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PETITIONER: UNION OF INDIA & ANR.

       Vs.

RESPONDENT: M/S.  PARAMESWARAN MATCH WORKS ETC.

DATE OF JUDGMENT04/11/1974

BENCH: MATHEW, KUTTYIL KURIEN BENCH: MATHEW, KUTTYIL KURIEN RAY, A.N. (CJ) UNTWALIA, N.L.

CITATION:  1974 AIR 2349            1975 SCR  (2) 573  1975 SCC  (1) 305  CITATOR INFO :  R          1975 SC2299  (235,385)  R          1976 SC1003  (3,9,10,13)  F          1980 SC 271  (17)  D          1983 SC 130  (55,57)  D          1983 SC 420  (19)  R          1985 SC1367  (42)  D          1989 SC 665  (4,5,7)  RF         1990 SC1300  (7)

ACT: Central Excise and Salt Act 1944--S. 3--Concessional rate of duty   on    matches  granted   to   smaller   Units-Whether discriminatory.

HEADNOTE: For the purpose of levy of excise duty match factories  were classified   by  the  Government  on  the  basis  of   their production  during a financial year, the higher  rate  being levied  on  matches produced in factories  having  a  higher output.  In 1967, in place of classification on the basis of production,   a  higher  rate,  for  matches   produced   on mechanised  units  and a lower rate on matches  produced  on non-mechanised  units ’was adopted.  In the case of  cottage units and units on co-operative basis a concessional rate of duty  was  levied.   The  notification  of  July  21,   1967 contained a proviso to the effect that if a manufacturer was to  give a declaration that the total clearance  of  matches from  a  factory  would  not, exceed  75  million  during  a financial  Year he would be entitled to a concessional  rate of  duty.  This notification enabled the manufacturers  with higher capacity to avail of the concessional rate of duty by filing  a  declaration as visualised in the proviso  to  the notification  by restricting their clearance to  75  million matches.  To avoid such a contingency the notification dated 21st July, 1967 was amended on September 4, 1967 with a view to give bona fide small manufacturers, whose total clearance was not estimated to be in excess of 75 million matches, the concessional rate of duty prescribed under the  notification dated  July 21, 1967.  The respondent applied for a  licence for  manufacturing matches on September 5, 1967 and filed  a declaration that the estimated manufacture for the financial

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year  would  not  exceed 75 million matches,  but  this  was rejected.   In ,its Writ Petition before the High  Court  it was  contended  that it had been denied the benefit  of  the concessional rate of duty on the ground that it applied  for a  licence  and filed the declaration only a day  after  the date  mentioned in clause (b) of the notification  and  that that  was  discriminatory.   The High Court  held  that  the classification was unreasonable inasmuch as the fixation  of the  date  for making a declaration had no  nexus  with  the object of the Act. Allowing the appeals. HELD  : (1) The reasoning of the High Court is not  correct. The  purpose behind the proviso is to enable only bona  fide small manufacturers of matches to earn a concessions rate of by  filing the declaration.  The small  manufacturers  whose estimated  clearance  in  a year was less  than  75  million matches, would have availed themselves of the opportunity by making  the declaration as early as possible as  they  would become  entitled to the concessional rate of duty  on  their clearance   from   time  to  time.   The  purpose   of   the notification was to prevent larger units who were  producing and  clearing more than 100 million matches in a  year  and, who  could  not have made a declaration, from  splitting  up into  smaller units in order to avail the concessional  rate of  duty  by making the  declaration  subsequently.  [577FG; 578BC] (2)In the matter of granting concession or exemption  from tax  the Government has a wide latitude of  discretion.   It need  not give exemption or concession to everyone in  order that  it may grant the same to some.  That a  classification can  be founded on a particular date and yet be  reasonable, has been held in several decisions. [578G-H] M/s Hathising Mfg.  Co. Ltd. v. Union of India [1960] 3 SCR, 528, at 543; Dr. Mohammad Saheb Mahboon Medico v. The Deputy Custodian  General [1962] 2 SCR 371, at 379;  Mls.   Bhikuse Yamasa  Kshatriya  (P) Ltd. v. Union of India [1964]  1  SCR 860,  at  880; Daruka & Co. V. Union of India AIR  1973  SC. 2711 referred to. 574 (3)  The  choice  of a date as a  basis  for  classification cannot  always be dubbed as arbitrary even if no  particular reason  is forthcoming for the choice unless it is shown  to be capricious or whimsical in the circumstances. [579B] Louisville  Gas Co. v. Alabama Power Co. 240 U.S. 30  at  32 (1927) per Justice Holmes, referred to. Arguments for the Appellants: The impugned notification dated 4th September, 1967 does not violate  article 14 of the Constitution.   All  applications for  licences  and  declaration were  filed  after  the  4th September  1967  and therefore none of the  respondents  was entitled  to  any exemption in view of clause  (ID)  of  the notification.  The history of the match industry shows  that there  was a recognised tendency on the part of  the  bigger units  to  split up themselves into smaller  units  for  the purpose  of  availing exemption from excise duty  which  was really intendea for the benefit of bona fide smaller  Units. The  object of the notifications was to assist  the  smaller manufacturers  with  less  duty and  secondly  to  help  two classes  of  manufacturers  with still lesser  duty  and  to extend  the  exemption  to all manufacturers  who  made  the necessary  declaration.   The declaration  was  intended  to safeguard the interests of the genuine smaller manufacturers as  far as possible.  The object of the  notification  dated 4th  September, 1967 was to further safeguard the  interests of  existing  bona fide small manufacturers  for  preventing

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fragmentation  of  larger manufacturing units in  future  in order  to  benefit at the expense of  the  existing  smaller units.   The fixing of the date of the notification  as  the dividing line and limiting the exemption to those who  filed the  requisite  declaration is not arbitrary.   It  is  well settled  that there must be a great deal of  flexibility  in the  incidence of taxation, in the case of a taxing  statute the  legislature  has a wider discretion in  selecting  the, objects, persons and the methods; the legislature  possesses larger freedom regarding classification, the  classification of  transactions  with reference to a date is valid;  and  a rule which makes a difference between. past and present does not violate article 14 of Constitution. Arguments for the respondents: While  the earlier Notification No. 162 of 1969 dated  21-7- 1967 did not put any time limit, the later Notification  No. 205  of  1967 dated 4-9-1967 sets an  arbitrary  time  limit making   discrimination   between  the  same   category   of manufacturers simply on the basis of the applications  being before  or after 4-9-1967.  The fixation of 4-9-1967 as  the dividing  line  is-arbitrary and it does not relate  to  the object of the Act and the Rules contained therein. The fact that in one case declaration has been filed  before the specified date and in the other no such declaration  has been filed does not provide the, basis for any  intelligible differentia  between  the  two  sets  of  manufacturers   of matches.  There is no rational basis for such classification which  is arbitrary in the sense that it does not relate  to the  fiscal  object of the Central Exercise  and  Salt  Act, 1944.   Classification  on  the  basis  of  presentation  of application  before  or  after the  specified  date  without reference to production or manufacture of goods but by  mere reference  to  the presentation of  applications  before  or after   4-9-1967   is  arbitrary  and   unreasonable.    The respondents   are  similarly  placed  with  those  who   had submitted their applications prior to 4-9-1967 but commenced production after the said date.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 262 to 273, 587/  to 591 and 1351 to 1402 of 1971 and Civil Appeal  Nos. 1883 to 1921 of 1972. Appeals  by Special Leave from the Judgment and Order  dated 11th December, 1968/22nd September, 1969 and 28th July, 1970 of  the Madras High Court in W. Ps.  Nos.  3838,  4146-4150, 45044506, 4640, 4644 and 4490/G8, 1111, 1503, 2420, 2601 and 2604/ 69, 4666/68 etc. and 411-414 of 1969 etc. etc. 575 Niren  De, Attorney General of India (In C. A. Nos.  262-273 and  1351 and 1883, P. P. Rao (In CA.  Nos. 262  and.  1883) and Girish Chandra for the appellants. S. S. Javali and Saroja Gopalakrishnan, for the respondents. The Judgment of the Court was delivered by MATHEW,  J. In these appeals, the facts are similar and  the question  for  consideration is same.  We will take  up  for consideration  the  appeal filed by the writ  petitioner  in Writ  Petition  No.  3838 of 1968  (hereinafter  called  the ’respondent’)  against  the  common order in  all  the  writ petitions. The respondent filed the writ petition before the High Court of  Madras  questioning  the  validity  of  clause  (b)   of notification  of-  the  Government  of  India,  Ministry  of Finance  (No.  205/67-CE  dated September 4,  1967)  on  the

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ground that clause (b) is violative of the fundamental right of the respondent under Article 14.  The High Court  allowed the  petition  and this appeal, by special leave,  is  filed against the order. Section  3  of the Central Excise and Salt  Act,  1944  (for short,  ’the  Act’) imposes excise duty  on  manufacture  in respect of items mentioned in Schedule I of the Act.   Match boxes are mentioned in item 38 of the said schedule and duty is  leviable on the manufacture of match boxes at the  rates specified therein.  For the purpose of levy of excise  duty, match  factories  were  classified on  the  basis  of  their production during a financial year and, matches produced  in different factories were subject to varying rates of  duty-a higher  rate being levied on matches produced  in  factories having  a’  higher output.  In 1967, the  classification  of match factories on the basis of production was abandoned and they  were classified as mechanised units and  nonmechanised units  and,  by notification No. 115 of 1967 dated  June  8, 1967,  two rates of levy were prescribed i.e., Rs. 4.60  per gross  boxes of 50 matches each cleared in mechanised  units and  Rs. 4.15 per gross boxes of 50 matches each cleared  in non-mechanised  units.  A concessional rate of duty  of  Rs. 3.75  per  gross  up to 75 million matches  was  allowed  in respect of units certified as such by the Khadi and  Village Industries  Commission  or units set up in  the  cooperative sector.   Notification No. 162 of 1967 dated July  21,  1967 superseded the earlier notification and the rate of duty  in respect of non-mechanised units was raised from Rs. 4.15  to Rs.  4.30  per gross boxes.  This notification  contained  a proviso to the effect that if a manufacturer were to give  a declaration  that the total clearance from the factory  will not  exceed 75 million matches during a financial year,  the manufacturer  would be entitled to the concessional rate  of duty of Rs. 3.75 per gross boxes of 50 matches each up to 75 million  matches,  and  the quantity  of  matches,  if  any, cleared in excess up to 100 million matches will be  charged at  Rs.  4.30 per gross, and, if the clearance  exceeds  100 million  matches,  the entire quantity  cleared  during  the financial  year  will  be charged to duty at  Rs.  4.30  per gross.     This   notification,   however,    enabled    the manufacturers  with  a  capacity to produce  more  than  100 million matches and who were clearing more than 100  million matches during the previous years to avail of the-L319SCI/75 576 concessional rate of duty at Rs. 3.75 per gross by filing  a declaration as visualized in the proviso to the notification by restricting their clearance to 75 million matches.   This would  have defeated the  very purpose of the  notification, namely, the grant of concessional rate of duty only to small manufacturers.  In order to avert this tendency on the  part of  the larger units, the notification dated July  21,  1967 was amended by notification No. 205 of 1967 dated  September 4, 1967.  The notification reads :               "In  exercise of the powers conferred by  sub-               rule  (1)  of  rule 8 of  the  Central  Excise               Rules,  1944,  the Central  Government  hereby               makes  the  following amendment in  the  noti-               fication  of  the Government of India  in  the               Ministry of Finance (Department of Revenue and               Insurance) No. 162/ 67, Central Excises  dated               the 21st July, 1967, namely:-               In the proviso to the said notification  after               clause  (i) the following shall  be  inserted,               namely :-               (ia) nothing contained in the foregoing clause

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             shall  apply  to any factory  other  than  the               factories :               (a)whose production during the financial  year               1966-67 did not exceed 100 million matches;               (b)whose total clearance of matches during the               financial  year  1967-68, as  per  declaration               made  by  the  manufacturer  before  the   4th               September,  1967 in pursuance to this  proviso               is not estimated to exceed 75 million matches;               (c)which   fall   under   category   D   under               notification  No. 75/66-Central Excises  dated               the  30th April, 1966, but bad  no  production               till the 4th September, 1967;               (d)whose production during any financial  year               does not exceed or is not estimated to  exceed               100 million matches and are recommended by the               Khadi  and Village Industries  Commission  for               exemption  under this notification as  a  bona               fide  cottage  unit or which is set  up  by  a               cooperative  society registered under any  law               relating to cooperative societies for the time               being in force." The  purpose of this notification was to give to  bona  fide small manufacturers whose total clearance, according to  the declaration,  was  not  estimated  to be  in  excess  of  75 millions for the financial year 1967, the concessional  rate of  duty  prescribed under the notification dated  July  21, 1967.   The manufacturers who came to the field  after  Sep- tember 4, 1967 were entitled to concessional rate of duty if they satisfied the condition prescribed in clause (d) of the aforesaid notification. The  respondent  applied  for a  licence  for  manufacturing matches  on  September  5, 1967 stating that  it  began  the industry  from March 5, 1967, and also filed  a  declaration that the estimated manufacture for the financial year  1967- 68 would not exceed 75 million matches.  It 577 was on this basis that the respondent sought to restrain the appellants from recovering excise duty in excess of Rs. 3.75 per  gross  of  boxes of 50 matches each up  to  75  million matches  by  challenging the validity of clause (b)  of  the notification. The  contention of the respondent before the High Court  was that it has been denied the benefit of the concessional rate of duty on the ground that it applied for ’licence and filed the  declaration only on September 5, 1967, a day after  the date  mentioned in clause (b) of the aforesaid  notification and that was discriminatory. The  High Court was of the view that the classification  was unreasonable inasmuch as the fixation of the date for making the  declaration, namely, September 4, 1967 as the basis  of the  classification  between those who are entitled  to  the benefit  of the concessional rate of duty and those who  are not  so entitled, has no nexus with the object of  the  Act. The  High Court said that all manufacturers whose  estimated production  would  not  exceed 75  million  matches  in  the financial  year 1967-68 would fall under one class  and  the fact  that  some  among them filed  the  declaration  before September  4, 1967 is not a differentia having a nexus  with the object of the Act for putting that-in a different Class. The High Court, therefore, came to the conclusion that there was  no difference between the two classes of  manufacturers from  the point of view of revenue as they were all en  aged in production of matches and as none of them was expected to produce  in the financial year more than 75 million  matches

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on an estimate. We  do  not think that the reasoning of the  High  Court  is correct.  It may be noted that it was by the proviso in  the notification dated July 21, 1967 that it was made  necessary that  a declaration should be filed by a  manufacturer  that the total clearance from the factory during a financial year is  not estimated to exceed 75 million matches in  order  to earn the concessional rate of Rs. 3.75 per gross boxes of 50 matches  each.  The proviso, however, did not say, when  the declaration  should  be  filed.   The  purpose  behind  that proviso was to enable only bona fide small manufacturers  of matches to earn the concessional rate of duty by filling the declaration.    All  small  manufacturers  whose   estimated clearance  was  less  than 75  million  matches  would  have availed  themselves  of  the  opportunity  by  making   the, declaration  as  early  as possible  as  they  would  become entitled-to the concessional rate of duty on their clearance from  time  to time.  If is difficult to  imagine  that  any manufacturer  whose  estimated total  clearance  during  the financial year did not exceed 75 million matches would  have failed to avail of the concessional rate on their clearances by filing the declaration at the earliest possible date.  As already  stated,  the respondent filed its  application  for licence  on  September 5, 1967 and made the  declaration  on that  date.  The concessional rate of duty was intended  for small  bona  fide  units  who were in  the  field  when  the notification  dated September 4, 1967 was issued,  the  con- cessional  rate was not intended to benefit the large  units which   had  split  up  into  smaller  units  to  earn   the concession.   The  tendency  towards  fragmentation  of  the bigger  units  into  smaller  ones  in  order  to  earn  the concessional rate of duty has been noted by the Tariff  Com- mission in its report (see the extract from the report given at p. 500 578 in M. Match Works v. Assistant Collector, Central Excise.(1) The whole object of the notification dated September 4, 1967 was  to  prevent further fragmentation of the  bigger  units into  smaller ones in order to get the concessional rate  of duty  intended  for the smaller units and  thus  defeat  the purpose  which the Government had in view.  In other  words, the  purpose of the notification was to prevent  the  larger units who were producing and clearing more than loo  million matches in the financial year 1967-68 and who could not have made  the declaration, from splitting up into smaller  units in order to avail of the concessional rate of duty by making the declaration subsequently.  To achieve that purpose,  the Government chose September 4, 1967, as the date before which the declaration should be filed.  There can be no doubt that any date chosen for the purpose would, to a certain  extent, be arbitrary.  That is inevitable. Rule  8  of  the  Central Excise  Rules,  1944,  made  under sections 6, 12 and 37 of the Act reads :               "Power  to  authorise exemption from  duty  in               special  cases-(1) The Central Government  may               from  time  to time, by  notification  in  the               Official  Gazette,  exempt  subject  to   such               conditions   as  may  be  specified   in   the               notification  any  excisable  goods  from  the               whole  or  any part of duty leviable  on  such               goods.               (2)   The  Central  Board of  Revenue  may  by               special  order  in each case exempt  from  the               payment  of  duty, under circumstances  of  an               exceptional nature an excisable goods."

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The  concessional  rate of duty can be availed  of  only  by those  who satisfy the conditions which have been laid  down under   the   notification.   The  respondent  was   not   a manufacturer before September 4, 1967 as it had applied  for licence only on September 5, 1967 and it could not have made a  declaration  before  September 4,  1967  that  its  total clearance for the financial year 1967-68 is not estimated to exceed  75  million  matches.  In  the  matter  of  granting concessions or exemption from tax, the Government has a wide latitude  of  discretion.   It need not  give  exemption  or concession  to everyone in order that it may grant the  same to   some.   As  we  said,  the  object  of   granting   the concessional rate of duty was to, protect the smaller  units in the industry from the competition by the larger ones  and that object would have been frustrated, if, by adopting  the device  of fragmentation, the larger units could become  the ultimate beneficiaries of the bounty.  That a classification can  be founded on a particular date and yet be  reasonable, has  been held by this Court in several decisions (see  M/s. Hathisingh Mfg.  Co. Ltd. v. Union of India,(2) Dr. Mohammed Saheb (1) A. 1. R. 1974 S. C. 497. (2) [1960] 3 S. C. R. 528 at 543. 579 Mahboon  Medico  v.  The Deputy  Custodian  General(1)  M/s. Bhikuse  Yamsa Kshatriya (P) Ltd. v. Union of  India(2)  and Daruka & Co. v. Union of India.(3) The choice of a date as a basis   for  classification  cannot  always  be  dubbed   as arbitrary even if no, particular reason. is forthcoming  for the choice unless it is shown to be capricious or  whimsical in  the  circumstances.  When it is seen that a  line  or  a point there must be and there is no mathematical or  logical way of fixing it precisely, the decision of the  legislature or  its delegate must be accepted unless we can say that  it is very wide of the reasonable mark. See Louisville Gas  Co. v.  Alabama Power Co.-240 U. S. 30 at 32 (1927) per  Justice Holmes. We set aside the orders of the High Court, dismiss the  writ petitions and allow the appeals with costs. P.B.R.          Petitions dismissed and Appeals allowed. (1) [1962] 2 S.C.R. 371.    (2) [1964] 1 S.C.R. 860 at 880. (3)  A.I.R. [1973] S.C. 2711. 580