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TMI Blog2014 (4) TMI 982X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act, 1956. The petitioner No. 2 is its Chairman and Managing Director. The petitioners are engaged in the business of manufacture of textile products like fibers and clips and are recognized as 100% Export Oriented Undertaking [" EOU " for short]. 2.2 On 1st October 1997, the Government of India granted LOP to the petitioners which was subject to the conditions contained in such letter as well as in a separate annexure annexed to the LOP. Some of the relevant conditions were that the unit would export its entire production in the domestic tariff area as per the provisions of Export and Import policy for a period of five years. At the end of such period, the unit would have an option either to seek renewal of its EOU status or to debond for production for domestic market "in light of the industrial policy in force at the time in relation to manufacture of the items reserved for small scale sector and sectoral policy prevailing at that point of time." The unit had to achieve specified standards of export in value. The commercial production had to start within three years from the date of issuance of LOP. The petitioners had to confirm the acceptance of the said terms and condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at worn clothing and other worn articles is a restricted product. While considering the proposal of one Ms. Prayas Woolens for extension of validity of LoP, who was also engaged in the similar activities, in addition to rejecting such request, the Board had directed that validity of LoP in respect of all similar units should be limited upto 31st March 2013. It was further observed as under :- "7. The unit made its representation before the BOA vide its letter dated 15.07.2013. The unit was, accordingly, asked to appear before the BOA for EOUs during its 4th meeting (2013) held on 30.08.2013. Representatives of the unit Shri Surendra Goel, Managing Director and Shri Deepak Goel, Director appeared before the BOA and handed over the written submissions, which were taken on record. The representative of the Unit informed that they have nothing more to add to what has been mentioned in the written submissions. The issue was discussed by the BOA in detail. The BOA took into consideration the explicit provision of Chapter 6 of the Foreign Trade Policy [200914] which governs the EOU scheme wherein it has been clearly stated that "Activities pertaining to reprocessing of garments/used clot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners have made sizeable investments, undertaken serious commitments, doubled the manpower, machinery and have made imports. Sudden restriction on the validity of the LoP would seriously harm the petitioners' economic interests. The petitioners having undertaken such serious commitments on the basis of the period of validity of the LoP, any curtailment therein would be hit by the principle of promissory estoppel. In this respect, reference was made to several decisions to which we would refer to at a later stage. 5. On the other hand, learned Assistant Solicitor General Shri Saiyed opposed the petition. Relying on the contents of the impugned order of the Board of Approval and the affidavit in reply filed by the respondents, he submitted that due to change in the policy, it was not possible to grant extension to the petitioners for the same activity. While taking up the case of M/s. Prayas Woolens for extension, it was noticed that number of other units have been granted extension in breach of the new policy. The Board of Approval, therefore, decided to curtail the period of all such units. 6. Having thus heard learned counsel for the parties, we notice that the Foreign Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases and subject to such conditions, as may be specified, by the Director General or the officer subordinate to him. 8. In exercise of power under section 5 of the Act of 1992, the Central Government notified the Foreign Trade Policy, 20092014, which came into effect from 27th August 2009. Para 1.2 of the said Policy provides that it shall come into force with effect from 27th August 2009 and shall remain in force upto 31st March 2014, unless otherwise specified. Chapter 2 of the said policy contains general provisions regarding imports and exports. Para 2.4 pertaining to the procedure reads as under: "2.4 Procedure - DGFT may specify procedure to be followed by an exporter or importer or by any licensing/regional authority or by any other authority for purpose of implementing provisions of FT [D&R] Act, the Rules and the Orders made thereunder and FTP. Such procedures, or amendments if any, shall be published by means of a Public Notice." 9. Chapter 6 pertains to export oriented units [EOUs], Electronics Hardware Technologies Parks [EHTPs], Software Technology Parks [STPs] and BioTechnology Parks [BTPs]. Para 6.1 pertains to eligibility of the units. Para 6.2 pertains to Expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eads as under : "[7] Textiles : Activities pertaining to reprocessing of garments/used clothing/secondary textiles materials/ clipping/rags/industrial wipers/shoddy wool/yarn/ blankets shawls and other recyclable textile materials will not be allowed under EOU schemes." 11. We have referred to above literature from the policy which is currently prevailing. We may, however, notice that the similar provisions were contained in earlier Handbooks also which was made effective from 1st September 2004. Here also, in Appendix 14IC to the Handbook, with reference to Textiles at para 7, it was provided that activities pertaining to reprocessing of garments/used clothing/secondary textiles materials/ clipping/rags/industrial wipers/shoddy wool/yarn/blankets shawls and other recyclable textile materials will not be allowed under EOU/SEZ schemes. 12. From the above materials, it could be seen that in exercise of powers under Section 5 of the Act of 1992, the Central Government declares the Foreign Trade policies from time to time, typically for a period of five years. With effect from 27th August 2009, such policy for the period 20092014 came to be announced. Under such policy, scheme has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 2.4 of the Foreign Trade Policy : 20092014 that such Handbook of Procedures alongwith Annexures was published. 14. We have referred to this position from the Foreign Trade Policy and the Handbook published by the DGFT which are currently applicable. The same position would obtain for the earlier period under similar circumstances. It would be, therefore, not be necessary to refer to such provisions and to duplicate our arguments in this respect. 15. The next question is could such policy be applied to the existing units. We may recall that the petitioners were granted LoP in the year 1997, when admittedly such restriction was not existing. Such restriction was applied for the first time in the Policy with effect from 1st September 2004. The contention of the petitioners is that the words used in para 7 is that for the purpose specified therein, permission will not be granted. Second limb of the petitioners' contention is that in any case, such conditions would apply to the new units applying for setting up units under EOU scheme for the first time and not to the units seeking extension of permission already granted. 16. In our opinion, such a contention cannot be accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions have been made. While still permitting SEZ units to deal in such used garments for manufacture of yarn for export, strict conditions have been laid down. In the context of permitting such imports to SEZ units, in the affidavitinreply, it is contended that such policy is exclusively for SEZ units and not for those situated outside SEZ areas. Such units are situated in a demarked area which is surrounded by high walls, operating in SEZ areas under constant watch and monitoring by the Governmental agencies. On such basis, the differentiation for SEZ units and units under EOU scheme is made. 17.1 When the purpose of change in the policy is presented before the Court and which is otherwise reasonable, vulnerability of such policy of the Government in view of Articles 14 and 19 (1)(g) of the Constitution of India would not be lightly attached. It is well settled that in economic and fiscal matters, the Courts recognize considerable leverage in Government's discretionary powers. Reference in this respect can be made to a decision of the Supreme Court in case of Income Tax Officer v. Tikin Roy, reported in 103 ITR 82. In case of PTR Exports (Madras) Private Limited & Anr. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on application of another unit engaged in the same activity that the Board of Approval suddenly wokeup to an idea that several other units carrying out same activity, extension has been granted despite change in the policy. At one stage, therefore, unilaterally and without hearing the petitioners and other similarly situated units, BoA terminated their LoPs. When the High Court quashed such order and placed the matter back before the BoA, in the fresh round after hearing the petitioners, such termination was made effective w.e.f 30th September 2013. 19.3 The petitioners had raised detailed submissions before the Board of Approval as well as before us with respect to the promissory estoppal. In the written submissions before the Board of Approval, following aspects were highlighted. "[C] The approval granted to the petitionerCompany on 1.10.1997 for setting up of a unit under EOU scheme and further approvals/extensions allowed on 25.02.2005 and 29.11.2010 notwithstanding the guidelines contained in Appendix 14IC of the HBP have made the petitioners to believe that their EOU was allowed to operate by the Government authorities and their officers without any restriction or limitatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for manufacture of yarns in the existing EOU by using Fibers produced out of worn clothing and this activity would ad value to the products that the petitioners would be exporting from EOU. Plant and machinery as well as equipments for manufacturing yarns have been ordered, part payments for such plant, machinery and equipment have also been made and certain equipments and machinery have already been imported by the petitioner company and they are in process of being installed in the factory. A separate set of buildings and sheds is also constructed by the petitioner company for this plant meant for Yarns. However, the entire project of manufacturing Yarns would have to be shelved if the EOU is not allowed to operate beyond 31.03.2013. By way of specimen, the details of the sales and supplies made to the above referred two wholly owned subsidiaries and also an Italian buyer who are purchasing the highest quantities of goods from the petitioner company, the letter of Bank of Baroda sanctioning fresh term loan, long term sales contracts and documents about expansion planned by the petitioners are enclosed and marked as Annexure R. The petitioner company would not have altered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or being sold to Red Cross and such other international agencies, and closure of the petitioner's EOU activities would therefore adversely affect such other manufacturers and their operations also thereby resulting in further unemployment and also further loss of foreign exchange earnings. However, if the petitioner's activities are not curtailed, then the Yarn manufacturing facilities proposed to be implemented would create opportunities for further employment and higher foreign exchange earnings also because of requirements of more workers for producing Yarns and higher value of Yarns in the international market compared to the value of fibers and clips. Thus, a grave and serious prejudice would be caused to the petitioners if their EOU is shut down at this stage. Grave prejudice would also be caused to the people of Halol area in Panchmahal District and loss of foreign exchange would also be caused to the Government of India. These facts show that the balance of convenience is also in favour of the petitioners in allowing them to continue their EOU as otherwise irreparable loss and damage would be caused to the petitioners that cannot be compensated in terms of money, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully and completely as any other and the Government is no exception. It is indeed the pride of constitutional demoncracy and rule of law that the Government stands on the same footing as a private individual so far as the obligation of the law is concerned : the former is equally bound as the latter. It is indeed difficult to see on what principle can a Government, committed to the rule of law, claim immunity from the doctrine of promissory estoppel. Can the Government say that it is under no obligation to act in a manner that is fair and just or that the Government not be held to a high "standard of rectangular rectitude while dealing with its citizens?" There was a time when the doctrine of executive necessity was regarded as sufficient justification for the Government to repudiate even its contractual obligations; but let it be said to the eternal glory of this Court, this doctrine was emphatically negatived in the IndoAfghan Agencies case and the supremacy of the rule of law was established. It was laid down by this Court that the Government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtly thereafter. The State of Kerala thereafter issued notification withdrawing the tax exemptions w.e.f 1st January 2000. Based on such withdrawal, the petitioner received a notice from the Sales Tax department of the State for denying the exemptions claimed by the petitioner. It was on this basis that the Supreme Court discussed the law on the issue of promissory estoppel and held and observed as under :- "39. MRF made a huge investment in the State of Kerala under a promise held to it that it would be granted exemption from payment of sale tax for a period of seven years. It was granted the eligibility certificate. The exemption order had also been passed. It is not open to or permissible for the State Government to seek to deprive MFR of the benefit of tax exemption in respect of its substantial investment in expansion in respect of compound rubber when the State Government had enjoyed the benefit from the investment made by MRF in the form of industrial development in the State, contribution to labour and employment and also a huge benefit to the State exchequer in the form of the State's share ie. 40% of the Central excise duty paid on compound rubber of Rs. 177 crores w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. In this context, the action taken by the appellantCorporation in revoking the benefits given to the entrepreneurs in the hill areas will sadly reflect their credibility and people will not take the word of the Government. That will shake the faith of the people in the governance. Therefore, in order to keep the faith and maintain good governance it is necessary that whatever representation is made by the Government or its instrumentality which induces the other party to act, the Government should not be permitted to withdraw from that. This is a matter of faith. 21. Therefore, as a result of our above discussion, we hold that the view taken by the Allahabad High Court on revoking the principle of promissory estoppel is correct and the respondentunits will be entitled to such benefits till the U.P Electricity Reforms Act, 1999 came into force. Since after coming into force the Act of 1999 no such concession has been granted, therefore, the concession shall survive till the Act of 1999 came into force. The appeals are accordingly disposed of with no order as to costs." 21. In the present case, as we have noticed, the petitioners were granted LoP for manufacturing yarn as an EOU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmanent basis. When such investment, expansion of the facilities for manufacturing and deployment of manpower is based on a licence extended at a time for a period of five years, its abrupt curtailment without there being any change in policy or any public interest involved in doing so, would be hit by the principle of promissory estoppel. In the present case, the only excuse offered for curtailment of the period is that though the policy had already changed years back, in the year 2004, the same was not implemented with any rigour. When two extensions were granted to the petitioner, even after the change in the policy, such reason put forth by the respondents would hold no validity.
23. Under the circumstances, the petition is allowed to the limited extent of striking down the order of the authority dated 8th October 2013 and by further providing that the LoP in case of the present petitioners shall continue to be valid till 23rd October 2015 ie., the full period of its validity and upto such period, the respondents shall not prevent the petitioners from carrying out its above mentioned activities; subject of course to fulfillment of other rules and regulations. X X X X Extracts X X X X X X X X Extracts X X X X
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