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PETITIONER: UNION OF INDIA

       Vs.

RESPONDENT: PALIWAL ELECTRICALS (P) LTD & ANR.

DATE OF JUDGMENT:       25/03/1996

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) SEN, S.C. (J)

CITATION:  1996 SCC  (3) 407        JT 1996 (3)   606  1996 SCALE  (3)113

ACT:

HEADNOTE:

JUDGMENT:                      J U D G E M E N T B.P.JEEVAN REDDY,J.      The Allahabad  High Court has struck down Para-7 of the Exemption Notification  No. 223  of 1987]  on the  ground of violation of  Article 14  of the  Constitution of India. The decision under  appeal is largely influenced  by and follows the decision  of a learned Single Judge of the Calcutta High Court in  banner and  Company v.  Union of  India [1994 (70) E.L.T.181].      Rule 8 of the Central Excise Rules empowers the Central Government to  exempt, subject  to such conditions as it may specify, any  excisable goods from the  whole or any part of duty leviable on such goods.      By means  of Notification  No.175 of  1986 issued Under Rule 8  of the  Central Excise  Rules, exemption from excise duty was granted in favour of certain small scale industries manufacturing the  goods specified  in the  schedule to  the Notification provided  their annual  turnover did not exceed the  limit   prescribed.  The   relevant  portions   of  the Notification read :      "3.  Nothing  contained   in   this      notification  shall  apply  if  the      aggregate value of clearance of all      excisable    goods     for     home      consumptions:--      (a) by  a manufacturer, from one or      more factories, or      (b) from  any factory,  by  one  or      more  manufacturers,  had  exceeded      rupees one  hundred and  fifty lakh      in the preceding financial year.      4. The  exemption contained in this      notification  shall  be  applicable      only  to  a  factory  which  is  an      undertaking  registered   with  the

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    Director of Industries in any State      or  the   Development  Commissioner      (Small Scale Industries) as a small      scale industry under the provisions      of the  Industries (Development and      Regulations)  Act,   1951  (65   of      1951)...............      Explanation IV. for the purposes of      this   notification,    where   the      specified goods  manufactured by  a      manufacturer, are  affixed  with  a      brand   name    or    trade    name      (registered  or   not)  of  another      manufacturer   or    trade,    such      specified goods  shall not,  merely      by reason  of that  fact, be deemed      to have  been manufactured  by such      other manufacturer or trader."      Explanation IV is of relevance. It provided that merely because the  brand-name or trade-name of anther manufacturer or trader  was affixed to the goods manufactured by a ’small manufacturer’ (to  use a  convenient expression  denoting  a manufacturer who  is entitled  to the  benefit of  the  said Notification) such goods shall not be deemed to be the goods manufactured by such other manufacturer or trader.      The object  of the  notification is self-evident. It is to help  that small  manufacturers to  service in the market which is  dominated by  brand-names/ trade-names.  It  is  a matter of  common knowledge  that people  prefer  well-known brand-names. They buy them under an implicit faith that they are of  reliable quality.  In  such  a  situation,  a  small manufacturer faces  an  uphill  task  in  having  his  goods accepted in  the market.  If he prices his goods at the same level as  the price  of goods  manufactured by  a well-known brand-name, he  stands no  chance; he  will be priced out of market in  no time. It is precisely to enable him to survive him in  the market  that the  said exemption  is granted. By virtue of  exemption form duty, the small manufacturer would be able  to sell  his goods  at a  cheaper price thus making them attractive  in the  market -  and more competitive. The notification thus  serves the  socioeconomic  objectives  of helping  the   small  manufacturers   and   increasing   the industrial  production.   So  far   as  Explanation   IV  is concerned, it  is really classificatory in nature; it merely reiterates to  principle of  the decision  of this  Court in Union of  India &  Ors. v. Cibatul Limited [1985 (22) E.L.T. 302].      On September 22, 1987, Notification No. 175 of 1986 was amended  by  Notification  No.  223  inserting  Para  7  and Explanation VII  therein. The  inserted provisions  read  as follows:      "7. The exemption contained in this      notification shall not apply to the      specified     goods     where     a      manufacturer affixed  the specified      goods with  a brand  name or  trade      name registered  or not) of another      person who  is not eligible for the      grant  of   exemption  under   this      notification:           Provided that  nothing in this      paragraph shall  be  applicable  in      respect  of   the  specified  goods      cleared for home consumption before      the Ist day of October, 1987.

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    Explanation VIII.--  Brand name  or      trade name  shall mean a brand name      or trade  name, whether  registered      or not,  that is to say a name or a      mark,  such   as  symbol,  monogram      label, signature  or invented  word      or  writing   which  is   used   in      relation to  such  specified  goods      for the  purpose of  indicating, or      so as  to indicate  a connection in      the course  of trade  between  such      specified  goods  and  some  person      using ’such  name or  mark with  or      without  any   indication  of   the      identity of that person."      Now, what does Para 7 provide and why? It provides that the benefit  of Notification  No. 175 shall not be available to a  small manufacturer,  who  affixes  the  brand-name  or trade-name (registered or not) of another person, who is not eligible  for   the  grant   of  exemption  under  the  said notification.  Explanation   VIII  defines  the  expressions "brand-name or trade-name". The explanatory note appended to the notification states that "(T)his amendment seeks to deny small scale  exemption in respect of specified goods affixed with the  brand-name/trade-name  of  a  person  who  is  not eligible for  the exemption under Notification NO. 175/86-CE dated 1.8.86." The object underlying Para 7 is self-evident. If a small manufacturer who affixes the brand-name or trade- name  of   an  ’ineligible   manufacturer’   (a   convenient expression to  denote a  manufacturer outside the purview of Notification No. 175 of 1986 and who owns or entitled to use a brand-name  or trade-name),  the very  reason  d’etre  for granting the exemption disappears. The exemption is designed to enable the small manufacturer to survive in the market in competition with  the  ineligible  manufacturer  but  if  he joins,  or   identifies   himself   with,   the   ineligible manufacturer, his  goods become  one with  the goods or such ineligible manufacturer.  They become  indistinguishable. In the market,  they will all be understood as one and the same goods.  They   no  longer   need  the   benefit  under   the Notification. It  must be  remembered that  by extending the benefit of  exemption, the State is foregoing public revenue to which  it is  entitled under  the Act. The loss to public revenue is  supposed to  be compensated by helping along the small manufacturers to survive in the market and continue to produce. Once  he becomes  one with his competitor, the need for supporting  crutches disappears.  There is no reason why in such a case the State should forego the revenue due to it under the  Act. It  is the insufficient appreciation of this basic aspect  that has  led both  the Allahabad and Calcutta High Courts  astray. But  before we deal with their approach and reasoning,  it would  be appropriate  to deal  with  the nature and  character of the power of exemption under Rule 8 of the Central Excise Rules.      The power  of exemption is a potent weapon in the hands of the Central Government to regulate and manage the economy and to achieve the various social and economic objectives of the State.  As observed  by this  Court in  Union of India & Ors. v.  M/s. Jalyan  Udyog &  Anr. [1994  (1)  S.C.C.  319] dealing with  Section 25 of the Customs Act which is in pari materia with Rule 8:      "It is a power given to the Central      Government  to   be  exercised   in      public interest.  Such a  provision      has become  a standard  feature  in

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    several    enactments     and    in      particular, taxing  enactments.  It      is equally well settled by now that      the power  the taxation can be used      not merely  for raising revenue but      also to  regulate the  economy,  to      encourage  or   discourage  as  the      situation may  call for, the import      and export of certain goods as also      for serving  the social  objectives      of the  State [Vide Elel Hotels and      Investments Ltd.  v. Union of India      (1989) 3  SCC  698,  Sri  Srinivasa      Theatre  v.   Government  of   T.N.      (1992)  2   SCC  643   and  Subhash      Photographics  v.  Union  of  India      [(1993)  Suppl.  3  SCC  323  :  JT      (1993)  4   SC  116].   Since   the      Parliament    cannot     constantly      monitor  the   needs  of   and  the      emerging trends  in the economy and      is in  no position to engage itself      in   day-to-day    regulation   and      adjustment of  import-export  trade      accordingly,  power   is  conferred      upon  the   Central  Government  to      provide for  exemption from duty of      goods, either wholly or partly, and      with or  without conditions, as may      be called  for in  public interest.      We see  no warrant  for reading any      limitation into  this power. If the      public interest  demands  that  the      exemption should  be absolute,  the      Central  Government   can  do   so.      Similarly, if  the public  interest      demands that  the exemption  should      be granted  only subject to certain      conditions.  Then   again  if   the      public   interest    demands   that      conditions specified  should relate      to a  stage subsequent  to the date      of clearance  it  can  do  so.  The      guiding  factor   is   the   public      interest."      Though Rule  8 does  not  use  the  expression  "public interest" unlike  Section 25  of the  Customs Act,  both the powers  are   conceived  in   public   interest.   See   the Constitution Bench decision in Orient Weaving Mills v. Union of India  [A.I.R. 1963  S.C. 98 = (1962) Supp. 3 S.C.R. 481] upholding the  constitutional validity  of  Rule  8.  It  is observed therein:      "The Act  recognizes and only gives      effect  to   the  well  established      principle  that  there  must  be  a      great deal  of flexibility  in  the      incidence   of    taxation   of   a      particular kind.  It must vary from      time to time, as also in respect of      goods   produced    by    different      agencies..............It    is    a      function of  the State, in order to      raise revenue  for State  purposes,      to determine  what  kind  of  taxes      shall be levied and in what manner.

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    Its  function,   therefore,  is  to      raise revenues for public purposes.      The State  naturally is  interested      in   raising    all   the   revenue      necessary  for   public   purposes,      without sacrificing  the legitimate      interests of  persons  and  groups,      who deserve  special  treatment  at      the hands of the State for reasons,      which  the   State  may  determine,      entitling them  to be  placed in  a      special case."      We  are   of  the  opinion  that  while  examining  the challenge to  an Exemption  Notification under  the  Central Excise Act,  the observations  in  the  decisions  aforesaid should be  kept in  mind. It  should also be remembered that generally speaking  the Exemption Notification and the terms and conditions  prescribed therein represent the policies of the government  evolved  to  subserve  public  interest  and public revenue.  A very  heavy murder,  lies upon the person who challenges  them on  the ground  of Article  14.  Unless otherwise established,  the court must presume that the said amendment  was   found  by  the  Central  Government  to  be necessary for  giving effect  to its  policy [underlying the notification] on  the basis  of  the  working  of  the  said Notification and  that such an amendment was found necessary to prevent  persons from  taking  unfair  advantage  of  the concession. In  fact, in  this cases  the  explanatory  note appended to  amending Notification says so in so many words. If necessary,  the Court  could have called upon the Central Government to  establish the  reasons behind  the amendment. [It did  not think it fit to do so.] It is equally necessary to bear  in mind,  as pointed  out repeatedly  by this Court that in  economic and  taxation  sphere,  a  large  latitude should be allowed to the Legislature. The Courts should bear in mind  the following  observations made  by a Constitution Bench of  this Court in R.K.Garg v. Union of India [1982 (1) S.C.R. 947] :      "Another rule  of equal  importance      is that  laws relating  to economic      activities should  be  viewed  with      greater latitude than laws touching      civil rights  such  as  freedom  of      speech, religion  etc. It  has been      said  by  no  less  a  person  than      Holmes,J.  that   the   legislature      should be  allowed some play in the      Joints, it has to deal with complex      which  do  not  admit  of  solution      through any doctrinaire or straight      jacket   formula    and   this   is      particularly  true   in   case   of      legislation dealing  with  economic      matters, where,  having  regard  to      the nature of the problems required      to be  dealt with,  greater play in      the joints  problems allowed to the      legislature.   should   feel   more      inclined to  The Court  give  judge      judgment regulation  than in  other      areas   where   fundamental   human      rights are  involved.  Nowhere  has      this    admonition     been    more      felicitiously  expressed   than  in      Morey v. Doud* (1957) 354 U. S. 457

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    where Frankfurter,J.  said  in  his      inimitable style:           ’In  the  utilities,  tax  and           economic   regulation   cases,           there  are  good  reasons  for           judicial  self--restraint   if           not  judicial   difference  to           legislative   judgment.    The           legislature after  all has the           affirmative    responsibility.           The    courts  have  only  the           power to  destroy,  not  these           are added to the complexity of           economic    regulation,    the           uncertainty, the  liability to           the experts, and the number of           times  the  judges  have  been           overruled   by    events-self-           limitation can  be seen  to be           the path  of  judicial  wisdom           and     institutional      and           stability. ----------------------------------------------------------- *It is  true that  Mory v.  Daud was  overruled later by the United States  Supreme Court  in New Orleans v. Dukes (1976) 427 U.S.  297, but  the said  fact does not detract from the validity of  the said  rule stated in Morey v. Daud nor does it in any manner affect the principle stated by this Court.           The Court must always remember      that  legislation  is  directed  to      practical   problems,    that   the      economic   mechanism    is   highly      sensitive and  complex,  that  many      problems    are     singular    and      contingent,  that   laws  are   not      abstract propositions  and  do  not      relate to  abstract units  and  are      not  to  be  measured  by  abstract      symmetry’  that  exact  wisdom  and      nice adaptation  of remedy  are not      always possible  and that ’judgment      is  largely  a  prophecy  based  on      meagre      and       uninterrupted      experience’.   Every    legislation      particularly in economic matters is      essentially empiric and it is based      on experimentation  or what one may      call trial  and  error  method  and      therefore it cannot provide for all      possible situations  or  anticipate      all possible  abuses. There  may be      crudities   and    inequities    in      complicated  experimental  economic      legislation  but  on  that  account      alone it  cannot be  struck down as      invalid.  The   Courts  cannot,  as      pointed out  by the  United  States      Supreme   Court    in   Secy.    of      Agriculture   v.    Central   Reig.      Refining Co. (1950) 94 L.ed.381, be      converted into tribunals for relief      from such crudities and inequities.      There may  even be possibilities of      abuse,  but   that  too  cannot  of      itself be a ground for invalidating

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    the legislation,  because it is not      possible  for  any  legislature  to      anticipate as  if  by  some  divine      prescience, distortions  and abuses      of its  legislation  which  may  be      made  by   those  subject   to  its      provisions and  to provide  against      such   distortions    and   abuses.      Indeed, howsoever  great may be the      care bestowed on its framing, it is      difficult   to    conceive   of   a      legislation which  is  not  capable      abused    by     perverted    human      ingenuity. The Court must therefore      adjudge  the  constitutionality  of      such legislation  by the generality      of its  provisions and  not by  its      crudities    or    inequities    or      possibilities  of   abuse  come  to      light the  legislature  can  always      step   in    and   enact   suitable      amendatory legislation. That is the      essence of pragmatic approach which      must   guide    and   inspire   the      legislature in dealing with complex      economic issues.      The same  principle should  hold good  in the matter of Exemption Notifications  as well, for the said power is part and parcel  of the  enactment and is supposed to be employed to further the objects of enactment - subject, of course, to the condition  that the  Notification is not ultra vires the Act, and/or  Article 14  of the  Constitution of India. (See P.J. Irani v. State of Madras A.I.R. (1961) S.C. 1731 = 1962 (2) S.C.R. 169).      We are of the opinion that the judgment under appeal is erroneous for  the reason  that it has not borne in mind the aforementioned relevant  consideration.  It  is  equally  in error in  saying that  the classification  it brings about - assuming that  it does so - is not reasonable or that it has no nexus  with the  object underlying  the Notification. Not only is  Para 7  consistent with  the object  underlying the Notification,  it   indeed   promotes   it,   as   explained hereinbefore. We  are constrained to say that the High Court has  not  bestowed  the  care  and  consideration  which  is expected of  it before it strikes down such a Notification - or, for  that matter,  any statutory provision. For the very reason, the  decision of  the learned  Single Judge  of  the Calcutta High  court in  Banner &  Co.  v.  Union  of  India [(1994) 70 E.L.T.181] must also be held to have been wrongly decided.      Before we  conclude, we must deal with one more aspect. The decision  under  appeal  quotes  extensively  from,  and relies upon,  the decision  of the  Calcutta High  Court  in Banner and  Company. The Calcutta High Court relied upon the decisions of  the High  Courts in  Bush (India)  Limited  v. Union of  India &  Ors. [(1980)  6 E.L.T.258],  Bata (India) Limled v.  Aissistant Collector  of  Central  Excise,  Patna [(1978) 2  E.L.T.211], Bapalal  and Company v. Government of India &  Ors. [(1931)  8  E.L.T.581],  Carona  Sahu  Company Limited v.  Superintendent, Central  Excise & Ors. [(1981) 8 E.L.T.730] besides  the decisions  of this  Court in Cibatul [supra] and  Joint Secretary  to Government of India v. Food Specialities Limited  [(1985) 22  E.L.T.324 (S.C.)].  We may briefly refer  to the  said decisions and see whether any of them supports the decision arrived at by Calcutta

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and Allahabad High Courts.      Bush (India) Limited was concerned with the meaning and scope of the definition of "manufacture" in Section 2(f) and not with  any Exemption  Notification, much  less  with  the Notifications, concerned  herein.  The  question  there  was whether merely  by placing  the Garrard Record Changer Decks on a  wooden base with cover and selling it under the trade- name of  ’Bush Auto-Changer’,  can it  be  regarded  that  a process of  manufacture has  taken place.  It was  held that mere placing  of a  ready-to-use article  on a  wooden base, with or  without a  cover, with  a  view  to  make  it  more saleable does  not amount  to process  of manufacture within the meaning  of Section  2(f). Bata  (India) Limited  merely says that  just because  ’Bata’ places  it brand-name on the footwear manufactured  by another, Bata cannot be treated as manufacturer of  the said  goods. Bapalal  and Company deals with Notification No. 119 of 1975 dealing with job works and the exemption granted to job workers. The decision in Carona Sahu Company  Limited is  similar to the (India) Limited. We are unable  to see any relevance these decisions have on the question at  issue herein.  We have  already referred to the ratio of  Cibatul. Food  Specialities  manufactured  certain goods whereupon it affixed the brand-name of Nestle under an agreement with  the latter  and sold  them  to  Nestle.  The question was  as to how to value the said goods. The Revenue contended that  the value  should be determined on the basis of wholesale  price at  which Nestle  sold those  goods. The plea was  rejected by  this Court holding that the wholesale price at  which Food  Specialities sold  the said  goods  to Nestle should be the basis for determining the value.      For all  the above  reasons, we are of the opinion that the decision  under appeal  is unsustainable in law. For the same reasons,  the decision  of the  Calcutta High  Court in Banner and  Company is  also held  to be wrongly decided [We are, of  course, not  told whether any Letters Patent Appeal was preferred  against the said judgment and if so, what was the result?]      The appeal  is accordingly  allowed. There  shall be no order as  to costs  as  respondents  though  served  is  not represented.