2017 (2) TMI 711 - HC - Customs

SEZ units - Worn and used clothing - withdrawal of the exemption - public interest - Effect of change in the policy dated 17.9.2013 - retrospective or prospective - entitlement of selling of un-mutilated worn clothing being export surplus and export rejects in DTA on payment of applicable duties - whether the petitioners should be allowed to sell in DTA their past accrued entitlement of un-mutilated clothing up to 15% of the imports made till 18.5.2010? Held that - Even in the policy dated 17.9.2013, the respondents have provided that the petitioners will be allowed to sell unmutilated worn clothes, being export surplus and export rejects on payment of applicable duty to the extent of 15% of FOB value of their exports. The unilateral withdrawal of 15% from retrospective effect may not be justified. This industry is providing large employment to unskilled workers in the local area and phasing them out will result in loss of employment of about 12,000 workers. One of the key motive of establishment of SEZ is to generate maximum employment, which would be defeated if their LOAs are not renewed. The worn clothing units of SEZ provide large employment, they fulfilled their NFEE requirement by way of exporting same products to the various countries outside India. The worn clothing imported is non-hazardous in nature, further import is fumigated at the origin to ensure that imported worn clothing is free from germs and they earn valuable foreign exchange for our country, thus there is no reason to impose extra conditions to regulate the functioning of the worn clothing units in SEZ that are over and above the provisions already provided in SEZ Act/ Rules. The authority has bye-passed the mandatory provisions and issued the impugned instructions against the prescribed law which was beyond their jurisdiction. Respondents are directed to allow the petitioners to clear their past accrued entitlement of DTA sales of un-mutilated worn clothing to the extent of 15% of their CIF value of imports made prior to 19.5.2010 and for unutilized DTA entitlement of un-mutilated worn clothing as on 19.5.2010, DTA entitlement quantity of un-mutilated worn clothing to be calculated as per the valuation norms as prevalent on 19.5.2010 on payment of applicable duties and taxes. Petition allowed - decided in favor of petitioner.

Issues Involved:
1. Validity of the policy dated 17.09.2013.
2. Retrospective applicability of the notification dated 19.05.2010.
3. Entitlement of past accrued benefits under the notification dated 30.03.2006.
4. Authority of the Board of Approval (BOA) to impose new conditions.
5. Allegations of discrimination against worn clothing units.
6. Health and safety concerns regarding worn clothing.
7. Promissory estoppel against the government.
8. Time-barred claims for past accrued entitlements.

Detailed Analysis:

1. Validity of the Policy Dated 17.09.2013:
The petitioners challenged the policy dated 17.09.2013, which imposed conditions on physical exports out of India. The court found that the definition of "exports" under Section 2(m) of the SEZ Act includes both physical and deemed exports. Rule 53 of SEZ Rules also supports this broader definition. The policy's requirement for phased physical exports was found inconsistent with the SEZ Act and Rules. The court held that the policy was unreasonable, arbitrary, and without authority of law, thus setting it aside.

2. Retrospective Applicability of the Notification Dated 19.05.2010:
The petitioners argued that the notification dated 19.05.2010, which deleted the provision allowing 15% DTA sales of un-mutilated worn clothing, should not have retrospective effect. The court agreed, stating that the notification does not explicitly have retrospective operation. The court emphasized that vested rights accrued under the previous notification cannot be taken away retrospectively.

3. Entitlement of Past Accrued Benefits Under the Notification Dated 30.03.2006:
The court held that the petitioners are entitled to their past accrued entitlement for DTA sales of un-mutilated worn clothing up to 15% of the CIF value of imports made prior to 19.05.2010. This entitlement was legally accrued and could not be retrospectively nullified. The court directed the respondents to allow these past entitlements within two months.

4. Authority of the Board of Approval (BOA) to Impose New Conditions:
The court found that the BOA does not have the authority to impose new conditions that are not prescribed by the SEZ Act or Rules. Any new conditions must be enacted through proper legislative amendments and laid before Parliament as required by Section 55(3) of the SEZ Act. The imposition of new conditions through the policy dated 17.09.2013 was deemed beyond the BOA's jurisdiction.

5. Allegations of Discrimination Against Worn Clothing Units:
The petitioners argued that the policy dated 17.09.2013 discriminated against worn clothing units by imposing additional conditions not applicable to other industries. The court found merit in this argument, noting that other SEZ units were not subjected to similar restrictions. This selective imposition was deemed discriminatory and unjustified.

6. Health and Safety Concerns Regarding Worn Clothing:
The respondents argued that worn clothing poses health hazards. However, the court noted that the Parliamentary Committee on Petitions found no substantial health risks, given that the clothing is fumigated before import. The court also highlighted the significant employment generated by the worn clothing industry, which would be adversely affected by stringent regulations.

7. Promissory Estoppel Against the Government:
The court applied the doctrine of promissory estoppel, holding that the government cannot retract from its earlier promise allowing 15% DTA sales of un-mutilated worn clothing. The court cited several judgments supporting the principle that vested rights cannot be taken away without due process.

8. Time-Barred Claims for Past Accrued Entitlements:
The court rejected the respondents' argument that the petitioners' claims were time-barred. It noted that the petitioners had made timely representations to the government, and the matter was under consideration by the Ministry of Commerce and Industry. The court found that the petitioners approached the court within a reasonable time frame.

Conclusion:
The court allowed the petitions, setting aside the policy dated 17.09.2013 and directing the respondents to amend the LOAs accordingly. The petitioners were granted their past accrued entitlements for DTA sales of un-mutilated worn clothing up to 15% of the CIF value of imports made prior to 19.05.2010. The court emphasized the importance of adhering to statutory provisions and the principle of promissory estoppel. The rule was made absolute with no order as to costs.

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