Dai-Ichi Karkaria vs Union of India

Dai-Ichi Karkaria vs Union of India
KRISHAN MAHAJAN

APRIL 29: Exemption notifications under the Customs Act and the Central Excise Act can make or mar an indigenous manufacturer of goods. The indigenous manufacturer simply does not have the strength of the currency of the foreigner to influence the ruling politicians and administrators about the ``public interest'' involved in issuance and withdrawal of such notifications. The Supreme Court in the case of Dai-Ichi Karkaria vs Union of India has declared that the Union Finance Ministry is bound to answer a specific plea raised in the court by an Indian manufacturer that the withdrawal of the exemption existing in his favour is arbitrary and not in the public interest. If no satisfactory reply is furnished by the Union Finance Ministry to show the public interest involved in withdrawing the exemption granted to Indian manufacturers, then the court will strike down the creation of a fair playing field for indigenisation and self reliance.

The appellant Dai Ichi Karkaria established a plant to manufacture a flow improver under the brand name ``Daitrolite''. The licence issued by the product to the public sector Oil and natural Gas Commission (ONGC). It also included a specific export obligation. The plant was set up by the appellant on the strength of the September 10, 1982 notification issued under Section 25(i) of the Customs Act. The notification gave in the public interest, exemption from import duty and additional import duty to manufacturers of products for organisations like ONGC and others. The notification stated issued to encourage manufacture of goods indigenously for the oil and oil exploration field. The exemption was part of the project based exemption scheme.

However, on December 30, 1986 the Union Finance Ministry withdrew the total exemption granted to manufacturers like Dai Ichi Karkaria by reducing the customs duty exemption to a maximum of 25 per cent ad valorem on the duty continued.

Dai Ichi Karkaria challenged this withdrawal in the high court. It specifically contended the no public interest was involved in the the exemption. However the Union Finance Ministry chose not to give any reply to this specific plea. The high court relied on the 1995 decision of the the notification issued for exemption was in the public interest it had been withdrawn and modified in the public interest. Dai Ichi Karkaria appealed to the Supreme Court against the rejection of its plea by the high court.

Justices Rajendra Babu and R.C. Lahoti found that the Union Govt had not dealt with the specific plea raised by the appellant before the high court while filing its reply in the court. The Union Govt was permitted to file a review was undertaken by the Govt in relation to various concessions accorded to oil exploration and development of oil and natural gas that the imposition of nil rate of duty on the import of raw materials and components required for the manufacture and supply of products to the ONGC, OIL India Ltd and GAIL, could lead to misuse, specially by the private contractors who have other interests in addition to the supplies by the oil sector.'' The specifically on this part of the affidavit given to justify the withdrawal possible misuse and the factors compelling the withdrawal of the exemption from customs duty in the public interest.

The judges pointed out that the Union Govt counsel had cited the case of Union of India vs Indian Charge Chrome when in that case no plea had been taken that the formation of opinion as to the public interest was based on no material or was vitiated by mala fides. Citing the 1985 Indian Express apex court had held therin that a public interest power of the Govt would be required by the court to be exercised in a reasonable way in the spirit of the Constitution. The appellant pointed out that the withdrawal notification's reliance on possible misuse was misplaced as the goods were to b supplied by it only to a specific entity, the ONGC.

Holding that the Union Govt had failed to discharge its statutory justification offered was ``too naive'', the apex court struck down the impugned notification. Now the Union Finance Ministry becomes accountable exemption notifications under revenue laws.