2023 (2) TMI 1101 - HC - Customs

Entitlement for Duty Credit Scrips under the Merchandise Exports from India Scheme (MEIS) - pure export - case of export within India from Domestic Traffic Area (DTA) unit to Special Economic Zone (SEZ)/ Free Trade Warehouse Zone (FTWZ) unit located in India or not - HELD THAT - A perusal of the FTP would show that the same is meant for providing incentives for manufacture and export of goods from India. The exports made under this policy are to be rewarded, by issuance of MEIS scrips which can be encashed for exports, against custom duty which would be payable for future imports. The clauses of the MEIS came upon consideration before the Hon ble Madras High Court, in Jindal Drugs 2021 (7) TMI 1034 - MADRAS HIGH COURT wherein the Petitioner - Jindal Drugs Pvt. Ltd. was involved in export to Ireland. In the said transaction, DHL logistics in Chennai was used as logistics support. In the context of the said facts, the ld. Single Judge of the Hon ble Madras High Court held that DHL logistics, the FTWZ, merely offers a facility to the petitioner to warehouse its consignments that are to be exported. The destination is decided by UTEXAM, which is the ultimate purchaser, which has paid the petitioner in USD for the consignment. The stipulation in Clause (vii) deals with exports made by a unit in the FTWZ. DHL, the FTWZ does not export the consignments but only facilitates such exports. The exports are thus, by the petitioner through DHL to a destination abroad. In the present case, the decision of Jindal Drugs would be clearly applicable. The company i.e. M/s Siddhartha Logistics is merely a FTWZ logistics company located in Andhra Pradesh. The said company was involved neither in the manufacture of the products nor the entire sale transaction. It was merely providing logistical support to enable the shipment move within India and ultimately to the French customer i.e. Dedienne Aerospace. Further, it is also noticed that M/s Siddhartha Logistics has already issued its no objection giving consent to the Petitioner to claim the drawback benefits. The documents, which have been placed on record, leave no manner of doubt that the case of the Petitioner is clearly covered by the FTP, which has been extracted above. None of the exclusionary clauses would be applicable. The Petitioner was rightly issued the MEIS scrips. However, due to inexplicable reasons, the same was sought to be cancelled leading this long protracted litigation between the parties. The cancellation of MEIS scrips was done on 14th July, 2021 leading to the show cause notice proceedings, thereafter proceedings before the Appellate Authority of DGFT and also two writ petitions before this Court. In this entire process, the Respondents failed to take into consideration the decision in Jindal Drugs. All these proceedings could have been easily avoided if the Respondents had taken into consideration the said judgment, which was binding upon it. The action of the Respondent cancelling the MEIS scrips is also set aside. The Respondent is directed to revalidate the MEIS scrips which were granted to the Petitioner so as to enable the Petitioner to encash the same in its usual course of business - Petition allowed.

Summary

Issues Involved:
1. Quashing of impugned orders and show cause notice.
2. Entitlement to Duty Credit Scrips (MEIS Scrip) under the Merchandise Exports from India Scheme.
3. Interpretation and application of the Foreign Trade Policy (FTP) clauses.
4. Consideration of precedents from other High Courts.

Issue-wise Detailed Analysis:

1. Quashing of Impugned Orders and Show Cause Notice:
The Petitioner sought quashing of the impugned orders dated 31st January 2022 and 17th September 2021, as well as the show cause notice dated 14th July 2021. The Petitioner argued that these orders were issued without proper consideration of the relevant facts and legal precedents. The Respondent had issued the show cause notice and subsequent orders on the suspicion that the transaction was a domestic supply rather than an international export, thus making the Petitioner ineligible for MEIS scrips.

2. Entitlement to Duty Credit Scrips (MEIS Scrip) under the Merchandise Exports from India Scheme:
The Petitioner, engaged in the maintenance, repair, and overhaul of aircraft assemblies, received a purchase order from Dedienne Aerospace, France, and exported goods through Siddhartha Logistics Co. Pvt. Ltd. The Petitioner received the total consideration in foreign exchange, confirmed by certificates of foreign inward remittance. The Petitioner argued that under the FTP (2015-2020), they were entitled to MEIS scrips, which were initially granted but later cancelled by the Respondent. The Petitioner contended that Siddhartha Logistics was merely a logistics provider and not involved in the sale transaction, thus not falling under the ineligible categories listed in FTP clause 3.06.

3. Interpretation and Application of the Foreign Trade Policy (FTP) Clauses:
The Petitioner relied on clauses 3.02, 3.03, and 3.06 of the FTP to argue their eligibility for MEIS scrips. The Respondent, however, contended that the Petitioner was ineligible under clauses 3.06(i) and (vii) of the FTP, which exclude supplies from DTA units to SEZ units and exports made by units in FTWZ. The Court noted that the FTP aims to incentivize the manufacture and export of goods from India, and the Petitioner's transaction was a pure export, not a domestic supply to an SEZ/FTWZ.

4. Consideration of Precedents from Other High Courts:
The Petitioner cited the judgments of the Madras High Court in Jindal Drugs Pvt. Ltd. v. Union of India and the Bombay High Court in M/s Ashwini Ashish Dighe v. Union of India. In Jindal Drugs, the Court held that logistics providers merely offering warehousing facilities do not disqualify the exporter from MEIS benefits. Similarly, in Ashwini Ashish Dighe, the Court emphasized the need for documentary evidence to substantiate the nature of the transaction. The Delhi High Court found these precedents applicable, as Siddhartha Logistics was only providing logistical support, and the actual export was to Dedienne Aerospace in France.

Judgment:
The Court concluded that the Petitioner was entitled to MEIS scrips and that the cancellation of the scrips was unjustified. The impugned orders dated 17th September 2021 and 31st January 2022, along with the show cause notice dated 14th July 2021, were set aside. The Respondent was directed to revalidate the MEIS scrips, allowing the Petitioner to encash them in the usual course of business. The Court emphasized that the Respondents should have considered the binding precedent set by the Jindal Drugs case, which would have avoided the prolonged litigation. The petition was allowed, and all pending applications were disposed of accordingly.