M/s Kanak Exports Through Its Proprietor Mr. Satish Bansal Vs Union Of India And Ors. (Delhi High Court)
The issue under consideration is whether the imposition of cost of one lakh rupees on an exporter for the blatant violation of the Duty-Free Credit Entitlement Scheme (DFCE) is justified in law?
It is observed that the decision of the Gujarat High Court in a similar case of Adani Exports Ltd. Wherein the High Court concluded that the main purpose of the Notification dated January 28, 2004, was to prevent the transfer of the export orders from one group company to another company belonging to the same group in order to show the enhanced export performance of such another company and, therefore, it was clarificatory in nature.
Hence, High Court rejected the submission of the petitioner therein that the Notification or the Public Notice had the effect of the taking away of the vested right of the petitioner, stating that they merely sought to exclude exports which were never intended in the first place to be covered by the Special Scheme; misuse of the said scheme by mere paper growth in exports is not to be countenanced. The petitioner certainly could not have been allowed to re-agitate its eligibility under the Scheme in the guise of a fresh/revised application after the judgment of the Supreme Court and subsequent dismissal of its Review Petition.
Therefore, merely because the respondents have granted some relief to M/s Adani Export Ltd. or have not made any recoveries from it, cannot entitle the petitioner, by itself, to claim benefit under the DFCE Scheme in spite of the clear and categorical judgment of the Supreme Court holding it to be not entitled for the same. Accordingly the petition is dismissed.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. This petition has been filed by the petitioner challenging the order dated 28.12.2017 passed by the respondent no.3 holding the petitioner as ineligible for receiving any benefit under the ‘Duty Free Credit Entitlement’ Scheme (hereinafter referred to as the DFCE).
2. In exercise of its powers under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992, the Government of India notified the Export-Import (EXI M) Policy 2002-2007. The same was to come into force from April 01, 2002. An amendment to this Policy was notified on March 31, 2003 to come into force from April 01, 2003.
3. Paragraph 1.4 of the Policy spelled out the objectives of the Policy and is reproduced hereinunder:
“1.4 The principal objectives of this Policy are:
(i) To facilitate sustained growth in exports to attain a share of at least 1% of global merchandise trade.
(ii) To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services.
(iii) To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitive strength, while generating new employment opportunities, and to encourage the attainment of internationally accepted standards of quality.
(iv) To provide consumers with good quality goods and services at internationally competitive prices while at the same time creating a level playing field for the domestic producers.”
4. Paragraph 2.34 of the Policy allows ‘Third-party exports’. Paragraph 9.55 defines the term ‘Third-party exports’ as under:
“Third-party exports” means exports made by an exporter or manufacturer on behalf of another exporter(s). In such cases, shipping bills shall indicate the name of both the exporter/ manufacturer and exporter(s).”
5. Chapter-III of the Policy deals with ‘Promotional Measures’ which are to be undertaken to achieve the objective of the Policy.
6. Paragraph 3.7.1 of the Policy states that Merchants as well as Manufacturer Exporters, Service Providers, Export Oriented Units (EOU’s)/ Units located in the Special Economic Zone, etc., shall be eligible for recognition as ‘Status Certificate’. Paragraph 3.7.2 laid down the requirement of average export performance level to be achieved by the applicant.
7. Paragraph 9.53 defines the term ‘Status Holder’ as under:
“Status Holder” means an exporter recognized as “Export House/Trading House by DGFT/ Development Commissioner or Star Trading House/Super Star Trading House” by the Director General of Foreign Trade.”
8. Paragraph 3.7.2.1 gave the ‘Special Strategic Package for Status Holders’. This petition is primarily concerned with sub-paragraph (vi) of Clause 3.7.2.1 and is reproduced hereinbelow:
“Special Strategic Package for Status Holders”
3.7.2.1 The status holders shall be eligible for the following new/special facilities:
xxxxx
(vi) Duty free import entitlement for status holders having incremental growth of more than 25% in FOB value of exports (in free foreign exchange) subject to a minimum export turnover of Rs. 25 crore (in free foreign exchange). The duty free entitlement shall be 10% of the incremental growth in exports. Such entitlement can be used for import of capital goods, office equipment and inputs for their own factory or the factory of the associate/supporting manufacturer/ job worker. The entitlement/goods shall not be transferable.”
9. Paragraph 3.10 gave the six ‘thrust sectors’ which would be given the necessary boost for achieving the objective of the Policy.
10. By Notification no.28 dated 28.01.2004, Paragraph 3.7.2.1 in Chapter III of the Exim Policy was amended. After sub-paragraph (vii), five Notes were inserted by way of an amendment. The same are reproduced hereinbelow:
“Note 1 – – For the purpose of calculating the value of exports, the following exports shall not be taken into account, namely:-
(i) Re-export of imported goods or exports made through transshipment;
(ii) Export turnover of units operating under SEZ/EOU/EHTP/STPI Schemes or products manufactured by them and exported through DTA units;
(iii) Deemed exports (even when payments are received in Free Foreign Exchange) and payment from EEFC account
(iv) Service exports;
(v) Supplies made by one status holder to another status holder;
(vi) Export performance made by one status holder on behalf of other status holder will not be eligible for entitlement under the Supplies made or export performance effected by a non-status holder (Merchant exporter/Manufacturer with any export performance in 2003-04) to a status holder if the applicant as well as the non status holder have less than 25 per cent incremental growth over their respective previous years direct export turnover;
(vii) The exports made by an applicant within a group and the group to which it belongs has individually less than 25 per cent incremental growth of export.
Note 2 – The incremental growth of exports by an exporter shall not, directly or Indirectly, be transferred to any other exporters.
Note 3 – Government reserved the right in public interest, to specify the export products, which shall not be eligible for calculation of incremental growth/ entitlement. Similarly, the government may also notify the list of goods, which shall not be allowed for imports under the scheme.
Note 4 – These guidelines will be applicable to the exports made on or after 1.04.2003.
Note 5 – The entitlement will be in terms of duty credit.”
11. A Public Notice bearing no. 40(RE 2003)/2002-2007 dated 28.01.2004 was also issued by the Directorate General of Foreign Trade (DGFT) making certain amendments in the Handbook of Procedures(Volume 1), inter alia inserting Paragraph 3.2.6 A, which reads as under:
“The scheme will be applicable to status holders who were also status holders as on 31.3.2003 and who had achieved minimum export turnover of 25 crores in the year 2003-04.
I. For direct as well as third party exports, the Export documents viz. Export Order, Invoice, GR Form, Bank Realization Certificate should be in the name of applicant only. However for the third party exports, where goods have been procured from a manufacturer, the shipping bill should contain the name of the exporter as well as the supporting manufacturer.
II. Goods allowed to be imported under this scheme shall have a nexus with the products exported and a declaration in this regard shall be made by the applicant in Appendix 17D.
III. The licensing authority shall at the time of issuance of the duty free credit entitlement certificate endorse the name of the associate manufacturer/supporting manufacturer/ job worker on the certificate as declared by the applicant. Goods imported against such entitlement certificate shall be used by the status holder or his supporting manufacturer/job worker in proportion to the value of their direct contribution to the entitlement.
IV. The last date for filing of such applications shall be 31st December.
V. The duty free credit entitlement certificate shall be issued with a single port of registration. For each duty free credit entitlement certificate, split certificates subject to a minimum of Rs.5 lakh each and multiples thereof may also be issued. A fee of Rs. 1000/-each shall be paid for each split However, a request for issuance of split certificate(s) shall be made at the time of application only and shall not be considered at a later stage.
VI. The duty free credit entitlement certificate shall be valid for a period of 12 months from the date of issue. The status holder shall within one month of the last imports made under this certificate or within one month of expiry of the certificate whichever is earlier, submit a statement of imports/utilization made under the certificate as per Appendix 17E, to the jurisdictional Regional Licensing Authority who has issued the certificate with a copy to the jurisdictional excise authorities.”
It further provided that:-
“2. In terms of Para 3.2.5 of Handbook of Procedures (Volume 1), the following items would not be taken into account for computation of entitlement and export performance under Duty Free Credit Entitlement Scheme for Status Holders:
a. Rough, uncut and semi polished diamonds
b. Gold, silver in any form including plain jewellery thereof
c. Food grains sourced from central pool maintained by
d. Items exported under free shipping bills
3. In terms of Para 3.2.5 of Handbook of Procedures (Volume 1) the following items would not be allowed for imports under Duty Free Credit Entitlement Certificate for Status Holders:
a. Agricultural products which fall under Chapters 1-24 of ITC (HS) Classification of Export and Import items.”
12. By a subsequent Notification no. 38/(RE 2003)2002-2007 dated 21.04.2004, Notes 6 and 7 were inserted in Paragraph 3.7.2.1., after subparagraph (vii) of the Policy and read as under:
“Note 6 – The export of the following products and categories of products would not be permitted for counting entitlement under the Duty Free Entitlement Certificate for Status Holders.
a. Rough, uncut and semi polished diamonds.
b. Gold, silver in any form including plain jewellery thereof
c. Food grains sourced from central pool maintained by FCI
d. Items exported under free shipping bills.
Note 7 – The following items would not be allowed for imports under Duty Free Credit Entitlement Certificate for Status Holders:
Agriculture products, which fall under Chapters 1-24 of ITC (HS) Classification of Export and Import items.”
13. By Notification no. 40/(RE 2003)/2002-2007 dated 23.04.2004, a minor correction was made in the Notification No. 38 (RE-2003)/ 2002- 2007 dated 21.04.2004.
14. Adani Exports Ltd. filed a writ petition before the High Court of Gujarat, being Special Civil Application no.1676 of 2004, inter alia challenging the validity of the Notification no.28 as also the Public Notice no. 40 dated 28.01.2004. The High Court by its judgment dated 23.07.2004, partly allowed the said Writ petition. The High Court concluded that the main purpose of the Notification dated 28.01 .2004 was to prevent transfer of the export orders from one group company to another company belonging to the same group in order to show enhanced export performance of such another company and, therefore, it was clarificatory in nature. It further rejected the submission of the petitioner therein that the Notification or the Public Notice had the effect of the taking away of the vested right of the petitioner, stating that they merely sought to exclude exports which were never intended in the first place to be covered by the Special Scheme; misuse of the said scheme by mere paper growth in exports is not to be countenanced.
15. It further held that the DGFT had no power to exclude exports of certain products as done by the Public Notice dated 28.01.2004, however, as the same effect was given by the Notification dated 21.04.2004 read with the Notification dated 23.04.2004, the same being retrospective in nature, were applicable for all exports made from April 01, 2003 and such exclusion was therefore, valid. The High Court, however, held the exclusion of the following exports from the benefits of the duty-free import entitlement for the exports Status Holder to be neither clarificatory nor in public interest and therefore, bad in law;
1) items exported under Free Shipping Bills; and
2) Gold, silver in any form including plain jewellery thereof, in so far as the import of capital goods and office equipment for the factory of the associate/supporting manufacturer/job worker shall be working.
16. The petitioner herein also filed a writ petition before the High Court of Judicature at Bombay, being Writ petition no.2397/2004, challenging the Notifications dated 28.01.2004 and 21.4.2004 as amended by the Notification dated 23.04.2004 as also the Public Notice dated 28.01.2004.
17. The Bombay High Court by its judgment dated 04.07.2005 partly allowed this writ petition. It upheld the validity of the Notification dated 28.01.2004 holding it to be clarificatory in nature, and set aside the Public Notice dated 28.01.2004 as being ultra vires. It further held that the Notifications dated 21.04.2004 and 23.04.2004 can have only prospective operation, which means that exports made by the exporters prior to April 21, 2004 in respect of the classes of goods covered by Notification dated 21 .04.2004 were entitled to be taken into consideration for the purposes of determining the entitlement of duty free imports. The relief granted by the High Court in favour of the petitioner is reproduced hereinbelow:
“36. In the result the petition is partly allowed Public Notice dated 28th January 2004 is quashed and set aside. As far as Notifications dated 21st and 23rd April, 2004 are concerned, it is declared that the said notifications will have only prospective operation and the exports made by the petitioners prior to the said notifications in respect of the classes of goods covered by the said notifications shall be liable to be computed for the purpose of determining the entitlement of the petitioners. No order as to costs ”
18. The judgment passed by the Gujarat High Court as also the Bombay High Court were challenged by the parties by way of Special Leave Petitions before the Supreme Court. The Supreme Court vide common judgment dated 27.10.2015 was pleased to dispose of these appeals inter alia holding as under:
(A) The Notification no. 28(RE 2003)/2002-2007 dated 28.01.2004 was clarificatory in nature and was therefore, valid;
(B) Public Notice no. 40 dated 28.01.2004 issued by the DGFT, so far as it excluded certain items from being taken into account for computation of incremental exports under DFCE, is ultra vires;
(C) Notification no. 38 and 40(RE 2003)/2002-2007 dated 23.04.2004 and 23.04.2004 respectively are not clarificatory in nature and have only prospective effect.
19. The Supreme Court while answering whether the Notifications dated 21.04.2004 and 23.04.2004 had taken away any vested right of the petitioner herein and therefore was retrospective in nature, held as under:
“109) So far so good. The effect of the aforesaid discussion would be that if the Status Holders had achieved 25% incremental growth in exports, they acquired the right to receive the benefit under the Scheme, which could not be taken away. The pertinent and crucial question is as to whether these exporters/writ petitioners acquired any such right? Let us sharpen this question before we answer the same by formulating it in the following words:
Whether, in the cases of these exporters, the exports shown by them can be treated as actual exports entitling them to avail the benefit of the Scheme?
110) This issue would be inter-twined with other related issue, namely, whether the notification has retroactive operation or it is retrospective in nature. Both these aspects are to be dealt with simultaneously in order to provide suitable and right answer to the question posed. The case of the exporters, as noticed above, is that since they had already fulfilled the requirement of ‘incremental growth in exports’ which they were require to fulfill between April 01, 2003 to March 31, 2004, a vested right accrued in their favour to get the special incentive in terms of the scheme which, of course, was to be availed from April 01, 2004. The case of the Government, on the other hand, is that the benefit was to accrue to these exporters only from April 01, 2004 and before that it was withdrawn and, thus, no vested right accrued in their favour. It was also argued that in the policy, which provides special incentives to status holder, the term “incremental growth in export” was not defined/clarified at the time when the policy was issued. By the impugned notification, the blanks/gaps were filled and the term incremental growth in export was defined and it was clarified as to how the incremental growth in export is to be actually worked out. This was also done before the question of actual working out of the incremental growth in exports arose and hence, no retrospective effect.
111) An astute and penetrative examination of the record, with reference to the results of the investigation, which had prompted the Central Government to issue these Notifications, provides a very tidy answer to the question posed above is that the so-called targets achieved were only on paper through fraudulent means and, therefore, it cannot be said that any vested right accrued in favour of these
112) We have referred to such material in detail while upholding the contention of the Union that Notifications were issued in public interest to ensure that their misuse is not allowed. To recapitulate, the inquiry conducted by the Government revealed that there were exports of rough diamonds even though India is not a rough diamond producing country. These exports stopped the moment DFCE benefits in respect of rough diamond were It was also found that cut and polished diamonds were imported, stored inside a bond and re-exported with artificial value addition. Many of these exporters exported to their own counterparts in Dubai and Sharjah and when this consignments reached those destinations, they were declared as scrap to avoid import duty. Following statistics given by the Government in respect of so-called exports by these exporters makes out startling revelations:
Growth exceeding 2000% for two petitioners came from 100% export of gold coins and plain jewellery
