2016 (10) TMI 379 - HC - Customs

FTP 2009-14 - Sec. 5 of the Foreign Trade (Development Regulation) Act, 1992 - denial of exemption of additional customs duty - extension of validity period of DFIA licences - transferibility of DFIA licences on fulfillment of export obligation - whether DGFT was justified in withdrawing the benefit of exemption from payment of additional customs duty in respect of 13 DFIAs? - inordinate delay in endorsing transferability - principles of natural justice - availability of cenvat credit - eligibility of benefit of exemption when the manufacturers avail the cenvat credit and not the assessee - interpretation of statute which provides benefit of exemption and CENVAT credit. Held that - It is trite law that in interpreting a taxing provision of law, if two interpretations are possible, the one that favours the assessee must be preferred. If on the basis of a provision of law, an authority imposes a liability on a citizen or proposes to withdraw a benefit already granted, that provision of law must be strictly interpreted against the authority and so far as possible in favour of a party who would be affected by the imposition of liability or withdrawal of benefit. Authorities for this proposition are legion. The idea of such exemption is to give an incentive to exporters to boost exports which in turn enhances the foreign exchange reserve of the country. If such exporter has not availed of the Cenvat facility, then it cannot be deprived of the benefit of exemption from payment of additional customs duty just because the manufacturer of the export product has availed of the Cenvat facility. That would, in my opinion, be contrary to the spirit and intent of the Policy. It is not disputed that SESA has purchased the export goods upon full payment of excise duty and in any event, the question of double benefit can arise only if the same entity avails of the same benefit twice. Such is not the case here. The manufacturer of the export products and SESA are two distinct entities and any Cenvat facility availed of by the manufacturer cannot be said to be a benefit reaped by SESA. The direction of DGFT Authorities on the Customs Authorities not to allow exemption of additional customs duty to SESA or to the transferees of the licenses in question is erroneous and not sustainable. Before depriving or divesting a citizen of valuable property, the State or a statutory authority must give an adequate and meaningful opportunity of hearing to that party. It is settled law that any order passed or action taken by any party in breach of an order of court is illegal. Such order or action can neither impose a liability on a party nor withdraw a benefit which had been extended to the party earlier. The respondent authorities directed to suitably extend the validity of the DFIA licences in question. Such extension should be for a reasonable period, for a period of not less than 3 months from the date of extension - petition disposed off - decided in favor of petitioner.

Summary

Issues Involved:
1. Validity of the order dated 20 November 2014 directing submission of DFIA licenses.
2. Validity of the order dated 12 December 2014 withdrawing exemption from additional customs duty.
3. Entitlement of a merchant exporter to exemption from additional customs duty under the DFIA scheme.
4. Alleged violation of principles of natural justice.
5. Impact of availing Cenvat credit by supporting manufacturers on the merchant exporter’s entitlement to exemption.
6. Retrospective application of policy changes.
7. Extension of the validity period of DFIA licenses.

Issue-wise Detailed Analysis:

1. Validity of the order dated 20 November 2014 directing submission of DFIA licenses:
The court noted that the order dated 20 November 2014 was a step towards the proposed action of withdrawing the exemption from additional customs duty, which was finalized by the order dated 12 December 2014. Therefore, the first writ petition challenging the 20 November 2014 order became insignificant if the second writ petition succeeded.

2. Validity of the order dated 12 December 2014 withdrawing exemption from additional customs duty:
The court emphasized that the withdrawal of exemption from additional customs duty was done without giving the petitioner an opportunity to be heard, violating principles of natural justice. The court held that any order passed in violation of natural justice is void and non-est in law. The order was also passed in violation of the court's status quo order dated 3 December 2014, making it illegal.

3. Entitlement of a merchant exporter to exemption from additional customs duty under the DFIA scheme:
The court held that Clause 4.2.6 (c) of the Policy envisages the benefit of exemption from additional customs duty for the party in whose favor the DFIA license was issued and who has not availed of Cenvat facility. The clause does not distinguish between a party who refrained from availing Cenvat and a party who was not entitled to it. The court favored the interpretation that benefits the assessee, as per established legal principles.

4. Alleged violation of principles of natural justice:
The court reiterated the importance of the principles of natural justice, emphasizing that no order affecting a party adversely can be passed without giving an opportunity of hearing. The orders dated 20 November 2014 and 12 December 2014 were passed without such an opportunity, making them void ab initio.

5. Impact of availing Cenvat credit by supporting manufacturers on the merchant exporter’s entitlement to exemption:
The court disagreed with the DGFT's contention that availing Cenvat credit by the supporting manufacturers disqualified the merchant exporter from exemption. It held that the Policy intended to benefit the license holder who did not avail of Cenvat, regardless of whether the supporting manufacturer did.

6. Retrospective application of policy changes:
The court noted that the current Policy for 2015-2020 changed definitions and conditions for DFIA validity and transferability, but these changes could not be applied retrospectively to affect the petitioner's rights under the 2009-2014 Policy.

7. Extension of the validity period of DFIA licenses:
The court directed the respondent authorities to extend the validity of the DFIA licenses in question for a reasonable period, not less than three months from the date of extension, due to the obstructions created by the DGFT authorities during the licenses' validity period.

Conclusion:
The court quashed the orders dated 20 November 2014 and 12 December 2014, directed the extension of the validity of the DFIA licenses, and emphasized adherence to principles of natural justice and proper interpretation of the Policy favoring the assessee.