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TMI Blog2014 (4) TMI 982X X X X Extracts X X X X X X X X Extracts X X X X ..... dary textiles materials – Held That:- Clause (7) provides that the activities pertaining to reprocessing of garments/used clothings/secondary textiles materials, etc., will not be allowed under EOU/SEZ schemes - Such restrictions are not invalid or unauthorized - The source and origin of power for imposing such conditions have been traced - It would be improper to suggest that such conditions could not have been imposed altogether and that the applications would be governed merely by the Act of 1992 and the Foreign Trade policy promulgated by the Government of India - It was in terms of such powers flowing from para 2.4 of the Foreign Trade Policy : 20092014 that such Handbook of Procedures alongwith Annexures was published - This Court has referred to this position from the Foreign Trade Policy and the Handbook published by the DGFT which are currently applicable - The same position would obtain for the earlier period under similar circumstances. Could such policy be applied to the existing units – Held That:- Assessees were granted LoP in the year 1997, when such restriction was not existing - Such restriction was applied for the first time in the Policy with effect from 1st S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has power to evolve its new fiscal policy in public interest which includes its power to withdraw the old policy - This Court has based the EOU and SEZ units on the same platform in this context because as per the earlier Government policy, in case of both the units, restriction for import of worn or used clothings, etc. was commonly applied - In a period post 13th September 2013 when the Government policy clearly restricts such activities at the hands of EOU units but continues to recognize the same for SEZ units on stricter and more stringent conditions. Could the validity of LoP be curtailed – Held That:- Answer is to be in the negative - After granting LoP in the year 1997, the same was extended from time to time - When this extension was granted on 25th May 2005, the change in policy had already been brought into effect despite which, for the reasons best known to the respondents, extension for a period of five years was granted - Even after completion of these five years, fresh extension was granted by an order dated 29th November 2010 - Thus, being fully aware of the limitations of the new policy, two extensions were granted - By the last extension, the period or LoP was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 8th October 2013 by which the Board refused to accept the petitioners' representation to withdraw the restrictions on the LOP. The petitioners have also challenged para 7 of Appendix 14IC of the Exim policy as being ultra vires Articles 14, 19(1)(g) of the Constitution of India. There are consequential prayers but all revolve around these main two challenges. 2. Facts in brief are as under : 2.1 The petitioner No. 1 is a company registered under the Companies Act, 1956. The petitioner No. 2 is its Chairman and Managing Director. The petitioners are engaged in the business of manufacture of textile products like fibers and clips and are recognized as 100% Export Oriented Undertaking [ EOU for short]. 2.2 On 1st October 1997, the Government of India granted LOP to the petitioners which was subject to the conditions contained in such letter as well as in a separate annexure annexed to the LOP. Some of the relevant conditions were that the unit would export its entire production in the domestic tariff area as per the provisions of Export and Import policy for a period of five years. At the end of such period, the unit would have an option either to seek renewal of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonal hearing to the petitioners. 4. The petitioners appeared before the Board, made a representation as well as filed detailed written submissions, as also appeared in person. In the written submissions dated 15th July 2013, they raised several contentions with respect to legality of the action of the respondents to restrict the period of validity of the LoP. The Board of Approval, however, by the impugned order dated 8th October 2013, rejected such representation holding that worn clothing and other worn articles is a restricted product. While considering the proposal of one Ms. Prayas Woolens for extension of validity of LoP, who was also engaged in the similar activities, in addition to rejecting such request, the Board had directed that validity of LoP in respect of all similar units should be limited upto 31st March 2013. It was further observed as under :- 7. The unit made its representation before the BOA vide its letter dated 15.07.2013. The unit was, accordingly, asked to appear before the BOA for EOUs during its 4th meeting (2013) held on 30.08.2013. Representatives of the unit Shri Surendra Goel, Managing Director and Shri Deepak Goel, Director appeared before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be violative of Articles 14 and 19 (1)(g) of the Constitution of India. 4.2 It was also contended that such policy was not implemented in case of units situated in SEZ areas. 4.3 In any case, once the extension was granted till 23rd October 2015, the same could not have been curtailed under any circumstances. That too on the basis of a policy which was prevalent when the extension was granted. It was submitted that on the basis of the permission granted by the respondents, the petitioners have made sizeable investments, undertaken serious commitments, doubled the manpower, machinery and have made imports. Sudden restriction on the validity of the LoP would seriously harm the petitioners' economic interests. The petitioners having undertaken such serious commitments on the basis of the period of validity of the LoP, any curtailment therein would be hit by the principle of promissory estoppel. In this respect, reference was made to several decisions to which we would refer to at a later stage. 5. On the other hand, learned Assistant Solicitor General Shri Saiyed opposed the petition. Relying on the contents of the impugned order of the Board of Approval and the aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Foreign Trade Policy and provides that the Central Government may, from time to time, formulate and announce, by notification in the Official Gazette, the foreign trade policy and may also, in like manner, amend that policy. Section 6 pertains to appointment of Director General and his functions. Subsection (3) thereof empowers the Central Government to direct that any power exercisable by the Government of India under the Act, other than those under Sections 3, 5, 15, 16 and 19 may also be exercised in such cases and subject to such conditions, as may be specified, by the Director General or the officer subordinate to him. 8. In exercise of power under section 5 of the Act of 1992, the Central Government notified the Foreign Trade Policy, 20092014, which came into effect from 27th August 2009. Para 1.2 of the said Policy provides that it shall come into force with effect from 27th August 2009 and shall remain in force upto 31st March 2014, unless otherwise specified. Chapter 2 of the said policy contains general provisions regarding imports and exports. Para 2.4 pertaining to the procedure reads as under: 2.4 Procedure - DGFT may specify procedure to be followed by an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der provisions of FT (D R) Act and Rules and Orders made thereunder, without prejudice to action under any other law/rules and cancellation or revocation of LoP/LoI/IL. 10. In exercise of powers conferred under para 4.2 of the Foreign Trade Policy, 20092014, DGFT notified the Handbook of Procedures and the Appendices with such Handbook which would come into effect from 5th June 2012. Appendix 14IC thereof pertains to sector specific requirements for Export Oriented Units. Para 7 of the said Appendix pertains to textiles and reads as under : [7] Textiles : Activities pertaining to reprocessing of garments/used clothing/secondary textiles materials/ clipping/rags/industrial wipers/shoddy wool/yarn/ blankets shawls and other recyclable textile materials will not be allowed under EOU schemes. 11. We have referred to above literature from the policy which is currently prevailing. We may, however, notice that the similar provisions were contained in earlier Handbooks also which was made effective from 1st September 2004. Here also, in Appendix 14IC to the Handbook, with reference to Textiles at para 7, it was provided that activities pertaining to reprocessing of garments/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the source and origin of power for imposing such conditions. Any one desirous of setting up a unit under EOU/SEZ scheme, therefore, had to fulfill such conditions. It would be improper to suggest that such conditions could not have been imposed altogether and that the applications would be governed merely by the Act of 1992 and the Foreign Trade policy promulgated by the Government of India. To implement the purpose of Foreign Trade policy, DGFT was authorized to issue procedures and directives. It was in terms of such powers flowing from para 2.4 of the Foreign Trade Policy : 20092014 that such Handbook of Procedures alongwith Annexures was published. 14. We have referred to this position from the Foreign Trade Policy and the Handbook published by the DGFT which are currently applicable. The same position would obtain for the earlier period under similar circumstances. It would be, therefore, not be necessary to refer to such provisions and to duplicate our arguments in this respect. 15. The next question is could such policy be applied to the existing units. We may recall that the petitioners were granted LoP in the year 1997, when admittedly such restriction was not exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..the intention of the Government is that the unit who are engaged in the reprocessing and second hand textiles materials should not import any consignment of unmutilated clothing in India in the name of reprocessing that is why the Government has imposed such restriction in Customs Rules and Regulations. 17. We notice that a letter dated 17th September 2013 of the Director, SEZ Division, Government of India contains a policy to regulate functioning of worn and used clothing units in SEZs, in which, regarding reprocessing of used garments, detailed provisions have been made. While still permitting SEZ units to deal in such used garments for manufacture of yarn for export, strict conditions have been laid down. In the context of permitting such imports to SEZ units, in the affidavitinreply, it is contended that such policy is exclusively for SEZ units and not for those situated outside SEZ areas. Such units are situated in a demarked area which is surrounded by high walls, operating in SEZ areas under constant watch and monitoring by the Governmental agencies. On such basis, the differentiation for SEZ units and units under EOU scheme is made. 17.1 When the purpose of change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther period of five years. When this extension was granted on 25th May 2005, the change in policy had already been brought into effect despite which, for the reasons best known to the respondents, extension for a period of five years was granted. Even after completion of these five years, fresh extension was granted by an order dated 29th November 2010. Thus, being fully aware of the limitations of the new policy, two extensions were granted. By the last extension, the period or LoP was extended upto 23rd October 2015. 19.2 It was only while examining extension application of another unit engaged in the same activity that the Board of Approval suddenly wokeup to an idea that several other units carrying out same activity, extension has been granted despite change in the policy. At one stage, therefore, unilaterally and without hearing the petitioners and other similarly situated units, BoA terminated their LoPs. When the High Court quashed such order and placed the matter back before the BoA, in the fresh round after hearing the petitioners, such termination was made effective w.e.f 30th September 2013. 19.3 The petitioners had raised detailed submissions before the Board of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long term contracts with various overseas buyers for selling and supplying clips and fibers and the petitioner company would be liable for damages for non performance of contractual obligations if the EOU is not allowed to operate any longer. The petitioner company has also embarked upon expansion of activities in as much as the manufacturing of yarns is also proposed to be undertaken in the EOU though manufacturing only till clips and fiber stage is undertaken presently. Fibers are a raw materials for Yarns and the petitioner company has therefore envisaged the project for manufacture of yarns in the existing EOU by using Fibers produced out of worn clothing and this activity would ad value to the products that the petitioners would be exporting from EOU. Plant and machinery as well as equipments for manufacturing yarns have been ordered, part payments for such plant, machinery and equipment have also been made and certain equipments and machinery have already been imported by the petitioner company and they are in process of being installed in the factory. A separate set of buildings and sheds is also constructed by the petitioner company for this plant meant for Yarns. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the consumers located in African countries like Ethiopia, Zambia etc. also produce Yarns and other textile materials from the clips and fibers produced from the petitioner company for being sold in European and American continents; and there is also no big market of such clips and fibers in India that the entire production of the petitioner company could be sold. There are a few other manufacturing units in the petitioner's group which procure clips and fibers from the petitioner company for utilizing them in relation to manufacture of goods like Yarns and also blankets for being sold to Red Cross and such other international agencies, and closure of the petitioner's EOU activities would therefore adversely affect such other manufacturers and their operations also thereby resulting in further unemployment and also further loss of foreign exchange earnings. However, if the petitioner's activities are not curtailed, then the Yarn manufacturing facilities proposed to be implemented would create opportunities for further employment and higher foreign exchange earnings also because of requirements of more workers for producing Yarns and higher value of Yarns in the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or intending that it would be acted on by the promise and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. It is elementary that in a republic governed by the rule of law, no one, howsoever high or law, is above the law. Everyone is subject to the law as fully and completely as any other and the Government is no exception. It is indeed the pride of constitutional demoncracy and rule of law that the Government stands on the same footing as a private individual so far as the obligation of the law is concerned : the former is equally bound as the latter. It is indeed difficult to see on what principle can a Government, committed to the rule of law, claim immunity from the doctrine of promissory estoppel. Can the Government say that it is under no obligation to act in a manner that is fair and just or that the Government not be held to a high standa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sification or modernization. Acting on such incentives, the petitioner approached the Government of Kerala with a proposal to make substantial expansion and diversification for its industrial unit. An MOU was signed by petitioner and the State of Kerala which indicated that upon expansion/diversification of its existing industrial unit, the petitioner would be entitled to tax exemptions. Pursuant to the MOU, the petitioner also invested nearly 80 crores for substantial expansion of its existing industrial unit and also for setting up of a new unit. The commercial production also commenced shortly thereafter. The State of Kerala thereafter issued notification withdrawing the tax exemptions w.e.f 1st January 2000. Based on such withdrawal, the petitioner received a notice from the Sales Tax department of the State for denying the exemptions claimed by the petitioner. It was on this basis that the Supreme Court discussed the law on the issue of promissory estoppel and held and observed as under :- 39. MRF made a huge investment in the State of Kerala under a promise held to it that it would be granted exemption from payment of sale tax for a period of seven years. It was granted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court striking down the withdrawal of the part of concession by observing as under : 20. In this 21st century, when there is global economy, the question of faith is very important. Government offers certain benefits to attract the entrepreneurs and the entrepreneurs act on those beneficial offers. Thereafter, the Government withdraws those benefits. This will seriously affect the credibility of the Government and would show the shortsightedness of the governance. Therefore, in order to keep the faith of the people, the Government or its instrumentality should abide by their commitments. In this context, the action taken by the appellantCorporation in revoking the benefits given to the entrepreneurs in the hill areas will sadly reflect their credibility and people will not take the word of the Government. That will shake the faith of the people in the governance. Therefore, in order to keep the faith and maintain good governance it is necessary that whatever representation is made by the Government or its instrumentality which induces the other party to act, the Government should not be permitted to withdraw from that. This is a matter of faith. 21. Therefore, as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he activity would require import of used clothes, extracting yarn from such clothes and reexporting such yarn. This would not only require fine tunning of import of the raw materials, having export orders on hand but also require executing the order which would require deployment of manpower and machineries. It is pointed out that for such purpose, the petitioners had made substantial investments and also employs on regular basis hundredths of the workers many of them are women workers. Such prospective planning would require not only capital investment but also engaging manpower on permanent or semipermanent basis. When such investment, expansion of the facilities for manufacturing and deployment of manpower is based on a licence extended at a time for a period of five years, its abrupt curtailment without there being any change in policy or any public interest involved in doing so, would be hit by the principle of promissory estoppel. In the present case, the only excuse offered for curtailment of the period is that though the policy had already changed years back, in the year 2004, the same was not implemented with any rigour. When two extensions were granted to the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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