 "No discrimination if rate is correct")
I am writing this article to uphold the thesis that when there are two rates of indirect tax charged at two different places, it cannot be said in general terms that there is discrimination under the Articles 14 and 19(1)(g) of the Constitution against the assessee who has been charged higher.
A judgment by the High Court of Gujarat recently in the case of Darshan Boardlam Ltd versus UOI - 2013(287)ELT401(Guj) has held the opposite. It has held "that Central Excise is a Central levy and, therefore, such a levy has to be collected uniformly from all similarly situated manufacturers located all throughout the country. If the excise authority of a particular commissionerate or state refuses to allow benefit of exemption to manufacturers located in that commissionerate, but other manufacturers located elsewhere allowed such exemption, then the same would be in violation of Article 14 and Article 19(1)(g)".
Article 14 is equality before law and Article 19(1)(g) is the fundamental right to practise any profession or carry on any occupation, trade or business. The Gujarat High Court also depended on another judgement in the case of Ralli Engine Ltd - 2006(72)RLT 721 (Guj.).
I respectfully disagree with this judgment's general observation about discrimination under the Constitution. I, however, agree that the goods in this particular case should have been charged at a lower rate in view of the binding effect of the board's circular. So on merit there is no issue. I am writing this treatise only on the observation of the high court in respect of discrimination. My view is that the issue cannot be decided merely by checking in how many cases a lower rate of duty is charged and in how many cases a higher rate of duty is charged. One cannot merely go by the number. Merit is equally relevant.
In the case of classification, while uniformity is a must in the case of a central levy, much more important is the question as to whether the rate of duty is correct or not. The Delhi High Court has held in the case of JK Synthetic vs. UOI - 1981(8)ELT328(Del) that in classification to tariff entry estoppel does not apply.
There is also a decision of the Supreme Court in the case of Rishav Kumar & Sons versus State of UP - 1987(66)STC222(SC) that wrong classification is not an estoppel against correct classification. So, the legal position is that in case there is a wrong classification at one place, it cannot bind officers to do the same wrong classification elsewhere.
Therefore, it cannot be argued that in other places the duty charged is less and therefore, here also the duty charged must be less. It all depends on which one is right and which one is wrong on merit. Even if the right decision to charge higher duty is in one place and the wrong decisions to charge lower duty are in several places, it is not discrimination and it does not hurt Article 14 and Article 19(1)(g).
Taking an example of a case which I am personally aware of, four cars were imported without licence, obviously illegally, with the connivance of officers. When the fifth car was imported without licence, not only penal action was taken against the fifth car, but also penal action against the four others which had escaped earlier. This is the correct uniformity.
Uniformity is not an end in itself. It has to be the uniformity of the right rate of duty and the right interpretation of law (about licence).
The conclusion is the following:
(a) I respectfully agree with the high court's decision on merit and on the binding effect of the board's circular.
(b) Once the issue is decided on merit, the question of uniformity cannot be relevant any more. Had the taxpayer approaching the high court been charged the correct rate of higher duty, then merely on the ground of discrimination, he cannot be given a benefit. The benefit can be given, if on merit also, he deserves it.
(c) I respectfully disagree that lack of uniformity, by itself, can be a ground for treating it as discrimination under the Constitution in respect of classification to duty. It is not discrimination if he has been charged the correct rate of duty.
CONCLUSION
* Once the duty is decided on merit, the question of uniformity cannot be relevant
* If the taxpayer approaching the high court has been charged the correct rate of higher duty, then merely on the ground of discrimination, he cannot be given a benefit
* Benefit can be given, if he deserves it on merit
* Lack of uniformity, by itself, can be a ground for treating it as discrimination under the Constitution in respect of classification to duty
* It is not discrimination if he has been charged the correct rate of duty
A judgment by the High Court of Gujarat recently in the case of Darshan Boardlam Ltd versus UOI - 2013(287)ELT401(Guj) has held the opposite. It has held "that Central Excise is a Central levy and, therefore, such a levy has to be collected uniformly from all similarly situated manufacturers located all throughout the country. If the excise authority of a particular commissionerate or state refuses to allow benefit of exemption to manufacturers located in that commissionerate, but other manufacturers located elsewhere allowed such exemption, then the same would be in violation of Article 14 and Article 19(1)(g)".
Article 14 is equality before law and Article 19(1)(g) is the fundamental right to practise any profession or carry on any occupation, trade or business. The Gujarat High Court also depended on another judgement in the case of Ralli Engine Ltd - 2006(72)RLT 721 (Guj.).
I respectfully disagree with this judgment's general observation about discrimination under the Constitution. I, however, agree that the goods in this particular case should have been charged at a lower rate in view of the binding effect of the board's circular. So on merit there is no issue. I am writing this treatise only on the observation of the high court in respect of discrimination. My view is that the issue cannot be decided merely by checking in how many cases a lower rate of duty is charged and in how many cases a higher rate of duty is charged. One cannot merely go by the number. Merit is equally relevant.
In the case of classification, while uniformity is a must in the case of a central levy, much more important is the question as to whether the rate of duty is correct or not. The Delhi High Court has held in the case of JK Synthetic vs. UOI - 1981(8)ELT328(Del) that in classification to tariff entry estoppel does not apply.
There is also a decision of the Supreme Court in the case of Rishav Kumar & Sons versus State of UP - 1987(66)STC222(SC) that wrong classification is not an estoppel against correct classification. So, the legal position is that in case there is a wrong classification at one place, it cannot bind officers to do the same wrong classification elsewhere.
Therefore, it cannot be argued that in other places the duty charged is less and therefore, here also the duty charged must be less. It all depends on which one is right and which one is wrong on merit. Even if the right decision to charge higher duty is in one place and the wrong decisions to charge lower duty are in several places, it is not discrimination and it does not hurt Article 14 and Article 19(1)(g).
Taking an example of a case which I am personally aware of, four cars were imported without licence, obviously illegally, with the connivance of officers. When the fifth car was imported without licence, not only penal action was taken against the fifth car, but also penal action against the four others which had escaped earlier. This is the correct uniformity.
Uniformity is not an end in itself. It has to be the uniformity of the right rate of duty and the right interpretation of law (about licence).
The conclusion is the following:
(a) I respectfully agree with the high court's decision on merit and on the binding effect of the board's circular.
(b) Once the issue is decided on merit, the question of uniformity cannot be relevant any more. Had the taxpayer approaching the high court been charged the correct rate of higher duty, then merely on the ground of discrimination, he cannot be given a benefit. The benefit can be given, if on merit also, he deserves it.
(c) I respectfully disagree that lack of uniformity, by itself, can be a ground for treating it as discrimination under the Constitution in respect of classification to duty. It is not discrimination if he has been charged the correct rate of duty.
CONCLUSION
* Once the duty is decided on merit, the question of uniformity cannot be relevant
* If the taxpayer approaching the high court has been charged the correct rate of higher duty, then merely on the ground of discrimination, he cannot be given a benefit
* Benefit can be given, if he deserves it on merit
* Lack of uniformity, by itself, can be a ground for treating it as discrimination under the Constitution in respect of classification to duty
* It is not discrimination if he has been charged the correct rate of duty