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2016 (9) TMI 525 - GUJARAT HIGH COURT

2016 (9) TMI 525 - GUJARAT HIGH COURT - 2016 (342) E.L.T. 316 (Guj.) - 100% EOU - requirement to achieve positive net foreign exchange (NFE) during every block of five years of its existence - period for computing the block of five years for consideration of NFE - manufacturing activity had commenced on 28.02.2003. the first block of such five years would comprise of financial year 2002-03 to 2006-07 and the second block of five years would comprise of the financial year 2007-08 to 2011-12. - th .....

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year following the year under which the manufacturing activity commences. Under no circumstances such period would be the period anterior with the date of manufacturing activity. Even if a literal interpretation of expression used in Clause 6.5 of the foreign trade policy is taken, it refers to the calculation of NFE cumulatively in block of five years “starting from the commencement of production” - block of five years to begin from 1.04.2003. - Monitoring the performance of the unit - per .....

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nd the commencement of financial year. - Interpretation of policy not in favor of petitioner - decided against the petitioner. - Special Civil Application No. 7021 of 2016 - Dated:- 1-9-2016 - Akil Kureshi And A. J. Shastri, JJ. Mr D K Trivedi, Advocate for the Petitioner Ms Trusha K Patel, Advocate for the Respondent ORDER ( Per Honourable Mr. Justice Akil Kureshi ) 1. The petitioner has challenged an order dated 21.10.2015 passed by the Appellate Authority by which the petitioner's app .....

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e petitioner was required to achieve positive net foreign exchange earning ['NFE' for short] during every block of five years of its existence. It is not in dispute that the petitioner achieved such positive NFE in the first block of five years after commencement of manufacturing. However, during the second block, according to the department, the petitioner fell short by a sum of ₹ 55.73 lacs. On account of such default, the adjudicating authority issued a show-cause notice dated 1 .....

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k of five years for consideration of NFE. According to the petitioner, since the manufacturing activity had commenced on 28.02.2003, the first block of such five years would comprise of financial year 2002-03 to 2006-07. The second block of five years, therefore, would comprise, according to the petitioner, of the financial year 2007-08 to 2011-12. The adjudicating authority, however, held a belief that the first block of five years would commence from 01.04.2003 and end on 31.03.2008 and, there .....

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ity had actually commenced, proceeded to hold that the block periods for consideration of NFE would be the financial years 2003-04 to 2007-08 and thereafter, financial year 2008-09 to 2012-13. On such basis he concluded that the petitioner had negative NFE of ₹ 55.73 lacs in the second block and imposed penalty of ₹ 5.50 lacs under Section 11(2) of the Act. He also noted that the petitioner had discontinued manufacturing activity since last couple of years and the unit had closed dow .....

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riod between 28.02.2008 to 28.02.2013. However, during this second block period of five years also, the petitioner had such negative NFE. Thus, on slightly different logic, he upheld the order of adjudicating authority and rejected the appeal of the petitioner. These orders the petitioner has challenged in the present petition. 5. Taking us through the foreign trade policy framed by the Central Government under the said Act counsel for the petitioner would contend that the petitioner having comm .....

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authority rejected the appeal through different grounds, in any case, the petition should be dismissed. 7. As noted, the following aspects are not in dispute: (i) If the block period for consideration of NFE are reckoned from the 1st day of April of the year following which the manufacturing activity commenced, in the second block of five years, the petitioner failed to achieve positive NFE. (ii) The petitioner has not argued that the penalty of ₹ 5.50 lacs was grossly disproportionate. ( .....

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the policy reads as under: 6.5 Net Foreign Exchange Earnings: EOU/EHTP/STP/BTP unit shall be a positive net foreign exchange earner except for sector specific provision of Appendix 14-I-C of HBP v 1, where a higher value addition shall be required. NFE Earnings shall be calculated cumulatively in blocks of five years, starting from commencement of production. Whenever a unit is unable to export due to prohibition/restriction imposed on export of any product mentioned in LOP, the five year block .....

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n of these guidelines reads as under: (1) The annual review of performance of each operational unit and its compliance with the conditions of approval shall be undertaken by the Development Commissioner before the end of the first quarter of the following financial year; (2) A summary of annual performance review will be sent by each Development Commissioner to the Ministry of Commerce for information under the three formats indicated below latest by 30th September every year; Proforma I: Compar .....

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at the end of 1st and IInd year; ii) Issue of show cause notice-At the end of 3rd or subequent year if positive NFE is not achieved as per EOU/SEZ Scheme, Show cause notice will be issued. After the completion of first five years, if it is noted that the unit has not achieved positive NFE, as per EOU/SEZ Scheme the Development Commissioner would initiate penal action under the FT( D & R) Act, 1992; iii) For failure to achieve positive NFE during the course of 5 years after completion of one .....

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per para 6.10.1 to 6.10.1 of the Chapter 6 and Para 7.12.1 to 7.12.4 of the Chapter 7 of the Handbook of Procedures (Vol-I). For purpose of uniformity, guidelines for calculation of NFE is given in EOU/SEZ Scheme may be followed. 5. MONITORING PERIOD: Units which have not completed one year, from the date of commencement of commercial production, will not be monitored in case a unit has completed less than five years from the date of commencement of commercial production it will be monitored fo .....

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locks of five years starting from the commencement of production. This requirement of para 6.5 would have to be appreciated and interpreted bearing in mind the guidelines for monitoring the performance of such units. In clause (1) it is provided that the annual review of performance of each unit and its compliance with the conditions of approval shall be undertaken by the Development Commissioner before end of the first quarter of the financial year . As per clause (2) a summary of annual perfor .....

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will be issued. After completion of five years if it is noted that the unit has not achieved positive NFE, the Commissioner would initiate penal action under the Act. 11. Clause (4) of guidelines prescribes method of monitoring. As per sub clause (i) thereof in cases of units which exit from the scheme but has failed to fulfill condition of NFE, appropriate steps would be taken for penal action. 12. Clause (5) of the guidelines is also important and pertains to monitoring period which provides t .....

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ppellate authority. However, when we appreciate this provision in conjunction with the guidelines for monitoring the performance of such unit, it becomes clear that the period envisaged would be the financial year immediately starting the manufacturing activity. For example, as noted, under Clause (1) of the guidelines the Development Commissioner has to undertake the annual review of performance of each operational unit before the end of the first quarter of the following financial year. The ex .....

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lear. It provides that the unit which has not completed one year from the date of commencement of commercial production will not be monitored. Further, a unit which has completed less than five years from the date of commencement of the commercial production, it would be monitored only for the number of completed years. The reference to completed years must be for a broken period between the date of commencement of production and the commencement of financial year. 14. As per the guidelines, the .....

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