2016 (12) TMI 77 - HC - Customs

Denial of the benefit of refund of terminal excise duty in relation to capital goods supplied to power projects - vires of of the Foreign Trade (Development and Regulation) Act, 1992 - Held that - It is quite clear that firstly the eligibility called entitlement by the petitioner to the refund and terminal duty as a deemed export benefit was introduced for the first time through an amendment of the Hand Book of Procedures. Thus, the question of its being ultra vires the Act or the Policy would not arise. Secondly, paragraph 10.11 which spelt out the eligibility to receive refund of terminal excise duty itself established the linkage i.e. payment of excise duty as an existing condition and further restricted the quantum to 3%. In this case, the question is whether the withdrawal of benefit under 10.3, i.e., of refund of terminal excise duty is arbitrary or violates the principle of promissory estoppel. As noticed earlier, the linkage between payment of excise by the supplier and entitlement of the deemed export for duty refund was clearly established even before the entering into of contractual bargain and issuance of the letter of intent. In other words when the petitioner issued the letter of intent on 26.4.1999, it was fully aware of the fact that the benefit was introduced on 22.4.1999 and further that this was conditioned upon the existence of the excise duty incidence that could be refunded to the tune of 3% - if any additional custom duty was imposed, the terminal excise duty refund had to be denied. The Committee was informed by the Department of Revenue that in the power sector, countervailing duty had been increased from 0 to 16 % and, therefore, terminal excise duty could not be given. In the present case, therefore, since there was a justification and even a strong public interest element in the denial of terminal excise duty benefits, the question of its being arbitrary does not arise. This Court is of the opinion that since the duty refund eligibility was linked to the payment of duty, to offset the competitive additions that imported goods would have over domestically manufactured ones, the parity achieved by another policy compelled the government to amend the Hand Book of Procedures in the manner it did. There is clearly neither any arbitrariness nor violation of doctrine of promissory estoppel - petition dismissed.

Issues Involved:
1. Legality and arbitrariness of Paragraph 10.11 of the Hand Book of Procedure (1999-2000).
2. Ultra vires nature of the amendment to the Foreign Trade (Development and Regulation) Act, 1992.
3. Application of the principle of promissory estoppel.
4. Retrospective application of policy amendments.
5. Public interest and impact of duty refunds.

Issue-wise Detailed Analysis:

1. Legality and Arbitrariness of Paragraph 10.11 of the Hand Book of Procedure (1999-2000):
The petitioner challenged Paragraph 10.11 of the Hand Book of Procedure (1999-2000), which denied the benefit of refund of terminal excise duty for capital goods supplied to power projects. The court examined the amendments made on 22.4.1999, which specified that the supply of capital goods to power projects would be eligible for deemed export benefits only if certified by the Central Electricity Authority and if International Competitive Bidding procedures were followed. The court found that the eligibility for refund of terminal excise duty was introduced through an amendment to the Hand Book of Procedures, and thus, the question of it being ultra vires the Act or the Policy did not arise. The court held that the amendment was not arbitrary as it was based on a clear linkage between payment of excise duty and entitlement to the refund.

2. Ultra Vires Nature of the Amendment to the Foreign Trade (Development and Regulation) Act, 1992:
The petitioner argued that the amendment was ultra vires the provisions of the Foreign Trade (Development and Regulation) Act, 1992. The court noted that the ExIm Policy defined deemed exports and categorized the benefits available. The Hand Book of Procedures was an integral part of the policy, effectuating it. The court held that the amendment to the Hand Book of Procedures was within the powers conferred under Paragraph 4.11 of the ExIm Policy and Section 5 of the Act, and thus, it was not ultra vires.

3. Application of the Principle of Promissory Estoppel:
The petitioner contended that the withdrawal of the terminal excise duty refund benefit violated the principle of promissory estoppel. The court referred to the Supreme Court's judgment in Director General of Foreign Trade and Ors. v. Kanak Exports and Ors., which discussed the retrospective application of policy amendments. The court held that the principle of promissory estoppel could not be invoked in this case as the petitioner was aware of the amendment before issuing the letter of intent. The court also noted that the doctrine of promissory estoppel could not be used to claim benefits if it was inequitable due to larger public interest considerations.

4. Retrospective Application of Policy Amendments:
The petitioner argued that the amendments should not apply retrospectively. The court referred to the Supreme Court's judgment in Kanak Exports, which held that policy amendments could be applied prospectively. However, the court found that in this case, the petitioner was aware of the amendment before entering into the contractual agreement, and thus, the question of retrospective application did not arise.

5. Public Interest and Impact of Duty Refunds:
The Central Government argued that granting the refund would have a significant impact on public interest, as it would result in refunds amounting to hundreds of crores of rupees, irrespective of whether the supplier paid any duty. The court found that the withdrawal of the terminal excise duty refund was based on a Committee's report, which justified the denial of the benefit due to changes in the duty structure for the power sector. The court held that the amendment was justified and not arbitrary, as it was based on public interest considerations.

Conclusion:
The court dismissed the writ petition, holding that the amendment to Paragraph 10.11 of the Hand Book of Procedures was neither arbitrary nor ultra vires. The court also found no violation of the principle of promissory estoppel, as the petitioner was aware of the amendment before entering into the contractual agreement. The court emphasized that the amendment was justified based on public interest considerations and the need to maintain parity between domestic and imported goods.

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