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PETITIONER: M. JHANGIR BHATUSHA ETC. ETC.

       Vs.

RESPONDENT: UNION OF INDIA & ORS. ETC. ETC.

DATE OF JUDGMENT17/05/1989

BENCH: PATHAK, R.S. (CJ) BENCH: PATHAK, R.S. (CJ) RANGNATHAN, S. MUKHARJI, SABYASACHI (J) NATRAJAN, S. (J) VENKATACHALLIAH, M.N. (J)

CITATION:  1989 AIR 1713            1989 SCR  (3) 356  1989 SCC  Supl.  (2) 201 JT 1989 (2)   465  1989 SCALE  (1)1458  CITATOR INFO :  F          1989 SC2054  (19)  RF         1991 SC1931  (1)

ACT:     Customs Act 1962: Section 25(2)--Edible Oil--Import  of- Concessional rate of customs duty in favour of State Trading Corporation-Private  importers complaining  of  differential treatment-Held necessary in public interest to make  special order of exemption.

HEADNOTE:     The appellants/writ petitioners are private importers of edible oils. Under the Import Policy of 1978-79, the Govern- ment  canalised the import of edible oils through the  State Trading  Corporation. Some of the private importers who  had entered  into firm commitments with foreign  suppliers,  and were now being denied permission to import the edible  oils, filed  writ  petitions in various High Courts.  These   writ petitions  were  allowed and they were granted  licences  to import  the  edible oils, in order to honour  their  commit- ments.     From  March 17, 1979 the import of edible oils was  sub- jected to differential rates of customs duty at the hands of private  importers and the State Trading Corporation,  inas- much as c- oncessional  rate of customs duty was levied on the  imports by  the State Trading Corporation under the order of  exemp- tion  issued under section 25(2) of the Customs  Act,  1962. The  order stated that in view of high international  prices of  vegetable oils and in order to keep the domestic  prices at  reasonable levels it was considered necessary to  exempt the State Trading Corporation from part of the Customs duty.     The appellants filed writ petitions in the High Court of Delhi  complaining  of the differential  treatment  accorded between the private importers and the State Trading Corpora- tion.  Similar writ petitions were filed in this  Court  di- rectly. The High Court dismissed the writ petitions.     Before  this  Court it was contended on  behalf  of  the

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private  importers that (i) there was no basis for the  dif- ferential  duty set out in the exemption orders and no  real or substantial nexus between the 357 differentiation made and the object of s. 25(2); (ii)  there was  no real or substantial distinction between the  private importers and the State Trading Corporation having regard to the  object of the statute, the nature of customs duty,  the rationale of s. 25 and the professed object of the exemption orders  under s. 25(2); (iii) the State Trading  Corporation could  not  be  equated with the  Central  Government;  (iv) assuming that the State Trading Corporation could be equated with the Central Government or that it was acting on  behalf of the Central Government, once the Government ventured into the commercial field it donned the robes of a trader, and it could  not therefore claim any special attribute or  prefer- ence for differentiation; (v) the differentiation  proceeded on excessive classification, and that resulted in  violation of  the  doctrine of equality enshrined in Art.  14  of  the Constitution;  (vi) the concession must relate to the  goods and  not to the personality of the importer; and  (vii)  the allegation that the international prices of edible oils were high was inconsistent with the reality of the situation.     Dismissing the appeals. special leave petitions and  the writ petitions, this Court.     HELD: (1) The power conferred on the Central  Government under  s. 25(2) of the Act is to be exercised by it  in  its subjective  satisfaction. The exercise of the power is  con- trolled  by  the  requirement in the  sub-section  that  the exemption order must contain a statement stating the circum- stances  of  an exceptional nature under which  the  special exemption order has been considered necessary. The  require- ment is intended by the statute to ensure that the satisfac- tion  of the Central Government concerning the necessity  of the order is not reached arbitrarily but flows from material relevant  to  the object for which the power has  been  con- ferred. [361E-G]     (2) The limitations on the jurisdiction of the Court  in cases where the satisfaction has been entrusted to executive authority to judge the necessity for passing orders is  well defined and has been long accepted. [365E-F]     (3)  Contracts by private importers concluded  before  2 December, 1978 were allowed to be worked out after that date without affecting the principle that as from December, 1978, the business of importing such oils belonged exclusively  to the  State  Trading Corporation. This is the  background  in which  the  questions  raised before the Court  need  to  be considered. [364E] 358     (4) It is the Central Government which has to be  satis- fied,  as  the authority appointed by  Parliament  under  s. 25(2),  that it is necessary in the public interest to  make the  special order of exemption. It has set out the  reasons which  prompted  it to pass the orders. It is not  for  this Court  to sit in judgment on the sufficiency of  those  rea- sons. [365D-E]     (5) The reasons set forth in the exemption notifications can  constitute a reasonable basis for those  notifications. International prices were fluctuating, and although they may have  shown  a perceptible fall there was  the  apprehension that  because  of the history of fluctuations  there  was  a possibility  of their rising in future. The need to  protect the domestic market is always present, and therefore encour- agement had to be given to the imports effected by the State

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Trading  Corporation  by reducing the rate of  customs  duty levied on them. [364F-G]     (6) It is true that the State dons the robes of a trader when  it enters the field of commercial activity, and  ordi- narily it can claim no favoured treatment. But there may  be clear and good reason for making a departure. Viewed in  the background  of  the reasons for granting a monopoly  to  the State Trading Corporation, acting as an agent or nominee  of the  Central Government in importing the specified oils,  it will  be  evident  that policy  considerations  rendered  it necessary  to make consummation of that policy effective  by imposing a concessional levy on the imports. No such conces- sion is called for in the case of private importers who,  in any event, are merely working out contracts entered into  by them with foreign sellers before 2 December, 1978. [365F-H]     S.T.C.v. Commercial Tax Officer, Vishakapatnam, [1964] 4 SCR  99; Heavy Engineering Mazdoor Union v. State of  Bihar, [1969] 3 SCR 995; Andhra Pradesh State Road Transport Corpo- ration  v.  Income Tax Officer, [1964] 7  SCR  17;  Vidarbha Housing  Board v. Income Tax Officer City &  Refund  Circle, Nagpur,  92 ITR 430; L. 1. C.v. Escorts Ltd., [1986]  1  SCC 264, 344; State of J & K v.T.N. Khosa, [1974] 1 SCR 771,792; Mohammad Shujat Ali v. Union of India, [1975] 1 SCR 449, 470 and  In Re The Special Courts Bill, 1978, [1979] 2 SCR  476, 561-2, referred to.

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.  1924-27 of 1980 etc. etc.     From  the  Judgment and Order dated  14.11.1979  of  the Delhi High Court in Civil Writ No. 1517 of 1979. 359     Soli J. Sorabjee, S.K. Mehta, H.N. Salve, A.N.  Banatwa- la, Rajiv Datta, R. Ravindran, K.K. Patel, Ujwal Rana,  M.K. Dua,  S.M. Sarin, Aman Vachher, E.M.S. Anam,  P.G.  Gokhale, P.B.  Agarwala, R.B. Hathikhanawala, Ms. S. Manchanda,  K.K. Mohan, P.K. Chakravarty, S. Srinivasan, K.C. Agarwal,  Madan Lokur,  A. Minocha, R.B. Datar, K.M.K. Nair,  S.K.  Gambhir, Sanjay Sarin, Vivek Gambhir, M. Veerappa, Ms.  Kamini  Jais- wal,  M.K.D.  Namboodiry, D.D. Gupta,  E.C.  Agrawala,  V.K. Pandita, Ms. Purnima Bhatt, Atul sharma, V.N. Ganpule,  C.K. Ratnaparkhi, M.M.L. Srivastava, M.C. Dhingra, V. Maya Krish- nan,  D.N.  Misra, K.K. Gupta and Anis Ahmed Khan,  for  the Appellants.     K.  Parasaran,  Attorney General, B.  Datta,  Additional Solicitor  General, and Kuldip Singh,  Additional  Solicitor General, K.N. Bhatt, C.V. Subba Rao, Ms. A. Subhashini, Mrs. Sushma Suri, A. Subba Rao, A.K. Srivastava, P.P. Singh, R.K. Joshi and H.K. Gangwani for the Respondents. The Judgment of the Court was delivered by     PATHAK, CJ. These appeals by special leave are  directed against  the judgment and order of the High Court  of  Delhi dismissing  writ  petitions  complaining  of  discriminatory treatment  between  the  appellants and  the  State  Trading Corporation in regard to the rate of customs duty levied  on the  import of edible oils. A number of writ petitions  have also  been  filed directly in this Court  by  other  private importers based on the same complaint. They pray for  relief in  terms of the same rate of customs duty as has  been  ap- plied  to  the import of edible oils effected by  the  State Trading Corporation.     As  common questions of law arise in these  appeals  and writ  petitions and the facts are substantially similar,  we

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proposed to treat Writ Petition No. 3800 of 1980, M/s Liber- ty  Oil  Mills v. Union of India & Others,  as  the  leading case.     On  17  January, 1977 the Government of India  issued  a Public  Notice permitting private parties to  import  edible oils for direct human consumption. It was not permissible to use  such imported oils for the manufacture of Vanaspati  or for  any  industrial  purpose. Under the  Import  Policy  of 1978-79, the Government canalised the import of edible  oils so that the State Trading Corporation alone was permitted to import  edible oils. Some of the private importers  who  had entered  into firm commitments with foreign  suppliers,  and were  now being denied permission to import the edible  oils filed writ petitions in vari- 360 ous  High Courts, and these writ petitions were allowed  and they were granted licences to import the edible oils.     Prior  to  1 March, 1979 the import of edible  oils  was exempt from customs duty, but with effect from that date the exemption was partially withdrawn and certain specified oils were  made liable to import duty at 12 1/2 per cent.  Exemp- tion was granted from additional duty chargeable under s.  3 of  the Customs Tariff Act, 1975. Auxiliary duty  chargeable under  the Finance Act was, however, payable. On  17  March, 1979  the Government passed an order of exemption in  favour of  the  State  Trading Corporation under s.  25(2)  of  the Customs Act, 1962 whereby the imports of the specified  oils by the State Trading Corporation were made liable to customs duty  at  5 per cent only, and there was a  total  exemption from auxiliary and additional duty. The imports of the  same specified  oils  by private importers were  made  liable  to customs  duty at 12.5 per cent ad valorem. The  concessional rate of customs duty in favour of the State Trading Corpora- tion  was  restricted to imports aggregating 3  lakh  tonnes initially. That quantity was enlarged to 6 lakh tonnes on 26 June,  1979. On 31 October, 1979, a further order of  exemp- tion  was  made in favour of the State  Trading  Corporation granting it exemption for imports of five lakh tonnes of the specified  oils, and this was followed on 31 March, 1981  by another order of exemption in respect of an aggregate  quan- tity of 5 lakh tonnes of oil. It may be mentioned that on 12 May,  1981  the import of edible oil was exempted  from  the levy of auxiliary duty.     On  18 July, 1981, the Government reduced the  exemption granted  to  the  import of the specified  oils  by  private operators  by raising the customs duty to 42 1/2  per  cent. The  exemption  in favour of the State  Trading  Corporation continued  without change. Thereafter on 26 July,  1981,  by Ordinance  No.  9 of 1981 the Government raised  the  tariff rate of customs duty to 200 per cent ad valorem by  amending the Customs Tariff Act, 1975. At the same time exemption was granted  insofar  that  the effective rate of  duty  on  the import  of the specified edible oils, except Rape  Seed  oil and  Soybean oil, was fixed at 125 per cent.  The  exemption from  auxiliary duty was withdrawn. In the result a  private importer had to pay a basic duty of 125 per cent and  auxil- iary  duty of 25 per cent on the import of edible oils.  The oil seeds imported by the State Trading Corporation  contin- ued to attract customs duty at 5 per cent.      Writ Petitions were filed in the High Court of Delhi by private importers complaining of the differential  treatment accorded between 361 the private importers and the State Trading Corporation, but these  writ petitions were dismissed by the High Court,  and

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the appeals by special leave have now been placed before us. As has been mentioned earlier, writ petitions have also been filed directly.     At the outset learned counsel for the private  importers states  that no objection is being taken to canalisation  in favour  of the State Trading Corporation. Nor is  there  any objection  to  the permission granted to the  State  Trading Corporation  to  import 17 lakh tonnes of edible  oils.  The complaint  is  directed against the  differential  treatment meted  out to the private importers in the rate  of  customs duty.     The contention of the petitioners is that the  discrimi- natory  treatment has no real or substantial nexus with  the proposed  object of the exemption orders, having  regard  to the  terms of s. 25(2) under which the exemption  orders  in favour of the State Trading Corporation have been made  and, therefore, there is a violation of Art. 14 of the  Constitu- tion. S 25(2) provides:               "(2)  If the Central Government  is  satisfied               that it is necessary in the public interest so               to do, it may, by special order in each  case,               exempt from the payment of duty, under circum-               stances of an exceptional nature to be  stated               in  such  order, any goods on  which  duty  is               leviable."     It  is apparent that the power conferred on the  Central Government  under s. 25(2) of the Act is to be exercised  by it in its subjective satisfaction. It must be satisfied that it  is  necessary in the public interest to pass  a  special exemption order. The exercise of the power is controlled  by the requirement in the sub-section that the exemption  order must  contain  a statement stating the circumstances  of  an exceptional  nature under which the special exemption  order has  been considered necessary. The requirement is  intended by  the statute to ensure that the satisfaction of the  Cen- tral Government concerning the necessity of the order is not reached arbitrarily but flows from material relevant to  the object  for which the power has been conferred. The  circum- stances recited in the exemption orders are:               "  .....  In view of high international prices               of  vegetable  oils and in order to  keep  the               domestic  prices  of vanaspati  at  reasonable               levels,  it has been felt that certain  speci-               fied vegetable non-essential oils imported  by               the S.T.C. would need to be exempted from part               of the customs duty." 362     The reasons set forth in this statement have been analy- sed  by  learned counsel for the private  importers  and  an attempt has been made to establish that there is no justifi- cation for relying on the international prices of  vegetable oils  nor  the stated desirability of keeping  the  domestic prices  of  vanaspati at reasonable levels  as  grounds  for making the impugned exemption orders in favour of the  State Trading  Corporation. In detailed argument, learned  counsel for  the  private importers urges that the  public  interest which  could  be  contemplated under s. 25(2)  must  be  the reduction of the landed cost in order to reduce the domestic prices  of the oils. That object, it is said, is not  served by  conferring an advantage upon a particular importer  even if  it be the State Trading Corporation, who is  engaged  in the same activity in respect of the same goods. It is point- ed out that the concession must relate to the goods and  not to  the personality of the importer. Further, it is  argued, the allegation that the international prices of edible  oils

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were high is inconsistent with the reality of the situation; on the contrary, it is pointed out, there had been a fall in the international prices of various oils. In support of  the latter submission, reference has been made before us to  the pleadings  of the parties and a P.A.C.  report.  Elaborating his submission in regard to the stated need for  maintaining the  domestic  prices  of vanaspati  at  reasonable  levels, learned  counsel  for the private importers urges  that  the oils  which  were being imported by private  importers  were intended  for  direct human consumption and could  not  have been  supplied to the vanaspati industry. Reference is  made to  the  affidavits  of the parties to show  that  the  oils imported  by  the petitioners could not be utilised  in  the manufacture of vanaspati as permission to do so had not been granted. Accordingly, the private importers say, there is no basis  for  the differential duty set out in  the  exemption orders and no real or substantial nexus between the  differ- entiation made and the object of s. 25(2). Then, it is  also urged,  there is no real or substantial distinction  between the  private  importers and the  State  Trading  Corporation having  regard to the object of the statute, the  nature  of customs  duty,  the  rationale of s. 25  and  the  professed object  of  the exemption orders under s. 25(2).  The  State Trading Corporation, it is contended, cannot be equated with the  Central  Government, and we are  referred  to  S.T.C.v. Commercial  Tax Officer, Vishakapatnam, t19641 4 SCR 99.  It is a private limited company registered under the  Companies Act, 1956 and liable to be wound up under that Act, and that although  it functions under the supervision of the  Govern- ment  of India and its Directors, it is not  concerned  with the performance of any governmental functions, its functions being  entirely  commercial and in the nature of  a  trading activity.  Reliance  is  also placed  on  Heavy  Engineering Mazdoor Union 363 v.  State of Bihar, [1969] 3 SCR 995; Andhra  Pradesh  State Road  Transport Corporation v. Income Tax Officer, [1964]  7 SCR  17  and Vidarbha Housing Board v. Income  Tax  Officer, City and Refund Circle, Nagpur & Others, 92 ITR 430.  Assum- ing,  the private importers contend that the  State  Trading Corporation  can be equated with the Central  Government  or that it is acting on behalf of the Central Government,  once the  Government ventures into the commercial field  it  dons the  robes of a trader, and it cannot thereafter  claim  any special  attribute  or preference for  differentiation  from other  traders.  Learned counsel has placed  before  us  the observations of this Court in L.I.C. v. Escorts Ltd., [1986] 1 SCC 264,344. There is no rational basis, it is urged,  for making  a distinction in the imposition of customs  duty  in respect  of the goods imported by the private importers  and the  State  Trading Corporation as both purchased  the  same commodity  in the open market for direct  consumption,  that the  sales effected by them are on a commercial  basis,  and there is nothing to show that the State Trading  Corporation sold these oils at a price lower than the market price or at subsidised  prices. It is asserted that the Central  Govern- ment,  like any other importer, is liable to  customs  duty, and we are referred to s. 12 of the Customs Act. It is  also complained  that  the  differential  proceeds  on  excessive classification,  and that results in violating the  doctrine of equality enshrined in Art. 14 of the Constitution.  Reli- ance  is placed on State of J & K v. T.N. Khosa,,  [1974]  1 SCR 771, 792; Mohammad Shujat Ali v. Union of India,  [1975] 1  SCR  449, 470 and In Re The Special  Courts  Bill,  1978, [1979] 2 SCR 476, 561-2. And, finally, the private importers

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claim  that inasmuch as approximately 17 lakh tonnes of  oil were imported by the State Trading Corporation as against  a mere  1 lakh tonnes of oil imported by all the  private  im- porters  together,  and  the exemption from  duty  has  been granted in the public interest, namely, to control or reduce the price of edible oils, the relief which should be granted is  to  include the imports made by  the  private  importers within  the  particular customs duty rate of five  per  cent already  extended to the oils imported by the State  Trading Corporation.  In some cases, it is alleged that if  the  im- ports effected by the private importers has to bear the duty levied  upon them, the impact of the total duty would be  so impossible  that  it  would cripple the  business  of  those private importers.     In  reply, the learned Attorney General has  laid  great stress on the submission that the State Trading Corporation, in  undertaking  the  imports, acts solely as  an  agent  or nominee  of the Government of India and all the profits  and losses are on account of the Government of India, the  State Trading Corporation being entitled to service charges 364 only  at one per cent irrespective of loss or profit. It  is submitted  that  the  Central Government is  not  liable  to customs  duty and we are referred to various  considerations in  support  of that claim. It seems to  us  unnecessary  to enter into that question because we have before us a  situa- tion  where  customs  duty has in fact  been  imposed,  even though  at the rate of five per cent only. In accepting  the imposition of customs duty, albeit at five per cent, neither the  State  Trading Corporation nor the  Central  Government rest  their  case on any claim to immunity  of  the  Central Government  from the levy of customs duty. It is not  neces- sary, therefore, to construe the amendment made in s. 12  of the  Customs Duty Act, 1962, to which both  learned  counsel have made reference.     The  limited  question  before us is  whether  there  is justification  for the differential treatment  accorded  be- tween the State Trading Corporation and the private  import- ers.  Now it is significant to note that the import  of  the specified oils had been entrusted exclusively to the  State’ Trading  Corporation with effect from 2 December, 1978,  and because  the  private importers had already, prior  to  that date, entered into contracts for purchase of the edible oils with  foreign sellers, they were permitted to make  the  im- ports  in question in order to honour their  commitment.  In other words, contracts by private importers concluded before 2  December, 1978 were allowed to be worked out  after  that date  without affecting the principle that as from 2  Decem- ber,  1978,  the business of importing  such  oils  belonged exclusively  to the State Trading Corporation. This  is  the background  in which the questions raised before us need  to be considered.     First,  as to the contention that both the  reasons  set forth: in the exemption notifications under s. 25(2) of  the Act  are  without foundation. It seems to us  that  the  two reasons set forth in the exemption notifications can consti- tute  a  reasonable basis for those notifications.  It  does appear from the material before us that international prices were fluctuating, the although they may have shown a percep- tible  fall there was the apprehension that because  of  the history  of  fluctuation there was a  possibility  of  their rising  in  the  future. The need to  protect  the  domestic market is always present, and therefore encouragement had to be given to the imports effected by the State Trading Corpo- ration by reducing the rate of customs duty levied on  them.

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This  involved a long term perspective, since the  exclusive monopoly  to import these edible oils was now  entrusted  to the State Trading Corporation. What appears to have dominat- ed  the  policy of the Government in issuing  the  exemption notifications was the consideration that the domestic prices 365 of  vanaspati should be maintained at reasonable levels.  It cannot  be doubted that the entire edible oil market  is  an integrated  one,  and  that it is not  reasonable  to  treat anyone  of the edible oils or vanaspati in isolation. It  is well accepted fact that vanaspati manufacturers constitute a powerful  organised sector in the edible oil market,  and  a high vanaspati price would encourage an unauthorised  diver- sion  of the edible oils to vanaspati  manufacturing  units, resulting  in  a scarcity in the edible oil  market,  giving rise to erratic prices and depriving consumers of access  to edible oils. The need for preventing vanaspati prices ruling high  was  also to prevent people normally  using  vanaspati from switching over to other edible oils, thus leading to an imbalance in the oil market. An overall view made it  neces- sary to ensure that domestic prices of vanaspati remained at reasonable  levels. To all these considerations the  learned Attorney General has drawn our attention, and we cannot  say that they are not reasonably related to the policy  underly- ing the exemption orders. So that the Government would  have sufficient  supplies of edible oil at hand in order to  feed the  market, the learned Attorney General says, it was  con- sidered  desirable and in the public interest to reduce  the rate of customs duty to five per cent on the imports made by the State Trading Corporation. Now it is the Central Govern- ment  which has to be satisfied, as the authority  appointed by  Parliament under s. 25(2), that it is necessary  in  the public interest to make the special orders of exemption.  It has  set out the reasons which prompted it to pass  the  or- ders.  In our opinion, the circumstances mentioned in  those notifications cannot be said to be irrelevant or  unreasona- ble.  It  is not for this Court to sit in  judgment  on  the sufficiency of those reasons. The limitations on the  juris- diction  of  the Court in cases where the  satisfaction  has been entrusted to executive authority to judge the necessity for passing orders is well defined and has been long accept- ed.     It  is  true that the State dons the robes of  a  trader when  it enters the field of commercial activity, and  ordi- narily it can claim no favoured treatment. But there may  be clear and good reason for making a departure. Viewed in  the background  of  the reasons for granting a monopoly  to  the State Trading Corporation, acting as an agent or nominee  of the  Central Government in importing the specified oils,  it will  be  evident  that policy  considerations  rendered  it necessary  to make consummation of that policy effective  by imposing a concessional levy on the imports. No such conces- sion is called for in the case of the private importers who, in any event, are merely working out contracts entered  into by them with foreign sellers before 2 December, 1978. 366     We  are also not satisfied that any of the  private  im- porters  have made out that their business will be  crippled or  ruined  in view of the rate of customs duty  visited  on their  imports. The material before us is not sufficient  to warrant any conclusion in their favour.     As, in our opinion, the private importers are not  enti- tled  to relief, no question arises of  considering  whether the exemption orders should be struck down or their  benefit extended in favour of the private importers also.

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   The appeals and Petitions for Special leave to appeal as well  as  the writ petitions before us  are  dismissed,  but there is no order as to costs. R.S.S.                          Appeals  and  Petitions  are dismissed. 367