2011 (3) TMI 112 - HC - Customs

Conversion of licence - The petitioner is aggrieved by the decision of the CESTAT dated 11/5/2010 as also the larger Bench decision of the CESTAT dated 18/1/2008, wherein it is held that the licensing authorities do not have the power to amend the licence with retrospective effect the Foreign Trade Policy empowers the DGFT to exempt any person or class or category of persons from any provision of Foreign Trade Policy or any procedure and that the amendments carried out by the DGFT cannot be the subject matter of scrutiny and challenged by the customs authorities - The licensing authority has held that the petitioner has fulfilled the export obligation under the 10% EPCG licence, by exporting goods 6 times the CIF value of the capital goods imported and accordingly export obligation discharge certificate has been issued - Once the licensing authority has found that the licence conditions have been fulfilled, it would not be open to the customs authorities to contend that the imports under the licence are contrary to law and take action against the licence holder - The larger Bench decision of the CESTAT dated 18/1/2008 and the Division Bench decision of the CESTAT dated 11/5/2010 to the extent they hold that the licensing authorities do not have the power to amend the licence with retrospective effect from the date of granting the licence, set aside - The decision of the customs authorities seeking to recover duty with interest and penalty on the footing that the petitioner has violated condition No.5 of Notification No.29/97 is quashed and set aside.

Summary

Issues:
1. Whether licensing authorities have the power to amend the license with retrospective effect?
2. Can customs authorities challenge the powers of licensing authorities for license amendments?
3. Whether the conversion of a license from zero duty EPCG to 10% duty EPCG is valid retrospectively?

Analysis:
1. The petitioner sought relief from duty liability due to the conversion of their zero duty EPCG license into a 10% duty EPCG license. The larger Bench of CESTAT held that licensing authorities lack the power to amend licenses retrospectively. However, the High Court disagreed, citing Rule 8 of the Foreign Trade (Regulation) Rules, 1993, which grants licensing authorities the power to amend licenses. The High Court emphasized that the conversion was a bona fide decision to enable the petitioner to comply with license conditions.

2. The High Court noted that the decision to convert the license was made by the DGFT with the approval of the EPCG Committee, which includes customs authorities. As such, the customs authorities were bound by this decision and could not challenge it. The Court criticized the larger Bench's contradictory stance on the powers of licensing authorities, highlighting that such conflicting decisions cannot be upheld.

3. The Court referenced a case from the Punjab & Haryana High Court to distinguish between amendments made to prejudice the license holder and those made at the license holder's request. In this case, the conversion was initiated by the petitioner after the license had expired and after customs authorities had taken action for non-compliance. The Court concluded that the conversion was intended to operate retrospectively, relieving the petitioner from duty obligations.

4. The High Court also considered the powers of the DGFT under the Foreign Trade Policy, noting that the licensing authority had confirmed the fulfillment of export obligations under the 10% EPCG license. Consequently, the customs authorities could not challenge the legality of imports under the license. The Court set aside the CESTAT decisions and quashed the customs authorities' attempts to recover duty, interest, and penalty based on the alleged violation of license conditions.