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TMI Blog2013 (11) TMI 1623X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard Mr. M.S. Singhvi, learned Senior Counsel assisted by Mr. Vineet Dave Mr. Dinesh Mehta for the petitioners and Mr. V.K. Mathur with Mr. Ankur Mathur, learned counsel for the respondents. 3. The competing pleaded versions would outline the essential facts. To limit the factual narration to the bare minimum, pleadings of D.B. Civil Writ Petition No. 5459/2012, being all encompassing, would be adverted to. 4. The petitioner has introduced itself to be a private limited company incorporated and registered under the Indian Companies Act, 1956 established for the purpose of setting up an industrial unit for manufacture of marble slabs, tiles and dressed marble blocks at Udaipur in the State of Rajasthan. It has averred that the Government of India, with a view to boost exports to capture greater share of global trade, had been formulating import and export policies from time to time. In furtherance of this objective, amongst others, a concept of Export Processing Zone (also referred to as EPZ ) was developed in the year 1965 and such zones were established at various places in the country. However, as this initiative could not achieve the expected growth of exports, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also the permission for manufacturing in Bond under Section 65 thereof, whereupon necessary permissions were granted to it by the concerned authorities. 7. According to the petitioner, it thereafter, having successfully functioned as an EOU for over a year and being inspired by the concessions extended to the EOU as well as the liberal policy of the Government of India, decided to expand its operations by making further investments. It thus, sought for necessary amendments in the LOP granted to it, so as to enable it to increase its manufacturing capacity of marble blocks/tiles. The permission so applied for, was granted by the competent authority on 22-1-2003, and based thereon, the petitioner enhanced its capacity by making huge investments in its business. On its application for inclusion of additional items for exports from time to time, the same came to be granted by the authorities concerned, last thereof being on 26-11-2008 permitting it to manufacture and export all types of dressed blocks of artificial stones, slabs and tiles made therefrom. The validity of such permission, as contained in this letter, was thereafter extended upto 31-3-2015, and the petitioner ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only. Being beset with this prejudicial administrative intervention, the petitioner, in D.B. Civil Writ Petition No. 10877/2009, assailed the validity of this circular seeking redress. By order dated 9-12-2009, this Court as an interim relief stayed the operation of the policy circular dated 26-3-2009 and permitted the petitioner to supply marble against foreign exchange remittances in the DTA on payment of leviable duty, subject however, to the condition that if ultimately, it was held liable to any other consequences, it would give an undertaking to suffer the same. The petitioner has claimed that in view of the supplies so permitted to be made and effected, it earned foreign exchange to the tune of ₹ 4498.39 lacs in USD, and thus, made contribution to the foreign exchange reserves and in addition also made payment of full duty to the extent of ₹ 562.23 lacs and ₹ 250.76 lacs as VAT/CST. The notification dated 7-5-2012 impugned in D.B. Civil Writ Petition No. 5459/2012 prohibiting thereby, supplies of marble in DTA under Paragraph 6.9(b) of FTP 2009-2014 came to be issued in this backdrop. 11. According to the petitioner, the adjudication in M/s. Hindustan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sserted that in terms of Paragraph 6.1 of FTP 2009-2014, the EOUs are under an obligation to export their entire production of goods and services, except the permissible sales in DTA. According to the answering respondents, Paragraphs 6.3(a) 6.8(h) of the FTP 2009-2014 deal with sale of goods at concessional rate of duty and at full payment of duty respectively, but do not permit DTA sale of marble. Reiterating that the prohibition of DTA sale of marble has since been upheld by the Hon ble Apex Court in M/s. Hindustan Granites (supra), they have pleaded that the interim orders passed by this Court permitting the petitioner to undertake DTA sales against foreign exchange remittances, are apparently conditional and do not vest it with any right in law to engage in such transactions in supersession of the relevant provisions of the FTP as well as the authority and right of the Central Government conferred by the Act to restrict and/or prohibit such sales in public interest. Vis-a-vis the circular dated 26-3-2009, as assailed in D.B. Civil Writ Petition No. 10877/2009, the respondents have averred that the same had been issued with the approval of the Director General of Foreign Trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determinants, the challenge is misplaced. 14. In its rejoinder, the petitioner while reiterating and reaffirming its averments, as outlined hereinabove, has denied the allegation of illegal sale of imported marble into DTA. While asserting that it is not at all involved in such illegal sale of imported marble, it has emphasized that on one hand, the Central Government had been increasing the quota of import of marble on regular basis to benefit a selected class of firms and on the other, had been imposing restrictions upon supplies of marble into DTA. According to it, classifying marble to be a restricted item is without any conceivable basis, and that, the restriction on the supply thereof into DTA, is also prompted by oblique considerations. It pleaded that it is involved in supplies of marble in domestic market at the instance of its foreign buyer, and that, no element of sale by it into DTA, in any manner, is involved. As such supplies are being effected for its foreign buyer who, as a matter of fact, is selling marble to its customers in India. Such transactions do not amount to sale in DTA. That the impugned decisions are mutilative of the underlying objective of the FTP t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is destructive of foreign trade prospects, and thus, being against national interest, is liable to be declared illegal and null and void, he argued. The learned senior counsel has insisted that the impugned action is partisan and discriminatory as well, inasmuch as, while on one hand, the Central Government had been enhancing the quota of import of rough marble blocks from time to time, on the other, it is throttling supplies of finished goods in DTA against foreign exchange remittances received from overseas. Dismissing the respondents plea of illegal sale of sub-standard finished marble products in DTA by the EOUs as wholly baseless, Mr. Singhvi has insisted that there being no valid justification for issuance of the impugned circular(s) and/or notification(s), the same ought to be held void ab initio. According to the learned senior counsel, the respondents purported justification of protecting the domestic industry is also frivolous, in the teeth of continual increase of the quota of import of rough marble blocks. As such marked enhancement of import quota not only demonstrates an inexplicable indulgence to the concerned importers to exercise monopoly and exploit the consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, in essence, complement to each other, Mr. Mathur has asserted that the restriction on the sale and supplies, amongst others, of marble by an EOU into DTA being an essentiality in the interest of domestic industry the impugned circulars/notifications are unassailable. 18. Mr. Mathur maintained that the restriction on the sale and supplies, amongst others, of marble by EOUs into DTA was warranted, having regard to the clandestine activities resulting in export of sub-standard finished products made of indigenous rough marble blocks against import of rough counterparts on one hand, and release of rich quality goods made out of imported rough marble blocks in the DTA on the other. Moreover, marble being a restricted item, the Central Government was well within its authority, having regard to the various factors e.g. development of domestic industry, economic growth and generation of employment in the country, in particular, to justifiably resort to the decision impugned, he urged. As the impugned action is in furtherance of a policy decision in public interest, this Court, even otherwise in exercise of its power of judicial review, ought to be loathe to interfere therewith, he as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in promoting the same, acknowledged goals of the new trade policy to increase productivity and competitiveness and to achieve a strong export performance. The existing Imports and Exports (Control) Act, 1947 was recommended to be replaced by the intended legislation with the notion that the basic law governing foreign trade must serve as an instrument to create an environment that would provide a strong impetus to exports, facilitate imports and render export activity more profitable. That the Exports and Import Policy is a vital part of trade policy, was highlighted as well. 25. For the purpose in hand, enough it would be to refer to Sections 3 5 of the Act. Whereas Section 3 empowers the Central Government to make provision for the development and regulation of foreign trade by facilitating imports and increasing exports the liberty to make provision for prohibition, restriction or regulation in all cases or in specified classes of cases, and subject to such exceptions, as may be made by or under the Order published in the Official Gazette, vide Section 5, it is authorized to formulate and announce, by notification in the Official Gazette, the foreign trade policy, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of powers conferred by Section 5 of FT(D R) Act. 2.1 Exports and Imports shall be free, except where regulated by FTP or any other law in force. The item wise export and import policy shall be, as specified in ITC(HS) notified by DGFT, as amended from time to time. 2.3 If any question or doubt arises in respect of interpretation of any provision contained in FTP, or classification of any item in ITC (HS) or HBP-v1 or HBP-v2, or Schedule of DEPB Rates (including content, scope or issue of an authorization there under) said question or doubt shall be referred to DGFT whose decision thereon shall be final and binding. 6.1 Units undertaking to export their entire production of goods and services (except permissible sales in DTA), may be set up under the Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme for manufacture of goods, including repair, re-making, reconditioning, re-engineering and rendering of services. Trading unit are not covered under these schemes. 6.2 (a) (b) An EOU/EHTP/STP/BTP unit may import and/or procure, from DTA or bonded warehouses in DTA/international ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2(g) of FT(D R) Act to import or export as per provisions of FTP. 28. A plain perusal of the above quoted provisions of the FTP 2009-2014 (also referred to as the Policy ) would attest that as ordained by the Act, the Central Government in public interest, may effect any amendment to the Policy. Further, the exports and imports, which otherwise are to be free, can be regulated by the Policy or any other law in force. The primacy of the FTP on these transactions is therefore, patently clear. Paragraph 2.3 acknowledges the Director General of Foreign Trade to be the ultimate authority in the matter of interpretation of any provision of the Policy. Chapter-6, which deals, amongst others, with EOUs, Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs), stipulates that the units intended to export their entire production of goods and services (except permissible sates in DTA) may be set up under the EOU Scheme for manufacture of goods, including repair, re-making, reconditioning, re-engineering and rendering of services. In the glossary of the terms applied in the Policy, EPZ/EOU has been defined. EPZ denotes Export Proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Exports has been denied in Paragraph 8.1 to refer to those transactions, in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange. 32. On a cumulative consideration of these provisions, it is thus, apparent that in terms of the EOU Scheme, the entire production of an EOU unit has to be obligatorily exported, except in the eventualities, as enumerated in clauses set out under Paragraphs 6.8 6.9, and subject as well, to the conditions regulating the same. Visibly, whereas Paragraph 6.8 comprehends DTA sale of finished products/rejects/waste/scrap/remnants and by-products by, amongst others, an EOU, Paragraph 6.9 relates to other supplies in DTA to be counted for fulfilment of positive NFE. Such supplies, to be permissible, are similarly subject to the covenants detailed in the respective sub-clause(s). 33. It would be expedient at this juncture to refer to the decision rendered by the Hon ble Apex Court in M/s. Hindustan Granites (supra), wherein the validity of the circular dated 30-8-2005 and the notification dated 31-8-2005 amending Paragraphs 6.8(a) (h) of the FTP 2004-2009, was under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arranting disallowance of DTA sales by 100% EOUs vide the impugned circular/notification. (c) Marble is a restricted item, and it had been detected by the Director General of Foreign Trade that 4% to 5%, 100% EOUs have been importing rough marble ostensibly for export, but in effect, after slight polishing the same are being sold in DTA in circumvention of the Restricted Import Policy of marble during 100% EOU Scheme. The rationale behind allowing imports of rough marble blocks by 100% EOUs was that the raw material would be used for export production, and that, it will not be diverted in DTA defeating the very purpose of putting marble in the restricted category. The object behind the EOU Scheme is consumption of imported raw material for manufacture of finished products, which are to be exported, and if that facility leads to substitution of imported inputs by domestically procured inputs, then the facility has to be discontinued, as done by the impugned circular/notification. (d) Marble has been included in the restricted category as it is not treated as only a revenue generating resource, as the mining industry depends thereon. Mining generate employment and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to demonstrate the inapplicability of the raison d etre of M/s. Hindustan Granites (supra) qua the present assailment, the distinguishing features between the DTA sales and supplies under Paragraphs 6.8 and 6.9 have been sought to be highlighted on behalf of the petitioner. Apart from the difference in the rates of duty therefor under Paragraphs 6.8(a) and (h) and Paragraph 6.9 and the disclosure requirements in the excise returns for these transactions, it has been, in categorical terms, underlined that the earnings are in Indian currency for sales and in foreign currency vis- -vis supplies. It has been highlighted as well that the sales do not account for the purpose of NFE, but the supplies do. That the particulars of sales and supplies are to be furnished separately in the quarterly and annual returns comprehended under the relevant FTP, has been asserted. It has been underlined as well that the supplies under Paragraph 6.9 are deemed exports and accountable for fulfilment of positive NFE, a primary obligation of an Export Oriented Unit under the EOU Scheme. 38. As against the petitioner s insistence that the impugned decision is incompatible with the underlying objective of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nceptualized. It is unlikely, and that too, in absence of any overwhelming material to the contrary that though supplies under Paragraph 6.9 are construed to be deemed exports facilitating fulfilment of positive NFE, more particularly, vis-a-vis sub-clause (b) thereof, that the respondents had been wholly oblivious of the subtle differences between the two transactions, in taking the impugned decision. We have examined, while dealing with this aspect of deemed exports, not only the relevant provision of the FTP 2009-2014, but also the Circular No. 29/2003, dated 3-4-2003 of the Board of Customs providing for full duties payable therefor in respect of certain categories by EOU/STP/EHTP and SEZ as well as the invoices appended to the writ petition revealing the particulars of the supplies effected by the petitioner, and are left with the persuasive view that the same (supplies) have a demonstrable element of sale, thus bringing the said transactions within the ambit of the considerations, on which the circular/notifications involved in M/s. Hindustan Granites (supra), has been held to be valid. 40. In Karnataka Power Transmission Corporation Anr., while dealing with the issue as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereunder. 43. Referring to the decision in Barium Chemicals Anr. v. Company Law Board Anr., (1966) Supp. SCR 311, their Lordships recalled the observations made therein that the power under Section 237(b) was discretionary, yet the formation of the opinion being subjective, existence of the circumstance, was a sine qua non therefor and ought to be demonstrable. Substantially, in the same lines on this facet of judicial enunciation, is the rendering in Rohtas Industries (supra), in which, with reference to Section 237(b)(i) and (ii) of the Companies Act, 1956, it was held that before taking any action thereunder, the Central Government has to form an opinion that there are circumstances suggesting that the business of the company is being conducted with the intent to defraud its creditors, members or any other person, or otherwise for a fraudulent or unlawful purpose etc. In the contextual facts, their Lordships were of the view that the Government had not bestowed sufficient materials before it before doing so. 44. Whereas the above decisions do not admit of any debate, having regard to the sequence of events, the pleaded facts and the relevant text of the rendering in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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