National Company Limited vs Deputy Director of Tax Credit (Exports)

K.L. Roy, J.—The Petitioner is a private limited company which owns a jute mill and is also an exporter of jute goods including jute carpet backing cloth.

Chapter XXII-B, including Sections 280Y to 280ZE, was inserted in the income tax Act, 1961, by Section 62 of the income tax Act, 1961, with effect from April 1, 1965. The object of the introduction of the said chapter was to give tax credit to certain classes of Assessees, as for example, equity share-holders, industrial undertaking on their shifting from urban areas, certain manufacturing companies in certain cases, in relation to increased production of certain goods and, lastly, to encourage export. In this application, we are concerned with the provisions of that chapter insofar as they provide for tax credit for exports and the relevant provisions are contained in Section 280ZC. Under Sub-section (1) of that section a person who exports any goods or merchandise out of India after February 28, 1965, and receives the sale proceeds thereof in India in accordance with the Foreign Exchange Regulation Act shall be granted a tax credit certificate for an amount calculated at a rate not exceeding 15 per cent on the amount of such sale proceeds. Sub-section (2) of the said section provides that the goods or merchandise in respect of which a tax credit certificate shall be granted under Sub-section (1) including the destination of their export and the rate at which the amount of such certificate shall be calculated shall be such as may be specified in the scheme:

Provided that different rates may be specified in respect of different goods'' or merchandise.

In Sub-section(3) of the said section it is enacted that in specifying the goods or merchandise including the destination of their export and the rates, the Central Government shall have regard to the following factors, viz.:

(a) the cost of manufacture or production of such goods or merchandise and prices of similar goods in the foreign markets;

(b) the need to develop foreign markets for such goods or merchandise ;

(c) the need to earn foreign exchange ;

(d) any other relevant factor.

Sub-section (4) entitles a person to whom a tax credit certificate has been granted to have the amount shown on such certificate adjusted against any liability under the income tax Act existing on the date on which such certificate is produced before the income tax Officer. It is to be mentioned that Clause (c) of Section 280Y defines a ''scheme'' to mean a scheme made under that chapter. Section 280ZE(1) enjoins the Central Government, by notification in the Official Gazette, to frame one or more scheme or schemes to be called Tax Credit Certificate Scheme or Schemes in relation to tax credit certificates to be granted under that chapter. Sub-section (2) of that section enumerates the various provisions to be made in such a scheme, while Sub-section(3) entitles the Central Government, by notification in the Official Gazette, to add, amend, vary or rescind any scheme made under that section. Section 280ZE(4) requires any scheme made under that section to be laid before the House of Parliament which may either modify or delete any of the provisions of the scheme and, thereafter, the scheme as modified shall have effect.

In exercise of the powers conferred by Section 280ZE aforesaid read with Section 280ZC the Central Government by notification No. G.S.R. 1183 dated August 17, 1965, notified a scheme called the Tax Credit Certificate (Exports) Scheme, 1965, which was to come into force on and from October 1, 1965. Clause (3) of the said Scheme provides that subject to the provisions thereof, a certificate shall be granted in respect of goods or merchandise specified in col. (2) of the table following which are exported to destinations specified in col. (4) thereof and the date of export of which falls after February 28, 1965, for an amount calculated at the rates specified against each of them in col. (3) of the said table as in force on the date of such export. In the table annexed one of the items in col. (2) is life goods and the rate specified in col. (3) is 2 per cent. By a further notification No. G.S.R. 1391 dated September 20, 1965, in exercise of the powers conferred by Section 280ZE, the aforesaid scheme was amended, inter alia, in the following manner:

(a) in the entry in col. 2 against serial No. 1 for the word ''jute'' the words ''jute not otherwise specified'' shall be substituted.

(b) In the same column a further item, namely, SL 25 ''Jute carpet backing cloth'' shall be inserted with the rate in col. 2 at 5 per cent, export to all countries outside India other than Nepal, Bhutan and Sikkim. Further, a note was added to the scheme that the rate per cent specified in col. 3 shall take effect from October 1, 1965.

By a further notification, being G S.R. No. 694 dated May 6, 1966, the aforesaid Scheme was further amended by increasing the rate specified against goods in serial Nos. 25 to 10 per cent which was to take effect on and from May 1, 1966.

The Indian Currency was devalued on and from June 6, 1966. On the said date, i.e. June 6, 1966, a further notification being No. G.S.R. 965 purported to have been made u/s 280ZE/280ZC of the income tax Act, 1961, was issued whereby the aforesaid Scheme was further purported to be amended by renumbering para. 3 as sub-para, (i) of that paragraph and, thereafter, inserting sub-para, (ii) to the following effect:

(ii) No certificate shall be granted under sub-paragraph (i) in respect of any sale proceeds referred to in that sub-paragraph or part of such sale proceeds, received after the 5th day of June, 1966, in India in accordance with the Foreign Exchange Regulations Act, 1947, and the rules made thereunder.

By the said notification in effect the tax credit scheme framed under the provisions of chap. XXIIB was rendered nugatory in respect of all exports for which the sale proceeds were received after June 5, 1966. In response to the representations made by the exporters who had already made exports before the said date a further notification was issued by the Central Government being No. G.S.R. 1226 dated August 8, 1966, whereby in exercise of the power conferred by the aforesaid section the Central Government purported to make the following further amendments to the Tax Credit Certificate (Exports) Scheme, 1965, namely, by introducing the following proviso before the table in the said Scheme, viz.:

Provided that (a) in the case of any such goods or merchandise;

(i) the date of export of which falls on or before the 5th day of June 1966 and

(ii) the sale proceeds whereof are received in India in accordance with the Foreign Exchange (Regulation) Act, 1947, and the rules made thereunder after the said date, the certificate shall be granted for an amount calculated at 16/25 of the rate specified in column (3) of the said Table in respect of such goods or merchandise ;

(b) in the case of any such goods or merchandise, the date of export of which falls after the 5th day of June 1966, the rate specified in column (3) of the said Table in respect of such goods or merchandise shall be deemed to be nil and accordingly no certificate shall be granted in respect of such goods or merchandise.

This notification shall be deemed to have come into force on June 6, 1966.

The effect of the said purported amendments to the scheme is that for any export made before the date of devaluation of the Indian Currency credit at a fraction of 16/25 of the rate specified in '' the Scheme is to be granted even if the sale proceeds thereof are received later. While no such credit would be granted as the rate is to be deemed to be nil.

The Petitioner obtained this Rule on December 7, 1967, calling upon the Respondents, the Deputy Director of Tax Credit, a competent officer appointed under the Tax Credit Certificate Scheme, 1961, and the Union of India to show cause why appropriate writs should not be issued directing the Respondents to forbear from giving effect to the said notifications No. G.S.R. 863 dated June 6, 1966, and No. G.S.R. 1226 dated August 8, 1966, and for setting aside and quashing the same and also why a writ of mandamus should not issue directing the Respondents to issue tax credit certificates in terms of the Scheme in respect of certain exports by the Petitioner mentioned in annex. G to the petition.

As the contentions raised in the petition are mainly of a legal nature, the affidavit-in-opposition also contains submissions of similar nature. It is submitted therein, inter alia, that the date of execution of the contract and the date of ''booking'' of Foreign Exchange are extraneous so far as the credit under the Scheme is concerned, the only relevant date being the date of export of the goods and merchandise. There could not, therefore, be any expectation of being granted credit before the date of export. It is further submitted and the power to amend, vary, rescind etc. the Scheme has been expressly conferred on the Central Government by Section 280ZE(3) and there is no obligation on it to give a prior notice before amending or rescinding the Scheme.

Mr. R.C. Deb, the learned Counsel for the Petitioner, submitted that the provisions of Section 280ZC(1) are mandatory and Sub-section(2) of that section could not be utilized to nullify Sub-section(1) as the only power given to the Central Government under the Sub-section is to determine the goods or merchandise in respect of which credit is to be given, the destination of their export and the rate at which the amount of the certificate shall be granted, Sub-section(1) entitles a person who has exported any goods or merchandise described in the Scheme out of India after February 28, 1965, and received the sale proceeds thereof in India in accordance with the Foreign Exchange Regulation Act to a tax credit certificate for an amount calculated at a rate not exceeding 15 per cent on the amount of such sale proceeds and by purporting to exercise the power of amending and/or varying the Scheme u/s 280ZE, the Central Government cannot take away the right given to an exporter by Section 280ZC(1). The power to frame a scheme u/s 280ZE(1) is limited by the provisions of chap. XXIIB which also lay down the various provisions which are to be made in such a scheme. The power to vary, amend or rescind such a scheme given under Sub-section(3) of that section does not empower the Central Government to take away the right granted to an exporter by the Act itself in the guise of an amendment. The first impugned notification taking away the benefit of the tax credit altogether in respect of exports made after a particular date is directly in violation of Section 280ZC(1) and as such ultra vires. So far as the second impugned notification is concerned it is also ultra vires as it purports to fix a date on or before which the export is to be made and the sale proceeds received in respect thereof. Further, the prohibition of such credit in case of exports made after June 5, 1966, is wholly unauthorised.

It is next contended by Mr. Deb that the second impugned notification dated August 8, 1966, is purporting to affect exports made on or after June 5, 1966. This is not permissible as no power to frame a scheme with retrospective effect has been granted by the Act or a power to withdraw a benefit already due retrospectively.

Certain decisions of the Supreme Court on the exercise of the rule making power conferred by an Act were cited by Mr. Deb in support of his contention. In Sales Tax Officer v. K.I. Abraham Section 8(4) of the Central Sales Tax Act exempted sales tax in case of any sales in course of inter-State trade or commerce if the dealer furnished a declaration to the prescribed authority in the prescribed manner. Section 13 of the Act gave the Central Government and the State Government power to make rules and in pursuance thereof provisions were made in the Central Sales Tax (Kerala) Rules providing for a time period before which such a declaration u/s 8(4) was to be made. The Supreme Court observed:

In our opinion, the phrase in the prescribed manner occurring in Section 8(4) of the Act only confers power on the rule making authority to prescribe a rule stating what particulars are to be mentioned in the prescribed form, the nature and value of the goods sold, the parties to whom they are sold, and to which authority the form is to be furnished. But the phrase ''in the prescribed manner'' in Section 8(4) does not take in the time (1) Sales Tax Officer Vs. K.I. Abraham, element. In other words, the section does not authorise the rule making authority to prescribe a time limit within which the declaration is to be filed by the registered dealer.

Mr. Deb''s contention is that in this case Section 280ZE does not permit the Central Government in the guise of making an amendment to the Scheme to take away the benefit conferred by Section 280ZC(1) on an exporter. In a similar case, in Deputy Commercial Tax Officer, Park Town- Division, Madras v. Sha Sukraj Peerajee 21 S.T.C. 5 the Supreme Court struck down a rule made under the Madras General Sales Tax Act whereby the definition of a dealer was sought to be extended by making the person to whom the business has been transferred by the dealer liable for the tax, on the ground that it was beyond the rule making power of the State Government under the Act. A further case relied on by Mr. Deb was another decision of the Supreme Court in Firm Gulam Hussain Haji Yakub and Sons Vs. State of Rajasthan, . u/s 14 of the Sirohi Customs Act of 1944 customs duties are to be levied on the goods mentioned in the tariff at the rates prescribed. In the tariff prescribed by the Act charcoal was included in the list of commodities the import of which was liable for customs duty. The power to fix and alter the tariff rates was conferred on the Darbar of the State by Section 15 of the Act. Purporting to act under that section a duty, inter alia, was imposed on the export of charcoal. The Supreme Court struck down the order as being in excess of the power conferred by Section 15. It was held that the goods on which customs duty could be levied had been specified in the tariff attached to the Act and no addition could be made to the said tariff by the Darbar- In Collector of Customs and Excise, Cochin and Others Vs. A.S. Bava, the facts were these. Section 12 of the Central Excise and Salt Act authorised the Central Government to apply the provisions of the Sea Customs Act to the Excise Act to the extent as it, thought desirable. By notification dated May 4,1963, in exercise of the powers conferred by Section 12 of the Excise Act, the Central Government declared that the provisions of Section 129 of the Customs Act would be applicable in regard to like matters in respect of the duties imposed by Section 3 of the Excise Act. u/s 129 of the Customs Act no appeal could be preferred without depositing the duty demanded or the penalty levied, while u/s 35 of the Excise Act a person aggrieved by any decision or order had an unfettered right of appeal. Following its earlier decision in Hoosein Kasam Dada (India) Ltd. Vs. The State of Madhya Pradesh and Others, the Supreme Court held that Section 129 of the Customs Act whittled down the substantive right of appeal which could not be regarded as a procedural matter relating to appeals u/s 12 of the Excise Act. Mr. Deb also relied on the decision of the Supreme Court in Income Tax Officer, Alleppey Vs. M.C. Ponnoose and Others, . u/s 2(41) of the income tax Act, 1961, a Tax Recovery Officer, inter alia, included a Gazetted Officer of the Central or the State Government who may be authorised by the Central Government by notification in the Official Gazette to exercise the powers of a Tax Recovery Officer. Section 4 of the Finance Act, 1963, substituted a new definition for the original definition of a Tax Recovery Officer and such definition ''shall be and shall be deemed always to have been substituted''. The new definition included, inter alia, any such officer empowered to effect recovery of arrears of land revenue or other public demand under any law for the time being in force in the State, as may be authorised by the State Government by general or special notification in the Official Gazette, to exercise the powers of a Tax Recovery Officer. By a notification dated August 14, 1963, the Government of Kerala authorised the various Revenue officials mentioned therein including the Taluka Tahsildars to exercise the powers of a Tax Recovery Officer under the Act. The Supreme Court observed as follows:

The Courts will not, therefore, ascribe retrospectively to new laws affecting rights unless by express words or necessary implication it appears that such was the intention of the Legislature. Parliament can delegate its legislative power within the recognised limits. Where any rule or regulation is made by any person or authority to whom such powers have been delegated by the Legislature it may or may not be possible to make the same so as to give retrospective operation. It will depend on the language employed in the statutory provision which may in express terms or by necessary implication empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found it has been held by the Courts that the person or authority exercising subordinate legislative functions cannot make a rule, regulation or bye-law which can operate with retrospective effect.

Mr. Deb submitted that neither Section 280ZC nor Section 280ZE authorised the framing of a scheme with retrospective effect. In this connection the observations of the Supreme Court in another case, viz. in the Union of India v. Anglo-Afgan Agencies AIR 1968 S.C. 718 are to be noticed, namely, Granting that it was executive in character, the Courts have the power in appropriate cases to compel performance of the obligations imposed by the Schemes upon departmental authorities It could not be said that the executive necessity released the Government from honouring its solemn promises relying on which citizens have acted to their detriment. Under the Constitutional set up, no person may be deprived of his right or liberty except in due course of and by authority of laws; if a member of the executive seeks to deprive a citizen of his right of liberty otherwise than in exercise of the power derived from the law- common or statute- the Courts will be competent to, and indeed would be bound to protect the rights of the aggrieved citizen.

These observations were relied on by Mr. Deb for the proposition that as the Petitioner along with other exporters of jute goods relied on the promise contained in the export Scheme and exported jute goods to foreign countries, the Government was bound to honour its promises by affording the Petitioner the benefit of tax credit for exports made before the Petitioner had notice of withdrawal of the Scheme.

Mr. Basu, the learned Counsel for the Respondents, submitted that chap. XXIIB introduced by the Finance Act, 1965, in May 1965 allowing tax credit on exports made on and after February 22, 1965, itself operated retrospectively. Therefore, the Scheme framed under that chapter would have also retrospective operation. This fact distinguishes the present case from that in income tax Officer v. M.C. Ponnoose and Ors. (Supra ). Further, u/s 280ZC(2) there is a delegation of legislative power for fixing the rate, the goods and merchandise to be exported, the countries of export etc. As Section 280ZC(1) is subject to Sub-sections (2) and (3) of that section, credit in respect of jute carpet backing cloth might not be included in the Scheme. It cannot be said that the Petitioner has a fundamental right to obtain tax credit; in respect of its export of jute carpet backing cloth. Section 280ZE(3) empowers the Central Government to, inter alia, rescind the Scheme. It is submitted that the Scheme has been rescinded by the first impugned notification but some relief was granted to an exporter in respect of exports made before June 5, 1966, by the second impugned notification. Mr. Basu further submitted that u/s 280ZC(d) the factors to be taken into consideration are material economy and fluctuations in foreign exchange. Originally, the Scheme was intended to encourage exports in order to earn foreign exchange. After the devaluation of the Indian Currency it was found that no further incentive was necessary and the tax credit was withdrawn. If no adjustments in the rules were made even in respect of exports made before June 5, 1966, the exporter would have received an undue bonus. Mr. Basu distinguished the cases cited by Mr. Deb on the ground that the impugned notifications were issued in exercise of a power delegated by the Legislature and not made in exercise of any rule making power. As there has been a delegation u/s 280ZE of the power to amend or rescind the Scheme there is no question of any action in excess of the powers conferred by the statute.

I am unable to accept the submissions of Mr. Basu, Section 280ZC(1) requires the Central Government to frame a scheme for giving tax credit on exports made after February 28, 1965, and the only limitation is that the rate of such credit is not to exceed 15 per cent of the value of the export received in India. Sub-sections (2) and (3) of that section empower the Central Government to specify the goods and merchandise and the countries to which the exports made would qualify for the credit. The power to amend, vary or rescind any scheme framed u/s 280ZC(1) given by Section 280ZE is the general power which would be deemed to be included in the statutory delegation of a rule making power u/s 21 of the General Clauses Act. Under the cloak of the exercise of such a power the Scheme for tax credit envisaged u/s 280ZC(1) could not be nullified. Further, none of the impugned notifications purports to rescind the Scheme. They merely purport to amend the Tax Credit Certificate (Exports) Scheme of 1965. While by such an amendment the rate of credit could undoubtedly be altered within the limit specified in the Act or the countries of destination and other particulars might have been modified, the withdrawal of the entire Scheme of tax credit by purporting to amend the rate of tax credit to nil is neither warranted nor justified. There seems to be substance in Mr. Basu''s submission that after the devaluation of the Indian Currency in June 1966 the purpose of allowing tax credit as an incentive to stimulate exports disappeared. But the proper course would have been for Parliament to amend the provisions of chap. XXIIB of the income tax Act, 1961, suitably and not for the Central Government to attempt an amendment of the statutory provision by way of notifications. The first impugned notification must, therefore, be declared void and inoperative. Though in the second impugned notification there is a purported amendment in the rate of credit, the provision that tax credit even at such amended rate would not be allowed on exports made after a certain date must be struck down as being in excess of the delegated authority.

In the result, the Rule is made absolute. A writ of Prohibition directing the Respondents to forbear from giving any effect to the two impugned notifications, a writ of certiorari quashing the said notifications and a further writ of mandamus directing the Respondent to deal with the Petitioners'' applications for tax credit according to law would issue. There will be no order as to costs of this application.

The operation of this order would be stayed for eight weeks.

Rule made absolute.