2025 (5) TMI 944 - HC - Customs

Rejection of the Petitioners application for Advance Authorisation (AA) for import of Raw Petroleum Coke (RPC) intended for manufacture and supply of Calcined Petroleum Coke (CPC) to Special Economic Zone (SEZ) units - deemed exports or not - entitlement to Advance Authorisation under the Foreign Trade Policy 2023 - applicability of DGFT Notification No.68/2023 dt.07.03.02024 the revised policy condition 06(b)(iii) import of RPC by on Actual use basis or not - HELD THAT - The Hon ble Supreme Court in the case of M.C. Mehta Vs. Union of India and Others 2018 (11) TMI 1352 - SUPREME COURT while hearing interlocutory applications wherein the Union of India through the Ministry of Environment Forests and Climate Change filed and affidavit on 08th October 2018 regarding use of calcined pet coke (CPC) in Aluminium Industry held that the calcined pet coke (CPC) (domestic as well as imported) can be used as raw-material for anode making in the Aluminium Industry with the revised BIS specifications. In the said order the Hon ble Supreme Court based on the report given by the Central Pollution Control Board (CPCB) dated 04.10.2018 observed that as per the BIS guidelines calciners are permitted to use high sulphur containing raw petroleum coke for making CPC having sulphur content less than 3.5%. While recording the statement of the learned Amicus Curiae the view expressed by the CPCB are also acceptable to EPCA and accordingly disposed of the applications observing that the raw pet coke (domestic and imported) can be used as a feedstock for producing calcined pet coke. In the said order the applications filed by the petitioner herein seeking certain directions while considering the affidavit dated 23.08.2018 stating that 11 contracts have been entered into on or before 26.07.2018 for the import of Anode grade raw pet coke. It is pertinent to note that in the Notification No.68/2023 dated 07.03.2024 the authorisation for restricted imports condition No.3 that Import of RPC by Calciners shall be on Actual User basis and shall not be transferred to any other unit(s) including SEZ unit(s). Export of CPC by Calciners shall not be permitted is contrary to the orders passed by the CAQM dated 15.02.2024 and also to Clause VI of the Notification dated 07.03.2024 and the Minutes of the Meeting held on 27.03.2024 for allocation for import of raw petroleum coke for CPC manufacturing and Calcined Petroleum Coke for Aluminium Industry for the Financial Year 2024-25. In view of the facts that the respondents earlier permitted the petitioner to export the CPC manufactured by it to SEZ Units and granted advance authorisations to the petitioners on 14.05.2024 13.08.2024 and 28.10.2024 and in view of the preceding analysis there is no justification in issuing DGFT Notification No.68/2023 dated 07.03.2024 to the extent of revising the policy conditions i.e. 06(b)(iii) import of RPC by calciners and the said revised policy is not in consonance to the CAQM order dated 15.02.2024 passed in pursuance to the Hon ble Supreme Court order in M.C. Mehta and the Minutes of the Meeting held on 27.03.2024 which is again in consonance to interpretation of policy under Chapter-II of General Provisions Regarding Imports and Exports of Foreign Trade Policy 2023. In the light of the orders passed by the CAQM dated 15.02.2024 pursuant to the order dated 10.10.2023 passed by the Hon ble Supreme Court in the case of M.C. Mehta in W.P. (Civil) No.13029 of 1985 and the Minutes of the Meeting held on 27.03.2024 the Deficiency Letter dated 15.02.2024 is contrary to the CAQM Order and the DGFT Notification which implements the CAQM Order. The petitioner has efficacious remedy of review under Section 16 of the Foreign Trade (Development and Regulation Act) 1992. The impugned rejection letter dated 05.02.2025 bearing File No.09AX04000927AM25 and the Deficiency Letter dated 15.01.2024 bearing File No.09AX04000927AM25 are hereby set aside and the matter is remitted to the respondents authority for fresh consideration with respect to the petitioner s case to the extent of granting entitlement to advance authorisation under Foreign Trade Policy 2023. The DGFT shall give personal hearing for petitioners grievance. Conclusion - The rejection letter dated 05.02.2025 is not a reasoned order as it fails to consider the explanation given by the Petitioners and the express provisions of the Commission for Air Quality Management (CAQM) Order dated 15.02.2024 which permits deemed exports to SEZ units. The Petitioners are entitled to a fresh consideration of their application for Advance Authorisation with a personal hearing and pending such consideration they are permitted to supply CPC to the Vedanta SEZ unit. Petition disposed off.

Summary

Issues Presented and Considered

The core legal questions considered by the Court are:

1. Whether the action of the Regional Authority in issuing the Rejection Letter dated 05.02.2025 and Deficiency Letter dated 15.01.2025 refusing to grant Advance Authorisation for import of Raw Petroleum Coke (RPC) for manufacture and supply of Calcined Petroleum Coke (CPC) to SEZ units is arbitrary, illegal, and violative of the Petitioners' rights under Articles 14, 19, and 300 of the Constitution of India, the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act), Foreign Trade Policy (FTP), 2023, DGFT Notification No.68/2023, CAQM Order dated 15.02.2024, and Supreme Court orders.

2. Whether the import of RPC by calciners for manufacture of CPC to supply to SEZ units qualifies as "deemed exports" under the FTP, entitling the Petitioners to Advance Authorisation.

3. Whether the DGFT Notification No.68/2023 dated 07.03.2024, particularly the clause prohibiting transfer of imported RPC to SEZ units and export of CPC by calciners, is consistent with the CAQM Order and the FTP.

4. Whether the Regional Authority had jurisdiction and authority to interpret the term "deemed exports" contrary to the CAQM Order and FTP provisions.

5. Whether the Petitioners have an efficacious alternative remedy under Section 16 of the FTDR Act and Paragraph 2.58 of FTP, and if the writ petition is maintainable.

6. Whether the rejection order was a reasoned order and complied with principles of natural justice.

7. Whether the Petitioners are entitled to interim relief to supply CPC to SEZ units pending final adjudication.

Issue-wise Detailed Analysis

1. Legality and Validity of Rejection and Deficiency Letters Refusing Advance Authorisation

The legal framework includes the FTDR Act, 1992, FTP 2023, DGFT Notification No.68/2023, CAQM Order dated 15.02.2024, and relevant Supreme Court orders, particularly in the M.C. Mehta case (W.P. (C) No.13029/1985).

The Petitioners' case is that the Rejection and Deficiency Letters are arbitrary and illegal because they contradict the CAQM Order which permits "deemed exports" of CPC to SEZ units. The Petitioners argue that under Clause 4.05(c)(i) and Clause 7.02(A)(a) of the FTP, imports incorporated in goods supplied to SEZ units qualify for Advance Authorisation as "deemed exports." They emphasize that earlier Advance Authorisations were granted for the same purpose without objection.

The respondents contend that the DGFT Notification No.68/2023 restricts import of RPC to actual user basis and prohibits transfer to SEZ units or export of CPC by calciners. They submit that supplies to SEZ units are physical exports, not deemed exports, as per FTP and SEZ Act, 2005. They rely on the statutory powers of DGFT under Sections 3(2), 5, and 16 of the FTDR Act to regulate imports and exports and maintain that authorization is not a right but a privilege subject to conditions and review.

The Court notes that the CAQM Order expressly permits "deemed exports" to SEZ units, but the DGFT Notification's clause prohibiting transfer to SEZ units and export of CPC by calciners contradicts this. The Court finds that the Rejection Letter failed to consider the Petitioners' explanation referencing the CAQM Order and the relevant FTP provisions and thus is not a reasoned order. The Court also observes that the earlier Advance Authorisations granted to the Petitioners to supply CPC to SEZ units create an expectation and reliance, and a sudden reversal without adequate reasoning causes hardship and is unsustainable.

2. Interpretation of "Deemed Exports" and Eligibility for Advance Authorisation

The FTP 2023 defines "deemed exports" in Chapter 7, Paragraph 7.02(A)(a) as supply of goods against Advance Authorisation, and Paragraph 4.05(c)(i) includes physical exports, including exports to SEZ units, as eligible for Advance Authorisation.

The respondents argue that supplies to SEZ units are physical exports under the SEZ Act, 2005, and not deemed exports under the FTP. They rely on the statutory definitions and the classification of SEZ as a "foreign territory" for trade and customs purposes, which supports their position that supplies to SEZ units are physical exports requiring Bill of Exports, not deemed exports. They further contend that the Petitioners' application was for physical exports and not for deemed exports, and hence the rejection was justified.

The Petitioners counter that the CAQM Order permits deemed exports to SEZ units and that the FTP provisions support their entitlement to Advance Authorisation for such supplies. They argue that the Petitioners' supplies to SEZ units qualify as deemed exports because the goods do not leave the country in the conventional sense, and payment is received in Indian currency or free foreign exchange, aligning with the FTP's definition.

The Court recognizes the tension between the statutory definition of exports under the SEZ Act and the CAQM Order's allowance of deemed exports to SEZ units. The Court notes that the CAQM Order was issued pursuant to Supreme Court directions and intended to balance environmental concerns with industrial requirements. The Court finds that the Petitioners' interpretation that supplies to SEZ units under Advance Authorisation qualify as deemed exports is reasonable in the context of the CAQM Order and FTP provisions, particularly since the CAQM Order explicitly permits deemed exports to SEZ units.

3. Validity and Consistency of DGFT Notification No.68/2023 with CAQM Order and FTP

The DGFT Notification No.68/2023 amended import policy conditions for RPC and CPC, imposing restrictions that import of RPC by calciners shall be on actual user basis and shall not be transferred to SEZ units, and export of CPC by calciners shall not be permitted.

The Petitioners argue that this Notification contradicts the CAQM Order which permits deemed exports to SEZ units and that the Notification's clause prohibiting transfer to SEZ units is inconsistent with the Minutes of Meeting dated 27.03.2024 allocating RPC import quota including for supply to Vedanta SEZ.

The respondents submit that the Notification was issued under statutory powers to regulate imports and exports and reflects environmental concerns about pollution from pet coke processing. They maintain that the Notification is valid and binding, and the Petitioners' interpretation is incorrect.

The Court finds that the DGFT Notification's restrictive clause is not fully consonant with the CAQM Order and the Minutes of Meeting which specifically contemplate supply of CPC to SEZ units. The Court holds that the Notification cannot be interpreted to nullify the CAQM Order's express permission for deemed exports to SEZ units. The Court also notes that the Notification itself states compliance with all conditions in the CAQM Order, indicating an intention to harmonize the two.

4. Jurisdiction and Authority of Regional Authority to Interpret "Deemed Exports" Contrary to CAQM Order and FTP

The Petitioners contend that the Regional Authority lacked jurisdiction to interpret "deemed exports" in a manner contrary to the CAQM Order and FTP provisions and that such interpretation is ultra vires and arbitrary.

The respondents argue that the DGFT has exclusive authority to interpret the FTP under Paragraph 2.58, and that the Regional Authority acted within its powers and issued a reasoned order based on the policy and statutory provisions.

The Court notes that while DGFT's decisions on policy interpretation are generally final and binding, the Regional Authority is required to consider the entire legal framework including the CAQM Order and relevant statutory provisions. The Court finds that the Regional Authority failed to adequately consider the CAQM Order and the Petitioners' explanation, thus acting beyond its jurisdiction in issuing the rejection without proper reasoning.

5. Maintainability of Writ Petition and Availability of Alternative Remedies

The respondents contend that the writ petition under Article 226 is not maintainable as efficacious alternative remedies exist under Section 16 of the FTDR Act for review and under Paragraph 2.58 of FTP for policy interpretation.

The Petitioners argue that no notice or show cause was issued under Section 16 before rejection, and that the writ petition is maintainable especially since fundamental rights under Articles 14 and 19 are involved and principles of natural justice were violated.

The Court refers to established principles that alternative remedies do not bar writ jurisdiction where fundamental rights are at stake, or where orders are without jurisdiction or violate natural justice. The Court finds that the rejection order was not a reasoned order and violated principles of natural justice, justifying exercise of writ jurisdiction. The Court also notes that the Petitioners have already paid import duty for the disputed quantity, increasing the urgency and hardship.

6. Compliance with Principles of Natural Justice and Reasoned Order Requirement

The Court refers to the Supreme Court precedent that administrative/quasi-judicial authorities are required to record reasons for their decisions unless expressly dispensed with. The Petitioners submitted that the rejection order did not consider their explanations and was not reasoned.

The Court agrees that the rejection letter failed to address the Petitioners' detailed response and explanations, and did not reconcile the conflicting provisions of the DGFT Notification and CAQM Order. Thus, the order is not reasoned and violates principles of natural justice.

7. Interim Relief to Permit Supply of CPC to SEZ Units Pending Final Decision

The Petitioners sought interim relief to supply CPC to Vedanta SEZ unit pending the writ petition, emphasizing the approaching deadline for import and the risk of heavy losses and plant shutdown if supplies are not permitted.

The respondents did not oppose interim relief but submitted that the earlier authorisations are under review.

The Court, considering the hardship and the Petitioners' payment of import duty, directs the respondents to permit supply of CPC to Vedanta SEZ pending final decision on review, subject to compliance with conditions.

Significant Holdings

"The Deficiency Letter dated 15.01.2025 and the Rejection Letter dated 05.02.2025 issued by the Regional Authority are contrary to the CAQM Order dated 15.02.2024 and the DGFT Notification No.68/2023 dated 07.03.2024 which implements the CAQM Order. The rejection order fails to consider the Petitioners' explanation and is not a reasoned order, thus violating principles of natural justice."

"Supplies of Calcined Petroleum Coke manufactured from imported Raw Petroleum Coke to SEZ units qualify as 'deemed exports' under the Foreign Trade Policy, 2023, entitling the Petitioners to Advance Authorisation. The DGFT Notification's restrictive clause prohibiting transfer to SEZ units and export of CPC by calciners is not in consonance with the CAQM Order and the Minutes of Meeting dated 27.03.2024."

"The Regional Authority exceeded its jurisdiction by interpreting 'deemed exports' contrary to the CAQM Order and FTP provisions without proper reasoning."

"Though alternative remedies exist under Section 16 of the FTDR Act and Paragraph 2.58 of FTP, the writ petition under Article 226 is maintainable in view of violation of fundamental rights and principles of natural justice."

"The Petitioners are entitled to interim relief permitting supply of CPC to Vedanta SEZ pending final decision on review, considering the hardship and payment of import duties."

"The matter is remitted to the respondents for fresh consideration of the Petitioners' entitlement to Advance Authorisation under the Foreign Trade Policy, 2023, with personal hearing to the Petitioners."