JUDGMENT Hon’ble Surya Prakash Kesarwani, J.—In this bunch of writ petitions, the petitioners have challenged the constitutional validity of amendments in Section 80 HHC(3) of the Income Tax Act, 1961 brought by the Taxation Laws (Amendment) Act, 2005 as well as the validity of the impugned notices/orders. Facts of the Case 2. The facts involved in these writ petitions are similar and as such the facts of the Writ Petition No. 523 of 2006 are noted in detail and this writ petition is being taken up as a leading writ petition. The facts of the rest of the writ petitions are being noted in brief. 3. In Writ Petition No. 523 of 2006 the petitioner is a limited company engaged in manufacturing of Mentha Oil, Menthol Powder, Menthol crystal, Dementholized Oil, Peppermint oil and Di-hydromyrcenol and their bye-products. The petitioner’s factory is situate in district Rampur established in the year 1997. It is stated in paragraph Nos. 10 and 11 of the writ petition that it has been the basic policy of Government of India to make the export competitive and to neutralize the incurrence of custom, excise duties, and other taxes by the schemes known as Duty Drawback Scheme (for short DDS), Advanced Licencing Scheme (for short ALS), Duty Entitlement Pass Book Certificate (for short DEPB) and Duty Free Replenishment Scheme (for short DFRC). It is alleged that the above schemes are basically introduced to refund the incurrence of the customs, excise duty and taxes on the inputs used in the resultant export product. In paragraph No. 13, it is stated that remission granted under the aforesaid scheme is not a profit. In paragraph No. 14 it is stated that the DEPB entitlements can be used by the exporters/petitioner while making payment of import duty on their own imports and the DEPB is transferable and can be used by the transferee against their import duty liability. In paragraph 17, 18, 20 and 21, it is stated that the petitioner had adopted for DEPB scheme since the first assessment year, i.e., A.Y. 1998-99. By a judgment dated 18.11.2004 delivered by the Income Tax Appellate Tribunal in Income Tax Appeal No. 342 of 2004, it was held that DEPB credit sale falls under Section 28(iv) of the Act. To overcome this judgment the Taxation Laws (Second Amendment), Bill 2005 was passed by the Parliament. By a judgment dated 18.11.2004 delivered by the Income Tax Appellate Tribunal in Income Tax Appeal No. 342 of 2004, it was held that DEPB credit sale falls under Section 28(iv) of the Act. To overcome this judgment the Taxation Laws (Second Amendment), Bill 2005 was passed by the Parliament. It is stated in paragraph 23 that pursuant to the amendment under challenge, the respondent No. 1 issued a Circular No. 2/2006 dated 17.1.2006 (Annexure 4) which was followed by impugned notices dated 24.1.2006 (Annexures 5 and 6) on the ground that “export turnover is more than Rs. 10 crores, therefore please explain as to why the deduction under Section 80HHC may not be disallowed on the amount of DEPB in view of amended provision of Section 80 HHC”. Paragraph No. 25 to 50 contains the averments to challenge constitutional validity of the 2nd and 3rd proviso to Section 80 HHC which are summarized as under : (i) There is no rational to confer statutory deduction on exporters having export turnover up to Rs. 10 crores and to withdraw the said benefit from the petitioner exporters who have export turnover of more than Rs. 10 crores. (ii) Profits on transfer of DEPB licence and DFRC are treated as business profit as per Section 28(iiid) and 28 (iiie) which has been made eligible for deduction under Section 80 HHC, subject to the condition that only those assessee shall be eligible for this deduction whose export is less than Rs. 10 crores without any further condition to be complied with. While assessees having export turnover of more than Rs. 10 crores have to comply with two conditions, namely, that he has an option to choose either the duty draw back or the DEPB scheme and secondly the rate of draw back credit attributable to the custom duty was higher than the rate of credit allowable under DEPB scheme. This is wholly unreasonable restriction on fundamental rights guarantee under Article 19(1)(g) of the Constitution of India. (iii) The retrospective amendment levying tax on items which was not profit or gain in business is oppressive and unreasonable. (iv) The amendment has been made to overrule the judgment of the Tribunal. The legislature is not competent to overrule the binding verdict of the Tribunal. (iii) The retrospective amendment levying tax on items which was not profit or gain in business is oppressive and unreasonable. (iv) The amendment has been made to overrule the judgment of the Tribunal. The legislature is not competent to overrule the binding verdict of the Tribunal. (v) The option given in the 3rd proviso to Section 80 HHC (3) of the Act is sham and total nonexistent inasmuch as the incentive under DEPB and DFRC was more attractive than duty draw back and as such business would certainly opt a more attractive scheme. Thus the levy is not optional but compulsive. (vi) The amendment is discriminatory between exporter under duty draw back and under DEPB and DFRC. The classification meant under the amended proviso is not based on any intelligible differentia or nexus with the object sought to be achieved. Thus amendment is discriminatory. (vii) The retrospective amendment is confiscatory. (viii) The classification between exporters with less than Rs. 10 crore and more than Rs. 10 crore export turnover to be eligible for deduction is wholly irrational or arbitrary. (ix) The incentive/benefit under DEPB and DFRC scheme is not an income and therefore subjecting it to levy income tax with retrospective effect is arbitrary and violative of Articles 14 and 19 (i)(g) of the Constitution. The impugned amendment retrospectively withdraw the benefit w.e.f. 1.4.1998 which is barred by principles of estoppel. The benefit of Section 80HHC was available to the petitioner from last seven years which has been retrospectively withdrawn. 4. The facts in other writ petitions and the challenge therein is briefly noted as under : 5. In all these writ petitions the 2nd and 3rd Proviso inserted in Section 80 HHC(3) of the Act by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998, has been challenged on the ground that the retrospectivity has made the amendment confiscatory and violative of Articles 14 and 19(1)(g) of the Constitution of India. The provision of Section 80HHC is not available for deduction after A.Y.2004-05. 6. We have heard Shri Ravi Kant, learned Senior Counsel assisted by Shri Suyash Agarwal for the petitioners and Shri Bharat Ji Agarwal, Senior Counsel assisted by Shri Dhananjai Awasthi for respondents-Income Tax Department. Submissions on behalf of Petitioners 7. The provision of Section 80HHC is not available for deduction after A.Y.2004-05. 6. We have heard Shri Ravi Kant, learned Senior Counsel assisted by Shri Suyash Agarwal for the petitioners and Shri Bharat Ji Agarwal, Senior Counsel assisted by Shri Dhananjai Awasthi for respondents-Income Tax Department. Submissions on behalf of Petitioners 7. Shri Ravi Kant submits that the retrospective amendment in Section 80HHC(3) of the Act by inserting 3rd and 4th proviso is wholly arbitrary and such retrospectivity is wholly impermissible. He submits that in the case of Avani Exports and others v. Commissioner of Income Tax and others, (2012) 348 ITR 391 (Gujrat)), the Gujrat High Court has decided the bunch of writ petitions including the writ petitions transferred by the order of Hon’ble Supreme Court which were pending before various High Courts. He submits that in Avani Exports (supra) the Gujrat High Court has held the retrospectivity to be unconstitutional. He has also drawn the attention of the Court towards a judgment of Bombay High Court in the case of Vijaya Silk House (Bangalore) Ltd. v. Union of India and others, (2012) 349 ITR 566 (Bom), which has followed the judgement in Avani Exports and others v. Commissioner of Income Tax (supra) by Gujrat High Court and submits that the retrospective operation of the impugned amendment is unconstitutional, impermissible and violative of Articles 14 and 19(1)(g) of the Constitution of India. In support of his submission Shri Ravi Kant has relied on the following judgments : (a) (Avani Exports and others v. Commissioner of Income Tax and others, (2012) 348 ITR 391(Guj). (b) Vijaya Silk House (Bangalore) Ltd. v. Union of India and others, (2012) 349 ITR 566 (Bom). (c) Rai Ramkrishna and others v. State of Bihar, AIR 1963 SC 1667 paras 10 and 12) (d) M/s. Ujagar Prints and others v. Union of India and others, (1989) 3 SCC 488 paras 65 and 66). (e) Escorts Limited and another v. Union of India and others, (1993) 1 SCC 249 para 16) (f) Tata Motors Ltd. v. State of Maharashtra and others, (2004) 5 SCC 783 paras 12 to 15. (g) R.C. Tobacco (P) Ltd. and another v. Union of India and another, (2005) 7 SCC 725 paras 31 and 32) Submission on behalf of Respondents 8. (g) R.C. Tobacco (P) Ltd. and another v. Union of India and another, (2005) 7 SCC 725 paras 31 and 32) Submission on behalf of Respondents 8. In reply to the submissions of learned counsel for the petitioners, Shri Bharat Ji Agrawal submits as under : (I) The petitioners have not disputed the legislative competence of the parliament to enact the impugned provisions with retrospective effect. They have merely challenged the restrospectivity of the impugned provision. The deduction under Section 80 HHC(3) was available only up to the assessment year 2004-05. (II) The Retrospective levy is permissible under the taxing statute. The tax imposed retrospectively itself would not be unreasonable restriction on the right to carry on business. The power of a legislature to enact the law with reference to a topic entrusted to it is undisputed. The impugned amendment has been made because of the judgment of I.T.A.T. Dated 18.11.2004, as is clear from the speech of the Hon’ble Finance Minister in the Parliament which is relevant for interpreting amended provisions. The reliance has been placed on the following judgments : (a) Jawaharmal v. State of Rajasthan and others, AIR 1966 SC 764 para 18 (b) Empire Industries Ltd. and another v. Union of India and others, 1986 (162) ITR 846 at 872 and 873. (c) Indian Aluminium Cables Ltd. v. Union of India and others, 1985(3)SCC 284 para 50. (d) National Agricultural Cooperative Marketing Federation of India Ltd. and another v. Union of India and others, (2003) 260 ITR 548 at 559 and 560. (e) R.C. Tobacco (P) Ltd. and another v. Union of India and another, (2005) 7 SCC 725 para 21. (f) J.K. Jute Mills Company Ltd. v. State of U.P., AIR 1961 SC 1534 para 15. (g) M/s Heera Lal Ratan Lal v. The Sales Tax Officer, AIR 1973 SC 1034 . (h) Epari Chinna Krishna Moorthy v. State of Orissa, AIR 1964 SC 1581 . (i) Indian Aluminium Company and others v. State of Kerala and others, (1996) 7 SCC 637 para 56(8). (j) Additional Commissioner Legal and another v. Jyoti Traders and another, (1999) 7 SCC 77 para 25. (III) The classification on the basis of turnover is valid. The assessees having export turnover up to Rs. 10 Crore and those having export turnover above Rs. 10 Crore fall in separate classes. (j) Additional Commissioner Legal and another v. Jyoti Traders and another, (1999) 7 SCC 77 para 25. (III) The classification on the basis of turnover is valid. The assessees having export turnover up to Rs. 10 Crore and those having export turnover above Rs. 10 Crore fall in separate classes. The classification based on turnover has been held valid by Hon’ble Supreme Court in the following judgments : (a) State of Bombay v. United Motors (India) Ltd., AIR 1953 SC 252 para 29. (b) Kerala Hotel and Restaurant Association v. State of Kerala, AIR 1990 SC 913 paras 8, 24, 26 and 34. (c) S. Kodar v. State of Kerala and others, AIR 1974 SC 2272 paras 16 and 17. (d) British India Corporation Ltd. v. Collector of Central Excise, AIR 1963 SC 104 para 12. (e) Federation of Hotel and Restaurant Association of India v. Union of India and others, AIR 1990 SC 1637 paras 46, 48 and 54). (IV) The impugned amendment extends benefits to exporters having export turnover not exceeding Rs. 10 Crore. Those exporters who have export turnover exceeding Rs. 10 Crore, have been given an option under Section 80 HHC(3). The penalty and interest have been waived with respect to the income returned/assessed and attributable to profits on sale of DEPB credits or DFRC under Section 80 HHC and the demand created under Section 80 HHC shall be recovered over a period of five years. (V) The impugned amendment is neither unreasonable nor confiscatory nor violative of Articles 14 and 19 of the Constitution of India. Discussions and Findings 9. To appreciate the controversy involved in these writ petitions it would be appropriate to reproduce Section 80 HHC and relevant portion of Section 28 of the Act as amended by by Taxation Laws (Amendment) Act, 2005 as under : [Deduction in respect of profits retained for export business. Discussions and Findings 9. To appreciate the controversy involved in these writ petitions it would be appropriate to reproduce Section 80 HHC and relevant portion of Section 28 of the Act as amended by by Taxation Laws (Amendment) Act, 2005 as under : [Deduction in respect of profits retained for export business. Section 80HHC :[(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, [a deduction to the extent of profits, referred to in sub-section (1B),] derived by the assessee from the export of such goods or merchandise : Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the [total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods]. (1A) Where the assessee, being a supporting manufacturer, has during the previous year, sold goods or merchandise to any Export House or Trading House in respect of which the Export House or Trading House has issued a certificate under the proviso to sub-section (1), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, [a deduction to the extent of profits, referred to in sub-section (1B),] derived by the assessee from the sale of goods or merchandise to the Export House or Trading House in respect of which the certificate has been issued by the Export House or Trading House.] [(1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of the profits shall be an amount equal to— (i) eighty per cent thereof for an assessment year beginning on the 1st day of April, 2001; [(ii) seventy per cent thereof for an assessment year beginning on the 1st day of April, 2002; (iii) fifty per cent thereof for an assessment year beginning on the 1st day of April, 2003; (iv) thirty per cent thereof for an assessment year beginning on the 1st day of April, 2004,] and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year.] (2)(a) This section applies to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are [received in, or brought into, India] by the assessee [(other than the supporting manufacturer)] in convertible foreign exchange [, within a period of six months from the end of the previous year or, [within such further period as the competent authority may allow in this behalf].] [Explanation.—For the purposes of this clause, the expression “competent authority” means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.] (b) This section does not apply to the following goods or merchandise, namely:— (i) mineral oil ; and (ii) minerals and ores [(other than processed minerals and ores specified in the Twelfth Schedule)]. [Explanation 1.—The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. [Explanation 1.—The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Explanation 2.—For the removal of doubts, it is hereby declared that where any goods or merchandise are transferred by an assessee to a branch, office, warehouse or any other establishment of the assessee situate outside India and such goods or merchandise are sold from such branch, office, warehouse or establishment, then, such transfer shall be deemed to be export out of India of such goods and merchandise and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in sub-section (1) of Section 5066 of the Customs Act, 1962 (52 of 1962), shall, for the purposes of this section, be deemed to be the sale proceeds thereof.] [(3) For the purposes of sub-section (1),— (a) where the export out of India is of goods or merchandise manufactured [or processed] by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee ; (b) where the export out of India is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export ; (c) where the export out of India is of goods or merchandise manufactured [or processed] by the assessee and of trading goods, the profits derived from such export shall,— (i) in respect of the goods or merchandise manufactured [or processed] by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee ; and (ii) in respect of trading goods, be the export turnover in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. [Provided further that in the case of an assessee having export turnover not exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) or clause (iiie), as the case may be, of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee : Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that,— (a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being Duty Remission Scheme : Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiie) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that,— (a) he had an option to choose either the duty drawback or the Duty Free Replenishment Certificate, being Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Free Replenishment Certificate, being Duty Remission Scheme. Explanation.—For the purposes of this clause, “rate of credit allowable” means the rate of credit allowable under the Duty Free Replenishment Certificate, being the Duty Remission Scheme calculated in the manner as may be notified by the Central Government:] [Provided also that in case the computation under clause (a) or clause (b) or clause (c) of this sub-section is a loss, such loss shall be set off against the amount which bears to ninety per cent of— (a) any sum referred to in clause (iiia) or clause (iiib) or clause (iiic), as the case may be, or (b) any sum referred to in clause (iiid) or clause (iiie), as the case may be, of Section 28, as applicable in the case of an assessee referred to in the second or the third or the fourth proviso, as the case may be, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.] Explanation.—For the purposes of this sub-section,— (a) “adjusted export turnover” means the export turnover as reduced by the export turnover in respect of trading goods ; (b) “adjusted profits of the business” means the profits of the business as reduced by the profits derived from the business of export out of India of trading goods as computed in the manner provided in clause (b) of sub-section (3) ; (c) “adjusted total turnover” means the total turnover of the business as reduced by the export turnover in respect of trading goods ; (d) “direct costs” means costs directly attributable to the trading goods exported out of India including the purchase price of such goods ; (e) “indirect costs” means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover ; (f) “trading goods” means goods which are not manufactured [or processed] by the assessee.] (3A) For the purposes of sub-section (1A), profits derived by a supporting manufacturer from the sale of goods or merchandise shall be,— (a) in a case where the business carried on by the supporting manufacturer consists exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the profits of the business; (b) in a case where the business carried on by the supporting manufacturer does not consist exclusively of sale of goods or merchandise to one or more Export Houses or Trading Houses, the amount which bears to the profits of the business the same proportion as the turnover in respect of sale to the respective Export House or Trading House bears to the total turnover of the business carried on by the assessee] [(4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, alongwith the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of Section 288, certifying that the deduction has been correctly claimed [ in accordance with the provisions of this section:]] [Provided that in the case of an undertaking referred to in sub-section (4C), the assessee shall also furnish alongwith the return of income, a certificate from the undertaking in the special economic zone containing such particulars as may be prescribed, duly certified by the auditor auditing the accounts of the undertaking in the special economic zone under the provisions of this Act or under any other law for the time being in force.] [(4A) The deduction under sub-section (1A) shall not be admissible unless the supporting manufacturer furnishes in the prescribed form alongwith his return of income,— (a) the report of an accountant, as defined in the Explanation below sub-section (2) of Section 288, certifying that the deduction has been correctly claimed on the basis of the [profits] of the supporting manufacturer in respect of his sale of goods or merchandise to the Export House or Trading House ; and (b) a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section : Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts of the Export House or Trading House under the provisions of this Act or under any other law.] (4B) For the purposes of computing the total income under sub-section (1) or sub-section (1A), any income not charged to tax under this Act shall be excluded.] [(4C) The provisions of this section shall apply to an assessee,— (a) for an assessment year beginning after the 31st day of March, 2004 and ending before the 1st day of April, 2005; (b) who owns any undertaking which manufactures or produces goods or merchandise anywhere in India (outside any special economic zone) and sells the same to any undertaking situated in a special economic zone which is eligible for deduction under Section 10A and such sale shall be deemed to be export out of India for the purposes of this section.] Explanation.—For the purposes of this section,— (a) “convertible foreign exchange” means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder ; (aa) “export out of India” shall not include any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962 (52 of 1962) ;] (b) “export turnover” means the sale proceeds, received in, or brought into, India] by the assessee in convertible foreign exchange 90[in accordance with clause (a) of sub-section (2)] of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962);] [(ba) “total turnover” shall not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962 (52 of 1962) : Provided that in relation to any assessment year commencing on or after the 1st day of April, 1991, the expression “total turnover” shall have effect as if it also excluded any sum referred to in clauses (iiia), (iiib), [(iiic), (iiid) and (iiie)] of Section 28 ;] [(baa) “profits of the business” means the profits of the business as computed under the head “Profits and gains of business or profession” as reduced by— (1) ninety per cent of any sum referred to in clauses (iiia), (iiib), [(iiic), (iiid) and (iiie)] of Section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India;] [(c)] “Export House Certificate” or “Trading House Certificate” means a valid Export House Certificate or Trading House Certificate, as the case may be, issued by the Chief Controller of Imports and Exports, Government of India ; [(d)] “supporting manufacturer” means a person being an Indian company or a person (other than a company) resident in India, [manufacturing (including processing) goods] or merchandise and selling such goods or merchandise to an Export House or a Trading House for the purposes of export;] [(e) “special economic zone” shall have the meaning assigned to it in clause (viii) of the Explanation 2 to Section 10A.] Profits and gains of business or profession. Section 28 : The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,— [(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);] [(iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ;] 10. From the pleadings in the writ petitions and the arguments raised by the learned Senior Counsel appearing for the parties give rise to the following issues for adjudication : (i) whether the amendments made in Section 80HHC by the Taxation Laws (Amendment) Act, 2005 with retrospective effect is within the legislative competence of parliament. (ii) whether the petitioners having export turnover of more than Rs. 10 crores were entitled to the benefit of deduction under Section 80HHC prior to the amendment by the Taxation Laws (Amendment) Act, 2005 in respect of profit on the transfer of DEPB and DFRC. (iii) whether the 3rd and 4th Proviso of Section 80HHC(3) substituted by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998 is arbitrary, unreasonable or discriminatory and thus violative of Article 14 of the Constitution of India. (iv) whether retrospective amendment in Section 80HHC is valid. (v) whether 3rd and 4th Proviso of Section 80HHC(3) of the Act as substituted by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998 is violative of Article 19(1)(g) of the Constitution of India. (vi) whether classification of exporters with export turnover of less than Rs. 10 crores and exporters with export turnover of more than Rs. 10 crores for the purposes of deduction under Section 80HHC is a valid classification and not violative of Article 14 of the Constitution of India. (vii) whether the amendment in Section 80HHC(3) by the Taxation Laws (Amendment) Act, 2005 is hit by principles of estoppel. Issue No. (i)- Legislative Competence 11. The first and foremost test to determine the question of constitutional validity of legislation is to see whether it has been legislated by the legislature having competence to legislate on the subject. (vii) whether the amendment in Section 80HHC(3) by the Taxation Laws (Amendment) Act, 2005 is hit by principles of estoppel. Issue No. (i)- Legislative Competence 11. The first and foremost test to determine the question of constitutional validity of legislation is to see whether it has been legislated by the legislature having competence to legislate on the subject. Article 246(1) provides that the Parliament has exclusive power to make laws with respect to any of the matters enumerated in list-I in the 7th Schedule. The subject “Taxes on Income other than Agricultural Income” falls in Entry 82 of List I. A provision of deduction or exemption presupposes levy of tax on the items, event or persons in respect of which exemption or deduction has been provided. The impugned amendments in Section 80HHC of the Act by the Taxation Laws (Amendment) Act, 2005 granting certain deductions in respect of profits retained for the export business is well within the legislative competence of Parliament. We thus hold that the amendment in Section 80HHC of the Act made by the Taxation Laws (Amendment) Act, 2005 does not suffer from lack of legislative competence of Parliament to legislate on the subject. Issue No. (ii)- Entitlement under amended/unamended Section 80HHC 12. From the plain language of Section 80HHC(i) it is clear that the deduction under Section 80HHC(1) was available subject to the following conditions : (i) The assessee should be an Indian Company or a person resident in India, (ii) It should be engaged in the business of export out of India of any goods or merchandise to which this Section applies, (iii) Deduction is in accordance with and subject to provision of this Section to be allowed in computing the total income of the assessee. (iv) Deduction is to the extent of profits referred to in sub-Section(1B), derived by the assessee from the export of such goods or merchandise. 13. The explanation (aa) of Section 80HHC defines the words “Export out of India” which exclude any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962. 14. 13. The explanation (aa) of Section 80HHC defines the words “Export out of India” which exclude any transaction by way of sale or otherwise, in a shop, emporium or any other establishment situate in India, not involving clearance at any customs station as defined in the Customs Act, 1962. 14. The word “export turnover” has been defined in explanation (b) of 80HHC to mean the sale proceeds, received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies which are exported out of India. 15. The explanation (a) defines the words “convertible foreign exchange” to mean foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 and the Rules. 16. Under Section 74 of the Customs Act, 1962 read with Re-export of Import Goods (Draw Back of Customs Duty) Rules, 1995, when earlier imported goods on payment of duty are later sought to be re-exported within a specified period then customs duty paid at the time of import of the goods with certain cut can be claimed as duty draw back at the time of export of such goods. In cases where the goods are put into use in India after import (and prior to its export), the duty draw back is allowed on a sliding scale basis. The Duty draw back under Section 75 of the Customs Act and Section 37 of the Central Excise Act read with Customs and Central Excise Duties Drawback Rules, 1995 provides relief of customs and excise duties suffered on the inputs used in the manufacture of export product, to exporters. 17. As per Chapter 22 clause 4 of the CBEC’s Customs Manual of Instructions the DEPB is an export promotion scheme under the Customs Act, 1962 and envisages grant of DEPB credit entitlement to an exporter at the time of export at an ad valorem rate notified by DGFT, in relation to FOB value of the export product. The crucial feature of the DEPB Scheme is that all the inputs listed in the Standard Input Output Norms (SION) are deemed to have been imported and to have suffered customs duties. The crucial feature of the DEPB Scheme is that all the inputs listed in the Standard Input Output Norms (SION) are deemed to have been imported and to have suffered customs duties. DEPB scrips are issued by DGFT authority valid for twelve months for a certain amount of DEPB credit and can be utilised for adjusting customs duties against import of any products into India, without the necessity of any co relation between the export product and the import goods. The DEPB and or the items imported against it are freely transferable. Duty Draw Back is not allowed when export is made under DEPB Scheme. 18. As per Clause 3(A) of Chapter 22 of the above mentioned CBEC’s instructions the DFRC Scheme is also an export promotion scheme, under which DFRC licence are issued to merchant exporter or manufacturer exporter permitting duty free import of inputs which were used in the manufacture of export product on post-export basis as replenishment. DFRC liscences are issued for import of inputs, as per SION, having same quality, technical characteristics and specifications as those used in the export products and as indicated in the shipping bills. 19. From the above, it is clear that Duty Draw Back is not the same scheme as the DEPB and DFRC Scheme. 20. When goods are not actually imported under DEPB by the exporters who has earned the credit but he sells DEPB credit to another person then it is called DEPB credit sale. Such sale is neither import nor part of export import. Infact the profits so made on sale of DEPB credit is a premium being simple business profit and not the export profit as in such a case the seller does not earn foreign exchange. The profit in such case does not arise out of export or import activity. This is an activity of trading of licence which has a premium in the market. Thus, the very basic ingredients of Section 80HHC(1) of the Act i.e. “profit derived by the assessee from the export of such goods or merchandise” is absent and no deduction can be claimed under the unamended Section with respect to sale proceeds of DEPB credit sale. It was only because of insertion of 2nd, 3rd and 4th Proviso in Section 80HHC (3) of the Act that such DEPB credit sale proceeds were made eligible for deduction under Section 80HHC. 21. It was only because of insertion of 2nd, 3rd and 4th Proviso in Section 80HHC (3) of the Act that such DEPB credit sale proceeds were made eligible for deduction under Section 80HHC. 21. The above noted conclusion is also supported by the speech of the Finance Minister(Annexure No. CA-1) while presenting the amendment by the Taxation Laws (Amendment) Bill, 2005. The relevant part of the speech of the Finance Minister is reproduced below: “Now, I come to the sixth amendment. It is the one dealing with DEPB. This is not in the Ordinance. We did not bring it by way of an Ordinance. We are bringing it by way of a Bill and Hon’ble Members are debating this provision. Now, this is rather a complicated question of law. I would take three or four minutes to explain this in as simple a language as possible. But please try to understand that it is a complicated question of law. You heard an Hon. Member, Shri Varkala Radhakrishnan, saying that we should not have these Sections 3 and 4 because exporters do not desrves this benefit. You also heard other Members, like Shri Kashiram Rana saying that Sections 3 and 4 are necessary because exporters deserve the benefits. But you are denying the benefits to one section and giving the benefits to another section. So, there are two points of view. In fact, my notes here say that Shri Mohan Singh said that this provision is unnecessary for one reason and Shri Kashiram Rana said that this provision is unnecessary for another reason. Shri Varkala Radhakrishnan said that this provision is unnecessary because you are giving too many benefits to exporters. Therefore, it is not rather I am giving benefit to anyone and not giving benefit to anyone. Let us look at the objective facts. DEPB came into force in the financial year 1997-98. The first assessment year in respect of a return, in which a DEPB credit sale is claimed, is assessment year 1998-99 beginning on the 1 April, 1998. So, prior to 1 April, 1998, this question did not arise. Section 80-HHC is a section which deals with deductible profits. If you come under Section 80HHC, the profits are not taxable. That section was phased out by the previous Government and the last date for operation of that section was 31.3.2005. Therefore, this situation does not arise after 1.4.2005. So, prior to 1 April, 1998, this question did not arise. Section 80-HHC is a section which deals with deductible profits. If you come under Section 80HHC, the profits are not taxable. That section was phased out by the previous Government and the last date for operation of that section was 31.3.2005. Therefore, this situation does not arise after 1.4.2005. I hope, I am making myself clear to the Hon’ Members. We are now dealing with only the period 1.4.1998 to 31.3.2005. This is a period of about seven years. This problem did not arise before 1.4.1998. This problem does not arise after 1.4.2005. In this period of seven years, the relevant sections - I am not getting into an exposition of the law- are Section 28 and Section 80HHC. These are the two sections which are relevant. Now, the Department’s interpretation is that DEPB credit sale - I will explain what it is - is not export profit. What is a DEPB credit sale ? A DEPB credit sale is, that on your DEPB Passbook, if you have certain credits in your favour, you can import items against the credit without paying duty. But you can also sell the credit to another importer. If you actually import, it is part of export - import. If you sell it to another importer and make a profit on that - the premium, it is not export profit. It is a simple business profit because profit because the income you earn is not foreign exchange ; it is an Indian rupee. It does not arise out of export activity or import activity. It arises because you are trading in a ‘Licence’, which has a premium in the market. So, the Department took the view that it does not fall under Section 28 read with Section 80HHC. I am not going into sub-sections. Therefore, this is not to be counted as exempted export profit. This must be added back as taxable profit. The assessee took a different view. Please remember, the first assessment in respect of this was filed only in the assessment year 1998-99. Some exporters paid ; some exporters did not pay. Some exporters paid but disputed. Some assessing officers assessed it as taxable profit. Some assessing officers exempted as exempted profit. That is bound to happen. The assessee took a different view. Please remember, the first assessment in respect of this was filed only in the assessment year 1998-99. Some exporters paid ; some exporters did not pay. Some exporters paid but disputed. Some assessing officers assessed it as taxable profit. Some assessing officers exempted as exempted profit. That is bound to happen. When so many assessments take place all over the country, there is bound to be different assessments - income tax or sales tax or whatever. Ultimately, only one case went up to the Income Tax Appellate Tribunal. The assessing officer took the view that this is not exempted profit ; this is taxable profit. The assessee went in appeal. In appeal, the ITAT observed that the case falls under Section 28(4), not under Section 28-3(a), 3(b) or 3(c). It falls under Section 28(4). Then, the Tribunal gave a judgment, which I find as a lawyer difficult to understand. But, with great respect to the Tribunal which is entitled to take a view, the Tribunal gave a judgment that although it falls under Section 28(4), it does not fall under Section 80-HHC ‘Explanation’ (baa). Therefore, it ruled on a new interpretation of the law in favour of the assessee and the Department has gone up in appeal to the Delhi High Court. Now, there are two courses open to me. I could have said; “Let us wait for the Delhi High Court’s judgemnt. One of them will win and one of them will lose. They are bound to go to the Supreme Court. So, let us wait for the Supreme Court’s judgement.” It would have taken a minimum of ten years to settle this issue which arises - please remember - only between 1.4.1998 and 31.3.2005. It is today an academic issue. We are only dealing with seven assessment years. I could have waited for ten years. Thousands of rupees would have been spent by everybody fighting litigation at every level - before the Assessing Officer, before the Appellate Commissioner, before the ITAT, before the High Court and before the Supreme Court. So, we have said ; “All right. We will look into this matter. I could have waited for ten years. Thousands of rupees would have been spent by everybody fighting litigation at every level - before the Assessing Officer, before the Appellate Commissioner, before the ITAT, before the High Court and before the Supreme Court. So, we have said ; “All right. We will look into this matter. We will try to find a solution which does not affect the revenue and which tries to give some relief to the exporter.” Exporters, of course, have only argued what Shri Kashiram Rana argued today very articulately saying “give exemption to all the exporters.” Naturally, the Department says ; “Do not give exemption to any exporter. We must collect the revenue.” Therefore, we have decided that this is not a matter where we can give up revenues completely. At the same time, we must be sympathetic to small exporters. Anyway, we did not take a view. We have referred it to Dr. Rangarajan’s Economic Advisory Council. The Economic Advisory Council heard exporters, heard everyone and gave a report to the Prime Minister. What did the Economic Advisory Council recommend? I am reading only the recommendations. “(1) If the export turnover was Rs. 10 crore or less, the corresponding income may be treated as exempt. (2) If the export turnover was more than Rs. 10 crore, the corresponding income may be exempt provided two conditions are satisfied ; One, if an exporter had claimed DEPB credit and also tax exemption for such DEPB credit, the income should be brought to tax without the benefit of exemption. However, the income should be exempt if the exporter had a choice between draw-back and DEPB and the customs component of the draw back rate was higher than the DEPB rate; (3) No penalty by way of interest or penal interest should be levied ; and (4) The arrears of tax, if any, may be collected over a period of two years.” I have accepted all the four recommendations with the improvement that the arrears, if any, will be collected nor over two years but over five years. What more can I do ? ....(Interruptions).” 22. From the above it is clear that the impugned amendment was brought to benefit the exporters to claim deduction under Section 80HHC, which was not available to them prior to the impugned amendment. What more can I do ? ....(Interruptions).” 22. From the above it is clear that the impugned amendment was brought to benefit the exporters to claim deduction under Section 80HHC, which was not available to them prior to the impugned amendment. The amendment was made on the recommendation of the Economic Advisory Council (Dr. Rangragan’s Economic Advisory Council) who heard the exporters and submitted its report to the Hon’ble Prime Minister 23. The speech of the Finance Minister in the Parliament while presenting the Taxation Laws(Amendment) Bill clearly indicates the objects and reasons to insert 2nd, 3rd and 4th Proviso in Section 80HHC(3) of the Act and certain other amendments. The amendment was brought on the recommendation of the Economic Advisory Council after hearing the exporters. The amendment was made for the benefit of the exporters to enable them to be eligible for deduction with respect to DEPB credit sale and DFRC which were out side the purview of Section 80HHC prior to the impugned amendment. It is well-settled that the reference to background and circumstances in which the Act was passed is permissible for appreciating the mischief the legislature had in mind and the remedy it wanted to provide for preventing that mischief. Reference to objects and reasons is permissible for understanding the background, antecedents, state of affairs, the surrounding circumstances in relation to the statute and the evil which the statute sought the remedy. Reference in this regard may be made to the law laid down by Hon’ble Supreme Court in the judgments in Express Newspaper (private) Ltd. and others v. The Union of India and others, AIR 1958 SC 578 para 173; M/s Sanghvi Jeevraj Ghewar Chand and others v. Secretary, Madras Chillies, Grains and Kirana Merchants Workers Union and another, AIR 1969 SC 530 para 2; Danthuluri Ramaraju and others v. The State of Andra Pradesh and another, AIR 1972 SC 828 para 4; The State of Madhya Pradesh and another v. Dadabho’s New Chirimiri Ponri Hill Colliery Co. Pvt. Ltd. and another etc., AIR 1972 SC 614 para 26; The Workmen of M/s Firestone Ture & Rubber Col. Pvt. Ltd. and another etc., AIR 1972 SC 614 para 26; The Workmen of M/s Firestone Ture & Rubber Col. of India P. Ltd. v. The Management and others, AIR 1973 SC 1227 para 29; M/s Hiralal Ratan Lal v. The Sales Tax Officer, Section III, Kanpur and another, AIR 1973 SC 1034 para 10; Organo Chemical Industries and another v. Union of India and others, AIR 1979 SC 1803 para 48; The Secretary, Regional Transport Authority, Bangalore and another v. D.P. Sharma and another, AIR 1989 SC 509 para 6; State of Himachal Pradesh and another v. Kailash Chand Mahajan and others, AIR 1992 SC 1277 para 77; Devadoss (dead) by LRs and another v. Veera Makali Amman Koil Athalur, AIR 1998 SC 750 para 20A and State of Gujarat v. Mirzapur Moti Kureshi Kassab Jamat and others, JT 2005 (12) SC 580 para 76. 24. Thus, we find that the petitioners who are exporters having export turnover of more than Rs. 10 crores were not entitled to the benefit of deduction under the unamended provision of Section 80HHC with respect to DEPB credit sales and DFRC. They became entitled to claim deduction only because of the amended provisions. 25. As already discussed, Section 80HHC is a provision for deduction. As per provisions of sub-Section(1) of Section 80HHC the deduction under this Section is allowable in accordance with and subject to the provisions of this Section. The 2nd, 3rd and 4th proviso of Section 80HHC(3) of the Act are the conditions referable to sub-Section(1) and as such the deduction is available only on compliance of these conditions. No one has any fundamental right to claim deduction or exemption otherwise than in accordance with the relevant provisions. It can be availed strictly in accordance with the provisions of deduction or exemption. In the case of Jain Exports Pvt. Ltd. and another v. Union of India and others, (1996) 86 ELT 478 SC para 11, Hon’ble Supreme Court has held that Court can strike down an exemption provision, but it cannot widen its scope to cover those it finds to have been discriminated against. In the case of Jain Exports Pvt. Ltd. and another v. Union of India and others, (1996) 86 ELT 478 SC para 11, Hon’ble Supreme Court has held that Court can strike down an exemption provision, but it cannot widen its scope to cover those it finds to have been discriminated against. In the case of Mihir Textiles Ltd. v. Collector of Central Excise, (1997) 92 ELT 9 SCC para 11, Bombay Oil Industries Ltd. v. Union Of India and others, (1995) 77 ELT 32 para 8, M/s. Motiram Tolaram and another v. The Union of India, (1999) 112 ELT 749 SC, Wipro Limited v. Union of India and others, (1997) 94 ELT 470, Hon’ble Supreme Court has laid down the law that the conditions of exemption has to be complied with even if it is directory. In the case of Union of India v. Flon Engineering Corporation, (2000) 122 ELT SC paras 10 and 11, (2003) 158 ELT 675 Hon’ble Supreme Court has held that exemption is not a right. It is prerogative of the Government and the Court cannot add or delete any condition. In M/s. Faridabad Ct Scan Centre v. D.G. Health Services and others, (1997) 95 ELT 161 (SC), Hon’ble Supreme Court held that exemption wrongly allowed to one cannot be made basis by the other for grant of exemption. In the case of Sri Sathya Sai Institution High Medi, Services v. Union of India, (2003) 158 ELT 675 SC para 4, Hon’ble Supreme Court held that grant of exemption is prerogative of the Government. Hence, it is for the Government to impose appropriate conditions. In the case of Orient Traders v. CTO Tirupati, (2009) 237 ELT 447 SC para 18 and Union of India and others v. Wood Papers Ltd., (1990) 47 ELT 500 SC para 2, Hon’ble Supreme Court has laid down the law that exemption is freedom from tax liability. It is to be construed strictly either because of legislative intention or on economic justification of inequitable burden at state revenue. When question is whether a subject falls in the notification or exemption clause then it is construed strictly and against the subject but if subject falls in the notification then full play should be given to it. It is to be construed strictly either because of legislative intention or on economic justification of inequitable burden at state revenue. When question is whether a subject falls in the notification or exemption clause then it is construed strictly and against the subject but if subject falls in the notification then full play should be given to it. In M/s. Sanghvi Reconditioners Pvt. Ltd. v. Union of India and others, (2010) 261 ELT 03 SC para 17, Saraswati Sugar Mills v. Commissioner of C. Ex.Delhi-II, (2011)270 ELT 465 SC para 7 and Sri Niwas Cable Components v. State of M.P., (2012 279 ELT 166 para 7, Hon’ble Supreme Court held that exemption notification has to be strictly construed. A person claiming exemption must satisfy that he fulfills the eligibility criteria. In Orient Traders v. Comm. Tax Officer, Tirupati, JT 2008 (4) SC 66 para 18, Hon’ble Supreme Court has held the law that it is not open the Courts to add words in the exemption notification to extend benefit to others items which do not finds mentioned in the notification. In Commissioner of Custom (Prev.) Mumbai v. M. Ambalal Company, (2010) 26 ELT 487 SC para 10 and 12, it was held that if any of the conditions of exemption is not fulfilled the exemption shall not be available. 26. A perusal of the principles of law laid down by Hon’ble Supreme Court in the aforenoted judgments makes it clear that exemption or deduction is prerogative of the Governments; it has to be construed strictly; no one has any fundamental right to claim for exemption; an exemption can be claimed only in accordance with the provisions and subject to fulfillment of the statutory conditions; even if exemption has been wrongly allowed to a person, the same cannot be made basis by another person to claim exemption; the Court can struck down an exemption provision but cannot widen its scope so as to include other persons or items which do not fall within the ambit of exemption or deduction provision. 27. Thus, we find that as per plain reading of the unamended provisions of Section 80HHC, deduction was not available in respect of profit on the transfer of DEPB. It became available to exporters in respect of DEPB credit sale and DFRC referable to Section 28(iiid)/(iiie), when 2nd, 3rd and 4th Proviso in Section 80 HHC(3) were inserted. 27. Thus, we find that as per plain reading of the unamended provisions of Section 80HHC, deduction was not available in respect of profit on the transfer of DEPB. It became available to exporters in respect of DEPB credit sale and DFRC referable to Section 28(iiid)/(iiie), when 2nd, 3rd and 4th Proviso in Section 80 HHC(3) were inserted. Simultaneously clauses (iiid)(iiie) were also inserted in Section 28 of the Act by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998. Thus, no one can have grievance falling under the scope of Section 80HHC against the amended provisions inasmuch as such eligible person would be getting benefit of deduction under Section 80HHC with retrospective effect. It appears that the petitioners are aggrieved on account of the conditions contained in the 3rd and 4th Proviso of Section 80HHC(3) for export turnover exceeding Rs. 10 crores of the Act and on which they are not entitled to the benefit of deduction while exporters having export turnover not exceeding Rs. 10 crores shall get benefit in view of 2nd Proviso. The petitioners do not have any right to be aggrieved for the reason that deduction or exemption is available strictly in accordance with the statutory provisions. No one has any fundamental right for deduction or to ask for deletion or modification of the conditions so as to qualify for exemption or deduction. Issue No. (iii), (iv) and (v)- Retrospectivity 28. The argument raised by the petitioners against the restrospectivity of the impugned provisions also deserves to be rejected, in view of the fact that there is no challenge to the legislative competence of Parliament to enact the impugned provisions. A competent legislature having competence to enact a law has the power to enact it prospectively as well as retrospectively. 29. In Tata Iron and Steel Company Ltd. v. State of Bihar, 1958 (9) STC 267 , the Hon’ble Supreme Court held that a legislature acting within its own legislative field, has the powers of sovereign legislature, and could make its law prospectively as well as retrospectively. 30. In J.K. Jute Mills Company Ltd. v. State of U.P., AIR 1961 SC 1534 , the Supreme Court held that where the legislature has power to enact a law with reference to a topic, it has the competence to legislate and to enact a law, which is either prospective or retrospective. 30. In J.K. Jute Mills Company Ltd. v. State of U.P., AIR 1961 SC 1534 , the Supreme Court held that where the legislature has power to enact a law with reference to a topic, it has the competence to legislate and to enact a law, which is either prospective or retrospective. In para 15 the Hon’ble Supreme Court held : “15. The power of a legislature to enact a law with reference to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the legislature to enact a law, which is either prospective or retrospective. In Union of India v. Madan Gopal, 1954 SCR 541 : ( AIR 1954 SC 158 ), it was held by this Court that the power to impose tax on income under entry 82 of List I in Schedule VII to the Constitution, comprehended the power to impose income-tax with retrospective operation even for a period prior to the Constitution. The position will be the same as regards laws imposing tax on sale of goods, In M. P. V. Sundararamier and Co. v. State of Andhra Pradesh, 1958 SCR 1422 : ( AIR 1958 SC 468 ), this Court had occasion to consider the validity of a law enacted by Parliament giving retrospectively operation to laws passed by the State legislatures imposing a tax on certain sales in the course of inter-State trade. One of the contentions raised against the validity of this legislation was that, having regard to the terms of Art. 286 (2), the retrospective legislation was not within the competence of Parliament. In rejecting this contention, the Court observed: “Article 286 (2) merely provides that no law of a State shall impose tax on inter-State sales ‘except in so far as Parliament may by law otherwise provide.’ It places no restrictions on the nature of the law to be passed by Parliament. On the other hand, the words ‘in so far as’ clearly leave it to Parliament to decide on the form and nature of the law to be enacted by it. On the other hand, the words ‘in so far as’ clearly leave it to Parliament to decide on the form and nature of the law to be enacted by it. What is material to observe is that the power conferred on Parliament under Art.286(2) is a legislative power, and such a power conferred on a Sovereign Legislature carries with it authority to enact a law either prospectively or retrospectively, unless there can be found in the Constitution itself a limitation on that power.” (p. 1460 (of SCR): (p. 486 of AIR)) and it was held that the law was within the competence of the legislature. We must, therefore, hold that the Validation Act is not ultra vires the powers of the legislature under entry 54, for the reason that it operates retrospectively.” 31. In Rai Ram Krishna v. State of Bihar, AIR 1963 SC 1667 , the Supreme Court held in para 20 as follows : “20. In this connection, it would be relevant to refer to another fact which appears on the record. Alongwith the appellants, 18 other bus owners had filed writ petitions challenging the validity of the Act. These petitioners have not appealed to this Court presumably because their cases fall under the provisions of Section 23(a) of the Act. It is likely that they had paid the amounts, and since the amounts paid under the provisions of the earlier Act are now deemed to have been paid under the provisions of this Act, they did not think it worthwhile to come to this Court against the decision of the High Court. Apart from that, it is not unlikely that other bus owners may have made similar payments and the appellants have, therefore, come to this Court because they have made no payments and so, their cases do not fall under Section 23(a) or may be, their cases fall under Section 23(b). The position therefore, is that the retrospective operation of Section 23(a) and (b) covers respectively cases of payments actually made under the provisions of the earlier Act, and cases pending inquiry, and the retrospective operation of Section 3(3) read with Section 1(3) only applies to cases of persons who did not pay the tax during the whole of the period, or whose cases were not pending; and it is this limited class of persons whose interests are represented by the appellants before us. Having regard to the somewhat unusual circumstances which furnish the background for the enactment of the impugned statute, we do not think that we could accept Mr. Setalvad’s argument that the retrospective operation of the Act imposes restriction on the appellants which contravene the provisions of Article 19(1) (f) and (g). In our opinion, having regard to all the relevant facts of this case, the restrictions imposed by the said retrospective operation must be held to be reasonable and in the public interest under Article 19(5) and (6) and also reasonable under Article 304(b).” 32. In Khyerbari Tea Co. Ltd. and another v. State of Assam and others, AIR 1964 SC 925 , the Supreme Court held in paragraphs 29 and 30 as follows : “29. Then as to the argument about the scheme of Part XIII, we do not see how a statute passed under Art. 304(b) would always and necessarily defeat the said scheme if its provisions are made retrospective. It is not disputed by Mr. Pathak that a taxing statute can be if such a statute is passed, it would not be possible for any person to challenge its validity on the ground that it affects the citizens’ fundamental right under Art. 19(1) (g). If such a challenge is made, it would be easily met by the plea that a taxing statute, though retrospective in its operation, can be reasonable and in the public interest within the meaning of clause (6) of Art. 19. Therefore, if a taxing statute can, in a given case, operate retrospectively and its validity cannot be successfully challenged under Art. 19 we do not see how a similar challenge could be sustained against a taxing statute which has been passed under Art. 304(b). Therefore, if a taxing statute can, in a given case, operate retrospectively and its validity cannot be successfully challenged under Art. 19 we do not see how a similar challenge could be sustained against a taxing statute which has been passed under Art. 304(b). The freedom of trade guaranteed by Art. 301 is not doubt of very great importance to the political and economic unity of the country; but the freedom guaranteed to the individual is not less important; just as in the case of a challenge to the validity of a statute under Art. 19 the Court has to consider whether the restrictions imposed by the statute are reasonable and in the interest of the general public, so in dealing with a challenge to the validity of a statute passed under Art. 304(b), the Court has to consider whether the restrictions imposed by the statute are reasonable and are required in the public interest. The impact of the restrictions on the individual’s right has to be judged in one case, whereas the impact of the restrictions on the freedom of trade has to be judged in the other; but basically, it is the invasion of a guaranteed right whose validity is being examined in either case; and so, if the law can be retrospective in one case, there is no reason why it cannot be retrospective in the other. We are, therefore, satisfied that there is no substance in the plea raised by Mr. Pathak that the Act is invalid solely because it operates retrospectively. 30. It is then faintly suggested that the retrospective operation of Section 3, in substance, changes the character of the tax. The argument is that the proviso to Section 3(2) enables the producer to recover the tax from the purchaser in case the goods are sold to a purchaser before they are carried, whereas such a provision did not exist in the past and in that sense, the retrospective operation changes the character of the tax. We have already noticed that the proviso in question is not retrospective in operation, and so, this argument has to be tested by reference to the remaining portion of Section 3(2). Thus tested, it is difficult to accept it as sound. We have already noticed that the proviso in question is not retrospective in operation, and so, this argument has to be tested by reference to the remaining portion of Section 3(2). Thus tested, it is difficult to accept it as sound. In this connection, we may refer to the recent decision of this Court in Rai Ram Krishna v. State of Bihar, AIR 1963 SC 1667 , where a similar plea was rejected and it was pointed out that this Court has consistently held that the mere fact that a validating statute operates retrospectively does not justify the contention that the character of the tax sought to be recovered by such retrospective operation is necessarily changed.” 33. In Epari Chinna Krishna Moorthy v. State of Orissa, AIR 1964 SC 1581 , the Supreme Court while dealing with the retrospective operation of the Orissa Sales Tax Validation Act of 1961 held in para 7 as follows : “7. The first argument which has been urged before us by Mr. Sastri is that since the exemption was granted by the State Government by virtue of the powers conferred on it by Section 6, it was not open to the legislature to take away that exemption retrospectively. Section 4 of the parent Sales-tax Act is the charging section and Section 6 is the section which confers on the State Government power to issue a notification exempting from the tax the sale of any, goods or class of goods and likewise withdraw any such exemption subject to such conditions and exemptions as it may deem fit. The argument is, the power to grant exemption having been conferred on the State Government it was validly exercised by the State Government and though the legislature may withdraw such exemption, it cannot do so retrospectively. It is obvious that if the State Government which is the delegate of the legislature can withdraw the exemption granted by it, the legislature cannot be denied such right. But it is urged that once exemption was validly granted; the legislature cannot withdraw it retrospectively, because that would be invalidating the notification itself. We are not impressed by this argument. What the legislature has purported to do by Section 2 of the impugned Act is to make the intention of the notification clear. But it is urged that once exemption was validly granted; the legislature cannot withdraw it retrospectively, because that would be invalidating the notification itself. We are not impressed by this argument. What the legislature has purported to do by Section 2 of the impugned Act is to make the intention of the notification clear. Section 2 in substance declares that the intention of the delegate in issuing the notification granting exemption was to confine the benefit of the said exemption only to persons who actually produce gold ornaments or employ artisans for that purpose. We do not see how any question of legislative incompetence can come in the present discussion. And, if the State Government was given the power either to grant or withdraw the exemption, that cannot possibly affect the legislature’s competence to make any provision in that behalf either prospectively or retrospectively. Therefore, there is no substance in the argument that the retrospective operation of Section 2 of the impugned Act is invalid.” 34. In M/s Heera Lal Ratan Lal v. The Sales Tax Officer, AIR 1973 SC 1034 , the Supreme Court held that where the tax is levied on the dealer; the fact that he has allowed to pass on the burden of such tax to the consumers or he is generally in a position to pass on the same to the consumer has no relevance. When the Court has to consider the legislative competence to enact an Act, which validates levy retrospectively, the challenge to the retrospective levy on the ground that it was in violation of Article 19 (1) (f) and (g) was repelled. 35. In Empire Industries Ltd. v. Union of India, AIR 1986 SC 662 , the Supreme Court after noticing that the petitioners have already paid excise duty demanded from them from time to time and they have also gathered duties from consumers, upheld the amendment levying excise duty retrospectively. The Supreme Court observed in paragraphs 49 and 50 as follows : “49. Imposition of tax by legislation makes the subjects pay taxes. It is well recognised that tax may be imposed retrospectively. It is also well-settled that that by itself would not be an unreasonable restriction on the right to carry on business. It was urged, however, that unreasonable restrictions would be there because of the retrospectivity. Imposition of tax by legislation makes the subjects pay taxes. It is well recognised that tax may be imposed retrospectively. It is also well-settled that that by itself would not be an unreasonable restriction on the right to carry on business. It was urged, however, that unreasonable restrictions would be there because of the retrospectivity. The power of the Parliament to make retrospective legislation including fiscal legislation are well-settled. (See Krishnamurthi and Co. v. State of Madras, (1973) 2 SCR 54 : AIR 1972 SC 2455 ). Such legislation per se is, not unreasonable. There is no particular feature of this legislation which can be said to create any unreasonable restriction upon the petitioners. 50. In the view we have taken of the expression ‘manufacture’, the concept of process being embodied in certain situation in the idea of manufacture, the impugned legislation is only making ‘small repairs’ and that is a, permissible mode of legislation. In 73rd Volume of Harward Law Review p. 692 at p. 795, it has been stated as follows : “It is necessary that the legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called ‘small repairs’. Moreover, the individual who claims that a vested right has arisen from the defect is seeking a windfall since had the legislature’s or administrator’s action had the effect it was intended to and could have had, no such right would have arisen. Thus, the interest in the retroactive curing of such a defect in the administration of Government outweighs the individual’s interest in benefiting from the defect. The Court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation, not only because of the paramount Governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of Government among those who benefit from it.” 36. In M/s Ujagar Prints v. Union of India, 1989 (3) SCC 488 , following Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1969) 2 SCC 283 , the Supreme Court held in para 65 and 66 as follows : “65. There is really no substance in the grievance that the retroactivity imparted to the amendments is violative of Article 19(l)(g). There is really no substance in the grievance that the retroactivity imparted to the amendments is violative of Article 19(l)(g). A competent legislature can always validate a law which has been declared by Courts to be invalid, provided the infirmities and vitiating infactors noticed in the declaratory-judgment are removed or cured. Such a validating law can also be made retrospective. If in the light of such validating and curative exercise made by the Legislature - granting legislative competence - the earlier judgment becomes irrelevant and unenforceable, that cannot be called an impermissible legislative overruling of the judicial decision. All that the legislature does is to usher in a valid law with retrospective effect in the light of which earlier judgment becomes irrelevant. (See Sri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1970) 1 SCR 388 : ( AIR 1970 SC 192 ). 66. Such legislative expedience of validation of laws is of particular significance and utility and is quite often applied, in taxing statutes. It is necessary that the legislature should be able to cure defects in statutes. No individual can acquire a vested right from a defect in a statute and seek a windfall from the legislature’s mistakes. Validity of legislations retroactively curing defects in taxing statutes is well recognised and Courts except under extraordinary circumstances would be, reluctant to override the legislative judgment as to the need for and wisdom of the retrospective legislation. In Empire Industries Limited v. Union of India, 1985 Supp.(1) SCR 292 at p. 327 : ( AIR 1986 SC 662 at p. 678) this Court observed : “.......not only because of the paramount Governmental interest in obtaining adequate revenues, but also, because taxes are not in the nature of a penalty or a contractual obligation but rather, a means of opportioning the costs of Government amongst the who benefit from it”. In testing whether a retrospective imposition of a tax operates so, harshly as to violate fundamental rights, under Article l9 (1) (g) the factors considered relevant include the context in which retroactivity was contemplated such, as whether the law is one of validation of taxing statute struck down by, Courts for certain defects; the period of such retroactivity, and the degree and extent of any unforeseen or unforeseeable financial burden imposed for the past period. etc. etc. Having regard to all the circumstances, of the present case, this Court in Empire Industries” case held that the retroactivity of the Amending provisions was not such as to incur any infirmity under Article 19(l)(g). We are in respectful agreement with that view.” 37. In Welfare Association A.R.P., Maharashtra v. Ranjit P. Gohil, JT 2003 (2) SC 335, the Supreme Court again following Shri Prithvi Cotton Mills Ltd. (Supra) held in paragraphs 43, 44, 45 and 46 as follows : “43. In Shri Prithvi Cotton Mills Ltd. and another v. Broach Borough Municipality and others, (1969) 2 SCC 283 , a legislation by way of Validation Act was passed because of a decision of the Court declaring a certain imposition of tax as invalid. The question arising before the Court was, when a Legislature sets out to validate a tax declared by a Court to be illegally collected under an ineffective or an invalid law, then how is the validity of such Validation Act to be tested? It was held that the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition, of course, is that the Legislature must possess the power to impose the tax, for, if it does not, the action must ever remain ineffective and illegal. The Constitution Bench held : AIR 1970 SC 192 At P. 195, Para 4 of AIR 1970 SC 192 “Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A Court’s decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a Court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the re-enacted law. Sometimes the Legislature gives its own meaning and interpretation of the law under which tax was collected and by legislative fiat makes the new meaning binding upon Courts. The Legislature may follow any one method or all of them and while it does so it may neutralise the effect of the earlier decision of the Court which becomes ineffective after the change of the law. Whichever method is adopted it must be within the competence of the Legislature and legal and adequate to attain the object of validation. If the Legislature has the power over the subject-matter and competence to make a valid law, it can at any time make such a valid law and make it retrospectively so as to bind even past transactions. The validity of a Validating Law, therefore, depends upon whether the Legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the Courts had found in the existing law and makes adequate provisions in the Validating Law for a valid imposition of the tax.” 44. Thus, it is permissible for the Legislature, subject to its legislative competence otherwise, to enact a law which will withdraw or fundamentally alter the very basis on which a judicial pronouncement has proceeded and create a situation which if it had existed earlier, the Court would not have made the pronouncement. 45. In Indian Aluminium Co. and others v. State of Kerala and others, (1996) 7 SCC 637 , the Government of Kerala issued a statutory order levying surcharge on electricity. The order was declared by the Court to be ultra vires followed by a direction to refund the amount collected thereunder. The State Legislature introduced a Validating Act, which was impugned unsuccessfully before the High Court as also this Court. The order was declared by the Court to be ultra vires followed by a direction to refund the amount collected thereunder. The State Legislature introduced a Validating Act, which was impugned unsuccessfully before the High Court as also this Court. This Court laid down the following tests for judging the validity of the Validating Act: (i) whether the Legislature enacting the Validating Act has competence over the subject-matter, (ii) whether by validation, the Legislature has removed the defect which the Court had found in the previous law; (iii) whether the validating law is inconsistent (sic consistent) with the provisions of Part III of the Constitution. If these tests are satisfied, the Act can with retrospective effect validate the past transactions which were declared to be unconstitutional. The Legislature cannot assume power of adjudicating a case by virtue of its enactment of the law without leaving it to the judiciary to decide it with reference to the law in force. The Legislature also is incompetent to overrule the decision of a Court without properly removing the base on which the judgment is founded. The Court on a review of judicial opinion, proceeded to lay down the following principles among others so as to maintain the delicate balance in the exercise of the sovereign powers by the Legislature, Executive and Judiciary : AIR 1996 SC 1431 : 1996 AIR SCW 1051 “(i) in order that rule of law permeates to fulfil constitutional objectives of establishing an egalitarian social order, the respective sovereign functionaries need free play in their joints so that the march of social progress and order remains unimpeded; (ii) in its anxiety to safeguard judicial power, it is unnecessary to be overzealous and conjure up incursion into the judicial preserve invalidating the valid law competently made; (iii) the Court, therefore, needs to carefully scan the law to find out; (a) whether the vice pointed out by the Court and invalidity suffered by previous law is cured complying with the legal and constitutional requirements; (b) whether the Legislature has competence to validate the law; (c) whether such validation is consistent with the rights guaranteed in Part III of the Constitution; (iv) the Court does not have the power to validate an invalid law or to legalise impost of tax illegally made and collected or to remove the norm of invalidation or provide a remedy. These are not judicial functions but the exclusive province of the Legislature. Therefore, they are not encroachment on judicial power; (v) in exercising legislative power, the Legislature by mere declaration, without anything more, cannot directly overrule, revise or override a judicial decision. It can render judicial decision ineffective by enacting valid law on the topic within its legislative field fundamentally altering or changing its character retrospectively. The changed or altered conditions are such that the previous decision would not have been rendered by the Court, if those conditions had existed at the time of declaring the law as invalid......... It is competent for the Legislature to enact the law with retrospective effect; (vi) the consistent thread that runs through all the decisions of this Court is that the Legislature cannot directly overrule the decision or make a direction as not binding on it but has power to make the decision ineffective by removing the base on which the decision was rendered, consistent with the law of the constitution and the Legislature must have competence to do the same.” (Emphasis supplied) 46. In State of Tamil Nadu v. Arooran Sugars Ltd., (1997) 1 SCC 326 , the Constitution Bench made an exhaustive review of all the available decisions on the point and summed up the law by holding : AIR 1997 SC 1815 : 1997 AIR SCW 1188, Para 16. “It is open to the Legislature to remove the defect pointed out by the Court or to amend the definition or any other provision of the Act in question retrospectively. In this process it cannot be said that there has been an encroachment by the Legislature over the power of the judiciary. A Court’s directive must always bind unless the conditions on which it is based are so fundamentally altered that under altered circumstances such decisions could not have been given. This will include removal of the defect in a statute pointed out in the judgment in question, as well as alteration or substitution of provisions of the enactment on which such judgment is based, with retrospective effect.” 38. On the principles of law laid down by Hon’ble Supreme Court in the aforenoted judgments, we are of considered opinion that the amendment in Section 80HHC made by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998, does not suffer from the vice of unconstitutionality. On the principles of law laid down by Hon’ble Supreme Court in the aforenoted judgments, we are of considered opinion that the amendment in Section 80HHC made by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998, does not suffer from the vice of unconstitutionality. The amendment so made with retrospective effect is accordingly held to be valid. Issue No. (vi)-Classification & Article 14 39. The Submission of learned counsel appearing for the petitioners that the classification under the 2nd, 3rd and 4th Proviso of Section 80HHC(3) of the Act is wholly impermissible, since all the exporters form one single class, also deserves to be rejected. The 2nd Proviso provides for deduction to exporters having turnover not exceeding Rs. 10 crores while 3rd and 4th Proviso provides for deduction to exporters having export turnover exceeding Rs. 10 crores. In a taxing statute classification of dealers on the basis of different turnovers for levying varying rates of sales tax is permissible and held to be valid by Hon’ble Supreme Court in various judgments. Reference in this regard may be had to the judgments of Hon’ble Supreme Court in the case of Kerla Hotel and Restaurant Association v. State of Kerla, AIR 1990 SC 913 and S. Kodar v. State of Kerla, AIR 1974 SC 2272 at 2276. In the case of ITO v. N. Takin Roy Rymbai, (1976) 103 ITR 82 (SC); AIR 1976 SC 670 , Hon’ble Supreme Court has held that in the context of taxation laws the mere fact that a tax falls more heavily on some in the same category, is not by itself a ground to render the law invalid. It is only when within the range of its selection, the law operates unequally and cannot be justified on the basis of a valid classification that there would be a violation of Article 14. In the case of Federation of Hotel Restaurant Association of India v. Union of India, AIR 1990 SC 1637 , Hon’ble Supreme Court has held that the State, in exercise of its powers, has, of necessity, to make laws operating differently in relation to different groups or class of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognized that no precise or set formula or doctrinaire tests or precise scientific principles of exclusion or inclusion are to be applied. The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and social exigencies informed by experience. Classification based on differences in the value of articles or the economic superiority of the persons of incidence are well recognized. A reasonable classification is one which includes all who who are similarly situated and none who are not. The test applicable for striking down a taxing provision on this ground is one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience; and the Courts should not interfere with the legislative wisdom of making the classification unless the classification is found to be invalid by this test. 40. In the case of R.K. Garg v. Union of India, 1981 (4) SCC 675 para 6, 7 and 8 Hon’ble Supreme Court has held as under : “6. That takes us to the principal question arising in the writ petitions namely, whether the provisions of the Act are violative of Article 14 of the Constitution. The true scope and ambit of Article 14 has been the subject-matter of discussion in numerous decisions of this Court and the propositions applicable to cases arising under that Article have been repeated so many times during the last thirty years that they now sound platitudenous. The latest and most complete exposition of the propositions relating to the applicability of Article 14 as emerging from “the avalanche of cases which have flooded this Court” since the commencement of the Constitution is to be found in the Judgment of one of us (Chandrachud, J. as he then was) in Re: Special Courts Bill It not only contains a lucid statement of the propositions arising under Article 14, but being a decision given by a Bench of seven Judges of this Court, it is binding upon us. That decision sets out several propositions delineating the true scope and ambit of Article 14 but not all of them are relevant for our purpose and hence we shall refer only to those which have a direct bearing on the issue before us. That decision sets out several propositions delineating the true scope and ambit of Article 14 but not all of them are relevant for our purpose and hence we shall refer only to those which have a direct bearing on the issue before us. They clearly recognise that classification can be made for the purpose of legislation but lay down that: 1. The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely,(l) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that differentia must have a rational relation to the object sought to be achieved by the Act. 2. The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. In short, while Article 14 forbids class discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed, it does not forbid classification for the purpose of legislation, provided such classification is not arbitrary in the sense above mentioned. It is clear that Article 14 does not forbid reasonable classification of persons, objects and transactions by the legislature for the purpose of attaining specific ends. What is necessary in order to pass the test of permissible classification under Article 14 is that the classification must not be “arbitrary, artificial or evasive” but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by the legislature. The question to which we must therefore address ourselves is whether the classification made by the Act in the present case satisfies the aforesaid test or it is arbitrary and irrational and hence violative of the equal protection clause in Article 14. 7. The question to which we must therefore address ourselves is whether the classification made by the Act in the present case satisfies the aforesaid test or it is arbitrary and irrational and hence violative of the equal protection clause in Article 14. 7. Now while considering the constitutional validity of a statute said to be violative of Article 14, it is necessary to bear in mind certain well established principles which have been evolved by the Courts as rules of guidance in discharge of its constitutional function of judicial review. The first rule is that there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. This rule is based on the assumption, judicially recognised and accepted, that the legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation. 8. Another rule of equal importance is that laws relating to economic activies should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrine or straight jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislature judgment in the field of economic regulation than in other areas where fundamental human rights are involved. The Court should feel more inclined to give judicial deference to legislature judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Dond, 354 US 457, where Frankfurter, J. said in his inimitable style: In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial difference to legislative judgment. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events-self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The Court must always remember that “legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry” that exact wisdom and nice adoption of remedy are not always possible and that “judgment is largely a prophecy based on meagre and un-interpreted experience”. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There, may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The Courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Reig Refining Company, 94 Lawyers Edition 381, be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues.” 41. In Shri Krishna Das v. Town Area Committee, (1990)3 SCC 645 para31, Hon’ble Supreme Court held that it is for the legislature or the taxing authority to determine the question of need, the policy and to select the goods or services for taxation. The Courts cannot review these decisions. When taxes are levied on certain articles or services and not on others it cannot be said to discriminatory. In the Union of India v. Paliwal Electricals (P) Ltd., (1996) 3 SCC 407 para 10 the Hon’ble Supreme Court has held as under : “Generally speaking the Exemption Notification and the terms and conditions prescribed therein represent the policies of the Government evolved to subserve public interest and public revenue. A very heavy burden, lies upon the person who challenges them on the ground of Article 14. Unless otherwise established, the Court must presume that the said amendment was found by the Central Government to be necessary for giving effect to its policy [underlying the notification] on the basis of the working of the said Notification and that such an amendment was found necessary to prevent persons from taking unfair advantage of the concession” 42. Applying the tests laid down by Hon’ble Supreme Court in the afore noted judgments, we find that classification of exporters on the basis of turn over of less than Rs. 10 crores and more than Rs. Applying the tests laid down by Hon’ble Supreme Court in the afore noted judgments, we find that classification of exporters on the basis of turn over of less than Rs. 10 crores and more than Rs. 10 crores is a valid classification based on intelligible differentia. The exporters having export turn-over not exceeding Rs. 10 crores referable to the 2nd Proviso of Section 80HHC(3) fall under one group while the exporter having export turn-over exceeding Rs. 10 crores referable to 3rd and 4th proviso of Section 80HHC(3) fall under another group. Thus, the classification so made is founded on an intelligible differentia which distinguishes the exporters falling under one group (having export turn-over not exceeding Rs. 10 crores) from those who fall under another group (exporters having export turned over exceeding Rs. 10 crores). 43. Article 14 of the Constitution of India forbids class discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed. It does not forbid classification provided such classification is not arbitrary in the sense that the classification is based on an intelligible differentia and the differentia has a rational nexus to the object sought to be achieved by the Act. Reasonable classification of persons, objects and transactions by the legislature for the purpose of attaining specific ends is not forbidden by Article 14 of the Constitution. The economic mechanism is highly sensitive and complex. The constitutionality of such legislation should be adjudged by the generality of its provision and not by crudities or inequities or by the possibility of abuse of any of its provision. The laws relating to economic activities should be viewed with greater latitude than the law touching civil rights such as freedom of speech, religion etc. The legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit solution through any doctrinaire or straight jacket formula in economic matters. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. Hence, self -limitation can be seen to be the path to the judicial wisdom and institutional prestige and stability. 44. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. Hence, self -limitation can be seen to be the path to the judicial wisdom and institutional prestige and stability. 44. In view of the discussions made above, we are of the view that the impugned provisions are not violative of Article 14 of the Constitution of India. The classification as provided in the 2nd, 3rd and 4th proviso are wholly valid and based on intelligible differentia. Issue No. (vii)- Whether the impugned amendment is hit by principles of estoppel : 45. The next issue is whether the impugned amendment is violative of principles of promissory estoppel. The contention of learned counsel for the petitioner is that they have been deprived of the incentives in the form of deduction by the impugned amendments, which was promised to them under Section 80 HHC of the Act. It is also submitted that the conditions imposed by the 3rd and 4th proviso has deprived them of the benefit of Section 80 HHC which was available to them from the beginning and, therefore, such deprivation is hit by principles of promissory estoppel. 46. In the case of Maharshi Dayanand University v. Surjeet Kaur, (2010) 11 SCC 159 para 17 and 18 the Hon’ble Supreme Court has held as under : “17. In UT, Chandigarh v. Goswami, GDSDC, this Court considered the case under the provisions of the Punjab (Development and Regulation) Act, 1952, wherein a demand had been challenged on the ground of equitable estoppel. This Court held that promissory estoppel does not apply against the Statute. Therefore, the authority had a right to make recovery of outstanding dues in accordance with law. The Court held as under : (SCC pp.666-67, para 4) “4. [The Administration] only corrected a patent mistake which could not be permitted to subsist.......A contract in violation of the mandatory provisions of law can only be read and enforced in terms of the law and in no other way. The question of equitable estoppel does not arise in this case because there can be no estoppel against a statute. 18. There can be no estoppel/promissory estoppel against the Legislature in the exercise of the legislative function nor can the Government or public authority be debarred from enforcing a statutory prohibition. The question of equitable estoppel does not arise in this case because there can be no estoppel against a statute. 18. There can be no estoppel/promissory estoppel against the Legislature in the exercise of the legislative function nor can the Government or public authority be debarred from enforcing a statutory prohibition. Promissory estoppel being an equitable doctrine, must yield when the equity so requires. [vide H.S. Rikhy(Dr.) v. New Delhi Municipal Committee, M.I. Builders (P) Ltd. v. Radhey Shyam Sahu, Shish Ram v. State of Haryana, Chandra Prakash Tiwari v. Shakuntala Shukla, I.T.C. Ltd. v. Agricultural Market Committee, State of U.P. v. U.P. Rajya Khanij Vikas Nigam Sangharsh Samiti and Sneh Gupta v. Devi Sarup.” 47. On a query made by us from the learned counsel appearing for the petitioners as to how the deduction was available to the petitioners under the unamended Section 80HHC of the Act in respect of DEPB credit sale and DFRC, nothing could be pointed out in the language of unamended provision of Section 80 HHC to show that deduction was available to them. Thus, the question of estoppel does arise at all. Even if it is assumed that such a deduction was available to the petitioners yet the principles of estoppel is not applicable against the legislature. In the case of Vijresins P. Ltd. v. State of Jammu and Kashmir, AIR 1989 SC 1629 , Hon’ble Supreme Court has held that there is no estoppel against the legislature and the vires of the Act cannot be tested by invoking the said plea but so far as the Government was concerned the rule of estoppel did apply. Thus, it is clear that there cannot be any promissory estoppel against the legislature even if on the basis of the representation or promise made certain concessions have been allowed. The legislature is not bound by the principles of promissory estoppel. In view of this settled position of law, we reject the contention of the petitioners that the impugned provision is violative of the principles of promissory estoppel. Presumption of Validity 48. In the case of Charanjit Lal Choudhary v. Union of India and others, AIR 1951 SC 41 para 10, Hon’ble Supreme Court has held that there is presumption that the legislature understands and correctly appreciates the need of its people. In the case of Union of India v. Elphinstone Spinning and weaving Co. Presumption of Validity 48. In the case of Charanjit Lal Choudhary v. Union of India and others, AIR 1951 SC 41 para 10, Hon’ble Supreme Court has held that there is presumption that the legislature understands and correctly appreciates the need of its people. In the case of Union of India v. Elphinstone Spinning and weaving Co. Ltd. and others, AIR 2001 SC 724 para 9, Hon’ble Supreme Court has laid down the law that the legislature does not exceed its jurisdiction. In the case of State of Bihar and others v. Smt. Charusila Dasi, AIR 1959 SC 1002 para 14, Hon’ble Supreme Court has laid down the law that there is presumption that the legislature does not intend to exceed its jurisdiction. In the case of Kedar Nath Singh v. State of Bihar, AIR 1962 SC 955 para 26 Hon’ble Supreme Court held that provision should be construed in the manner as will uphold its constitutionality. In Corporation of Calcutta v. Libery Cinema, AIR 1965 SC 1107 , Hon’ble Supreme Court has laid down the law that the provision should be read in the manner as will make it valid. Similar view has been expressed by the Constitution Bench of Supreme Court in the case of Anandji Haridas and Co. (P) Ltd. v. S.P. Kasture and others, AIR 1968 SC 565 , para 32. In the case of Sunil Batra v. Delhi Administration and others, AIR 1978 SC 1675 , Hon’ble Supreme Court observed that the legislature expresses wisdom of community. In the case of State of Bihar v. Bihar Distilleries, AIR 1997 SC 1511 , para 18, Hon’ble Supreme Court observed that an Act made by legislature represents the will of people and cannot be lightly interfered with. In the case of Zameer Ahmad Latifur Rehman Sheikh v. State of Maharashtra and others, JT 2010 (4) SC 256 para 34, Hon’ble Supreme Court observed that every legally possible effort should be made to uphold the validity. In Greater Bombay Co-operative Bank Ltd. v. United Yarn Tex (P) Ltd. and others, (2007) 6 SCC 236 para 82 to 85 the Hon’ble Supreme Court observed as under : “ 82 The constitutional validity of an Act can be challenged only on two grounds, viz. In Greater Bombay Co-operative Bank Ltd. v. United Yarn Tex (P) Ltd. and others, (2007) 6 SCC 236 para 82 to 85 the Hon’ble Supreme Court observed as under : “ 82 The constitutional validity of an Act can be challenged only on two grounds, viz. (i) lack of legislative competence; and (ii) violation of any of the Fundamental Rights guaranteed in Part III of the Constitution or of any other constitutional provision. In State of A.P. and others v. McDowell & Co. and others, (1996) 3 SCC 709 , this Court has opined that except the above two grounds, there is no third ground on the basis of which the law made by the competent legislature can be invalidated and that the ground of invalidation must necessarily fall within the four corners of the afore-mentioned two grounds. 83. Power to enact a law is derived by the State Assembly from List II of the Seventh Schedule of the Constitution. Entry 32 confers upon a State Legislature the power to constitute cooperative societies. The State of Maharashtra and the State of Andhra Pradesh both had enacted the MCS Act 1960 and the APCS Act, 1964 in exercise of the power vested in them by Entry 32 of List II of the Seventh Schedule of the Constitution. Power to the enact would include the power to re-enact or validate any provision of law in the State Legislature, provided the same falls in an entry of List II of Seventh Schedule of the Constitution with the restriction that such enactment should not nullify a judgment of a competent Court of law. In the appeals/SLPs/petitions filed against the judgment of the Andhra Pradesh High Court, the legislative competence of the State is involved for consideration. Judicial system has an important role to play in our body politic and has a solemn obligation to fulfil. In such circumstances, it is imperative upon the Courts while examining the scope of legislative action to be conscious to start with the presumption regarding the constitutional validity of the legislation. The burden of proof is upon the shoulders of the the incumbent who challenges it. In such circumstances, it is imperative upon the Courts while examining the scope of legislative action to be conscious to start with the presumption regarding the constitutional validity of the legislation. The burden of proof is upon the shoulders of the the incumbent who challenges it. It is true that it is the duty of the constitutional Courts under our Constitution to declare a law enacted by Parliament or the State Legislature as unconstitutional when Parliament or the State Legislature had assumed to enact a law which is void, either for want of constitutional power to enact it or because the constitutional forms or conditions have not been observed or where the law infringes the fundamental rights enshrined and guaranteed in Part III of the Constitution. 84. As observed by this Court in CST v. Radhakrishnan, in considering the validity of a Statute the presumption is always in favour of constitutionality and the burden is upon the person who attacks it to show that there has been transgression of constitutional principles. For sustaining the constitutionality of an Act, a Court may take into consideration matters of common knowledge, reports, preamble, history of the times, objection of the legislation and all other facts which are relevant. It must always be presumed that the legislature understands and correctly appreciates the need of its own people and that discrimination, if any, is based on adequate grounds and considerations. It is also well-settled that the Courts will be justified in giving a liberal interpretation in order to avoid constitutional invalidity. A provision conferring very wide and expansive powers on authority can be construed in conformity with legislative intent of exercise of power within constitutional limitations. Where a Statute is silent or is inarticulate, the Court would attempt to transmutate the inarticulate and adopt a construction which would lean towards constitutionality albeit without departing from the material of which the law is woven. These principles have given rise to rule of “reading down” the provisions if it becomes necessary to uphold the validity of the law. 85. In State of Bihar and others v. Bihar Distillery Ltd. and others, (1997) 2 SCC 453 , this Court indicated the approach which the Court should adopt while examining the validity/constitutionality of a legislation. These principles have given rise to rule of “reading down” the provisions if it becomes necessary to uphold the validity of the law. 85. In State of Bihar and others v. Bihar Distillery Ltd. and others, (1997) 2 SCC 453 , this Court indicated the approach which the Court should adopt while examining the validity/constitutionality of a legislation. It would be useful to remind ourselves of the principles laid down, which read: (SCC p.466, para 17): “The approach of the Court, while examining the challenge to the constitutionality of an enactment, is to start with the presumption of constitutionality. The Court should try to sustain its validity to the extent possible. It should strike down the enactment only when it is not possible to sustain it. The Court should not approach the enactment with a view to pick holes or to search for defects of drafting, much less inexactitude of language employed. Indeed, any such defects of drafting should be ignored out as part of the attempt to sustain the validity/constitutionality of the enactment. After all, an Act made by the legislature represents the will of the people and that cannot be lightly interfered with. The unconstitutionality must be plainly and clearly established before an enactment is declared as void. The same approach holds good while ascertaining the intent and purpose of an enactment or its scope and application.” In the same para, this Court further observed as follows: “The Court must recognize the fundamental nature and importance of legislative process and accord due regard and deference to it, just as the legislature and the executive are expected to show due regard and deference to the judiciary. It cannot also be forgotten that our Constitution recognizes and gives effect to the concept of equality between the three wings of the State and the concept of “checks and balances” inherent in such scheme.” 49. In the case of Promoters and Builders Association v. Pune Municipal Corporation, (2007) 6 SCC 143 para 9, Hon’ble Supreme Court has laid down the law that while exercising legislative function, unless unreasonableness and arbitrariness is pointed out it is not open for the Court to interfere. 50. In the case of Promoters and Builders Association v. Pune Municipal Corporation, (2007) 6 SCC 143 para 9, Hon’ble Supreme Court has laid down the law that while exercising legislative function, unless unreasonableness and arbitrariness is pointed out it is not open for the Court to interfere. 50. From these decisions out of the long line of decisions with regard to the presumption of constitutional validity of a legislative enactment representing the will of people referred in preceding paragraphs when applied on the facts of the present case and the submissions made by the parties, we find that the petitioners have completely failed to rebut the presumption of constitutional validity of the impugned provision. 51. Learned counsel for the petitioner has heavily relied on the judgment of Gujarat High Court in the case of Avani Exports and others v. Commissioner of Income Tax and others, (2012) 348 ITR 391 (Gujarat). We have perused this judgemnt and we fully agree with the conclusions reached by the Gujarat High Court that the classification made under the 2nd, 3rd and 4th proviso is wholly valid and the impugned amendment is not violative of principles of promissory estoppel. However, we do not agree with the conclusion reached in the said judgment that the retrospectivity given under the impugned Act is invalid. We have already given detailed reasons to uphold the retrospective operation of the impugned provisions. Section 80HHC was available for deduction only up to the A.Y. 2004-05. The 2nd, 3rd, and 4th Proviso were inserted in Section 80HHC by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1.4.1998 which are subject-matter of challenge. Striking down the retrospectivity has resulted in striking down the amendment itself. The net result is that while the amendment was held to be valid by the Gujrat High Court yet it was strike down in totality by holding the retrospective operation to be invalid. The judgments relied by Sri Ravikant in the case of Rai Ram Krishna (supra) and other judgements do not support the case of the petitioners which we have already discussed above in detail. 52. In view of the conclusion reached by us we hold the provisions of Section 80 HHC(3) of the Act as amended by the Taxation Laws (Amendment Act) 2005 to be wholly valid with retrospective effect from 1.4.1998. 53. 52. In view of the conclusion reached by us we hold the provisions of Section 80 HHC(3) of the Act as amended by the Taxation Laws (Amendment Act) 2005 to be wholly valid with retrospective effect from 1.4.1998. 53. In result all the writ petitions fail and are dismissed with liberty to the petitioners to pursue the statutory remedies available to them against the assessment orders passed by the assessing authority. Liberty is also granted to the petitioners to submit reply to the impugned show-cause notices before the assessing authority within a month. The concerned assessing authority shall on receipt of such reply pass appropriate orders in accordance with law preferably within next three months. 54. With these observations, the writ petitions are dismissed. There shall be no order as to cost.