PETITIONER:
NATIONAL CO. LTD. CALCUTTA
Vs.
RESPONDENT:
DEPUTY DIRECTOR OF TAX CREDIT (EXPORTS)CALCUTTA & ORS.
DATE OF JUDGMENT03/03/1977
BENCH:
BHAGWATI, P.N.
FAZALALI, SYED MURTAZA
CITATION:
1977 AIR 1653 1977 SCR (3) 125
1977 SCC (2) 735
ACT
Tax Credit Certificate (Exports) Scheme 1965--Scheme
providing for certain categories of goods or merchandise
specified in column 2 which were exported after 28-2-1965
to destinations specified in column 4--Scheme amended by
Notification dated 6-6-1966 disentitling an exporter to tax
credit certificate in respect of goods or merchandise ex-
ported and the sale proceeds therefore were received after
5-6-1966---Second Notification amending the first one pro-
viding for grant of tax credit certificate in respect of
goods exported on or before 5-6-1966 even if the sale pro-
ceeds were received thereafter--Whether the Notifications
ultra vires the powers of the Central Government vested
under s.280 ZE read with 280 ZC of the Income Tax Act.
HEADNOTE
The jute carpet backing cloth manufactured by the appel-
lant in its jute mills and exported was covered by Item 1
in column 2 which specified "goods made of jute not other-
wise specified" of the Table appended to the Tax Credit
Certificate (Exports) Scheme, 1965. The notification issued
by the Central Government in exercise of the powers vested
under s. 280ZE read with S. 280ZC, dated 6-6-1966 and
8-8-1966, provided that no tax credit certificate shall be
issued in respect of any goods exported after 5-6-1966. The
appellant, who exported diverse quantities of jute carpet
backing cloth manufactured by it to various countries during
the period 13-7-1966 and 30-11-1966, filed a writ petition
in the Calcutta High Court for a writ of mandamus for quash-
ing and setting aside both the Notifications and directing
the Central Government to consider the application of the
applicant for tax credit certificate in respect of the
exports without taking into account the two Notifications.
The ground of challenge was that the two Notifications were
outside the powers conferred on the Central Government u/s
280ZE read with S. 280 ZC, since the Central’ Government had
no power under those sections to make a scheme providing
that no tax credit certificate shall be granted in case of
any goods or merchandise at all. The single Judge granted
mandamus, but the Division Bench on appeal took a different
view and negatived the challenge.
Dismissing the appeal by certificate the Court,
HELD: (i) The Division Bench of the High Court was right
in holding that the Central Government was entitled to issue
the two Notifications directing that no tax credit certifi-
cates shall be granted in respect of goods or merchan-
dise exported on or after 5-6-1966. [131 A-B]
(ii) No obligation can be spelt out from Ss. 280 ZC and
280 ZE requiring the Central Government to frame a scheme
specifying the goods or merchandise in respect of which tax
credit certificate shall be granted. The Central Government
was entitled to say that having regard to the factors set
out in subsection (3) of S. 280 ZC, it does not think it
desirable that tax credit certificate should be granted in
respect of any goods or merchandise for the time being. [130
F-H]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 950 of 1972.
(From the Judgment and Order dated the 5-7-1971 of the
Calcutta High Court in Appeal No. 130/71).
N.R. Khaitan, A.T. Patra and Praveen Kumar, for the appel-
lant.
126
Lal Narain Sinha, Sol. General, S.N. Prasad and Girish
Chandra not present for respondents.
The Judgment of the Court was delivered by
BHAGWATI, J. The appellant ,owns a jute mill situate at
Rajgunj, Railway Station Andul, District Howrah in the State
of West Bengal and among other jute products, it manufac-
tures jute carpet backing cloth at its jute nUll. The
appellant exported diverse quantities of jutecarpet backing
cloth manufactured by it to various countries during the
period 13th July 1966 to 30th November 1966. There was a
Tax Credit certificate Scheme framed by the Central Gov-
ernment under Section 280 ZE read with Section 200 ZC of
the Income ’tax Act 1962. The Scheme was called the Tax
Credit Certificate (Exports) Scheme 1965. The Scheme pro-
vided for grant of Tax Credit Certificate in respect of
certain categories of goods or merchandise specified in
column 2 which were exported to destinations specified in
column 4 and the dates of export of which fell after 28th
February 1965, for an amount calculated at the rates speci-
fied in column 3 of the Table attached to the Scheme. Jute
carpet backing cloth was covered by Item 1 in column 2 of
the Table which specified "goods made of jute not otherwise
specified". If the Scheme had remained unamended, the
appellant would have been entitled to tax credit certifi-
cates in respect of the exports made by it of jute carpet
backing material, but a notification was issued by the
Central Government on 6th June, 1966 in exercise of the
powers conferred by Section 280 ZE read with Section 200 ZC,
whereby paragraph 3 of the Scheme which .provided for grant
of tax credit certificates was amended by re-numbering that
paragraph as sub-paragraph (1) and adding a sub-paragraph
(2) to the following g effect:
"No certificate shall be granted under
sub-paragraph (1) 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 according
with the Foreign Exchange Regulation Act, 1947
(VII of 1947) and the rules made thereunder".
This amendment had the effect of disentitling an ex-
porter to taxcredit certificate in respect of goods or
merchandise exported by him in all cases where sale proceeds
or part thereof were received in India after 5th June, 1966.
The necessity for making this amendment in the Scheme arose
on account of devaluation of the Indian rupee which was
made by the Central Government, as it was felt that in view
of the devaluation it was not necessary to give any further
incentive for export. But it was’soon realised that this
amendment of the Scheme might work hardship in those cases
where goods or’ merchandise were exported before 5th June
1966 on the faith of the Scheme but for some reason or the
other, the sale proceeds were not received until after that
date and, therefore, a second notification dated 8th Au-
gust, 1966 was issued by the Central Government further.
amending the scheme in exercise of the powers conferred
under Section 280 ZE read with Section 280 ZC by deleting
sub-paragraph (2) and instead, adding a proviso which pro-
vided for grant of tax credit certify-
127
cate in respect of goods or merchandise exported on or
before 5th June 1966 even if the said proceeds were re-
ceived after that date and declared that in ease of goods
exported after 5th June 1966 the’ rate specified in column 3
of the Table shall be deemed to be nil and no certificate
shall be granted in respect of such goods or merchandise.
The exports of jute carpet backing cloth made by the appel-
lant were admittedly after 5th June, 1966 and hence both
the notifications adversely affected the appellant by
disentitling it to tax credit certificates in respect of
these exports. The appellant, therefore, filed a Writ
Petition in the High Court of Calcutta for a writ of manda-
mus for quashing and setting aside both the Notifications
and directing the Central Government to consider the appli-
cation of the appellant for tax credit certificates in
respect of the exports without taking into account the two
Notifications. Though there were several grounds on which
the validity of these two Notifications was challenged in
the Writ Petition before the High Court, only one ground
was pressed before us on behalf of the appellant and we
shall, therefore, refer only to that ground. That ground
was that both the Notifications were outside the power
conferred on the Central Government under Seetion 260 ZE
read with Section 280 ZC, since the Central Government had
no power under these Sections to make a scheme providing
that no tax credit certificate shaft be granted in case of
any goods or merchandise at all. This ground found favour
with the single Judge of the High Court but on appeal under
clause 15 of the Letters Patent, a Division Bench of the
High Court took a different view and negatived the chal-
lenge. Since the writ petition was dismissed by the
Division Bench, the appellant preferred the present appeal
after obtaining a certificate of fitness from the High
Court.
The Indian Income Tax Act 1922 as originally enacted,
did not contain the fasciculus of Sections under Chapter
XXII providing for grant of tax credit certificates. This
Chapter comprising Sections 280 ZC and 280 ZE was inserted
by the Finance Act 1965 with effect from lst April 1965
with a view to providing incentive for export purpose of
which Section 280 ZC and 280 ZE are material, reads as
follows :--
"280 ZC. (1) Subject to the provisions
of this Section, a person who exports any
goods or merchandise out of India after the
28th day of February. 1965 and receives the
sale proceeds thereon in India in according
with the Foreign Exchange Regulation Act,
1947 (VII of 1947) and the rules made there-
under shall be granted a tax credit certifi-
cate for an amount calculated at a rate not
exceeding fifteen per cent, on the amount of
such sale proceeds.
(2) 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.
128
(3) In specifying the goods or merchan-
dise (including the destination of their
export) and the rates, the Central Government
shall have regard to the following factors,
namely:
(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".
Section 280 ZE conferred power on the Central Government
to frame one or more scheme or schemes to be called tax
credit Certificate scheme or schemes in the following words:
"(1) The Central Government shaH, by
notification in the Official Gazette, frame
one or more scheme or schemes to be called tax
credit certificate scheme or schemes in rela-
tion to tax credit certificates to be grant-
ed under this Chapter.
(2) A scheme framed under sub-section
(1) may provide for :--
(a) the form and manner in which, and the
authority to which, applications for the grant
of tax credit certificates shall be made;
(b) the form in which, and the intervals at
which and the authority by which, such cer-
tificates shall be issued;
(c) the verification of any information or
particulars furnished, or contained in any
application made, by or on behalf of any
person entitled to tax credit certificates;
(d) the determination of the rights and
obligations of a person to whom such certifi-
cate has been granted and the circumstances
in which any right in or title to the said
certificate may be transferred to. or
devolve on any other person by succession or
otherwise;
(e) the determination of the rights and
obligation of persons who jointly subscribe
to an eligible issue of capital;
(f) the determination of the rights and
obligation of persons who subscribe to an
eligible Issue of capital, on behalf, or for
the benefit, of any other person;
129
(g) the appointment of any officer. of
Government or of the Reserve Bank of India to
exercise any rights or perform any duties in
connection with the grant of the said certifi-
cates;
(h) the goods or merchandise and the rate
or rates for the purposes of section 280 ZC
and section 280 ZD and the destination of the
export of such goods or merchandise for the
purposes of section 280 ZC;
(i) any other matter which may be neces-
sary or proper for the effective implementa-
tion of the provisions of this Chapter or the
scheme.
(3)The Central Government may, by noti-
fication in the Official Gazette, and to,
amend, vary or rescind any scheme made under
this section".
It was in exercise of the power conferred on the Central
Government under Section, 280 ZE read with section 280 ZC
that the Central Government made the Tax Credit Certificate
(Exports) Scheme, 1965. The first Notification dated 6th
June 1966 amended paragraph 3 of the Scheme by providing
that no tax credit certificate shall be granted in respect
of exports where the sale proceeds were received after
5th June, 1966. This provision was. relaxed by’ the second
Notification dated 8th August 1966 by providing that in case
of exports made on or before 5th June 1966 tax credit cer-
tificate shall be granted according to the provisions of the
Scheme even if the Sale proceeds were received after that
date, but in respect of exports made after 5th June, 1966,
the rate specified in column 3 of Table A shall be nil and
no tax credit certificate shall be granted in respect of
such exports.
The argument urged on behalf of the appellant was that
it was not competent to the Central Government to provide in
the Scheme framed under Section 280 ZE read with Section 280
ZC that no tax credit certificate shah be granted in respect
of exports of any goods or merchandise. The only power,
which, according to the appellant, the Central Government
had under these two. Sections, was to frame a scheme speci-
fying some goods or merchandise the export of which would
entitle an exporter to tax credit certificate. The appel-
lant conceded that the Central Government was. not bound to
specify any particular category of goods or merchandise in
the Scheme framed by it but the limited contention was that
some goods or merchandise must be specified in the Scheme
and since in the present case the Scheme as amended provid-
ed that tax credit certificates shall not be granted in
respect of exports of any goods or merchandise, the two
Notifications making this amendment in-the Scheme were ultra
vires the power of the Central Government under Sections 280
ZE and 280 ZC. This contention, though it found favour with
the single Judge of the Calcutta High Court who heard the
Writ Petition in the first
130
instance, is in our opinion wholly without force and cannot
be sustained. A mere look at the scheme of the provisions
of Section 280 ZC and 280 ZE is sufficient to expose the
invalidity of this contention.
Sub-section (1) of Section 280 ZC undoubtedly provides that
a person who exports any goods or merchandise out of India
after 28th February 1965 and receives the sale proceeds
thereof in India in accordance with the Foreign Exchange
Regulation Act, 1947 and the rules made thereunder, shall be
granted a tax credit certificate for an amount calculated at
a rate not exceeding 15 per cent of the amount of such sale
proceeds. But this fight conferred on an exporter is
subject to the other provisions of Section ZC and these
other provisions include sub-sections (2) & (3). Sub-sec-
tion (2) provides in so many terms that the goods or merch-
andise in respect of which a tax credit certificate shall be
granted under sub-section (1) and the rate at which the
amount of such certificate shall be calculated, shall be
such as may be specified in the Scheme. It is, thus, left
to the Scheme to be framed by the Central Government to
specify the goods or merchandise in respect of which an
exporter, shall be entitled to tax credit certificate as
also the rate at which the amount of such certificate shall
be calculated. It is. not in respect of every category of
goods or merchandise that an exporter can claim to be enti-
tled to tax credit certificate but it is only in’ respect of
such goods or merchandise as are specified in the Scheme.
The policy and the principle which would guide the Central
Government in selecting the goods or merchandise for this
purpose are set out in sub-section (3) which provides that
in specifying the goods or merchandise as also the rates,
the Central Government shall have regard to the various
factors set out in that sub-section. These are the factors
which would influence the choice of the Central Government
in selecting the goods or merchandise for the purpose of
grant of tax credit certificate and also in determining the
rates at which tax credit certificate should be given. Sec-
tion 280 ZE, sub-section (1) confers power on the Central
Government to frame one or more Schemes in relation to tax
credit certificate to be granted under Section 280 ZC and
under sub-section (2), such scheme or schemes may provide
inter alia for the goods or merchandise and the rate or
rates for the purposes of Section 280 ZC. We fail to see how
any obligation can be spelt out from these provisions re-
quiring the Central Government to frame a scheme specifying
the goods or merchandise in respecter of which tax credit
certificate shall be granted. It would indeed be absurd to
suggest that the Central Government is under an obligation
to make a scheme and the requirement of the statute would
be satisfied so long as the Central requirement specifies
some goods or merchandise in the Scheme. There is no reason
why the Central Government should not be entitled to say
that having regard to the factors set out in sub-section (3)
of section 280 ZC it does not think it desirable that tax
credit certificate should be granted in respect of any goods
or merchandise for the time being Sub-section (3) of Section
280 ZC confers power on the Central Government in so many
terms to rescind a Scheme made by it ,and that also supports
the view that the Central Government may keeping in view the
factors set out in sub-section (3) of Section 280 ZC,
131
decline to make a scheme or provide in the scheme that there
shall be no goods or merchandise in respect of which tax
credit certificate shall be granted. In the circumstances
we think that the Division Bench of the High Court was
right in holding that the Central Government was entitled to
issue the two impugned Notifications directing that no tax
credit certificates shall be granted in respect of goods or
merchandise exported on or after 5th June, 1966.
We accordingly dismiss the appeal with costs.
S.R. Appeal dismissed.
132