Back Substitution confusion in notification
D. Murali
"DEPB Scheme was first announced on April 1, 1997, under the Exim Policy 1997-2002. It is an export promotion scheme and envisages grant of DEPB Credit Entitlement to an exporter at the time of export at an ad-valorem rate notified by DGFT (Director General of Foreign Trade), in relation to FOB value of the export product. The DGFT have so far notified DEPB rates for nearly 2000 export products," informs www.ieport.com, for starters.
Resuming the case, one learns from the text of the verdict that a notification was issued on April 7, 1997, announcing details about the scheme. Sub-clause (iv) of Clause (2) of the notification mentioned the names of eligible seaports and airports, and also "inland container depots (ICDs) at Bangalore, Coimbatore, Delhi, Gauhati, Kanpur, Pimpri (Pune), Pitampur (Indore), Moradabad, Ludhiana and Hyderabad."
Indian Tobacco Association (ITA) was unhappy that Guntur was not included in the list of ICDs, and so approached the Government for remedy. That did come on November 27, 1997, in the form of an amendment to the notification thus: "(b) for the words `Ludhiana and Hyderabad', the words `Ludhiana, Hyderabad, Nagpur, Agra, Faridabad, Jaipur, Guntur and Varanasi' shall be substituted.'" Thus, the list in the previous paragraph extended to six more ICDs, including Guntur.
So far, so good, but trouble started when ITA said to the authorities that the November notification was clarificatory in nature, and so it would also cover the period from April 7 to November 27.
But the Central Government rejected this line of reasoning. On August 23, 2001, it wrote a letter to ITA, saying: "Exports of tobacco made during the period April 1, 1997 to November 26, 1997, cannot qualify for DEPB Scheme because it would mean granting retrospective effect to the said customs Notification which is not permitted in law."
Aggrieved by the order, ITA approached the Andhra Pradesh High Court, which noted that Guntur was introduced by way of substitution. "The word substitution would connote that the Government intended to give benefit to the imports and exports from Guntur and if really the Government wanted to introduce and give benefit to the imports and exports from Guntur from November 27, 1997, they could have issued a separate notification which would operate as prospective in nature," ruled the court. Accordingly, ITA was happy that the November notification was held to be "only by way of substitution", conferring "retrospective benefit to the exports and imports from Guntur".
Government was the aggrieved party by the High Court's verdict, and so the case went to the apex court. There, Mr B. Dutta, Additional Solicitor General, appearing on behalf of the Government, submitted that the two notifications in question providing for exemption from payment of additional Customs duty must be strictly construed. He cited the Mahaan Dairies case to state that a subordinate legislation containing exemption from payment of duty would only have prospective operation.
For ITA, it was Mr L. Nageshwar Rao, who said that the Exim Policy (1997-2002) sought to simplify the procedure for grant of exemption basing the same on the quality of goods exported on freight on board. As Guntur Railway Station had all along been an ICD, there was no reason as to why the said place should have been excluded from the purview of the notification, he argued. It was also pointed out to the apex court that for exporters of embroidered silk garments, made-ups and fabrics, the Government had given the benefit with retrospective effect.
Justices Mr S. B. Sinha and Mr A. R. Lakshmanan of the Supreme Court heard the case and observed, "An exemption notification, it is trite, must be construed having regard to the object and purport which the same seeks to achieve. It is also well-settled that an expression used in a statute should be given its ordinary meaning unless it leads to an anomalous or absurd situation."
From the Mahaan Dairies precedent, the court cited a paragraph that read: "It is settled law that in order to claim benefit of a Notification a party must strictly comply with the terms of the Notification. If on wordings of the Notification the benefit is not available, then by stretching the words of the Notification or by adding words to the Notification benefit cannot be conferred." Similarly, in the Tata Iron and Steel Co Ltd vs State of Jharkhand, the court had said that eligibility clause in relation to exemption notification must be given a strict meaning.
In the current case, the question was about the effect of the subsequent notification. "The word `substitute' ordinarily would mean `to put (one) in place of another'; or `to replace'," said the court, and referred to the definition in Black's Law Dictionary — that substitute means `to put in the place of another person or thing' or `to exchange'. Definition in Collins English Dictionary too came in handy, though a bit more technical, because it defined the word to mean `to serve or cause to serve in place of another person or thing'; `to replace (an atom or group in a molecule) with (another atom or group)'; or `a person or thing that serves in place of another, such as a player in a game who takes the place of an injured colleague'.
The amendment did not take away any substantive right, nor impose any penal consequence, but only sought to remove an obvious mistake, reasoned the court. "When a person is held to be eligible to obtain the benefits of an exemption notification, the same should be liberally construed," noted the judgement, and added: "It is not in dispute that `Guntur' was one of the inland container depots. It is also not in dispute that such duty exemption had all along been granted for export from `Guntur'."
The court said that if the intention of the Government of India were only to extend the benefit to exporters from any other seaport, airport or ICD, it could have taken recourse to the proviso appended to Sub-clause (iv) of Clause (2) of the April notification, which gave powers to the Commissioner of Customs for the purpose. If the Government's intention was to extend the benefit only with prospective effect, it could have said so explicitly, which it didn't.
Instead, "the Union of India while making a subordinate legislation had advisedly used the word `substitution' in place of the word `addition'," pointed out the apex court. This shows that the object and purport of the subsequent notification was to grant the same benefit which had been granted through the April 1997 notification to those exporting from seaports or ICDs specified in the November communiqué, ruled the court, concluding that the amended notification was "only intended to rectify a mistake" and, so it would have "retrospective effect and retroactive operation".
Interestingly, the word had figured in earlier cases too. For instance, in the Ramkanali Colliery case, the court had said, "If there is both repeal and introduction of another provision in place thereof by a single exercise, the expression `substituted' is used."
Such deletion has the effect of repealing the existing provision and also introducing a new provision, the court had explained. In Zile Singh vs State of Haryana, the court had stated that the substitution of one text for the other pre-existing text is one of the known and well-recognised practices employed in legislative drafting. "Substitution has to be distinguished from `supersession' or a mere repeal of an existing provision," it distinguished.
For those who want to research further, there's more in the text of the judgment on hand: "In Mangilal Pindwal case this Court upheld the legislative practice of an amendment by substitution being incorporated in the text of a statute which had ceased to exist and held that the substitution would have the effect of amending the operation of law during the period in which it was in force.
"In the Koteswar case a three-Judge Bench of this Court emphasised the distinction between `supersession' of a rule and `substitution' of a rule and held that the process of substitution consists of two steps: first, the old rule is made to cease to exist and, next, the new rule is brought into existence in its place."
Benignly, the court spoke about `the doctrine of fairness' as a relevant factor when construing a statute. "In a case of this nature where the effect of a beneficent statute was sought to be extended keeping in view the fact that the benefit was already availed of by the agriculturalists of tobacco in Guntur, it would be highly unfair if the benefit granted to them is taken away, although the same was meant to be extended to them also."
Therefore, the statute need not be given retrospective effect by express words but the intent and object of the legislature in relation thereto can be culled out from the background facts, said the court, upholding the decision of the High Court.
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