The Exemption Power: Section 25

In one line

Section 25 empowers the Central Government to exempt goods from customs duty, generally by notification or specially by order. Precisely: section 25(1) permits a general exemption by notification in the Official Gazette where the Government is satisfied that it is necessary in the public interest; section 25(2) permits a special exemption by special order in each case, under circumstances of an exceptional nature to be stated in the order; and sections 25A and 25B provide for inward and outward processing of goods.

Why a fiscal statute contains a power to disapply itself

Because a tariff is a blunt instrument and policy moves faster than Parliament. The First Schedule fixes a rate for a heading and cannot distinguish between a component imported by a manufacturer for an export order and the same component imported for domestic sale. Nor can it respond within a week to a crop failure that makes an edible oil scarce.

So Parliament delegates the fine tuning. The exemption power lets the executive reduce or remove duty for a class of goods, a class of importer or a purpose, and to do so quickly. That is the justification, and it is a real one.

The cost is equally real and belongs in a critical answer. A power to disapply a tax enacted by Parliament is a power to make fiscal policy without Parliament, exercised by notification, capable of being withdrawn without notice, and productive of a vast body of conditional exemptions whose construction is now the single largest source of customs litigation. The safeguards are that the power must be exercised in the public interest, that the notification must be published, and that its construction is strict against the claimant, which is Commissioner of Customs v. Dilip Kumar and Company, (2018) 9 SCC 1.

Section 25(1): general exemptions

Section 25(1) provides that if the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally, either absolutely or subject to such conditions as may be specified in the notification, goods of any specified description from the whole or any part of duty of customs leviable thereon.

The elements are four.

One, satisfaction that it is necessary in the public interest. This is the jurisdictional condition. It is subjective in form but not unreviewable: an exemption granted for a purpose unconnected with the public interest is open to challenge, though courts are slow to substitute their own view of economic policy.

Two, by notification in the Official Gazette. The notification is subordinate legislation. It is general, addressed to the world, and takes effect on publication.

Three, generally, either absolutely or subject to conditions. A conditional exemption is the norm: end use, actual user status, execution of a bond, installation within a period, or a certificate from a sponsoring authority.