In the High Court At Calcutta Constitutional Writ Jurisdiction Original Side WP1118of 2014 WP350of 2015 Sesa International LTD.& Anr.
-Vs.Director General of Foreign Trade & ORS.Before For the Petitioners : The Hon’ble Justice Arijit Banerjee : Mr.Ranjan Deb, Bar-at-Law, Mr.V.N.
Dwivedi, Adv.Ms.Jayanti Char, Adv.For the Customs : Mr.R.Bharadwaj, Adv.Mr.K.K.
Maiti, Adv.For the DGFT : Mr.Kausik Chandra, Sr.Adv.Mr.Ujjal Kr.
Ray, Adv.Heard On : 28.08.2015, 01.10.2015, 06.05.2016 Judgment On : 05.10.2016 Arijit Banerjee, J.:- (1) The disputes in the two writ petitions under consideration arise in relation to the Foreign Trade Policy (in short the ‘Policy’) for the period 2009-14 framed in terms of Sec.
5 of the Foreign Trade (Development Regulation) Act, 1992 (in short ‘the Act’) and the procedure framed for the purpose of implementing the Policy and contained in the ‘Handbook of Procedure’ (in short the ‘Procedure’).Brief background of the case:- (2) Duty Free Import Authorization (DFIA) is one of the duty exemption schemes under Chapter 4 of the Policy.
DFIA is issued to allow duty free import of inputs.
DFIA may be either Post-export or Pre-export.
(3) The petitioner company is a ‘Merchant Exporter’.
Clause 9.39 of the Policy defines merchant exporter as a person engaged in trade activity and exporting or intending to export goods.
(4) Since the inception of the 2004-09 Policy, the petitioner company (hereinafter referred to as ‘SESA’) used to apply for issuance of Postexport DFIAs.
After getting DFIAs, SESA used to purchase diveRs.goods from various manufacturers upon payment of duty and all applicable taxes including excise duty and used to export the goods within the time specified in the DFIAs.
After discharging its export obligation, SESA used to apply for transferability of the DFIAs under Clause 4.2.6 of the Policy.
Upon being satisfied that SESA had fulfilled its export obligations and export proceeds had been realized, the respondent authorities used to endORS.‘transferability’ on the DFIAs, whereupon, the same became freely transferable.
(5) Since SESA did not avail of ‘CENVAT’ facility, while endorsing transferability on the DFIAs, the authorities made a note exempting the inputs from additional customs duty/excise duty in terms of Clause 4.2.6 (c) of the Policy.
On the strength of such endorsement, SESA either imported inputs by itself or transferred the DFIAs to various importeRs.The goods imported on the basis of such DFIAs were exempted from payment of customs duty/additional customs duty, additional cess, antidumping duty and safeguard duty.
(6) In January, 2014, the respondent authorities issued two DFIAs dated 17 January, 2014 and 20 January, 2014 in favour of the SESA.
Such licenses were issued against export of non-alloy steel billet and permitted duty free import of non-alloy steel melting scrap.
The expiry date for both the licenses was 31 July, 2015.
(7) On 17 October, 2014 and 10 November, 2014, SESA applied for endorsement of transferability of the said two DFIAs and exemption from payment of additional customs duty.
On 14 November, 2014 a meeting was held in the chamber of the Dy.
Director General of Foreign Trade (respondent No.4).SESA made a grievance that there was being inordinate delay in endorsing transferability on the said licences and the respondent No.4 assured that the matter was under consideration, and SESA would receive confirmation soon.
(8) On 20 November, 2014 the Addl.
Director General of Foreign Trade (respondent No.2) by e-mail requested SESA to submit 12 DFIA licences which had been issued earlier and on which endorsement of transferability had been made.
However, SESA had already transferred such licences to third parties.
Accordingly, SESA wrote a letter dated 24 November, 2014 for recalling the order dated 20 November, 2014.
Subsequently SESA filed WP1118of 2014 challenging the said order dated 20 November, 2014 and also praying for a direction on the respondent authorities to make endorsement of transferability on the two licences dated 17 January, 2014 and 20 January, 2014.
(9) On 3 December, 2014 I.P.Mukerji, J., passed an order of status quo as regards the concerned licences.
On 10 December, 2014 the interim order was extended till disposal of the writ application.
(10) When one of the transferees of the said DFIA licences, in connection with permitted imports presented the licence for debiting of dues in lieu of cash payment of additional customs duty, the customs authorities refused to honour the same.
Upon enquiry, it was found that the DGFT authorities vide letter dated 12 December, 2014 withdrew the benefit of exemption from payment of additional customs duty in respect of 13 DFIAs.
Accordingly SESA filed WP350of 2015 praying for cancellation and/or recall of DGFT’s order dated 12 December, 2014 and for extension of validity period of those licences validity of which had expired during the pendency of the earlier writ petition.
On the said second writ petition an interim order of injunction dated 8 April, 2015 was passed restraining the respondent authorities from relying upon or giving effect to the order dated 12 December, 2014.
Contention of the petitioner:- (11) The petitioner alleges that the order dated 20 November, 2014 issued by the Addl.
Director General of Foreign Trade is arbitrary, illegal, issued in violation of principles of natural justice and without jurisdiction.
The order did not give any reason or ground for re- submission of the concerned licences.
Neither any show cause notice was issued nor opportunity of hearing was given to SESA before issuance of the said order.
The said order was passed obviously with the purpose of deleting/rectifying the endorsement on the DFIAs allowing exemption from payment of additional customs duty.
There is no provision of review under the 1992 Act or in the Rules and Regulations framed thereunder or in the Policy.
Hence the order is not sustainable.
(12) Learned Counsel for SESA then submitted that the moot issue is whether SESA, a merchant exporter, is entitled to exemption from payment of additional customs duty consequent to exports made under post-export DFIA scheme, which the respondents have granted for the last several yeaRs.In recognition of its performance, DGFT has granted a certificate recognizing SESA as a ‘Star Export House’.
The only contention of the respondent authorities is that since the purported supporting manufacturers of SESA were availing of Cenvat facility, SESA is, therefore, not entitled to exemption from payment of additional customs duty.
(13) Referring to Clause 4.2.2 (c) of the Policy, learned Counsel submitted that in case of post-export DFIAs, a merchant exporter is required to mention only name(s) and address(s) of manufacturer(s) of the export product(s).The applicant is required to file application to the concerned RA before effecting exports under DFIA.
At the time of making application for licence, SESA was required to mention only the name of the manufacturer who manufactured the export goods as it was a postexport authorization.
Since on the e-platform of DGFT website, there was no column for mentioning the name of the manufacturer, SESA put the name of the manufacturer under the column ‘supporting manufacturer’.
However, while submitting hard copy of the application together with requisite documents, SESA clearly stated that its application was for post-export DFIAs and this fact is not in dispute.
It was submitted that the manufacturers of the products which SESA exported were not co-authorization holder.
obligation in respect of the DFIAs.
They never undertook any SESA fulfilled the export to the satisfaction of all concerned and there is no complaint in this regard from any of the authorities.
(14) Mr.Deb then referred to Clause 4.2.6 of the Policy which reads as follows: “Clause 4.2.6:-(a) Once export obligation has been fulfilled, request for transferability of Authorisation or inputs imported against it may be made before concerned RA.
Once transferability is endorsed, Authorisation holder may transfer DFIA or duty fee inputs, except fuel and any other item(s) notified by DGFT.
However, for fuel, import entitlement may be transferred only to companies which have been granted authorisation to market fuel by Ministry of Petroleum and Natural Gas.
(b) Wherever SIONs prescribe actual user condition and in case of Acetic Anhydride, Ephedrine and Pseudo Ephedrine, DFIA shall be issued with actual user condition for these inputs and no transferability shall be allowed for these inputs even after fulfilment of export obligation.
(c) After endorsement of transferability, inputs/domestic procurement against authorisation or transfer of imported inputs/domestically procured inputs shall be subject to payment of applicable additional customs duty/excise duty.
While endorsing transferability, authorisation would bear a note as to liability of such additional customs duty/excise duty.
However, in case where CENVAT facility has not been availed, exemption from additional customs duty/excise duty would be available even after endorsement of transferability on DFIA.” (15) He then referred to Sec.
3(a) of the Central Excise Act, 1944 which states that there shall be levied and collected a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods including goods produced or manufactured in special economic zones which are produced and manufactured in India, at the rates set forth in the fiRs.schedule to the Central Excise Tariff Act.
Under the Cenvant Credit Rules, 2004 a manufacturer or producer of final products or a provider of a taxable service is allowed to take credit of, inter alia, a duty of excise specified in the fiRs.schedule to the Excise Tariff Act leviable under the Excise Act.
Taxation of the inputs had the cascading effect on the value of the final product.
To avoid this, Cenvat Credit Rules, 2004 were introduced, by virtue of which a manufacturer obtains credit for excise duty paid on the raw materials to be used by him in the production of excisable products.
The manufacturer makes the requisite declarations and obtains an acknowledgement thereof and it is then entitled to use the credit at any time thereafter when making payment of the excise duty on excisable products.
(16) It was emphasised by Learned Counsel that SESA purchased the export goods upon full payment of excise duty without availing of any benefit of the Cenvat scheme.
(17) Learned Counsel submitted that the contention of the respondents that although SESA has not availed of Cenvat facility, yet it is not entitled to exemption from payment of additional customs duty because its supporting manufacturer has availed of Cenvat credit, is not tenable.
Manufacturer and merchant exporter are two different entities.
In paragraph 4.2.6 of the Policy the emphasis is on the entity and not on the input.
SESA, as a post-export DFIA holder, was not required to have an arrangement/tie up with any supporting manufacturer nor in fact SESA had any such tie up.
Had there been a mandate to have a tie up with a supporting manufacturer, it would have been mandatory to endORS.the name of such manufacturer on the export documents.
But that is not the case.
Since there was or is no such requirement, the respondent authorities never raised any objection in this regard.
(18) It was then submitted that in the Scheme of DFIA, the two words ‘supporting manufacturer’ and ‘manufacturer’ have different meanings.
Paragraph 4.2.2 (c) of the Policy requires the post-export DFIA holder to mention the name of the manufacturer and not the name of supporting manufacturer.
The terms ‘manufacturer’ and ‘supporting manufacture’ are not inter-changeable.
(19) My attention was also drawn to a circular dated 24 August, 2006 issued by the DGFT instructing its officers that in cases whether the exporter seeks redemption and transferability of DFIA on completion of stipulated export obligation, documentary evidences such as SSI/Central Excise Registration of supporting manufacturer/jobber may not be insisted upon.
Learned Counsel submitted that even after receipt of the purported information from the DRI vide letter dated 29 September, 2014, the DGFT authorities endorsed exemption from payment of additional customs duty as well as transferability on eight numbers of licences between 20 October, 2014 and 27 October, 2014.
This also goes to show that availing of Cenvat credit by the manufacturer of the export product did not disentitle a merchant exporter like SESA to get the benefit of exemption from payment of additional customs duty.
(20) Mr.Deb then submitted that in the current Policy for the period 2015-20, DGFT has changed the definition of the term ‘supporting manufacturer’ as well as the conditions for validity and transferability of DFIA.
However, the new definitions and provisions contained in the current Policy cannot be applied retrospectively nor the Policy provides for its retrospective application.
(21) Learned Counsel then referred to notification No.98/2009-Customs dated 11.09.2009, whereby in exercise of powers conferred by Sec.
25 (1) of the Customs Act, 1962, the Central Government exempted materials imported into India against the DFIA from the whole of the additional customs duty, safeguard duty and anti-dumping duty subject to conditions mentioned therein.
Condition No.2 mentioned in the said notification provides that after discharge of export obligation as specified in Condition (vii) of paragraph 1, the Regional Authority shall permit transfer of the said authorisation and/or the goods imported under it, subject to such conditions as may be specified.
It was submitted that SESA has discharged its export obligations and the respondent authorities are obliged to permit transfer of the said authorisation subject to the conditions specified in paragraph 4.2.6 (c) of the Policy permitting exemption from payment of additional customs duty inasmuch as SESA has not availed of Cenvat credit facility.
(22) It was submitted that the respondent authorities are wrongly contending that granting exemption from payment of additional customs duty would amount to ‘double benefit’.
Mr.Deb referred to a Circular dated 11/2009-Cus dated 25.02.2009, the operative portion whereof reads as follows:- “The Law Ministry clarified that from a perusal of the DFIA Scheme and the conditions laid therein, it appeared that the authorisation holder cannot avail Cenvat credit on the inputs used in the manufacturer of the goods exported under the DFIA scheme as well as duty free imports under the DFIA simultaneously as it amounts to double benefit and against the spirit and object of the scheme.” Learned Counsel also referred to a Circular bearing No.26/2009-Cus dated 30.09.2009 issued by the Department of Revenue wherein under paragraph 6 it is stated as follows:- “(i)(a) if the exporter has availed the facilities in respect of inputs used in the manufacturer of export goods as specified in para (v) of notification No.96/2009-Cus dated 11.09.2009, para (v) of Notification No.99/2009-Cus dated 11.09.2009 and para (v) of Notification No.112/2009-Cus dated 29.09.2009, then the importer at the time of clearance of the imported materials shall execute a bond that the imported materials will be used in his factory or in the factory of the supporting manufacturer for the manufacture of dutiable goods…………….” Mr.Deb then submitted that on a reading of the aforesaid CirculaRs.it is clear that the Department has to ascertain whether the exporter has availed of the Cenvat facility.
The said Circular is applicable to DFIA scheme as would appear from the paragraph 6(ii) thereof.
(23) Learned Counsel then referred to a letter dated 3 December, 2008 written by the Calcutta Customs in response to a query raised by the Department of Revenue.
Learned Counsel relied on a portion of the said letter which reads as follows:- “In terms of DGFT’s notification No.49(RE-1007)/2004-2009 dated 14.11.2007 (copy enclosed for ready reference).this Customs House is following the directions contained in the aforesaid notification i.e.in all the cases of imports, who sought clearance against the transferability DFIA authorization are required to submit certificate from the concerned Central Excise authority to the effect that the license holder have not availed any CENVAT under CENVAT credit rules and on the basis of that certificate goods are assessed without charging additional customs/excise duty.” (24) Learned Counsel submitted that the combined effect of the Policy, the aforesaid circular dated 30 September, 2009, the Calcutta Customs letter dated 3 December, 2008 along with the customs notification dated 11 September, 2009 is that the deciding factor is as to whether or not the licence holder has availed of the Cenvat facility.
In the instant case, SESA has not availed of Cenvat facility and as such is entitled to transferability as also exemption from payment of additional customs duty.
Withdrawal of such benefits by the DGFT is arbitrary, illegal and harassive.
(25) On the point of law, Mr.Deb submitted that if in construing a taxing statute, there are two interpretations possible, then effect is to be given to the one that favours the citizen.
In this connection he relied on a decision of the Hon’ble Apex Court in the case of The Central India Spinning and Weaving and Manufacturing Co.Ltd., The Empress Mills, Nagpur-vs.-The Municipal Committee, Wardha, AIR1958SC341 (26) Learned Counsel then submitted that the scheme of DFIA envisages two different terMs.i.e., ‘supporting manufacturer and ‘manufacturer’.
The former is defined in the Policy but the latter is not and hence has to be given a grammatical meaning.
The post-export DFIA holder, as required by paragraph 4.2.2 (c) of the Policy, is required to mention the name of manufacturer only.
In interpreting a statute, the Courts always presume that the legislature inserted every part of the statute for a purpose and the legislative intention is that every part should have effect.
These presumptions will have to be made in case of Rule-Making Authorities also.
In this connection reliance was placed on an Apex Court decision in the case of J.K.Cotton Spinning and Weaving Mills Co.Ltd.vs.-State of UP, AIR1961SC1170 (27) Learned Counsel then submitted that the impugned orders dated 20 November, 2014 and 12 December, 2014 have been issued without following the principles of natural justice.
Neither any show cause notice was issued nor any opportunity of hearing was given before issuance of such ordeRs.The order of review dated 12 December, 204 was passed without jurisdiction inasmuch as neither the Foreign Trade Act nor the rules and regulations framed thereunder nor the Policy provided for review.
The order dated 12 December, 2014 was passed in violation of this Court’s status quo order dated 3 December, 2014 as continued by the order dated 10 December, 2014 and as such is void.
(28) Mr.Deb then submitted that DGFT and Customs Authority have made conflicting factual submissions.
DGFT contended that SESA did not avail of Cenvat credit facility because it could not do so being an export merchant.
However, the Customs Authorities contended that SESA was not entitled to exempt benefit because it had availed of Cenvat facilities on the inputs used for manufacturing the export products.
(29) Mr.Deb relied on a decision of the Hon’ble Apex Court in the case of Rao Shiv Bahadur Singh-vs.-The State of Vindhya Pradesh, AIR1953SC394 He relied on the observation of the Hon’ble Supreme Court at paragraph 5 of the judgment to the effect that although it is not permissible to supplant a clear and obvious lacuna in a statute and imply a right of appeal, it is incumbent on the court to avoid a construction, if reasonably permissible on the language, which would render a part of the statue devoid of any meaning or application.
He also relied on a decision of the Apex Court in the case of The Commissioner of Income Tax, Gujarat-vs.-M/S.Raman and Co., AIR1968SC49 wherein at paragraph 9 of the judgment, the Hon’ble Supreme Court observed, inter alia, as follows:- “avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited.
A taxpayer may resort to a device to divert the income before it accrues or arises to him.
Effectiveness of the device depends not upon considerations of morality but on the operation of the Income Tax Act Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented.” (30) Learned Counsel finally submitted that validity of the DFIAs expired during the pendency of the writ petitions.
Because of the obstructions created by the DGFT authorities, the DFIAs could not be utilized during their validity period.
He submitted that SESA is entitled to endorsement of transferability as well as exemption from payment of additional customs duty and the validity period of the concerned licences should be suitably extended.
Contention of the DGFT:- (31) Appearing for the DGFT authorities, Learned Additional Solicitor General contended that a merchant exporter like SESA has to source the export goods from the supporting manufacturer(s) whose names have been mentioned in the application for DFIA and with whom he is required to have entered into a ‘tie up’ arrangement.
The term exporter in so far it concerns a merchant exporter would include the supporting manufacturer with whom he has a tie up arrangement.
The moot point is whether the supporting manufacturer did or did not avail of Cenvat credit.
If such benefit was availed of by the supporting manufacturer, the replenishment inputs imported subsequently after endorsement of transferability on the DFIAs, would be subject to payment of additional customs duty.
While requesting for transferability of the DFIAs issued to it, SESA had all along claimed that it did not avail of Cenvat credit against the inputs used in the export products along with certificates from the jurisdictional Central Excise Authority, certifying that SESA had not availed of Cenvat credit facility.
On the basis of such declaration and certificates submitted, the respondents while allowing transferability had been making additional endorsement on the licences allowing exemption from payment of additional customs duty.
However, vide letter dated 29 September, 2014 information was received from the office of DRI that the supporting manufacturers of SESA had been availing of the Cenvat credit facility on the inputs used for manufacturing the export products.
SESA had suppressed this vital fact which led to availment of double benefit by SESA which is not permissible as per the Policy or the related customs notifications.
Hence, the respondent authorities came to a conclusion that it was necessary to delete or rectify the endorsements on the DFIAs allowing exemption from payment of additional customs duty and accordingly SESA had been directed to submit the 12 DFIAs.
(32) Learned Addl.
Solicitor General submitted that one of the main objects of the Foreign Trade Policy formulated by the Central Government in exercise of power under Sec.
5 of the Foreign Trade Act is to boost exports so as to enhance foreign exchange earnings for the country.
Chapter 4 of the Policy lays down the Advanced Authorisation Scheme.
Clause 4.2.6 of the Policy deals with transferability of licence.
(33) SESA being a merchant exporter and not a manufacturer, it is not entitled to avail of Cenvat benefit at all.
Hence, it was not out of choice that SESA did not avail of Cenvat credit.
Learned Counsel submitted that only if a party was entitled to avail of Cenvat credit but chose not to do so, would the party be entitled to the benefit of exemption from payment of additional customs duty.
(34) Learned Counsel referred to Rule 3 of the Cenvat Credit Rules, 2004.
He submitted that Cenvat credit is available only to a manufacturer or a producer.
He submitted that additional customs duty is nothing but central excise duty and is charged at the same rate.
He also referred to Sec.
3 of the Customs Tariff Act, 1975 which provides for additional duty.
He submitted that the additional duty has been introduced to strike parity between indigenous manufacturers and importeRs.While indigenous manufacturers of an excisable product have to pay excise duty, importers of the same products do not have to pay such duty.
Hence, the additional duty has been introduced so that the indigenous manufacturers do not stand at a disadvantageous position visa-vis the importers of the same products.
This is necessary for the protection of the national economy and is a policy decision.
(35) Learned Counsel submitted that the Policy as well as the relevant Customs notifications issued by the Department of Revenue categorically stipulated that if Cenvat Credit Facility has been availed of on the inputs, exemption from payment of additional customs duty is not admissible.
This stipulation does not specify the entity that avails of the Cenvat facility.
It is only the manufacturer or the supporting manufacturer in the case of a merchant exporter who can avail of Cenvat facility under the Cenvat Credit Rules, 2004.
In case of a merchant exporter, only a supporting manufacturer, who has a ‘tie up’ arrangement with the merchant exporter, can avail of the benefit of Cenvat Credit Facility.
If the benefit of Cenvat facility is availed of by a supporting manufacturer, it cannot be beyond the purview, responsibility and liability of the concerned merchant exporter.
Availing of both the benefits viz Cenvat credit facilities as well as exemption from payment of additional customs duty amounts to ‘double benefit’ leading to unjust enrichment of a licence holder like SESA and amounts to a clear contravention of the DFIA scheme as has been observed by the Ministry of Law as quoted in the Customs Circular No.11/2009 dated 25 February, 2009.
(36) Learned Addl.
Solicitor General then submitted that it is admitted by SESA that being a merchant exporter, it could not in any case avail of the Cenvat facility.
If that be so, there was absolutely no necessity to have that fact certified by the Central Excise Authority.
SESA was fully aware of the fact that its supporting manufacturers availed of the benefit of Cenvat credit but it deliberately concealed that fact and intentionally resorted to unnecessary certification of the obvious fact by the Central Excise Authority only to convey a false impression that no Cenvat facility was availed of on the inputs used in the exports consignments so as to avail of the undue benefit of exemption from payment of additional customs duty.
This clever ploy worked for quite some time and SESA successfully misappropriated Government Revenue.
This wilful deception would have continued for much longer had not the DRI informed the respondents about the fact of Cenvat facility being enjoyed by the supporting manufacturers of SESA.
Learned Counsel submitted that the decision to withdraw the benefit of exemption from additional customs duty was rightly taken to avoid availment of double benefit by SESA and such decision is in consonance with the stated Policy of the Government of India.
Contention of the Customs Authorities:- (37) Mr.Bharadwaj appearing for the Customs Authorities submitted that the Customs Authorities have merely implemented the decision of the DGFT contained in its letter dated 12 December, 2014 to withdraw the benefit of exemption from payment of additional customs duty in respect of the DFIA licences that had been issued in favour of SESA.
Even otherwise, Learned Counsel adopted the submissions made on behalf of the DGFT.
He referred to Secs.
3 and 4 of the Central Excise Act and also to Rules.
2 (k) and 3 of the Cenvat Credit Rules.
His submission was that if Cenvat credit facilities is availed of in respect of inputs by the manufacturer of the export product, the merchant exporter cannot claim benefit of exemption from payment of additional customs duty while importing goods under DFIA licences.
Court’s View:(38) I have given anxious thought and consideration to the rival contentions of the parties.
(39) Two orders of the DGFT authorities are under challenge in the two writ petitions.
By the order dated 20 November, 2014, the Authorities had directed SESA to submit to them 12 DFIA licences which had been issued earlier and on which endorsement of transferability had been made.
By the order dated 12 December, 2014, the Authorities withdrew the benefit of exemption from payment of additional customs duty in respect of 13 DFIA licences.
Although it was not stated in the e-mail dated 20 November, 2014 as to why the authorities wanted SESA to submit the DFIA licenses to them, from the affidavits filed in this proceedings on behalf of the DGFT Authorities, it emerges that the reason for them to call for the licences was to cancel the benefit of exemption from payment of additional customs duty.
In other words, the e-mail dated 20 November, 2014 was a step towards the proposed action that the authorities finally took by the order dated 12 December, 2014.
Hence, the fiRs.writ petition for all practical purposes pales into insignificance and if the second writ petition succeeds and the order dated 12 December, 2014 is quashed, the earlier direction dated 20 November, 2014 would necessarily have to be set aside.
(40) Clause 4.2.6 of the Policy has been extracted above.
The said clause provides for two important matteRs.FiRs.is transferability of the DFIAs.
The second is whether the licence holder would be entitled to have it endorsed on the licence that it is exempted from payment of additional customs duty.
Such exemption would be available if Cenvat facility has not been availed of.
Learned Counsel for the SESA submitted that admittedly SESA, in whose favour the DFIA licences were issued, did not avail of Cenvat facility.
Hence, SESA is entitled to the benefit of exemption from payment of additional customs duty.
Learned Counsel for DGFT on the other hand submitted that it was not out of choice that SESA refrained from availing of the Cenvat facility.
Being a merchant exporter and not a manufacturer, SESA was not at all entitled to avail of such facility.
So, it was not a case where SESA had forgone the benefit of Cenvat facility since such benefit was in the fiRs.place not applicable to SESA.
Learned Counsel for DGFT imputed dishonesty on the part of SESA in submitting certificates from the jurisdictional Central Excise Authority and contended that the same was done only to give an impression that CENVAT facility had not been availed of in respect of inputs that were utilized to manufacture the export products.
The short case of learned Counsel for DGFT is that if Cenvat Credit Facility was availed of by the manufacturer of the products which SESA exported, in respect of the inputs, SESA would not be entitled to the benefit of exemption from payment of additional customs duty.
Learned Counsel submitted that the emphasis in Clause 4.2.6 (c) of the Policy is on the ‘inputs’ and not on the person who availed of the Cenvat facility.
Learned Counsel for SESA, however, disputed such contention and submitted that if the party to whom the licence was issued did not avail of the CENVAT facility, he would be entitled to the benefit of exemption from payment of additional customs duty.
(41) It is not in dispute that SESA did not avail of Cenvat facility.
Clause 4.2.6 (c) of the Policy obviously envisages the conferment of benefit of exemption from additional customs duty on a party in whose favour the DFIA licence has been issued and who has not availed of Cenvat facility.
The said clause does not make a distinction between a party who was entitled to avail of the Cenvat facility but refrained from doing so, and a party who did not avail of such facility because he was not entitled to do so.
Had the Framers of the Policy intended that only a party who is entitled to avail of Cenvat facility but did not do so, is eligible for the benefit of exemption from payment of additional customs duty, nothing stopped the Framers from making it clear by proper wording the said clause.
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.
By way of illustration one may refer to the very high authority of a Constitution Bench of the Hon’ble Supreme Court in the case of The Central India Spinning and Weaving and Manufacturing Co.Ltd., The Empress Mills, Nagpur-vs.-The Municipal Committee, Wardha, (supra).wherein it was held if in construing a taxing statute, there are two interpretations possible, then effect is to be given to the one that favours the citizen and not the one that imposes a burden on him.
This principle of law, in my opinion, applies to the facts of this case mutatis mutandis.
(42) I am unable to agree with the contention of Learned Additional Solicitor General that granting SESA exemption from payment of additional customs duty would amount to conferring double benefit on SESA.
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.
(43) In view of the aforesaid, I am of the opinion that 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.
However, there are other grounds also on which the impugned orders are liable to be quashed.
(44) It is not disputed that endorsement of exemption from payment of additional customs duty was made on all the DFIA licenses issued in favour of SESA.
This was, thus, a substantial benefit conferred on SESA akin to valuable property right.
If the authorities, for whatever reasons and it is needless to say such reasons must be justifiable reasons, decides to withdraw such benefit, surely the authorities should have given an opportunity of hearing to SESA.
Principles of natural justice have become one of the most important pillars of the Rule of Law.
No order can be passed or action can be taken by the State or a statutory authority or any authority within the meaning of Art.
12 of the Constitution, without affording an opportunity of hearing to the parties who are likely to be adversely affected by such order or action.
Any order of such an authority which is likely to visit a party with adveRs.civil consequences can only be passed after observing the principles of natural justice.
The doctrine of audi alteram partem enshrines the principle that nobody can be condemned unheard.
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.
300A of the Constitution may not embody a fundamental right but still is a valuable constitutional right of a citizen which cannot be abridged or abrogated except by following due process of law which would include observance of the principles of natural justice.
(45) It is settled law that an order of the State or a statutory authority which is passed in infraction of the rules of natural justice and which adversely affects a party is void and non-est in the eye of law.
Both the orders under challenge i.e.the orders dated 20 November, 2014 and 12 December, 2014 suffer from this incurable infirmity and veritable vice and are thus void ab initio.
In this connection reference may be had to the decisions in the following two cases:- (a) Ram Swarup-vs.-Shikar Chand, AIR1966SC893 At paragraph 13 of the judgment a Constitution Bench of the Hon’ble Supreme Court held that a quasi-judicial proceeding must be tried in accordance with the principles of natural justice, and if it is shown that in a given case an order has been passed without notice to the party affected by such order, it would be open to the said party to contend that an order in violation of the principles of natural justice is a nullity and its existence should be ignored by the Court.
Shreeram Durga Prasad And Fatehchand Nursing Das- vs.-Settlement Commission (IT & WT).(1989) 1 SCC628 At paragraph 7 of the judgment the Hon’ble Apex Court held, inter alia, as follows:- “We are definitely of the opinion that on the relevant date when the order was passed, that is to say, 24th August, 1977 the order was a nullity because it was in violation of principles of natural justice.
See in this connection, the principles enunciated by this Court in State of Orissa v.
(Miss) Binapani Dei and Ors., .2 SCR625as also the observations in Administrative Law by H.W.R.Wade, 5th Edition, pages 310-311 that the act in violation of the principles of natural justice or a quasi-judicial act in violation of the principles of natural justice is void or of no value.
In Ridge-vs.-Baldwin, 1964 AC40 and Anisminic Ltd.-vs.-Foreign Compensation Commission, (1969) 2 AC147 the House of Lords in England has made it clear that breach of natural justice nullifies the order made in breach.
If that is so then the order made in violation of the principles of natural justice was of no value……………………..” (46) The reasons stated in the preceding two paragraphs are enough for me to set aside the orders under challenge.
However, there is another reason for which I must quash the order dated 12 December, 2014.
(47) When the fiRs.writ petition was moved, an order dated 3 December, 2014 was passed by this Court directing maintenance of status quo as regards the concerned licenses.
On 10 December, 2014, the interim order was extended till disposal of the writ petition.
Such order of status quo continues till today.
Hence, when the order dated 12 December, 2014 was passed by the DGFT Authorities withdrawing the benefit of exemption from additional customs duty in respect of the concerned licenses, the order of status quo was in operation.
Thus, the order dated 12 December, 2014 was passed in violation of this Court’s order dated 3 December, 2014 as extended by the order dated 10 December, 2014.
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.
If any authority for this proposition is required, one may refer to the decision in the case of Satyabrata Biswas-vs.-Kalyan Kumar Kisku, (1994) 2 SCC266 In that case a sub-lease was granted in violation of an order of status quo passed by the Court.
The Hon’ble Apex Court held that any act done in the teeth of the order of status quo was clearly illegal.
In my opinion, if an order is illegal having been passed in violation of a Court’s order, the same must be set aside and cannot be allowed to have any effect.
(48) In view of the aforesaid these two writ petitions succeed.
The orders dated 20 November, 2014 and 12 December, 2014 cannot be sustained and the same are hereby quashed.
The respondent authorities are directed to suitably extend the validity of the DFIA licences in question.
Such extension should be for a reasonable period and in my opinion, for a period of not less than 3 months from the date of extension.
(49) WP No.1118 of 2014 and WP No.350 of 2015 are accordingly disposed of.
There will be, however, no order as to costs.
(50) Urgent certified photocopy of this judgment and order, if applied for, be given to the parties upon compliance of necessary formalities.
(Arijit Banerjee, J.)