Facts of the case:
- Respondent 'Zenith Silk Mills' (original plaintiff in the case before
the trial court) is a company. The company imported goods from foreign
countries and therefore those goods were subject to customs duty.
- The goods imported into India are subjected to customs duty that is
levied on them as mentioned in schedule I of the Customs Tariff Act, 1975.
The duty levied on them was as follows:
- Basic customs duty chargeable under Section 12 of the Customs Act, 1962
read with Section 2 of the Act.
- Additional duty (countervailing duty) chargeable under Section 3 of the
Act. c) Auxiliary duty on imported goods, recoverable under Section 44 of
the Finance Act, 1982.
- The Government had issued an exemption notification (as amended from
time to time) dated July 15, 1977, exempting viscose filament yarn below 600
Deniers and other commodities on filament yarn from the whole of the duty
that is levied as specified in the schedule I of the Customs Tariff Act,
1975. Another notification (as amended from time to time) dated September 1,
1978 was issued by the Government exempting polyester filament yarn and
other goods from a portion of the duty levied in the excess of the rates
that are specified in Column 3 of the Customs Tariff Act, 1975.
- The respondent wanted to avoid all the customs duties. That is not only
the basic duty of Custom but also an additional customs duty under Section 3
of the Custom Tariff Act and auxiliary duty under the Finance Act, 1982.
Therefore, the company filed a writ petition (No. 2245 of 1982) in Delhi
High Court in July.
- The Delhi Court granted the respondent an interim order but vacated it
later by an order dated December 9, 1982. They also gave a reminder dated
December 31, 1982 and called the company to pay the amount of customs duty
that was due. The amount was calculated as Rs. 10,03,012.44P (ten lakhs, three thousand and twelve
and forty-four paise).
- When the respondent received the notice for the payment of the aforesaid
amount they filed a regular Civil Suit (No. 185 of 1983) on January 31, 1983
in the Court of Civil Judge (SD), Surat. The respondent had prayed for an
injunction restraining the Union of India from recovering the amount and also
prayed that the notice served to be deemed as not legal or valid.
- On January 31, 1983 (same day) the learned Civil Judge granted an ex parte
injunction order restraining the Union of India from enforcing the demand
notices because of which the amount of Rs. 10 lakhs stayed. The notice was
served to the department on the same day. The Union of India appeared in the
suit and filed a written statement in reply to the application.
- There was a declaration of summer vacations in the court and the case
was adjourned to June 24, 1983.
- Feeling aggrieved by the ex parte order and inaction on the part of the lower
court for not proceeding further with the matter, the Union of India moved the
High court of Gujarat by filing a petition on July 19, 1983. The petition came
before the Division Bench but the Bench gave the matter to a Single Judge.
Hon'ble Judge: A.P. Ravani, J. -
Citation: 1984 GLH 914 -
Court: High Court of Gujarat
Special Civil Appeal No.: 3442 of 1983 -
Decided on: 17.08.1983
Petitioner: Union of India and Ors.
Counsel for Petitioner: M.M. Mehta, Sr. Central Standing Counsel v/s
Respondent: Zenith Skill Mills
Counsel for Respondent: S.I. Nanavati, Adv. -
AIR 1985 Guj 90.
The petitioners contended that:
- The Civil Court has no jurisdiction to entertain the suit in which
recovery of customs is challenged. It was contended that in respect of the
duty liability exhaustive machinery of appeals, revision and references have
been provided in the Customs Act. The duty liability is the creation of a
Special Act and not a common liability. Therefore, the civil court can have
jurisdiction only if the question is not covered by the Special Act.
- It was also contended that the respondent had no prima facie case for an
interim injunction. Its contention is as per the legislative policy
reflected in the Section 129E and 131 of the Customs Act, 1983 as amended by
Finance Act No. 2 of 1980, a party is required to deposit or to pay the duty
in question as the case may be, notwithstanding the fact that an appeal or a
reference has been made and the same is pending.
- No prima facie case in favour of the respondent and the balance of
convenience is in the favour of the petitioner. The ex parte injunction order
passed by the lower court without jurisdiction is to be quashed and set aside.
- In taxation matters, there is likely to be a conflict between social
interest on one hand and individual interest on the other; such conflicting
interest should be resolved by striking a balance so that the society at
large does not suffer. Relying upon the decision of the Supreme Court in the
case of Punjab
Engineering College, Chandigarh v. Sanjay Gulati (AIR 1983 SC 580).
argued that 'law's delays' should not be permitted to enrich the manufacturers,
traders or importers at the cost of society at large. The aforesaid case
pertains to admission to the educational institution. Law's delay helps
intermediaries, i.e. traders, manufacturers land importers. Once they obtain
interim orders from the court, on account of usual delays in the disposal of
matters, including interlocutory order applications, the traders and
manufacturers retain the amount of tax collected by them for a number of years.
Law's delay explained for the case by the counsel for the petitioner:
- In this case, the respondent had first approached the Delhi High Court
on July 1982 and obtained orders against the recovery of the amount of tax.
Then it was vacated in October 1982. In December 1982, the Departmental
authorities issued a notice for payment of tax. The respondent then obtained
an ex parte
injunction order on January 1983 and since then utilised the sum of Rs. 10 lakhs.
The trial court did not even impose conditions of payment of interest or of
furnishing security or bank guarantee. Therefore, the company was utilising
public money for its private gains since July 1982 and had not even paid
interest on the amount.
The petitioner calculated the amount of interest payable
at the current rate of interest of 20% on commercial advances made by banks. The
amount of interest on Rs. 10 lakh came out as Rs. 16,500 (Sixteen thousand five
hundred) per month and multiplied by 8 (as they had not paid the amount for 8
months) it came to Rs. 1,32,000 (One lakh and thirty-two thousand). This was the
net gain by the respondent that was caused due to the trial court not disposing
of the application.
- When a taxing authority levies or collect tax, they do so by the common
will of the people. So when such authorities decide to tax people, a strong
presumption arises that the decision is taken to achieve the objectives that
are enshrined in the Constitution and in the national plans. The moment the
taxing authority is restrained from collecting the amount of tax, the
mandate given by the people which has been articulated by the taxing
authority by taking the decision to impose and levy tax is frustrated. The
petitioners added that it prolongs the period up to 3 to 5 years.
- The manufacturer or trader retains the amount of tax and gets credit
without any necessary checks by appropriate credit institutions. He (In this
case- Zenith Silk Mills) retains the amount of the public and spends it for
- Retention of tax adds to manufacture's/trader's liquid funds. It raises
his liquidity and helps him to either hoard the commodity or utilise it in any
matter so that he reaps maximum profit from it. This results in an increase in
the price of the commodity. Therefore, taxing that is aimed at mopping the
liquidity from the economy, results in adding up the liquid funds of private
manufacturers and traders which gives a push to inflation.
- A question posed by the counsel for the petitioner:
'Have the Big Business
and Industrial Houses not developed a vested interest in the system which
perpetuates the law's delay?' The Counsel had further argued: are courts not
required to look at the consequences of the interim order that may be passed ex parte or bi-parte in civil suits? Are the courts not required to look at the
socio-economic consequences of their orders? It was observed that the trial
court had remained totally oblivious to its socio-economic obligation and had
not even taken into consideration the statutory duty (Civil Procedure Code Order
39 Rules 3A) to dispose of interlocutory applications within a period of 30
days. When there is inaction on such cases then the downtrodden and poor suffer
- On the basis of the principles laid down by the Supreme Court in the
case of Union of India v. Narasimhalu (MANU/SC/0166/1969): It is argued that
the Customs Act creates a new liability other than common law liability and
it provides complete machinery for obtaining redress against the erroneous
exercise of power and hence jurisdiction of civil court is barred.
Therefore, it was submitted that the suit is not maintainable and the
interim relief granted is without jurisdiction.
- The aforesaid judgement decision of the Supreme Court was relied on by
the Judge (A.P. Ravani, J.) in this case. The maintainability of the suit in
such matters has been clearly laid down by the Supreme Court. Unless the
case falls in the excepted category of cases as observed by the Supreme
Court, the civil court will not have jurisdiction to entertain a suit in
- The court in the matter of 'law's delay' made a reference to the
decision of the Supreme Court in the case S.P Gupta v. Union of India
(MANU/SC/0080/1981) and it was deduced that the court should be aware of
socio-economic circumstances of the country and the changes that are taking
place. Further, the judge added it was clear that the interpretation and
implementation of the law should be in accord with the requirement of the
fast-changing society, which is going under rapid socio-economic
- While deciding the prima facie and balance of convenience at the interim
stage, the following considerations were weighed by the court:
- Why is the tax being imposed and collected? Is the collection of tax only
to run the administrative machinery of taxing authority or has other
purposes also? When and how the tax collected is required to be spent? Can
the collection and spending be postponed?
- Who bears the burden of tax? Is he, who has moved the court to bear the
burden of tax, or is it borne by numerous unidentified customers in the
society? c) If one who has moved the court does not suffer the burden of
tax, can he claim that he may be permitted to collect tax from people but
the taxing authority be restrained from collecting the same tax amount from
- The answers to the following question are:
- Modern state is mainly a service corporation. The amount of tax collected
by the State is not only for the purpose of raising revenue to run the
administrative machinery of the State but the taxes are collected mainly
with the view to meet the socio-economic development of the country. The
amount so-called is to be spent immediately.
- Normally in all kinds of indirect taxes, the burden of tax is not borne
by the person who initially pays the tax. The burden of tax is borne by the
innumerable unidentified customers in society.
- Generally, the person who moves the court is not likely to suffer the
burden of a tax. Once it is recognised that the court is under the obligation to keep
in mind the socio-economic needs of the society and should be aware of its own.
Obligation towards society, the problem of balancing the social interest and
individual interest would become very easy to resolve.
- It was clear that matters at an interim stage, the Taxing authority
should not be restrained from collecting tax. In matters like these social
interests must prevail over public interests. If the injunction order is not
passed as prayed by the plaintiff, there would be no loss or injury to the
plaintiff. On the other hand, the loss would be caused to society. The
socio-economic needs will be not met and even the administrative machinery
of the State will be adversely affected. An irreparable damage would be
caused to many projects and public utilities. Therefore, in such matters
grant of stay should be an exception and not a rule.
- At the interim stage of the institution of the suit, the courts need to
ensure that there is no prejudice is takes place on taxpayers in case they
ultimately succeed at the conclusion of the proceedings. This can be
achieved by requiring the Taxing authority to give the undertaking to refund
or adjust against future dues of tax if the entire collection or a part is
declared invalid by the court.
The conclusion of the following case is that the suit filed by the respondent
(Zenith Silk Milk) is not maintainable and the interim order that was granted to
them was without jurisdiction by the lower court. The court should have disposed
of the application within 30 days. Due to the suit and interim order, the case
was delayed because of which neither the tax nor the interest was paid by the
company to the taxing authority.
The taxed money is for the socio-economic development of the country and
directly affects the downtrodden and poor of the country the most. So, the money
instead of being used for development was used by the company for private gains.
The suit was not maintainable as the tax does not lead to any loss to the
respondent and it was acknowledged in this case that social interest should
prevail over private interest. The respondent was ordered to pay the tax as well
as the interest to the taxing authority.