2017 (11) TMI 494 - HC - Customs

Duty Free Import Authorisation Scheme (DFIA) - Petitioner a transferee of DFIA purchased the scrips and utilised the same for discharging duty liability against various Bills of Entry under N/N. 40 of 2006 and 17 of 2009 dated 19.2.2009 - demand of additional duty along with interest from the date of clearance not be recovered from it on the materials imported under various bills of entry as per N/N. 40 of 2006 as amended by condition (iiia) of N/N. 17 of 2009 Customs along with penalty u/s 114-A of the CA 1962 - demand on the ground that the petitioner had not declared at the time of clearance of the goods. Held that - The Foreign Trade Policy for the period 2004 2009 extended a duty free import authorisation allowing duty free imports of inputs used in the manufacture of products for export. The scheme came into force from 01.05.2006. Para 4.4.7 of the scheme as it originally stood stipulated that CENVAT Credit Facility was available for the inputs either imported or procured indigenously against the DFIA. While this is so an amendment was brought in vide Finance No.2 Finance Act (2) dated 19.08.2009 as per which DFIAs issued between the period 01.05.2006 to 31.03.2007 attracted payment of additional customs duty/excise duty with effect from 01.05.2006 if the additional condition set out in the proviso was not complied with. The condition imposed vide the amending Notification is incapable of satisfaction retrospectively. The petitioner by virtue of the burden imposed under the amendment is required to have furnished the details relating to availment of duty by the transferor of the scrip at the original instance. Apart from being practically unworkable the amendment imposes a condition that nullifies a right that vested in the petitioner and creates a burden that the petitioner would be incapable of discharging. While the satisfaction of the condition post date of Notification is mandatory and accepted to be so by the petitioner we agree that the retrospective application of the same is liable to be interfered with. In our view condition (iii)(a) imposed in Notification 17 of 2009 must be read to have been enacted from and with effect from 19.2.2009 only. The amendment applied retrospectively would no doubt destroy the vested right of the petitioner and substantively so. The Supreme Court has consistently upheld the position that any amendment should seek to correct an error that was contained in the original enactment. In the circumstances of the present case the error can be corrected only prospectively and retrospective application of the amendment would not stand the test of law. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Constitutionality of Section 93 of the Finance Act, 2009.
2. Retrospective application of Notification No. 17 of 2009.
3. Imposition of additional duty and interest.
4. Suppression of CENVAT credit availment.
5. Competence of legislature to enact retrospective fiscal legislation.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 93 of the Finance Act, 2009:
The petitioners challenged the constitutionality of Section 93 of the Finance Act, 2009, claiming it was ultra vires the Foreign Trade (Development) Act, 1992, the Foreign Trade Policy, the Customs Act, 1962, and the Constitution of India. The court, however, focused on the retrospective application of Notification No. 17 of 2009 rather than the constitutionality of Section 93 itself.

2. Retrospective Application of Notification No. 17 of 2009:
The petitioners argued against the retrospective application of Notification No. 17 of 2009, which amended Notification No. 40/2006-Cus. The court considered the retrospective imposition of conditions under the notification, which required importers to pay additional duty if CENVAT credit had been availed by the original license holders. The court cited several judgments, including J.K. Spinning and Weaving Mills Limited v. UOI and Jayam & Co. v. Assistant Commissioner, emphasizing that retrospective amendments should not impose unforeseen, unworkable, and confiscatory burdens. The court concluded that the retrospective application of the notification was unworkable and nullified vested rights, thus should only be effective from 19.02.2009 onwards.

3. Imposition of Additional Duty and Interest:
The Additional Commissioner of Customs issued show cause notices demanding additional duty and interest from the petitioners, alleging suppression of CENVAT credit availment by the original license holders. Orders-in-original confirmed these demands, which were upheld by the Commissioner (Appeals) due to non-compliance with pre-deposit conditions. The court found that the retrospective imposition of additional duty was unjustifiable and interfered with vested rights.

4. Suppression of CENVAT Credit Availment:
The respondents contended that the petitioners suppressed the fact that CENVAT credit had been availed by the original license holders. The court noted that the burden of proving such suppression lay with the department. The court found that the retrospective application of the notification, which required the petitioners to furnish details of CENVAT credit availment by the original license holders, was practically unworkable.

5. Competence of Legislature to Enact Retrospective Fiscal Legislation:
The court acknowledged the legislature's power to enact retrospective fiscal legislation but emphasized that such legislation should not be unduly oppressive or confiscatory. The court referred to judgments like R.C. Tobacco Pvt Ltd v. UOI and CIT v. Vatika Township Pvt Ltd, which laid down principles for testing the validity of retrospective fiscal laws. The court concluded that the retrospective application of Notification No. 17 of 2009 failed these tests and was thus invalid.

Conclusion:
The court allowed the writ petitions to the extent that Notification No. 17 of 2009 could not be applied retrospectively. The condition imposed by the notification was held to be effective only from 19.02.2009 onwards. The retrospective imposition of additional duty and interest was set aside, and the connected miscellaneous petitions were closed.