9911796707
TMI Blog2002 (5) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... . It raised balance against US $ 150 million through a bond issue. However, during the period the matter was pending, the first-petitioner expended an aggregate sum of approximately US $ 325 million towards project costs from its rupee resources. However, in relation to the said approvals the first petitioner applied for exemption from withholding tax. Pursuant to or in furtherance thereof such exemption had been granted in terms of section 10(15)(iv)(f) of the Income-tax Act (hereinafter referred to as the "said Act"). On or about November 3, 1995, the first-petitioner again applied before the second-respondent for raising ECBs for a further sum of US $ 600 million which had subsequently been increased to US $ 642 million. The first petitioner thereafter made an application for exemption under section 10(15)(iv)(f) of the said Act. On or about February 15, 1996, pursuant to or in furtherance thereof such exemption had been granted in relation to the first and second approvals. The said amount allegedly had already been spent. The amounts, according to the petitioner, of the loan/bond issue under the said two approvals were drawn out and deposited in bank accounts abroad in terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CB approved to you. In this regard, you are required to submit documentary evidences supported by the auditors' certificate indicating that the expenditure has been incurred on the items for which ECB was proposed and that this expenditure has been met from your own resources. (iii) Similarly, foreign currency expenditure of US $ 230.21 million is reported to be incurred during September 28, 1995 to May 28, 1996, was also incurred prior to the draw down of ECB of US $ 300 million approved during 1996. In this regard also you are requested to submit documentary evidence supported by the auditor's certificate indicating that the expenditure has been incurred on the items for which ECB was proposed and that this expenditure has been met from your own resources. (iv) Rupee expenditure on captive power project equivalent to US $ 62.39 million cannot be adjusted against the ECB raised by you because the ECB has been approved only for financing the foreign currency capital expenditure." According to the petitioners, therefore, by reason of the said letter the respondents had categorically accepted that moneys drawn against ECBs were fungible and could be adjusted towards expenditure i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(15)(iv)(f) of the Income-tax Act, 1961. You are therefore, not entitled to any tax benefits in terms of the above provision of the Income-tax Act, 1961." To that the petitioners filed a detailed reply by a letter dated May 3, 1999, inter alia, contending: "16. It is submitted that having approved the loan agreement as contemplated in sub-section (f) reproduced above, it is not open to the Government to subsequently withdraw and cancel such approval in cases such as that RIL, merely on the ground that an application for modification of such approval was made. As stated above, RIL has, and will, fully and completely abide by the approval granted to the loan agreement unless pursuant to the application made by RIL, such approvals are amended. If no amendment is granted, RIL will continue to operate within the earlier approvals without any modification. In our respectful submission, a mere application for modification in a subsisting approval cannot justify a total withdrawal and/or cancellation of the existing approval in the manner sought to be done." The petitioners, however, repatriated the ECB funds to India and replenished its rupee resources earlier utilised to finance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur letter No. RIL: DLHL: 305(a), dated December 16, 1998, wherein you have stated '... that RIL's ECB proceeds have not been substantially utilised, and have instead been retained abroad. These proceeds are no longer required for the specified end-uses-as the projects, for which the borrowings were made, have all been implemented with rupee resources.' 12. Thus, there has been a breach of the condition of the ECB approvals by you. 13. Accordingly, after careful consideration of the explanations submitted vide your letter dated June 28, 2001, it has been decided that the tax exemptions granted to you under section 10(15)(iv)(f) of the Income-tax Act, 1961, in respect of ECBs detailed in para. I above, stands withdrawn from the date of issue of this letter." The petitioners, however, filed an application for grant of no objection certificate before the Deputy Director of Income-tax (International Taxation) to remit interest on ECB without deducting tax at source which was due on February 14, 2002, but the same was rejected by order, dated February 13, 2002, relying on or on the basis of the impugned order dated February 5, 2002. An appeal preferred there against to the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j Gordhandas v. H. H. Dave, AIR 1970 SC 755; [1978] ELT 350 and Gujarat State Fertilizers Co. v. Collector of Central Excise [1997] 4 SCC 140 AIR 1997 SC 3620. The learned Attorney General, on the other hand, would contend that section 10(15)(iv)(f) intends to serve a definite public purpose and achieve a special objective, viz., industrial development of India. Paramount consideration for approval of the loan agreement, according to the learned Attorney General, is that the foreign exchange, viz., the external commercial borrowings, would be used for financing import of capital goods and related services. Having regard to the fact that specified end-uses of each of the ECBS, were to finance import of capital goods and services, in the event of any breach thereof the respondents were entitled to withdraw such exemption. Our attention, in this connection, has been drawn to a Press Note dated January 5, 1995, wherein the purpose of grant of exemption from income tax was categorically stated. It was contended that if ECBs are not used for the specified purpose the basic object would be defeated having regard to the fact that there exists a cap on foreign exchange borrowings. Once th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its repayment." It may be true that the matter relating to assessment of tax is within the exclusive domain of the assessing authority. A hierarchy of officers have been provided in terms of the provisions of the Income-tax Act. It is not a case as has been submitted by Mr. Desai where the Central Government has interfered with the quasi-judicial function of the assessing authority or the appellate authority. By reason of the aforementioned provisions the interest payable by an industrial undertaking in India on any moneys borrowed by it in foreign currency from sources outside India under a loan agreement has to be approved by the Central Government having regard to the need for industrial development of India to the extent to which such interest does not exceed the amounts of interest calculated at the rate approved by the Central Government in this behalf. Having regard to the terms of the loans and that the payments would not be income an amendment has been made after June 1, 2001, in terms whereof interest approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner had been asked to file their applications before the Ministry of Finance. On December 16, 1998, the petitioners in their letter to the Foreign Ministry, inter alia, requested for approval to retain ECBs proceeds abroad for utilisation thereof for prepayment/buyback of outstanding ECBs "Specified end-uses for ECB proceeds: The specific end-use, for each of the ECBS, referred to above, was to part finance import of capital goods and services for RIL's integrated petrochemicals complexes at Hazira and Jamnagar, Gujarat. The current status of these projects is that the Hazira petrochemicals complex has been fully commissioned and is operating at rated capacity. All major capital commitments for the Jamnagar Petrochemicals complex have also been made, and the complex is slated to be commissioned in 1999. The total cost for these projects, at Hazira and Jamnagar, as appraised by ICICI, was estimated at Rs. 14,973 crores. This included the aforesaid foreign exchange (FX) debt component of $ 1.3 billion (equivalent to approximately Rs. 4,500 crores at then prevailing rates of exchange), and the balance Rs. 10,500 crores approximately by way of internal accruals, equity and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Proposal for utilisation of ECB proceeds retained aboard: The consequence of the above reduction in project cost, and change in the financing pattern is that RIL's ECB proceeds have not been substantially utilised and have instead been retained abroad. These ECB proceeds are no longer required for the specified end-uses--as the projects for which the borrowings were made, have all been implemented with rupee resources. In this situation, there being no avenue left for utilisation of the offshore ECB process for the specified end-uses, RIL seeks approval for permission to utilise the same for prepayment/buyback of its outstanding ECBs of $ 1.3 billion. Summary: 9.1 We request that RIL may kindly be granted approval to utilise its offshore ECB process to prepay/buyback up to 20 per cent. of its outstanding ECBs each year, with the entire programme to be completed within a period of up to five years. 9.2 We further request that, pending such utilisation RIL kindly be granted approval to retain the ECB proceeds abroad in offshore instruments of Indian PSUs, FIs and nationalised banks, in addition to the specified assets as per extant RBI guidelines. This proposal will yield o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above provision of the Income-tax Act, 1961." In its reply only para. 2 of the said letter had been dealt with in the following terms: "4. The exemption has been sought to be denied purportedly on the ground that the ECB funds raised by RIL have allegedly not been utilised for the specified end-uses. Without prejudice to any of our legal contentions including, without limitation, the following: (a) that utilisation of ECB proceeds is not a condition precedent to the availability of exemption under section 10(15)(iv)(f) of the Act; (b) that utilisation of rupee resources for the import of capital goods and services constitutes proper utilisation of ECB proceeds, towards the specified end-uses, as confirmed in correspondence exchanged between RIL and the MOF (as detailed hereinafter); and 13. As stated above, RIL has already applied to the RBI, on the matter relating to future utilisation of these ECB proceeds; and the specific time frame for which the said proceeds are still required to be held off shore. It is evident that RIL will hold the ECB proceeds abroad, only to the extent and for the time frame approved by the RBI. 16. It is submitted that having approved the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds of approximately US $ 1.3 billion also have been retained offshore. The benefits of the exemptions were granted for a period of six years. The petitioners have obtained substantial tax relief. It, therefore, in our considered opinion, does not lie in the mouth of the petitioner now to contend that the respondents have absolutely no jurisdiction to grant approval to the petitioners' request for grant of exemption. The learned Attorney-General, in our opinion, has rightly submitted that the matter has to be considered having regard to the purport and object of the legislative scheme contained in section 10(15)(iv)(f) of the Act, viz., need for industrial development in India. The borrowings from abroad thus were required to be strictly extended for the aforementioned purpose. If the petitioners were in a position to raise such funds from other sources, it was not necessary for it to raise ECBs. Such borrowings were required to be utilised for specified industrial purposes. A provision of a statute must be interpreted having regard to the purport and object thereof. In Oxford University Press v. CIT [2001] 247 ITR 658 (SC); [2001] 3 SCC 359, the law is stated in the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the obvious intention of the Legislature and produce a rational construction'. Accordingly, the court read into section 52(2) the condition that it would apply only where the consideration for the transfer was understated and it would have no application in the case of a bona fide transaction when the full value of the consideration was correctly declared by the assessee." The submission of Mr. Desai to the effect that the purpose of grant of such approval stands fulfilled is stated to be rejected. In Mediwell Hospital and Health Care Pvt. Ltd. v. Union of India [1997] 1 SCC 759; [1997] AIR 1997 SC 1623, it is held: "13. While, therefore, we accept the contentions of Mr. Jaitley, learned senior counsel appearing for the appellant that the appellant was entitled to get the certificate from respondent 2 which would enable the appellant to import the equipment without payment of customs duty but at the same time we would like to observe that the very notification granting exemption must be construed to cast continuing obligation on the part of all those who have obtained the certificate from the appropriate authority and on the basis of that have imported equipments without p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round and contend that the Government of India had no jurisdiction in relation thereto. The question which survives for consideration now is as to whether by reason of the impugned order the Central Government issued any direction to the statutory authorities. In the instant case no action had been taken as a result whereof the quasi-judicial authorities became denuded of their quasi-judicial power. Merely communicating the impugned judgment to the effect that such exemption had been withdrawn is communication of a foundation of fact. If, according to the petitioner, the order of the quasi-judicial authority suffers from any illegality they could have carried the matter higher up. Let us now examine the decisions cited by Mr. Desai. In Hansraj Gordhandas v. H. H. Dave, AIR 1970 SC 755; [1978] ELT J 350, the apex court stated that there is no room for intendment as regard a taxing statute. The said decision cannot be said to have any application in the instant case. In Gujarat State Fertilizers Co.'s case [1997] 4 SCC 140; AIR 1997 SC 3620, it was held that in the fact situation the scope and ambit of the notification in question therein could not be curtailed on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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