2020 (9) TMI 389 - HC - Customs

Extension / renewal of the letter of approval - Rule 18(4)(d) of the Special Economic Zones Rules, 2006 - Whether the Board of Approval could have rejected the application for renewal / extension of letter of approval filed by the petitioners without giving any opportunity of hearing to the petitioners or not? - whether the order passed by the Board of Approval on the basis of the proceeding initiated in the year 2005 against the petitioners for not achieving the positive Net Foreign Exchange Earnings would be relevant factor for rejecting the application for renewal filed by the petitioners while exercising powers under Rule 18(4) of the SEZ Rules, 2006? HELD THAT - It is not in dispute that no opportunity of being heard was afforded to the petitioners before taking decision in the 89th Meeting of the Board of Approval held on 22nd April 2019. We are, therefore, of the view that the decision on the renewal / extension of the letter of approval, which has a consequential effect of cancelling letter of approval, is in breach of the Section 16 of the SEZ Act, 2005 - the petition is required to be allowed only on this ground, without expressing any opinion on merits, by quashing and setting aside the decision taken by the Board of Approval in the 89th Meeting held on 22nd April 2019 qua the petitioners with a direction to reconsider the case of the petitioners after giving reasonable opportunity of hearing so as to adhere to the principles of natural justice. Matter remanded back to the Board of Approval to reconsider the application filed by the petitioners for renewal / extension of letter of approval, which was renewed on 2nd April 2014 and extended up to 2nd April 2019, after giving adequate opportunity of hearing to the petitioners - appeal allowed by way of remand.

Issues Involved:
1. Whether the Board of Approval (BoA) could reject the application for renewal/extension of the Letter of Approval (LoA) without giving an opportunity of hearing to the petitioners.
2. Whether the rejection of the application based on past violations and failure to achieve positive Net Foreign Exchange (NFE) was justified.
3. The applicability of Rule 80 of the SEZ Rules, 2006, and its prospective operation.

Issue-wise Detailed Analysis:

1. Opportunity of Hearing:
The petitioners argued that the BoA rejected their application for renewal/extension of the LoA without giving them an opportunity of hearing, which constitutes a breach of the principles of natural justice. The court noted that Section 16 of the SEZ Act, 2005 requires that no letter of approval shall be canceled unless the entrepreneur has been afforded a reasonable opportunity of being heard. The court found that the BoA's decision to reject the application in its 89th meeting on 22nd April 2019, without giving the petitioners a hearing, was in violation of Section 16 of the SEZ Act, 2005. Consequently, the court held that the decision was in breach of the principles of natural justice and required the BoA to reconsider the case after giving the petitioners a reasonable opportunity of hearing.

2. Justification for Rejection Based on Past Violations and NFE:
The BoA rejected the application citing past violations, including an instance of violation of the Customs Act in 2005 and consistent failure to achieve positive NFE during the periods 2005-2010 and 2014-2019. The petitioners contended that these issues were sub judice and that their applications for renewal were previously allowed despite these pending issues. The court observed that the BoA's decision to reject the renewal/extension based on past violations and NFE issues was not consistent with the approvals granted in the past. The court also noted that the petitioners had deposited an amount equal to 1% of the shortfall in NFE as per Rule 80 of the SEZ Rules, 2006, which regularized the unintentional lapse.

3. Applicability of Rule 80 of the SEZ Rules, 2006:
The respondents argued that Rule 80, which allows for the regulation of shortfall in NFE by depositing an amount equal to 1% of the shortfall, was inserted on 19th September 2018 and would apply prospectively. The court noted that the BoA's decision did not consider the prospective application of Rule 80 and its impact on the petitioners' compliance. The court held that the BoA should reconsider the application in light of Rule 80 and its prospective operation.

Conclusion:
The court allowed the petition on the ground that the BoA's decision was made without giving the petitioners an opportunity of hearing, thus violating the principles of natural justice. The court quashed and set aside the BoA's decision taken in the 89th meeting held on 22nd April 2019 and remanded the matter back to the BoA to reconsider the application for renewal/extension of the LoA after giving the petitioners a reasonable opportunity of hearing. The BoA was directed to complete this exercise within three months from the date of receipt of the court's order. The rule was made absolute to this extent, with no order as to costs.

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