2012 (10) TMI 236 - HC - Customs

Scope of Deemed Exports - whether it includes sale to foreign tourists - whether it is restricted to REP Licenses only or include advance licence - petitioner obtained an advance license for 212.8 Metric Tons against which the petitioner had actually imported only 180 Metric Tons of the stainless steel - thereafter, on account of conflict between the President and the Managing Director of the Foreign importer, which couldn t be resolved in the near future, the export order on the basis of which the advance license was obtained had been terminated - petitioners were stuck with a huge consignment of steel utensils made to the unique specifications demanded by the Foreign Company, for which reason the petitioners found no other buyers in the Foreign Market - petitioners fulfilled export obligation by selling the said utensils to foreign tourists within the country Held that - Deemed exports cannot and should not be restricted to REP Licenses only if the prime objective is to earn foreign exchange which is also the objective under the Advance Licenses as well. Since the main objective of both the licenses is to earn foreign exchange, which is achieved even when sales are made to foreign tourists, the plea of the respondents that deemed exports can be done only in case of REP license cannot be accepted. In the facts and circumstances it is clear that the respondents have turned a blind eye to the genuine problem faced by the petitioners, the real cause for the termination of the export order, and the subsequent foreign exchange earned by the petitioner, beyond the export obligations attached to the advance license has not been denied. Thus solely on the technical ground that the petitioners had not sought the permission of the competent authority before affecting the deemed exports, and that the DEEC Books were not maintained, such strict mechanical application of the provisions of Import and Export Policy in the facts and circumstances cannot be accepted, when the substantive intent behind the issuance of the advance license has been achieved by the petitioners. In these circumstances imposition of any penalty on the petitioners will be iniquitous and not justifiable considering the objective of the policy. Thus, for the forgoing reasons the impugned order dated 14th May, 1986 is set aside and the writ petition is allowed. The petitioners shall also be entitled for release of their bank guarantee in the facts and circumstances - Decided in favor of assessee

Issues Involved:
1. Quashing of the order dated 14th May 1986 by the Chief Controller of Imports and Exports.
2. Declaration of 'deemed exports' under Government notifications to cover advance licenses similarly to duty replenishment licenses.
3. Fulfillment of export obligations by the petitioner.
4. Validity of the abeyance order dated 13th December 1984.
5. Demand for customs duty and interest by the respondents.
6. Procedural compliance regarding DEEC books.
7. Entitlement to refund of Terminal Excise Duty.

Detailed Analysis:

1. Quashing of the Order Dated 14th May 1986:
The petitioner sought the quashing of the order dated 14th May 1986, which concluded that sales to foreign tourists could not discharge the export obligation against the advance license. The court found that the petitioners had fulfilled their export obligations through 'deemed exports' by selling goods to foreign tourists and earning foreign exchange, thus quashing the impugned order.

2. Declaration of 'Deemed Exports':
The petitioners argued that 'deemed exports' should cover advance licenses similarly to duty replenishment licenses. The court examined the relevant provisions of the Import Policy 1981-82 and concluded that there was no stipulation that 'deemed exports' by sale to foreign tourists would only apply to REP Licenses and not to advance licenses. The court held that 'deemed exports' should be considered as exports for the purposes of advance licenses as well.

3. Fulfillment of Export Obligations:
The petitioners contended that they had fulfilled their export obligations by selling goods to foreign tourists and earning foreign exchange. The court noted that the petitioners had maintained detailed records of sales and foreign exchange earned, which was verified by the respondents. The court held that the petitioners had indeed fulfilled their export obligations.

4. Validity of the Abeyance Order Dated 13th December 1984:
The petitioners challenged the abeyance order dated 13th December 1984 on the grounds of being capricious and discriminatory. The court found that the order was passed without giving a reasonable opportunity to the petitioners and in violation of principles of natural justice, thus setting it aside.

5. Demand for Customs Duty and Interest:
The respondents demanded customs duty and interest from the petitioners on the grounds of non-fulfillment of export obligations. The court found that the demand was erroneously calculated based on the assumption that the petitioners had imported the total maximum licensed quantity. Since the petitioners had fulfilled their export obligations, the court set aside the demand.

6. Procedural Compliance Regarding DEEC Books:
The respondents argued that the petitioners failed to submit DEEC books for import and export duly authenticated by the customs. The court noted that the petitioners had maintained all records of sales to foreign tourists and that the respondents had themselves clarified that no entries were required in the DEEC books for 'deemed exports'. The court held that the petitioners' procedural compliance was adequate.

7. Entitlement to Refund of Terminal Excise Duty:
The petitioners claimed entitlement to a refund of Terminal Excise Duty for supplies made to World Bank-aided projects. The court directed the respondents to release the amount towards Terminal Excise Duty withheld due to the pendency of the writ petition.

Conclusion:
The court quashed the impugned order dated 14th May 1986, set aside the abeyance order dated 13th December 1984, and directed the respondents to release the bank guarantee of Rs. 90,86,500/- within four weeks. The petitioners were also awarded costs of Rs. 20,000/-.

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