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2016 (10) TMI 379 - CALCUTTA HIGH COURT

2016 (10) TMI 379 - CALCUTTA HIGH COURT - TMI - FTP 2009-14 - Sec. 5 of the Foreign Trade (Development Regulation) Act, 1992 - denial of exemption of additional customs duty - extension of validity period of DFIA licences - transferibility of DFIA licences on fulfillment of export obligation - whether DGFT was justified in withdrawing the benefit of exemption from payment of additional customs duty in respect of 13 DFIAs? - inordinate delay in endorsing transferability - principles of natural ju .....

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withdraw a benefit already granted, that provision of law must be strictly interpreted against the authority and so far as possible in favour of a party who would be affected by the imposition of liability or withdrawal of benefit. Authorities for this proposition are legion. - The idea of such exemption is to give an incentive to exporters to boost exports which in turn enhances the foreign exchange reserve of the country. If such exporter has not availed of the Cenvat facility, then it can .....

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urer of the export products and SESA are two distinct entities and any Cenvat facility availed of by the manufacturer cannot be said to be a benefit reaped by SESA. - The direction of DGFT Authorities on the Customs Authorities not to allow exemption of additional customs duty to SESA or to the transferees of the licenses in question is erroneous and not sustainable. - Before depriving or divesting a citizen of valuable property, the State or a statutory authority must give an adequate a .....

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rom the date of extension - petition disposed off - decided in favor of petitioner. - WP 1118 of 2014, WP 350 of 2015 - Dated:- 5-10-2016 - Arijit Banerjee, J. For the Petitioners: Mr. Ranjan Deb, Bar-at-Law, Mr. V. N. Dwivedi, Adv. Ms. Jayanti Char, Adv. For the Customs : Mr. R. Bharadwaj, Adv. Mr. K. K. Maiti, Adv. For the DGFT : Mr. Kausik Chandra, Sr. Adv. Mr. Ujjal Kr. Ray, Adv. JUDGMENT Arijit Banerjee, J. (1) The disputes in the two writ petitions under consideration arise in relation to .....

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ued to allow duty free import of inputs. DFIA may be either Post-export or Pre-export. (3) The petitioner company is a 'Merchant Exporter'. Clause 9.39 of the Policy defines merchant exporter as a person engaged in trade activity and exporting or intending to export goods. (4) Since the inception of the 2004-09 Policy, the petitioner company (hereinafter referred to as 'SESA') used to apply for issuance of Post-export DFIAs. After getting DFIAs, SESA used to purchase diverse good .....

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me became freely transferable. (5) Since SESA did not avail of 'CENVAT' facility, while endorsing transferability on the DFIAs, the authorities made a note exempting the inputs from additional customs duty/excise duty in terms of Clause 4.2.6 (c) of the Policy. On the strength of such endorsement, SESA either imported inputs by itself or transferred the DFIAs to various importers. The goods imported on the basis of such DFIAs were exempted from payment of customs duty/additional customs .....

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and exemption from payment of additional customs duty. On 14 November, 2014 a meeting was held in the chamber of the Dy. Director General of Foreign Trade (respondent no. 4). SESA made a grievance that there was being inordinate delay in endorsing transferability on the said licences and the respondent no. 4 assured that the matter was under consideration, and SESA would receive confirmation soon. (8) On 20 November, 2014 the Addl. Director General of Foreign Trade (respondent no. 2) by e-mail .....

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on the two licences dated 17 January, 2014 and 20 January, 2014. (9) On 3 December, 2014 I.P. Mukerji, J., passed an order of status quo as regards the concerned licences. On 10 December, 2014 the interim order was extended till disposal of the writ application. (10) When one of the transferees of the said DFIA licences, in connection with permitted imports presented the licence for debiting of dues in lieu of cash payment of additional customs duty, the customs authorities refused to honour the .....

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of injunction dated 8 April, 2015 was passed restraining the respondent authorities from relying upon or giving effect to the order dated 12 December, 2014. Contention of the petitioner:- (11) The petitioner alleges that the order dated 20 November, 2014 issued by the Addl. Director General of Foreign Trade is arbitrary, illegal, issued in violation of principles of natural justice and without jurisdiction. The order did not give any reason or ground for re- submission of the concerned licences. .....

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issue is whether SESA, a merchant exporter, is entitled to exemption from payment of additional customs duty consequent to exports made under post-export DFIA scheme, which the respondents have granted for the last several years. In recognition of its performance, DGFT has granted a certificate recognizing SESA as a 'Star Export House'. The only contention of the respondent authorities is that since the purported supporting manufacturers of SESA were availing of Cenvat facility, SESA is .....

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of the manufacturer who manufactured the export goods as it was a post- export authorization. Since on the e-platform of DGFT website, there was no column for mentioning the name of the manufacturer, SESA put the name of the manufacturer under the column 'supporting manufacturer'. However, while submitting hard copy of the application together with requisite documents, SESA clearly stated that its application was for post-export DFIAs and this fact is not in dispute. It was submitted tha .....

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nst it may be made before concerned RA. Once transferability is endorsed, Authorisation holder may transfer DFIA or duty fee inputs, except fuel and any other item(s) notified by DGFT. However, for fuel, import entitlement may be transferred only to companies which have been granted authorisation to market fuel by Ministry of Petroleum and Natural Gas. (b) Wherever SIONs prescribe actual user condition and in case of Acetic Anhydride, Ephedrine and Pseudo Ephedrine, DFIA shall be issued with act .....

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r, in case where CENVAT facility has not been availed, exemption from additional customs duty/excise duty would be available even after endorsement of transferability on DFIA." (15) He then referred to Sec. 3(a) of the Central Excise Act, 1944 which states that there shall be levied and collected a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods including goods produced or manufactured in special economic zones which are produced and manufactured in I .....

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of which a manufacturer obtains credit for excise duty paid on the raw materials to be used by him in the production of excisable products. The manufacturer makes the requisite declarations and obtains an acknowledgement thereof and it is then entitled to use the credit at any time thereafter when making payment of the excise duty on excisable products. (16) It was emphasised by Learned Counsel that SESA purchased the export goods upon full payment of excise duty without availing of any benefit .....

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uired to have an arrangement/tie up with any supporting manufacturer nor in fact SESA had any such tie up. Had there been a mandate to have a tie up with a supporting manufacturer, it would have been mandatory to endorse the name of such manufacturer on the export documents. But that is not the case. Since there was or is no such requirement, the respondent authorities never raised any objection in this regard. (18) It was then submitted that in the Scheme of DFIA, the two words 'supporting .....

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bility of DFIA on completion of stipulated export obligation, documentary evidences such as SSI/Central Excise Registration of supporting manufacturer/jobber may not be insisted upon. Learned Counsel submitted that even after receipt of the purported information from the DRI vide letter dated 29 September, 2014, the DGFT authorities endorsed exemption from payment of additional customs duty as well as transferability on eight numbers of licences between 20 October, 2014 and 27 October, 2014. Thi .....

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current Policy cannot be applied retrospectively nor the Policy provides for its retrospective application. (21) Learned Counsel then referred to notification no. 98/2009-Customs dated 11.09.2009, whereby in exercise of powers conferred by Sec. 25 (1) of the Customs Act, 1962, the Central Government exempted materials imported into India against the DFIA from the whole of the additional customs duty, safeguard duty and anti-dumping duty subject to conditions mentioned therein. Condition no. 2 m .....

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of the Policy permitting exemption from payment of additional customs duty inasmuch as SESA has not availed of Cenvat credit facility. (22) It was submitted that the respondent authorities are wrongly contending that granting exemption from payment of additional customs duty would amount to 'double benefit'. Mr. Deb referred to a Circular dated 11/2009-Cus dated 25.02.2009, the operative portion whereof reads as follows:- "The Law Ministry clarified that from a perusal of the DFIA S .....

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follows:- "(i) (a) if the exporter has availed the facilities in respect of inputs used in the manufacturer of export goods as specified in para (v) of notification No. 96/2009-Cus dated 11.09.2009, para (v) of Notification No. 99/2009-Cus dated 11.09.2009 and para (v) of Notification No. 112/2009-Cus dated 29.09.2009, then the importer at the time of clearance of the imported materials shall execute a bond that the imported materials will be used in his factory or in the factory of the sup .....

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nt of Revenue. Learned Counsel relied on a portion of the said letter which reads as follows:- "In terms of DGFT's notification No. 49(RE-1007)/2004-2009 dated 14.11.2007 (copy enclosed for ready reference), this Customs House is following the directions contained in the aforesaid notification i.e. in all the cases of imports, who sought clearance against the transferability DFIA authorization are required to submit certificate from the concerned Central Excise authority to the effect t .....

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ed of the Cenvat facility. In the instant case, SESA has not availed of Cenvat facility and as such is entitled to transferability as also exemption from payment of additional customs duty. Withdrawal of such benefits by the DGFT is arbitrary, illegal and harassive. (25) On the point of law, Mr. Deb submitted that if in construing a taxing statute, there are two interpretations possible, then effect is to be given to the one that favours the citizen. In this connection he relied on a decision of .....

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raph 4.2.2 (c) of the Policy, is required to mention the name of manufacturer only. In interpreting a statute, the Courts always presume that the legislature inserted every part of the statute for a purpose and the legislative intention is that every part should have effect. These presumptions will have to be made in case of Rule-Making Authorities also. In this connection reliance was placed on an Apex Court decision in the case of J. K. Cotton Spinning and Weaving Mills Co. Ltd.- vs.-State of .....

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d for review. The order dated 12 December, 2014 was passed in violation of this Court's status quo order dated 3 December, 2014 as continued by the order dated 10 December, 2014 and as such is void. (28) Mr. Deb then submitted that DGFT and Customs Authority have made conflicting factual submissions. DGFT contended that SESA did not avail of Cenvat credit facility because it could not do so being an export merchant. However, the Customs Authorities contended that SESA was not entitled to exe .....

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umbent on the court to avoid a construction, if reasonably permissible on the language, which would render a part of the statue devoid of any meaning or application. He also relied on a decision of the Apex Court in the case of The Commissioner of Income Tax, Gujarat-vs.-M/s. Raman and Co., AIR 1968 SC 49, wherein at paragraph 9 of the judgment, the Hon'ble Supreme Court observed, inter alia, as follows:- "avoidance of tax liability by so arranging commercial affairs that charge of tax .....

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of the obstructions created by the DGFT authorities, the DFIAs could not be utilized during their validity period. He submitted that SESA is entitled to endorsement of transferability as well as exemption from payment of additional customs duty and the validity period of the concerned licences should be suitably extended. Contention of the DGFT:- (31) Appearing for the DGFT authorities, Learned Additional Solicitor General contended that a merchant exporter like SESA has to source the export goo .....

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ts imported subsequently after endorsement of transferability on the DFIAs, would be subject to payment of additional customs duty. While requesting for transferability of the DFIAs issued to it, SESA had all along claimed that it did not avail of Cenvat credit against the inputs used in the export products along with certificates from the jurisdictional Central Excise Authority, certifying that SESA had not availed of Cenvat credit facility. On the basis of such declaration and certificates sub .....

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ch is not permissible as per the Policy or the related customs notifications. Hence, the respondent authorities came to a conclusion that it was necessary to delete or rectify the endorsements on the DFIAs allowing exemption from payment of additional customs duty and accordingly SESA had been directed to submit the 12 DFIAs. (32) Learned Addl. Solicitor General submitted that one of the main objects of the Foreign Trade Policy formulated by the Central Government in exercise of power under Sec. .....

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of Cenvat credit but chose not to do so, would the party be entitled to the benefit of exemption from payment of additional customs duty. (34) Learned Counsel referred to Rule 3 of the Cenvat Credit Rules, 2004. He submitted that Cenvat credit is available only to a manufacturer or a producer. He submitted that additional customs duty is nothing but central excise duty and is charged at the same rate. He also referred to Sec. 3 of the Customs Tariff Act, 1975 which provides for additional duty. .....

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nd is a policy decision. (35) Learned Counsel submitted that the Policy as well as the relevant Customs notifications issued by the Department of Revenue categorically stipulated that if Cenvat Credit Facility has been availed of on the inputs, exemption from payment of additional customs duty is not admissible. This stipulation does not specify the entity that avails of the Cenvat facility. It is only the manufacturer or the supporting manufacturer in the case of a merchant exporter who can ava .....

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om payment of additional customs duty amounts to 'double benefit' leading to unjust enrichment of a licence holder like SESA and amounts to a clear contravention of the DFIA scheme as has been observed by the Ministry of Law as quoted in the Customs Circular No. 11/2009 dated 25 February, 2009. (36) Learned Addl. Solicitor General then submitted that it is admitted by SESA that being a merchant exporter, it could not in any case avail of the Cenvat facility. If that be so, there was abso .....

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tion from payment of additional customs duty. This clever ploy worked for quite some time and SESA successfully misappropriated Government Revenue. This wilful deception would have continued for much longer had not the DRI informed the respondents about the fact of Cenvat facility being enjoyed by the supporting manufacturers of SESA. Learned Counsel submitted that the decision to withdraw the benefit of exemption from additional customs duty was rightly taken to avoid availment of double benefi .....

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d Counsel adopted the submissions made on behalf of the DGFT. He referred to Secs. 3 and 4 of the Central Excise Act and also to Rules. 2 (k) and 3 of the Cenvat Credit Rules. His submission was that if Cenvat credit facilities is availed of in respect of inputs by the manufacturer of the export product, the merchant exporter cannot claim benefit of exemption from payment of additional customs duty while importing goods under DFIA licences. Court's View:- (38) I have given anxious thought an .....

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Although it was not stated in the e-mail dated 20 November, 2014 as to why the authorities wanted SESA to submit the DFIA licenses to them, from the affidavits filed in this proceedings on behalf of the DGFT Authorities, it emerges that the reason for them to call for the licences was to cancel the benefit of exemption from payment of additional customs duty. In other words, the e-mail dated 20 November, 2014 was a step towards the proposed action that the authorities finally took by the order d .....

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it endorsed on the licence that it is exempted from payment of additional customs duty. Such exemption would be available if Cenvat facility has not been availed of. Learned Counsel for the SESA submitted that admittedly SESA, in whose favour the DFIA licences were issued, did not avail of Cenvat facility. Hence, SESA is entitled to the benefit of exemption from payment of additional customs duty. Learned Counsel for DGFT on the other hand submitted that it was not out of choice that SESA refra .....

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CENVAT facility had not been availed of in respect of inputs that were utilized to manufacture the export products. The short case of learned Counsel for DGFT is that if Cenvat Credit Facility was availed of by the manufacturer of the products which SESA exported, in respect of the inputs, SESA would not be entitled to the benefit of exemption from payment of additional customs duty. Learned Counsel submitted that the emphasis in Clause 4.2.6 (c) of the Policy is on the 'inputs' and not .....

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in whose favour the DFIA licence has been issued and who has not availed of Cenvat facility. The said clause does not make a distinction between a party who was entitled to avail of the Cenvat facility but refrained from doing so, and a party who did not avail of such facility because he was not entitled to do so. Had the Framers of the Policy intended that only a party who is entitled to avail of Cenvat facility but did not do so, is eligible for the benefit of exemption from payment of additi .....

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f a party who would be affected by the imposition of liability or withdrawal of benefit. Authorities for this proposition are legion. By way of illustration one may refer to the very high authority of a Constitution Bench of the Hon'ble Supreme Court in the case of The Central India Spinning and Weaving and Manufacturing Co. Ltd., The Empress Mills, Nagpur-vs.-The Municipal Committee, Wardha, (supra), wherein it was held if in construing a taxing statute, there are two interpretations possib .....

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urn enhances the foreign exchange reserve of the country. If such exporter has not availed of the Cenvat facility, then it cannot be deprived of the benefit of exemption from payment of additional customs duty just because the manufacturer of the export product has availed of the Cenvat facility. That would, in my opinion, be contrary to the spirit and intent of the Policy. It is not disputed that SESA has purchased the export goods upon full payment of excise duty and in any event, the question .....

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ses in question is erroneous and not sustainable. However, there are other grounds also on which the impugned orders are liable to be quashed. (44) It is not disputed that endorsement of exemption from payment of additional customs duty was made on all the DFIA licenses issued in favour of SESA. This was, thus, a substantial benefit conferred on SESA akin to valuable property right. If the authorities, for whatever reasons and it is needless to say such reasons must be justifiable reasons, decid .....

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thority which is likely to visit a party with adverse civil consequences can only be passed after observing the principles of natural justice. The doctrine of audi alteram partem enshrines the principle that nobody can be condemned unheard. Before depriving or divesting a citizen of valuable property, the State or a statutory authority must give an adequate and meaningful opportunity of hearing to that party. Art. 300A of the Constitution may not embody a fundamental right but still is a valuabl .....

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this incurable infirmity and veritable vice and are thus void ab initio. In this connection reference may be had to the decisions in the following two cases:- (a) Ram Swarup-vs.-Shikar Chand, AIR 1966 SC 893. At paragraph 13 of the judgment a Constitution Bench of the Hon'ble Supreme Court held that a quasi-judicial proceeding must be tried in accordance with the principles of natural justice, and if it is shown that in a given case an order has been passed without notice to the party affect .....

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is to say, 24th August, 1977 the order was a nullity because it was in violation of principles of natural justice. See in this connection, the principles enunciated by this Court in State of Orissa v. Dr. (Miss) Binapani Dei and Ors., [1967] 2 SCR 625 as also the observations in Administrative Law by H.W.R. Wade, 5th Edition, pages 310-311 that the act in violation of the principles of natural justice or a quasi-judicial act in violation of the principles of natural justice is void or of no val .....

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eason for which I must quash the order dated 12 December, 2014. (47) When the first writ petition was moved, an order dated 3 December, 2014 was passed by this Court directing maintenance of status quo as regards the concerned licenses. On 10 December, 2014, the interim order was extended till disposal of the writ petition. Such order of status quo continues till today. Hence, when the order dated 12 December, 2014 was passed by the DGFT Authorities withdrawing the benefit of exemption from addi .....

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