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IMPERIAL OVERSEAS PRIVATE LIMITED Versus UNION OF INDIA AND 2

SEZ - condition of mandatory physical export - manufacturing recycled plastic raw material from the imported plastic scrap in the zone - As per the policy dated 17.9.2013, Units have been restrained from carrying out any broad band activity with regard to unrelated products, all the manufactured goods are required to be physically exported out of country gradually from second year onwards and from fifth year onwards, 100% of goods manufactured in the SEZ is to be physically exported. Some penal .....

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the Central Government is empowered to make Rules by notification for carrying out the provisions of this Act under Section 55 of the Act. In sub-Section (2) of Section 55, it is made clear that certain matters are required to be covered while framing the Rules. - The relevant conditions of the policy of 2013 are not in consonance with the Rules since none of the Rules prohibit the unit established in SEZ to remove the goods in DTA. Under Section 55 (3) of the SEZ Act, no rules are amended a .....

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y with regard to plastic manufacturers only and compelling them to remove the goods out of India. - Petition allowed - decided in favor of petitioner. - SPECIAL CIVIL APPLICATION NO. 6107, 6117, 6167, 6172, 6107, 6108, 6109, 6171, 6110, 6172 of 2015 With CIVIL APPLICATION NO. 3038, 3039, 3135, 3137, 3041, 3053 of 2016 - Dated:- 24-1-2017 - MR. A.J.DESAI, J. FOR THE PETITIONER : MR MIHIR THAKORE, SENIOR COUNSEL ASSISTED BY MR SALIL M THAKORE, ADVOCATE FOR THE RESPONDENT : MR DEVANG VYAS, ADVO .....

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he Policy is contrary to provisions of The Special Economic Zones Act, 2005 (in short SEZ Act ) and The Special Economic Zones Rules, 2006 (in short SEZ Rules ) and also on the ground of having not followed the procedure prescribed under the SEZ Act and SEZ Rules for imposing or issuing guidelines as per Section 5 of the SEZ Act as referred in the Policy itself. 2. Pursuant to the notice issued by this Court, the respondents have filed their affidavits-in-reply and opposed grant of any relief. R .....

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Permission to each petitioner was granted for establishing the units on certain terms and conditions. 3.2 In the year 2000, the Government of India came out with a special economic zone scheme under the Export Import Policy. Under the scheme, SEZs were set up in India for the first time. The Government of India issued a public advertisement and declared that certain Zones including Kandla, Santacruze (Mumbai), Kochi and Surat which were Export Processing Zones, to be converted into Special Econ .....

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ive Net Foreign Exchange earner within a period of 3 years, as well as, permitted to sell of the manufactured goods in Domestic Tariff Area (DTA) on payment of full custom duty subject to import policy in force. The petitioners having found attractive benefits, continued to manufacture the plastic raw material and to sell the products in domestic tariff area subject to the exports policy existence at the relevant time. 3.3 The Parliament of India enacted SEZ Act in the year 2005 and most of the .....

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ommerce, to consider proposal for setting up Special Economic Zones. The members of the approval Board after verifying the material available, found that the manufacturer of recycled plastic units have no more export potential and, therefore, it was decided that no such new units should be allowed to set up in this zone. It was also observed that the units are paying full duty on clearance of DTA and there are about 5,000 people employed by such units, extension of letter of approval to be issue .....

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nd Rules and always maintained the positive NFE. 3.5 The manufacturing units were permitted to broad band the additional products by permission letters in the year 2003, 2004, 2007 etc. However, the Government of India (Department of Commerce, SEZ Division) distinguished the additional products which were permitted for broad banding into related and unrelated products and accordingly, a communication dated 4.11.2010 was issued to all the Development Commissioners. After issuance of the said lett .....

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ve NFE on completion of 5th year block. 3.7 The respondent No.1 through Ministry of Commerce and Industry, Development of Commerce (SEZ Division) came with Policy dated 17.9.2013 with regard to the units who were engaged in the business of manufacturing recycled plastic raw material from imported plastic scrap or waste established in SEZ Area. By the said Policy, all the units have been compelled to follow the conditions referred in the said Policy. As per certain terms and conditions, the Units .....

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made several representations to Union of India and brought to the notice that if the sale in DTA is not permitted, the units are likely to be closed and there would be unemployment of 5,000 workers who are working in such 40 units. The petitioners did file their objections in detail, however, had executed a bond since the petitioners intended to continue the manufacturing work. Since the respondent No.1 did not withdraw or modify the conditions of the Policy, the present petitions have been fil .....

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Government only can prescribe the Rules. 4.1 He would further submit that the Central Government has power to make Rules under Section 55 of the SEZ Act and as per Section 55 (2) (o), the unit is obliged to obey the conditions imposed under Section 15 (8)(b) of the Act by which the Central Government has to prescribe the terms and conditions. He would further submit that DTA is defined under Section 2 (i) of the Act and under Rule 47, a unit is permitted to sell the goods in DTA on payment of cu .....

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posed to the units to physically export 100% manufactured goods is contrary to the provisions of the SEZ Act as well as SEZ Rules. He would submit that the SEZ Act and SEZ Rules themselves permit sale of the goods manufactured in SEZ in DTA subject to payment of custom duty and that too in foreign currency. Therefore, there was no reason for the respondent No.1 to issue the policy under challenge without amending the Act and Rules. By taking me through the provisions of Section 55 (3) of the Act .....

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In support of his submissions, Mr. Thakore has relied upon a decision of the Hon'ble Supreme Court in the case of Captain Sube Singh and others v. Lt. Governor of Delhi and others, (2004) 6 SCC 440. He would submit that when a Statute itself vests certain powers to be exercised in a particular manner and method, the authorities is bound to follow the statutory provisions and cannot vary or add conditions which are contrary to the provisions of the concerned Act and Rules. He has also relied .....

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t certain clauses of the impugned Policy do not find any support from the provisions of the SEZ Act or the SEZ Rules. 4.4 He would submit that when the then Government had published an advertisement way back in the year 2000 and attracted the units to continue the manufacturing activities in certain areas, the Government cannot impose such conditions which are not backed by any provisions of the concerned law and that too, without following mandatory provisions of law of getting nod from House o .....

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ners, all those conditions referred in the Policy have been imposed which would create closure of the units and would affect 5,000 employees working in different units. 4.6 He would further submit that the Policy is unreasonable and arbitrary since the Central Government is not going to lose any Foreign Exchange earnings. He would submit that the units manufacturing recycled plastic raw material from the imported plastic scrap have huge demand in India, especially in the agriculture sector and w .....

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d SEZ Rules. 4.7 Mr. Thakore also argued that imposing condition of not allowing broad banding of unrelated products is also contrary to provisions of SEZ Act and SEZ Rules. He would submit that if condition Nos.9 and 10 of the Policy are perused, the same cannot be maintained in view of the only mandatory provisions of Rule 53 of the SEZ Rules. The only intention of the statute makers was to get more foreign exchange revenue by maintaining positive NFE. He would submit that when the unit establ .....

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ecial Economic Zone and, therefore, imposing condition No.10 i.e. asking a unit to fully export the goods is contrary to the meaning given in the statute and therefore also, said condition is required to be quashed and set aside. He would submit that when letters of approval were issued in favour of the units, the same conditions which are referred in the policy, have been imposed which are required to be quashed and set aside in view of the specific provisions made in SEZ Act and SEZ Rules. 4.9 .....

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d on all, but only a few, it is nothing but discrimination and a violation of Article 14. It is also not made clear that for what purpose and for whose benefit the Government has come out with such an unusual policy qua plastic manufacture units only. He would further submit that in India, there is a huge demand for plastic raw material. These plastic recycling units are supplying the recycled plastic raw material to small scale manufacturers within the country and meeting with the huge domestic .....

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n in case of purchase of imported raw material. Therefore, the supply of raw material manufactured by plastic recycling units in SEZs is in the interest of the public, the Indian consumers of plastic raw material and the country in general. The impugned policy directs that the plastic recycling unit must send their entire turnover out of the country and is unreasonable and against public interest. The impugned policy results in discouraging Indian manufacturers and encouraging foreign manufactur .....

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material produced from the imported recycled plastic would be available to public at huge quantity at a cheaper rate and, therefore, the conditions imposed by the Central Government by issuing a Policy would create such a situation that the public in India shall get the finished goods at a higher price. He would further submit that condition Nos.16, 17, 18, 21, 22, 24 and 25 imposed under the letter of extension are illegal, beyond the powers of the authorities and contrary to the SEZ Act and SE .....

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mmittee may cancel the letter of approval only if it has reason or cause to believe that the entrepreneur has persistently contravened any of the terms and obligations subject to which the letter of approval was granted and not otherwise. Condition No.18 is also contrary to Rule 54. Condition No.22 is contrary to the Act and Rules considering that the condition sought to be imposed is nowhere found in the Act or the Rules and the respondent No.3 has absolutely no power to impose the said conditi .....

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cation have always been permitted and are permissible. Condition No.25 also goes beyond the impugned policy in as much the policy does not say that the authorized operations are restricted to the business of recycling of plastic. Condition No.25 is also in breach of the principles of promissory estoppel for the same reasons as are mentioned in the above ground on promissory estoppel and legitimate expectation. Respondent No.3 has no power to impose conditions not prescribed under the Act or the .....

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ions and hence, the petitions be allowed. 5. On the other hand, Mr. P. Y. Divyeshvar, learned Central Government Standing Counsel appearing for the respondents would submit that the Government has to follow the guidelines referred in Section 5 of the SEZ Act. He would further submit that imposing certain conditions for the units established in SEZ would be subject to achieve certain guidelines referred therein like generating additional economic activity, permission of export of goods and servic .....

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empowered to take a decision about the extension of letter of permission or approval (LOA). The conditions can be imposed upon the units. He would submit that the Board would have rejected the extension of letter of approval in the year 2013 i.e. subsequent to the Policy in question. He would submit that the Board is empowered to reject the extension of LOA under Rule 18 (4) of the SEZ Rules. Therefore, the submission made on behalf of the petitioners that no such conditions should have been im .....

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cling of plastic scrap or waste shall be permitted to establish and, therefore, having considered the peculiar project by the petitioner units, the conditions have been imposed while issuing letter of approval which have been issued according to the Policy. He would submit that the petitioners in each case has agreed for following the conditions and have executed bond and, therefore, the petitioners cannot now challenge the LOA under the guise of challenging the Policy itself. He would submit th .....

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fere with such decision. By relying upon a decision in the case of Government of Andhra Pradesh and others v. Smt. P. Laxmidevi, 2008 (2) GLH 167, he would submit that there is a question of interpretation of statute and particularly with regard to physical and economic statute, the scope of Courts would be limited. Therefore, the Court should not exercise its power under Article 226 of the Constitution of India in the present case also. 5.3 He has also relied upon the decision in the case of P. .....

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cy dated 17.9.2013 with regard to the units established in SEZ carrying on recycling of plastic scrap or waste and incorporating the same while issuing LOA to each unit. 7. Before the enactment of the SEZ Act, 2005, import and export of goods and services were controlled by several Acts. The Government of India had also demarcated certain area as Export Processing Zone (EPZ). In the year 2000, the Ministry of Commerce and Industry, Government of India announced its first Special Economic Zones i .....

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positive Net Foreign Exchange earner and was also permitted the domestic sale on full duty subject to import policy in force in the year 2000. It was also declared that unlike EPZ, no minimum export performance or Net Foreign Exchange earning prescribed percentage of exports would be necessary. Unlimited DTA sales on full duty was also permitted according to the advertisement. 8. This advertisement was announced to provide the unit holders an internationally competitive environment for exports. .....

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in force from 23.6.2005. 10. It is not in dispute that each of the petitioner units were set up in the year between 1995 to 1998 in Kandla area which was an Export Processing Zone when the Kandla area was declared as Special Economic Zone from 1.11.2000. Each petitioner continued its activity of exporting the plastic raw material which were manufactured from imported plastic scrap. By a Resolution dated 1.11.2000 itself, the Government of India declared that Kandla Free Trade Zone is converted .....

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cling of plastic scrap or waste, a meeting of Board of approvals was held on 8.8.2006 as per proviso to Rule 18 (4) (a) of the SEZ Rules. The issue with regard to the extension of letter of approval was discussed in the meeting headed by Special Secretary of Department of Commerce and decided to extend such approvals by recording following facts :- (iv) Extension of Letter of Proposals of the Plastic Units in the Kandla SEZ. It was informed that SEZ Rules, 2006 provide that cases of extension of .....

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coming up and that moreover these units do not have any export potential and that therefore there is no reason for allowing continuation of these units under the SEZ scheme. It was however informed that the very same issues were considered by the Export Promotion Board in March 1998 under the Chairmanship of Cabinet Secretary and it had been decided that no new units will be allowed to be set up in EPZ and EOUs. DGFT also has in consultation with the Ministry of Chemicals and Petrochemicals and .....

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ances to DTA. The Board was further informed that prior to these units being set up in India, these goods were being imported in finished form from Dubai etc. The value addition, employment of over 5000 people and resultant gains are now to the Indian economy. 12. By enacting Section 5 of the SEZ Act, the Central Government was asked to follow certain guidelines while notifying Special Economic Zone. Section 5 of the SEZ Act reads as under :- 5. Guidelines for notifying Special Economic Zone :- .....

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f sovereignty and integrity of India, the security of the State and friendly relations with foreign States. 13. From the above provision, the Central Government while notifying any area as Special Economic Zone etc. has to consider generation of additional economic activity, permission of export of goods and services referred herein above. It is true that the important feature of establishing SEZ is to promote the activities of export on goods and services but it does not prevent the units estab .....

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ion 30 of the SEZ Act reads as under :- 30. Domestic clearance by Units :- Subject to the conditions specified in the rules made by the Central Government in this behalf :- (a) any goods removed from a Special Economic Zone to the Domestic Tariff Area, shall be chargeable to duties of customs including anti-dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975 (51 of 1975), where applicable, as leviable on such goods when imported; and (b) the rate of duty and tariff va .....

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far as present case is concerned, Sections 55 (2) (o) and 55 (2) (za) of the SEZ Act are relevant and read as under :- 55. Power to make Rules :- (1) The Central Government may, by notification, make rules for carrying out the provisions of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may, provide for all or any of the following matters, namely :- (a) to (n) …................... (o) the terms and conditions for the Unit subject t .....

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ral Government may prescribe, - (a) the requirements (including the period for which a Unit may be set up) subject to which the Approval Committee shall approve, modify or reject any proposal referred to in sub-section (3); (b) the terms and conditions, subject to which the Unit shall undertake the authorized operations and its obligations and entitlements. 17. Therefore, several provisions have been made for removing the goods from SEZ to DTA subject to payment of duties under Section 30 of the .....

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tive NFE to be calculated referred under the said Rule itself. Rule 53 A (n) of the SEZ Rules is reproduced herein below :- 53. Net Foreign Exchange Earnings :- The Unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of five years from the commencement of production according to the following formula, namely :- Positive Net Foreign Exchange = A - B > 0 where : A : is Free on Board value of exports, including exports to Nepal and Bhutan against freely co .....

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ade by the Central Government is required to be placed before each House of Parliament as provided under sub-Section (3) of Section 55. Section 55 (3) of the SEZ Act reads as under :- (1) & (2) …............................. (3) Every rule made by the Central Government under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more succe .....

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er the relevant provisions discussed and reproduced herein above, the conditions imposed by the Authority while issuing the LOA to each petitioner are in consonance with the guidelines of 2013. The relevant conditions which are referred to herein above are not in consonance with the Rules since none of the Rules prohibit the unit established in SEZ to remove the goods in DTA. Under Section 55 (3) of the SEZ Act, no rules are amended and, therefore, when the petitioner units are following the rul .....

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