2017 (9) TMI 1019 - HC - Customs

EPCG scheme - whether under FTP 09-14 read with Handbook of Procedures, the export obligation under the applicable EPCG scheme is to be computed as multiple of the duty saved, as claimed by the petitioner, or as multiple of the depreciated value on the capital goods as insisted upon by the respondents? - amendment of the Authorisation enhancing the export obligation - jurisdiction. Held that - the purpose of Circular No. 35 (RE-99)/99-2000 was to clarify the manner in which export obligation was to be computed in case of a firm or a company having multiple units and entities having a standalone unit. The FTP as applicable prior to FTP 04-09 provided for computation of export obligation on the basis of multiple of the capital value of the goods imported. Thus, the mention of export obligation as equivalent to six times or eight times the depreciated value, in the circular no. 35, was in conformity with the FTP applicable at the material time. A plain reading of CIRCULAR NO. 84 (RE 2008/2004-09), indicates that the central purpose of the circular was not to define the quantum of export obligation but to provide a clarification with regard to maintenance of annual average turnover. Clause (i) of the aforesaid circular clarified that a standalone unit was not required to maintain an annual average export obligation - However, in case where the firm or a company had multiple units, average export obligation after debonding of unit would be fixed by excluding the exports made by the debonded units from the total exports of the firm. If the said circular is read in the context of the FTP 04-09, it is at once clear that the reference to computation of export obligation on the basis of depreciated value of machinery, is inapposite and contrary to the provisions of the FTP 04-09. However, it appears that this error had crept into the circular because a similar clarification was provided by the Policy Circular no. 35 issued on 01.10.1999 and that circular (Circular no. 35) referred to additional export obligation to be six times or eight times the depreciated value of goods (which was in conformity with the then FTP). The same measure seems to have been copied in Circular no. 84 completely ignoring the material change in the manner of calculating the export obligations as effected by FTP 04-09; the measure of export obligations as provided in FTP 04-09 and FTP 09-14 had changed to multiple of duty saved and not the value of capital goods. There is thus much merit in Mr. Parikh s contention that reference to the export obligation as being equivalent to six / eight times the depreciated value in Circular no. 84 dated 30.04.2009 is erroneous. However, even if it is accepted that the same is not an inadvertent error - which in this court s view it is - but a conscious decision taken by the DGFT, the same is nonetheless not sustainable as such provision runs contrary to the applicable FTP (FTP 09-14). it is not necessary to examine the question, whether DGFT had the power to amend the authorisation - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Clarification of export obligation under the EPCG scheme.
2. Amendment of the EPCG Authorisation.
3. Jurisdiction and power of DGFT to amend the Authorisation.
4. Applicability and interpretation of Policy Circulars in relation to FTP 09-14.

Detailed Analysis:

1. Clarification of Export Obligation under the EPCG Scheme:
The petitioner contested a clarification dated 22.03.2016, which mandated the export obligation to be equivalent to six/eight times the depreciated value of assets upon shifting to the EPCG scheme. The petitioner argued that their export obligation under FTP 09-14 was six times the duty saved on capital goods, not their depreciated value. The court examined the relevant provisions of FTP 09-14 and concluded that the export obligation should be computed as a multiple of the duty saved, not the depreciated value of the capital goods.

2. Amendment of the EPCG Authorisation:
The petitioner received an EPCG Authorisation based on the duty saved, which was later unilaterally amended by DGFT to reflect a higher export obligation based on depreciated value. The court noted that the initial authorisation was issued correctly per the FTP 09-14 and that the subsequent amendment by DGFT was not justified. The court emphasized that DGFT could not alter the FTP provisions and that the export obligation should be based on the duty saved.

3. Jurisdiction and Power of DGFT to Amend the Authorisation:
The petitioner argued that DGFT lacked the jurisdiction to amend the authorisation after the petitioner had fulfilled the specified export obligation. The court did not delve deeply into this issue, as it found the amendment itself to be contrary to the FTP 09-14. However, the court acknowledged that DGFT's role is to implement the FTP, not to modify it.

4. Applicability and Interpretation of Policy Circulars in Relation to FTP 09-14:
The court examined various circulars, including Circular no. 84 dated 30.04.2009, which DGFT relied upon to justify the amended export obligation. The court found that this circular erroneously incorporated provisions from an earlier circular (Circular no. 35 dated 01.10.1999) that were no longer applicable under the updated FTP 09-14. The court concluded that the reference to export obligation as six/eight times the depreciated value in Circular no. 84 was incorrect and could not override the FTP 09-14.

Reasoning and Conclusion:
The court held that the DGFT's clarification and subsequent amendment of the export obligation were not in accordance with the FTP 09-14. The correct export obligation should be based on the duty saved, as initially authorised. The court set aside the impugned clarification dated 22.03.2016 and the licence amendment sheet dated 23.01.2014. The DGFT was directed to consider the petitioner's application for discharge/closure of the EPCG authorisation based on the original terms.

Final Judgment:
The petition was allowed, and the impugned DGFT clarification and amendment were set aside. The DGFT was instructed to process the petitioner's application for discharge/closure of the EPCG authorisation per the original authorisation dated 13.06.2011, as amended on 04.08.2011. The parties were left to bear their own costs.