Bhatinda Chemicals Ltd. And Ors. vs Union Of India (Uoi) And Ors.
2005 Latest Caselaw 1337 Del

JUDGMENT

T.S. Thakur, J.

Page 1390

1. The petitioners have, in these petitions under Article 226 of the Constitution of India, prayed for the following reliefs:

"(a) Issue an appropriate writ, order or direction quashing the rate of import/customs duty prescribed @ 30% in Customs Tariff for Vanaspati having H.S. Code No. 15162091.

(b) Pass an appropriate order or direction directing the respondents to rationalise the existing import/customs duty structure for Crude Palm Oil (HS Code 15119010), RBD Palm Oil (HS Code No. 1511000) and Vanaspati (HS Code No. 15162091), and bring the same to the original position as existing in the year 2000-2001.

(c) Pass such other further order or orders as this Hon'ble Court may deem fit and appropriate in the facts and circumstances of this case."

2. The factual backdrop, in which the above prayers have been made, may be summarised as under:

3. The petitioner Bhatinda Chemicals Pvt. Ltd. is engaged in the manufacture and sale of edible oil/vanaspati, whereas petitioners No. 2 & 3 are Associations of vanaspati producers in the States of Uttar Pradesh and Rajasthan. Their case as set out in the petitions is that on account of a persistent gap between demand and domestic availability and with a view to avoiding scarcity of an essential consumer item, the Government have permitted import of edible oils from outside the country. At the same time, in order to harmonise the interests of domestic oil seeds growers, consumers and processors and to regulate large import of edible oils, the Government have been revising the duty structure of such oil from time to time. In March, 2001 a major revision was introduced whereunder the customs duty on Crude Palm Oil (CPO) used by vanaspati manufactures was raised from 25% to 75%. The petitioner's case is that import duty prescribed for CPO was 15%, for RBD Palm Oil it was 25% and for vanaspati the duty prescribed was at the rate of 35%. These rates in increasing progression were, according to the petitioners, in line with the purity of the oils, CPO being the raw material, RBD Palm Oil being single refined oil of edible grade and vanaspati being double refined edible oil. The result was that the landed cost of RBD Palm Oil and vanaspati imported from outside India were competitive with the cost of production of domestically produced vanaspati.

4. After the revision in duty structure for the year 2000-2001, the import duty for CPO stands at 65%, for RBD Palm Oil 85% and for vanaspati at 30%. This implies that while the rates of import duty for Page 1391 CPO and RBD Palm Oil were substantially increased, the rate of duty for double refined oil/vanaspati was decreased to 30% which is, according to the petitioners, wholly arbitrary and irrational. The decrease in the rate of duty prescribed for vanaspati to 30% has, according to them, resulted in a situation in which it will be much cheaper to directly import vanaspati and sell the same domestically than to manufacture vanaspati from imported CPO after paying duty at the rate of 65%. According to the petitioners, there is a difference of almost Rs. 10,000/- per metric tonne between vanaspati manufactured within the country from CPO imported by paying 65% import duty and vanaspati directly imported into India upon payment of duty at the rate of 30%. This has, alleged the petitioners, resulted in a situation where the domestic producers of vanaspati are unable to compete with manufacturers of vanaspati due to huge competitive price disadvantage suffered by them.

5. The petitioners have also referred to the provisions of the orders issued under Section 3 of the Essential Commodities Act, 1955, whereunder Vegetable Oil Products Controller for India is empowered to regulate and prescribe the maximum/minimum usage of any vegetable oil in the manufacture of vegetable oil products having regard to the availability of vegetable oils in a region and other relevant factors. It is alleged that the Vegetable Oil Products Controller for India has, by a notification dated 26th December, 1980, prescribed a maximum limit of 80% for usage of imported vegetable oils in the manufacture of vegetable oil products, which leaves the manufacturers under a compulsion to use 20% of raw material from the domestic market. The said notification was amended in 1985, whereunder the upper limit for the usage of imported vegetable oils was reduced to 60%, thereby requiring usage of 40% of raw material from the domestic market. With the supersession of the Vegetable Oil Products (Control) Order, 1947 by Vegetable Oil Products (Regulation) Order, 1998, the power to prescribe the maximum and minimum usage of vegetable oils for the manufacture of vegetable oil products was vested in the Vegetable Oil Products Commissioner, who has, by a notification dated 12th June, 2000, prescribed the maximum of 25% for the usage of vegetable oil imported for edible purposes. This, according to the petitioners, adds to the cost of a component in the manufacture of vanaspati, which component has no application to any person importing vanaspati into India.

6. The petitioners' plea in the above circumstances is that the respondents ought to enhance the customs duty payable on the import of vanaspati from outside the country. It is alleged that representations made by them to the respondents, seeking an upward revision of the customs duty payable on vanaspati imported from outside the country so as to protect the interests of domestic producers, have not evoked any response, leaving no option for them except to seek judicial intervention.

7. Appearing for the petitioners, Mr. Vikas Singh, argued that the existing duty structure, whereunder the import duty for double refined oil is 30% and that for CPO is 65%, has led to a situation where the domestic producers of vanaspati out of imported CPO will be wiped out on account of the huge price difference between vanaspati imported from Page 1392 outside the country and that manufactured within India. He urged that the power of granting exemption from customs duty and for prescribing rates of such duty has to be exercised in public interest and that while exercising such power, the Government have to consider all relevant aspects including the question whether an exemption should or should not be granted. This, the Government have, according to the learned counsel, failed to do while increasing the import duty on CPO and RBD Palm Oil and reducing such duty on the import of vanaspati from 35% to 30%. It is contended that the duty structure of edible oils, for the present, gives a very high incentive to the imported consumer products, which, according to the learned counsel, is against the principles of self-reliance apart from being unfair to the domestic industry. It is also argued that there was no rational basis for treating one commodity differently from the other for purposes of imposing the tax and that in the absence of a good reason for doing so, the levy of two different rates of tax would be discriminatory. Reliance in support was placed by the learned counsel upon the decisions of the Supreme Court in Ayurveda Pharmacy and Anr. v. State of Tamil Nadu, , I.D.L. Chemicals Ltd. v. Union of India and Ors., and Dai-Ichi Karkaria Ltd. v. Union of India and Ors., .

8. The essence of the grievance made by the petitioners is that a higher duty on the import of CPO in comparison to a lower duty levied on the import of Vanaspati creates a situation where those depending on import of CPO are placed at a disadvantage in the matter of competitive marketing of their products. In other words, the power to levy duty has been, according to the petitioners, exercised in a manner that is discriminatory and offensive to Article 14 of the Constitution.

9. That the States' power to levy taxes does not transcend the Fundamental Rights guaranteed by Part III of the Constitution is settled by a string of decisions rendered by the Supreme Court. These decisions recognise as sound the proposition that article 14 strikes at discrimination not only by substantive law but also laws relating to taxation. Even so, two aspects always need to be kept in view while examining any challenge to a levy on the ground of discrimination. The first relates to the burden to prove that a legislative measure is discriminatory, while the second concerns the freedom which the legislature enjoys in the matter of making a classification or choosing a rate of tax. It is trite that the burden to prove that a legislative action is ultra vires of the Constitution lies on the person who alleges the same to be so. This burden is relatively heavier in cases where the challenge is to the constitutionality of a taxing statute. That is because it must be assumed that the legislature understands and correctly appreciates the Page 1393 needs of its people that its laws are directed to problems made manifest by experience and its discriminations are based on adequate grounds. See East India Tobacco Co., etc. v. State of Andhra Pradesh and Anr. , Probhudas Morarjee Rajkotia and Ors. v. Union of India and Ors. , and R.K. Garg v. Union of India AIR 1981 SC 2138.

10. It is equally well settled that in the field of taxation, the legislature enjoys the greatest freedom in matters of classification. The State does not have to tax everything in order to tax something. It is allowed to pick and chose districts, objects, persons, methods and even rates for taxation if it does so reasonably. The State enjoys a greater discretion and play at the joints when classification is under a taxing statute. That is so because of the inherent complexity of fiscal adjustment of diverse elements that go into the levy of a tax. Even unequal taxes have been held permissible if there is a rational basis underlying the same. See Khyerbari Tea C. Ltd. and Anr. v. State of Assam and Ors. Kunnathat Thathunni Moopil Nair etc. v. State of Kerala and Anr. , Hari Krishna Bhargav v. Union of India and Anr. , Federation of Hotel & Restaurant v. Union of India and Ors. and Murthy Match Works, etc. etc. v. The Assistant Collector of Central Excise, etc. . In Murthy Match Works case (supra), the court summarised the law on the subject in the following words :

"It is well established that the modern State, in exercising its sovereign power of taxation, has to deal with complex factors relating to the objects to be taxed, the quantum to be levied, the conditions subject to which the levy has to be made, the social and economic policies which the tax is designed to subserve, and what not."

11. Applying the above settled principles to the cases at hand, we have no difficulty in holding that the challenge to the levy of a higher import duty in the case of CPO in comparison to a lower duty levied on the import of Vanaspati does not offend the guarantee contained in Article 14 of the Constitution. We say so for more than one reason. Firstly because the two products which the petitioners wish to place on the same footing namely CPO and Vanaspati are not comparable. It is true that CPO is used as raw material for the manufacture of Vanaspati. But even when that is so, it remains different from Vanaspati which is a finished product produced after subjecting CPO to a process of refining and hydrogenization. So long as the two commodities are different, the legislature or the Government as its delegate was competent to prescribe different rates of duty on the import thereof.

Page 1394

12. Secondly because the prescription of a duty is a matter which falls squarely within the competence of the legislature or its delegate. What objects should be taxed, what method of taxation should be adopted and at what rate should the tax be levied are matters for the State to determine. Courts would not interfere with the choice of the object, or the rate of tax levied so long as the levy is not demonstrably unreasonable. There is no apparent or demonstrable unreasonableness in the levy, whether in relation to the import of CPO or of Vanaspati. Apart from making a bald assertion that the lower levy on Vanaspati works to the disadvantage of the domestic manufacturers, there is nothing on record to show how the levy of 30% duty on the import of Vanaspati in any way affects the competitive marketing of the product which is indigenously produced.

13. Thirdly because the question whether or not the country should discourage import of CPO by levying a higher duty on such imports or encourage import of Vanaspati by levying a lower import duty on such imports are matters of governmental policy which will depend upon diverse considerations like the availability of the raw material within the country, the domestic requirement and production of the commodity being imported, the compulsions of international trade including those arising out of treaties and agreements with other countries and the country's balance of payment position. A writ court would not interfere with a matter of policy unless the same is shown to be arbitrary, capricious, irrational, discriminatory or violative of the provisions of the Constitution or any other law validly enacted. See Krishnan Kakkanth v. Government of Kerala and Ors. and State of Punjab and Ors. v. Ram Lubhaya Bagga etc. . It is not, therefore, possible to dub a particular rate or levy to be legally bad by taking any single factor into consideration or declare the duty structure to be unconstitutional only because the higher duty levied on imports is likely to affect the domestic producers of a particular product. A review of the customs duty structure, which the petitioners want this Court to undertake is, in our view, beyond judicially manageable dimensions.

14. In the result, these writ petitions fail and are hereby dismissed but in the circumstances without any order as to costs.