2022 (4) TMI 1046 - HC - Customs

EPCG scheme - breach of principles of promissory estoppel - Constitutional Validity of circular - retrospective application of the Circular - vires of Para 5.01(g) of the Foreign Trade Policy 2015-20/Foreign Trade Policy 2009-14 read with the provisions and scheme of the Electricity Act - direction to Respondents to forthwith return/issue EPCG licenses and invalidation letters surrendered by the Petitioners. Whether the policy circular dated 4th January 2019 is only in the nature of clarification so as to have retrospective effect or whether it introduces a new substantive condition in the EPCG scheme which can if at all operate only prospectively? - HELD THAT - It is not in dispute that the para 5.01(g) of the EPCG scheme which was introduced w.e.f. 18th April 2013 only used the term transmission in the prohibited list of activities. Thereafter by a specific amendment dated 29th January 2016 the generation of electricity was also brought within the ambit of negative list of activities. Even then there was no reference to the distribution of electricity. Even in the Public Notice No. 47/2015-20 dated 6th December 2017 containing a list of capital goods prohibited under the EPCG scheme there was no reference to distribution of electricity - It was only in the impugned circular dated 4th January 2019 that for the first time reference was made to distribution of electricity and it was clarified that even distribution of electricity was debarred under the provisions of the EPCG scheme. It is apparent that transmission and distribution are separate activities for the purpose of the Electricity Act and they are distinctly understood by persons such as the writ applicants who are engaged in the business involving supply of electricity - It is well established by a series of judgements that the terms used in fiscal statute are to be interpreted as they would be interpreted by persons engaged in the relevant trade. It thus appears that even the Respondents at the relevant point of time believed that the EPCG licenses could be issued to the persons engaged in the distribution of electricity. Had the respondents raised objection to issuance of the EPCG licenses at the relevant point of time then the entire issue would not have arisen. Having granted the EPCG licenses to the writ applicants on the basis of their disclosure that the capital goods will be used in distribution of electricity the writ applicants cannot now be put to prejudice for the past transactions by issuing retrospective circular. Such retrospective circular apart from being legally fallacious as held herein before is also manifestly arbitrary and violative of Articles 14 and 19(1) (g) resply of the Constitution in so far as it operates retrospectively. The circular dated 4th January 2019 (annexed at Annexure A) issued by the Government of India is declared and held to be ultra vires Para 5.01(g) of the Foreign Trade Policy 2015- 20/Foreign Trade Policy 2009-14 read with the provisions and scheme of the Electricity Act. It is further declared that the retrospective operation of the circular dated 4th January 2019 is manifestly arbitrary and violative of Articles 14 and 19(1)(g) resply of the Constitution of India - Application allowed.

Summary

Issues Involved:
1. Validity of the policy circular dated 4th January 2019.
2. Retrospective operation of the policy circular.
3. Misdeclaration and imposition of penalty on the writ applicants.
4. Interpretation of "transmission" and "distribution" of electricity under the Foreign Trade Policy and the Electricity Act.
5. Return of EPCG licenses and bank guarantees.

Detailed Analysis:

1. Validity of the Policy Circular Dated 4th January 2019:
The writ applicants challenged the policy circular dated 4th January 2019, arguing that it introduced a new condition to the EPCG scheme under the guise of a clarification. They contended that the circular was arbitrary, mechanical, and illegal as it retrospectively added a prohibition on the distribution of electricity, which was not initially included in Para 5.01(g) of the Foreign Trade Policy.

2. Retrospective Operation of the Policy Circular:
The court analyzed whether the policy circular was a mere clarification with retrospective effect or if it introduced a new substantive condition in the EPCG scheme. It was noted that Para 5.01(g) initially only prohibited "transmission" of electricity. The circular dated 4th January 2019 for the first time mentioned "distribution" of electricity, which was not previously included. The court held that the circular imposed a new restriction and could not be considered a mere clarification. The retrospective operation of the circular was deemed arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution.

3. Misdeclaration and Imposition of Penalty:
The respondents argued that the writ applicants had given a misdeclaration regarding the use of capital goods, leading to the issuance of EPCG licenses based on false information. However, the court found that the writ applicants had made full disclosures about using the capital goods for electricity distribution. The EPCG licenses were granted with full knowledge of this fact, and thus, the allegation of misdeclaration was not accepted. The imposition of penalties based on the retrospective circular was considered arbitrary and illegal.

4. Interpretation of "Transmission" and "Distribution" of Electricity:
The court emphasized that "transmission" and "distribution" of electricity are distinct terms with separate meanings under the Electricity Act, 2003. These terms are separately defined and governed by different statutory provisions, requiring separate licenses. The court held that the impugned circular, which equated transmission and distribution, was invalid. The terms should be interpreted based on their technical and trade meanings, as established in various judgments cited by the court.

5. Return of EPCG Licenses and Bank Guarantees:
The court directed the respondents to return the bank guarantees furnished for the EPCG licenses already surrendered by the writ applicants. The writ applicants had stated that they were not pressing for the return of the surrendered EPCG licenses.

Conclusion:
The writ application was allowed, and the circular dated 4th January 2019 was declared ultra vires Para 5.01(g) of the Foreign Trade Policy and the provisions of the Electricity Act. The retrospective operation of the circular was found to be arbitrary and violative of constitutional rights. The respondents were directed to return the bank guarantees furnished by the writ applicants.