demand Notice or Show Cause Notice. All
of them should have been treated equally and made
eligible for availing benefit under the Scheme subject to
compliance of conditions contained in other provisions of
the Scheme."
4. We will take Civil Appeal No. 2960 of 2006 as the lead
matter. The facts of the case, in brief, are hereunder: The
respondent is engaged in the manufacture of textile fabrics. The
team of Preventive Officers of the Central Excise, AhmedabadG I conducted a surprise inspection of the premises of the factory
on 5.9.1997. The Revenue Officers examined the statutory
Central Excise Records and physically verified the stocks at
various stages of manufacturing in the presence of two
independent panchas and respondent no. 2, under the
H Panchnama dated 5.9.1997. The Revenue Officers found that
'
UNION OF INDIAAND ORS. v. NITDIP TEXTILE
41
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
the respondents have cleared the Man Made Fabric A
admeasuring 38,726 l.m. of Rs. 5,38,449/- without the payment
of excise duty of Rs. 84,290/-. In this regard, the Statement of
respondent no. 2 was recorded on 5.9.1997 under Section 14
of the Central Excise Act, 1944 (hereinafter referred to as "the
Excise Act"). The respondent no. 2, in his Statement has
B
admitted the processing of the said fabric in his factory, after
registering it in the lot register, and its subsequent clandestine
removal without payment of the excise duty. Accordingly, a
Show Cause Notice dated 06.01.1999 was issued to the
respondents demanding a duty of Rs. 84,2901- under Section c
11 A of the Excise Act along with an equal amount of pena1ty
under Section 11AC of the Excise Act, and further penalty
under Rule 173 Q of the Central Excise Rules, 1944 [hereinafter
referred to as "the Excise Rules"] and interest under Section
11AB of the Excise Act for non-payment of excise duty on
0
clandestine clearance of the said fabrics. Further, the
Respondent no. 2 was also asked to show cause as to why
penalty under Section 209 A of the Excise Rules should not be
imposed on him for his active involvement in acquiring,
possession, removal, concealing, selling and dealing of the
E
excisable goods, which are liable to be confiscated under the
Excise Act. In the meantime, the Scheme was introduced by
ttie Hon'ble Finance Minister through the 1998 Budget, which
was contained in the Finance (No.2) Act of 1998. The Scheme
was made applicable to tax arrears outstanding as on
31.3.1998 under the direct as well as indirect tax enactments.
F
Originally, the benefits of the Scheme could be availed by any
eligible assessee by filing a declaration of his arrears under
Section 88 of the Act on or after 1.9.1998 and on or before
31.12.1998. However, the peritld for declaration under the
Scheme was extended upto 31.1.1999 by the Ordinance dated
G
31.12.1"998. However, the cut-off date prescribed by the
Scheme under Section 87 (m) (ii) (a) and (b) of the Act for
availing the benefits under the Scheme excluded the
respondents from its ambit. Being aggrieved, the respondents
filed a Special Civil Application before the High Court of H
42
SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.
A
Gujarat, inter-a/ia, seeking a writ to strike down the words "on
or before the 31st day of March 1998" occurring in Section 87
(m) (ii) of the Finance Act, 1998. They had further prayed for
issuance of an appropriate direction to the petitioner to give
them benefit of the Scheme, 1998 in respect of tax arrears
B
under tax enactments for which Show Cause Notices or
Demand Notices were issued on or after 31.03.1998. The High
Court, vide its impugned judgment and order dated 25.7.2005,
struck down the expression "on or before the 31st day of March,
1998" in Section 87 (m) (ii) (b) as being unconstitutional. The
c
High Court further directed the competent authority to entertain
and decide the declarations made by the assessees in terms
of the Scheme. Aggrieved by the Judgment and Order, the
Revenue is before us in this appeal.
5. The Scheme was introduced by Finance (No.2) Act and
D
is contained in Chapter IV of the Act. The Scheme is known
as Kar Vivad Samadhana Scheme, 1998. It was in force
between 1.9.1998 and 31.1.1999. Briefly, the Scheme permits
the settlement of "tax arrear" as defined in Section 87 (m) of
the Act. It is necessary to extract the relevant provisions of the
E
Scheme:
F
G
H
"Section 87 - Definitions.
In this Scheme, unless the context otherwise requires,
•••
h) "direct tax enactment" means the Wealth-tax Act, 1957
or the Gift-tax Act, 1958 or the Income-tax Act, 1961 or
the Interest-tax Act, 197 4 or the Expenditure-tax Act, 1987;
(j) "indirect tax enactment" means the Customs Act, 1962
or the Central Excise Act, 1944 or the Customs Tariff Act,
1975 or the Central Excise Tariff Act, 1985 or the relevant
Act and includes the rules or regulations made under such
enactment;
UNION OF INDIA AND ORS. v. NITDIP TEXTILE
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
•••
(m) "tax arrear" means,-
43
A
(i) in relation to direct tax enactment, the amount of
tax, penalty or interest determined on or before the 8
31st day of March, 1998 under that enactment in
respect of an assessment year as modified in
consequence of giving effect to an appellate order
but remaining unpaid. on the date of declaration;
(ii) in relation to indirect tax enactment,-
c
(a) the amount of duties (including drawback
of duty, credit of duty or any amount
representing duty), cesses, interest, fine or
penalty determined as due or payable under D
that enactment as on the 31st day of March,
1998 but remaining unpaid as on the date of
making a declaration under section 88; or
(b) the amount of duties (including drawback
of duty, credit of duty or any amount E
representing duty), cesses, interest, fine or
penalty which constitutes the subject matter
of a Demand Notice or a show-cause notice
issued on or before the 31st day of March,
1998 under that enactment but remaining
F
unpaid on the date of making a declaration
under section 88,
but does not include any demand relating to
erroneous refund and where a show-cause G
notice is issued to the declarant in respect
of seizure of goods and demand of duties,
the tax arrear shall not include the duties on
such seized goods where such duties on the
seized goods have not been quantified.
H
44
A
B
c
D
E
SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.
Explanation.-Where a declarant has already paid either
voluntarily or under protest, any amount of duties, cesses,
interest, fine or penalty specified in this sub-clause, on or
before the date of making a declaration by him under
section 88 which includes any deposit made by him
pending any appeal or in pursuance of a Court order in
relation to such duties, cesses, interest, fine or penalty,
such payment shall not be deemed to be the amount
unpaid for the purposes of determining tax arrear under
this sub-clause;
Section 88 - Settlement of tax payable
Subject to the provisions of this Scheme, where any person
makes, on or after the 1st day of September, 1998 but on
or before the 31st day of December, 1998, a declaration
to the designated authority in accordance with the
provisions of section 89 in respect of tax arrear, then, notwithstanding anything contained in any direct tax enactment
or indirect tax enactment or any other IJiOVision of any law
for the time being in force, the amount payable under this
Scheme by the declarant shall be determined at the rates
specified hereunder, namely .. ."
6. The Scheme, as contained in Chapter IV of the Act, is
a Code in itself and statutory in nature and character. While
implementing the scheme, liberal construction may be given but
F it cannot be extended beyond conditions prescribed in the
statutory scheme. In Regional Director, ES/ Corpn. v.
Ramanuja Match Industries, (1985) 1 SCC 218, this Court
observed:
G
"10 ... We do not doubt that beneficial legislations should
have liberal construction with a view to implementing the
legislative intent but where such beneficial legislation has
a scheme of its own there is no warrant for the Court to
travel beyond the scheme and extend the scope of the
H
UNION OF INDIA AND ORS. v. NITDIP TEXTILE
45
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
statute on the pretext of extending the statutory benefit to
A
those who are not covered by the scheme."
7. In Hemalatha Gargya v. Commissioner of Income Tax,
A.P., (2003) 9 sec 510, this Court has held:
"10. Besides, the Scheme has conferred a benefit on
8
those who had not disclosed their income earlier by
affording them protection against the possible legal
consequences of such non-disclosure under the
provisions of the Income Tax Act. Where the assessees
seek to claim the benefit under the statutory scheme they C
are bound to comply strictly with the conditions under
which the benefit is granted. There is no scope for the
application of any equitable consideration when the
statutory provisions of the Scheme are stated in such
plain language."
D
8. In Union of India v. Charak Pharmaceuticals (India)
Ltd., (2003) 11 SCC 689, this Court has observed thus:
"8. If benefit is sought under a scheme, like KVSS, the
party must fully comply with the provisions of the Scheme
E
If all the requirements of the Scheme are not met then on
principles of equity, courts cannot extend the benefit of that
Scheme."
9. In Oeepa/ Girishbhai Soni v. United India Insurance
F
Co. Ltd., (2004) 5 SCC 385, at page 404, this Court observed
as:
"53. Although the Act is a beneficial one and, thus,
deserves liberal construction with a view to implementing
G
the legislative intent but it is trite that where such beneficial
legislation has a scheme of its own and there is no
vagueness or doubt therein, the court would not travel
beyond the same and extend the scope of the statute on
the pretext of extending the statutory benefit to those who
H
46
SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R.
A
are not covered thereby. (See Regional Director, ES/
Corpn. v. Ramanuja Match Industries)"
B
c
D
10. In Maruti Udyog Ltd. v. Ram Lal, (2005) 2 SCC 638,
this Court has observed:
"A beneficial statute, as is well known, may receive liberal
construction but the same cannot be extended beyond the
statutory scheme. (See Deepal Girishbhai Soni v. United
India Insurance Co. Ltd.)"
11. In Pratap Singh v. State of Jharkhand, (2005) 3 SCC
551, this Court has held:
"93. We are not oblivious of the proposition that a
beneficent legislation should not be construed so liberally
so as to bring within its fore a person who does not answer
the statutory scheme. (See Deepal Girishbhai Soni v.
United India Insurance Co. Ltd.)"
12. The object and purpose of the Scheme is to minimize
the litigation and to realize the arrears of tax by way of
E Settlement in an expeditious manner. The object of the Scheme
can be gathered from the Speech of the Finance Minister, whilst
presenting the 1998-99 Budget:
F
G
H
"Litigation has been the bane of both direct and indirect
taxes. A lot of energy of the Revenue Department is being
frittered in pursuing large number of litigations pending at
different levels for long periods of time. Considerable
revenue also gets locked up in such disputes. Declogging
the system will not only incentivise honest taxpayers, it
would enable the Government to realize its reasonable
dues much earlier but coupled with administrative
measures, would also make the system more user-friendly.
I therefore, propose to introduce a new scheme called
Samadhan. he scheme would apply to both direct taxes
and indirect taxes and offer waiver of interest, penalty and
UNION OF INDIA AND ORS. v. NITDIP TEXTILE
47
PROCESSORS PVT. LTD. [H.L. DATIU, J.]
immunity from prosecution on payment of arrears of direct A
tax at the current rates. In respect of indirect tax, where in
recent years the adjustment of rates has been very sharp,
an abatement of 50 per cent of the duty would be available
alongwith waiver of interest, -penalty and immunity from
prosecution"
B
13. The Finance Minister, whilst replying to the debate after
incorporating amendments to the Finance (No. 2) Bill, 1998,
made a Speech dated 17.7.1998. The relevant portion of the
Speech, which highlights the object or purpose of the Scheme,
is extracted below:
C
"The Kar Vivad Samadhan Scheme has evoked a positive
response from a large number of organizations and tax
professionals. Hon'ble Members of Parliament have also
taken a keen interest in the scheme. The lack of clarity in D
regard to waiver of interest and penalty in relation to
settlement of tax arrears under the indirect tax enactments
is being taken care of by rewording the relevant clauses
of the Finance Bill. I have also carefully considered the
suggestions emanating from various quarters including the E
Standing Committee on Finance to extend the scope of
this scheme so as to included tax disputes irrespective of
the fact whether the tax arrears are existing or not. As you
have seen from the scheme, it has two connected limbs-
"Kar" and "Vivad". Collection of tax arrears is as important F
as settlement of disputes. The scheme is not intended to
settle disputes when there is no corresponding gain to the
other party. The basic objective of the scheme cannot be
altered."
14. This Court, in plethora of cases, has discussed the G
object and purpose of this Scheme.