IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 14/11/2002
CORAM
THE HON'BLE MR.JUSTICE E.PADMANABHAN
WRIT PETITION NO. 37545 of 2002
AND
WPMP.No: 56354 of 2002
Global Polybag Industries (P) Ltd.,
500A, Perali Road,
Virudhunagar 625 002 ..Petitioner
-Vs-
1. The Joint Development Commissioner,
Madras Export Processing Zone
Tambaram, Chennai-45
2. The Assistant Commissioner of Central Excise
Virudhunagar
3. The Commissioner of Central Excise
Madurai ..Respondents
For petitioner:: Mr.C.Natarjan S.C., for
M/s.N.Inbarajan & N.Sriprakash
For respondents: Mr.V.T.Gopalan
Addl.Solicitor General
assisted by Mr.S.Gajendrandran (ACGSC)
Petition filed under Article 226 of The Constitution of India praying
for the issue of a writ of certiorari, as stated therein.
:O R D E R
The writ petitioner herein prays for the issue of a writ of certiorari
to call for the records relating to the proceedings of the first respondent in
No.19/30/95-EOU-TN-Vol.II, dated 16.8.2002 and quash the same.
2. Heard Mr. C.Natarajan, learned counsel appearing for M/s.
Inbarajan and Mr.N.Sri Prakash for the petitioner, Mr.V.T.Gopalan, learned
Additional Solicitor General, appearing for Mr.S.Gajendran, Additional Central
Government Standing Counsel for the respondents. With the consent of counsel
on either side the writ petition was taken up for final disposal.
3. The petitioner a private limited company claims that it is a 100 %
Export Oriented Unit governed by the Export Import Policy (EXIM Policy) having
secured the status in the year 1995. According to the policy, the
manufacturing Unit should be 100% export oriented, the Unit should export
goods and services etc., The export oriented unit may import without payment
of duty all types of goods including capital goods as defined in the EXIM
policy required for its activity. The export oriented unit may procure goods
required by it or in connection with its activity without payment of duty from
bonded warehouses in the domestic tariff area set up under the policy and the
Unit is permitted to effect Domestic Tariff Area sale of its products upto a
percentage of the FOB value of the export. The petitioners have set up the
EOU (Export Oriented Unit) for the manufacture of HDPE plastic bags, sheets,
tapes and rolls for which the duty free import of raw material is virgin
plastic granule. The petitioners have established export performance earning
foreign exchange to a considerable extent. The petitioners have earned a
total Domestic Tariff Area sales permission to the extent of Rs.30.87 crores
under several orders on the export of the manufactured goods.
4. It is claimed that the petitioners have established the Foreign
Exchange realisation by the production of the Export Invoices, Bank Statement
etc., The bank has also certified the earnings of foreign exchange by exports.
The export performance is also supported by movement records from the factory
of the petitioners to the customs, including Excise Gate Passes and Excise
AR-4 Forms. While so, there was an inspection on 12.1.2001 by a group of
Enforcement Officers of the Central Excise Department who purported to
investigate the matters pertaining to the petitioner EOU.
5. After the inspection a show cause notice was issued by the third
respondent on 26.3.2002 running to 130 pages. The petitioners have also
collected materials and submitted their explanation or objection, denying the
allegations, besides pointing out that there is no violation at all. The
allegations being the secured raw materials have been sold and not used in
manufacturing thereby questioning the very fact of the export performance and
resulting in the total rejection and the condemnation in all official and
commercial documents of the Excise Department, Customs as well as the Bank
documents.
6. The petitioners were granted time to submit their objection till
30.9.2002. It is represented that objections have been filed pending the writ
petition. The petitioners are awaiting a hearing and orders of adjudication
are likely to be passed at any time.
7. The first respondent served the impugned proceedings dated
16.8.2002 suspending the DTA Sales of the petitioners and the permissions
granted therefor. Such suspension it is stated being issued with the approval
of the Development Commissioner. The petitioners moved the respondent. But
there has been no response for revoking the order of suspension. All efforts
to convince the first respondent to withdraw the suspension failed and hence
the petitioners have come before this court.
8. According to the petitioners the order suspending the DTA approved
orders of the Development Commissioner issued from time to time is per se
arbitrary and illegal and violative of Articles 14 and 19(1)(g) of The
Constitution of India, that the first respondent has no jurisdiction or
authority to suspend or cancel the approval given based on the export
performance of the petitioners by the Development Commissioner by several
orders, passed between 11.6.1997 and 26.2.2002. Merely because a show cause
notice has been issued it cannot be taken that the petitioners are guilty of
violations of the omissions or commissions.
9. It is contended further that the show cause notice itself is for
the period commencing from 1.9.198 to 12.1.12001 while the DTA sales have been
authorised for the prior period from 1996-97 to 1997-1 998 and therefore it
cannot be proceeded against or suspended. The suspension is per se illegal
and violative of the policy and liable to be quashed. It is further contended
that if the suspension is not quashed the petitioner will be put to serious
hardship and loss. The petitioners are effecting DTA sales as per the
existing policy and the privilege had been earned and by sale of rejects or
waste, no prejudice will be caused to the respondents. There is no provision
in the EXIM policy or Hand Book by which the impugned order can be passed.
Hence the present writ petition.
10. The first respondent filed a counter affidavit. According to the
respondent 100% EOU scheme provides for grant of permission for setting up a
new undertaking/unit which is valid for three years and the undertaking not
being established within three years, a further extension of time for another
There years is permissible. The permission would be granted subject to
certain conditions stipulated in the Annexures to the permission. In the case
of the petitioners such permission for manufacture and Export of
HM/HDPE/LDPE/PP sheets, Tubes and Bags was granted on 8.6.1995 for three
years. The petitioners commenced manufacture with effect from 1996. Once the
new unit is established, it is governed by the legal undertaking, which letter
of undertaking specifically provides that the Unit/ undertaking would be bound
to abide by the policy as well as any direction issued by the Government from
time to time. DTA sales under the EXIM policy provides that permission for
DTA sale shall be granted only if an EOU achieves the prescribed minimum value
Addition/NFEP (Net Foreign Exchange Earning as a percentage of Exports) during
the relevant period. As per the guidelines an EOU duly certified by Chartered
Accountant and Central Excise Authorities, the Development Commissioner will
determine the extent of DTA sale admissible and issue authorisation in terms
of value. The DTA sale shall be at the rate of50% of FOB value of exports.
The word exports has been defined in FTDR Act as goods taken out of India.
Therefore though DTA sales in foreign currency are counted fro calculating
fulfillment of export obligation the same is not taken account of for fixing
the entitlement of DTA sale.
11. The Commissioner of Central Excise by its letter dated 23.7 .2002
reported that the plastic granules imported by the company as raw material
without payment of customs duty were being removed/ diverted unauthorizedly
from their private bonded warehouse and sold locally and in order to cover up
the diversion, the company inflated the weight and value of the export
consignments. It is also reported that the company has shown inflated weight
and value in the export documents not only to cover up the diversion but also
to show that it has achieved the required export obligation. Since the
contents of the letter of the Department of Central Excise was of a serious
nature, the office of the Development Commissioner took the action of
suspending DTA sale permission that had already been granted. The DTA sale
permission as such had not been cancelled. The petitioners sought for
clarification and it was clarified on 25.9.2002 indicating that they can
continue to clear waste and rejects.
12. The contention that suspending the DTA approval is arbitrary and
illegal is devoid of merits. DTA permission is a facility given to EOUs based
on the FOB value of exports and if the FOB value of exports itself is in
doubt, the question of permitting DTA sale does not arise. The DTA sale
permission under Para 9.9(b) of the EXIM policy 1997-2002 entailed only
concessional duty, this would have resulted in heavy loss of revenue to
Government.
13. According to the second respondent the total customs duty thus
evaded by the assessee is Rs.16,13,10,303 and the Central Excise duty is
Rs.4,65,456/=. In view of the serious nature of allegations the first
respondent initiated action suspending the DTA sale permission. But the first
respondent has not stopped the imports and exports and normal function of the
company, but has only passed order suspending the DTA sale on concessional
duty, which is supported by para 6 of the Legal Undertaking given by the
petitioner. DTA sales have been granted only for a periods 1996-97 and
1997-98, the validity of the DTA sale permission would have expired on
31.3.2002 and 31.3.2001 respectively and the same is no longer available. The
petitioners are not restrained from doing its normal activities of import and
export which is the object of the licence granted as a 100% EOU. Only DTA
Sales have been suspended and not cancelled. There are absolutely no merits.
The writ petition deserves to be dismissed.
14. The points that arise for consideration are:-
(a) Whether DTA Sale is part of the licence and before suspending
the licence, the procedure prescribed has to be followed?
(b) Whether there could be a suspension of DTA Sales on the facts
of the case?
(c.) Whether the order of suspension of DTA Sales is liable to be
quashed as arbitrary and violative of the Rules or Regulations contained in
the EXIM policy?
(d) To what relief, if any?
15. In exercise of powers conferred under section 5 of the Foreign
Trade (Development and Regulations) Act, 1992, the Central Government
notified the Export and Import Policy for the period 1997-2002, which came
into force with effect from 1st April 1997 and to remain in force for a period
of five years. The Central Government also has reserved its right to amend
the policy in exercise of its powers conferred by Section 5 of the Act.
Chapter III of the Policy defines various expressions, such as Capital Goods,
Consumables, Draw Back, Export obligation, licensing year, manufacture, rules
etc., Chapter IV prescribes the general provision regarding exports and
imports. Clause 4.6 prescribes the terms and conditions of licence. Clause
4.6 reads thus:-
“4.6 Every licence shall be valid for the period of validity specified
in the licence and shall contain such terms and conditions as may be specified
by the licensing authority which may include:
(a) The quantity, description and value of the goods;
(b) Actual User condition
(c.) Export Obligations
(d) The value addition to be achieved, and
(e) The minimum export price."
16. Clause 4.12 mandates that every exporter or importer shall comply
with the provisions of The Foreign Trade (Development and Regulation) Act,
1992 and the Rules and Orders made thereunder. Chapter V provides for imports
on export basis. Chapter VI relates to Export Promotion capital goods scheme.
Chapter VII provides the duty exemption scheme. Clause 7.4 of this Chapter
prescribes the export obligation. Clause 7.25 provides for duty entitlement
pass book. Chapter IX provides for Export Oriented Units, Units in Export
Processing Zones etc., Clause 9.1 prescribes the eligibility. Clause 9.9
provides for DTA sales subject to certain restrictions towards rejects.
Clause 9.9(e) enables an Export Oriented Unit to sell finished products which
are freely importable under the Policy in the DTA over and above the levels
permissible under sub paragraph (b) and (c) of this Chapter against payment of
full duties, provided they have achieved on an annual basis, the stipulated
NFEP and export obligation. Clause 9.15 enumerates the various benefits for
EOU/EPZ Units. The same Chapter provides for bonding and debonding in respect
of bonded warehouse. Chapter X provides for deemed exports. Chapter XI
provides for exports.
17. There is no doubt that in terms of the EXIM policy the
petitioners have established a EOU Unit. The Foreign Trade (Development and
Regulation) Act, 1992 provides for development and regulation of foreign trade
by facilitating imports into, and augmenting the exports from, India and for
matters connected therewith or incidental thereto. Section 2(g) defines the
expression “licence”. Section 2(h) defines the expression “order” and Section
2(i) defines the expression ” prescribed” as prescribed by rules made in the
Act. Under section 3, the Central Government may make provision for
development and regulation of foreign trade. Section 5 enables the Central
Government from time to time to formulate and announce Export a nd Import
policy. Section 9 provides for issue, suspension and cancellation of licence
which would include licence granted as may be prescribed under the Act.
Section 11 deals with contravention of provisions of the Act, Rules orders and
EXIM policy. Section 11(5) provides for confiscation. Section 12 provides
for penalty. Thus, it is clear that for violation of the policy there could
be an action under section 11 as well as Section 12 of the Act. For violation
of EXIM policy or the licence granted thereunder in favour of a EOU or DTA
Sales which is part of the licence conditions, there could be an action under
section 11 or 12. Such a licence also can be suspended or cancelled under
Section 9.
18. Section 19 provides for framing of Rules. In exercise of powers
conferred by Section 19 of The Foreign Trade (Development and Regulation) Act,
1992, the Central Government has framed the Rules. Rule 2(e) defines the
“policy” meaning the export and meaning, policy formulated and announced by
the Central Government. Rule 4 prescribes the application for grant of
licence. Rule 6 (2) prescribes that the goods covered by the licnece shall
not be disposed except in accordance with the provisions of the policy or in
the manner specified by the licensing authority in the licence. Rule 9
provides for suspension of licence granted. Rule 10 provides for cancellation
of licence. Rule 11 and 12 provides for Declaration as to value and quality
of the imported goods.
19. According to Mr.C.Natarajan, learned senior counsel, the
suspension of DTA Sale, a privilege conferred on the petitioner, being part of
the licence granted under the EXIM Policy read with the Foreign Trade
(Development and Regulation) Act and the Rules framed thereunder, without
following the procedure prescribed, there could be no suspension of the
licnece and without the precondition stipulated by the Rules and compliance
thereof, there could be no suspension.
20. Per contra, Mr.V.T.Gopalan, learned Additional Solicitor General
contends that what has been suspended is not a licence but the right in
respect of DTA sales and it is in terms of the undertaking. The learned
Solicitor General contended that it is not a licence, nor it is a part of the
licence and therefore the rules do not apply and the communication of
suspension which is only an interim suspension is valid and it is not liable
to be interfered by this court under Art.26 of The Constitution.
21. The EXIM policy lays down establishment of EOU Units, import of
goods without levy of duty, export of goods and after achieving the export
obligation it also enables the EOU to dispose of part of its products in the
local market. The said three limbs of the policy or licence form part of the
licence. A licence cannot be divided into compartments as it is a bundle of
rights which confers the privilege or obligation in respect of EOU under the
Export and Import Policy. The policy has been framed by virtue of the
statutory powers conferred under section 5 of the Foreign Trade (Development
and Regulation) Act. Therefore the policy as notified is also impressed with
the character of a statutory Notification and hence there cannot be any
controversy in this respect.
22. As seen from the policy, the EOU is established in terms the EXIM
policy. Under the policy EOU is permitted to import goods free of duty. The
EOU has to export, which export is free of various levies or duties or taxes
and the EOU is also conferred with the privilege of DTA sales. The licence
consists of all the three privileges or obligation and it is a comprehensive
one, besides form part of the licence granted to the petitioner. The said
licence consists of three facets and it being a comprehensive cannot be
compartmentalised for any purpose.
23. A perusal of the licence, the permission granted in favour of the
petitioner, which is a 100% EOU, the unit is enabled to effect sale of goods
manufactured in DTA Sales as prescribed by the Policy and those sales are
subject to levy of excise duty. Condition 3 of the licence reads thus:-
“3. The finished products authorised for manufacture under the scheme
shall be exempt from payment of excise duties on their export from India
subject to the observance of the prescribed procedures. Export duties shall
be leviable unless specifically exempted. The sale of goods manufactured in
DTA would be permitted as per prescribed policy and excise duties shall be
levied as per prescribed rates. The clearance of rejects, waste or scrap
material rags, trimmings, etc., shall be governed by the provisions of policy
as notified from time to time and clearance by customs authorities in
accordance with their notifications.”
24. A perusal of the licence would show that all the three facets,
viz., Export, Import and DTA sale form the licence. It may be that the EOU
may not effect DTA sales, but depending upon the market condition it is open
to the EOU to effect DTA Sales or export the entire product manufactured by
it. The DTA sale is part of the licence which the EOU earns dependign upon
its performance in the Export obligation and on being satisfied the EOU is
granted permission to effect DTA sale as part of licence. Therefore on a
reading of the Act, the Rules and the Policy and the licence conditions, this
court sustains the contention of Mr.C.Natarajan, learned senior counsel that
DTA sale is part of the licence and it is a licence by itself and the
contention to the contra advanced by the learned Additional Solicitor General
cannot be countenanced.
25. The learned senior counsel appearing for the petitioner rightly
referred to a notification namely the General Exemption Notification No.55 in
support of his interpretation that the DTA sale is a licence in accordance
with the provisions as found in sub-paragraphs (a)(b)(c) and (d) of paragraph
9.9 or of paragraph 9.20 of the EXIM policy, dated 1st April 1997. The
material portion of the Notification reads thus:-
“EXEMPTION TO ALL EXCISABLE GOODS PRODUCED IN 100% EOU, FTZ, EHTP OR STP UNITS
WHEN SOLD IN INDIA:- In exercise of the powers conferred by sub section (1) of
Section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central
Government, being satisfied that it is necessary in the public interest so to
do, hereby exempts all excisable goods (hereinafter referred to as the said
goods) specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of
1986) and produced or manufactured in a hundred per cent export oriented
undertaking or a free trade zone or an Electronic Hardware Technology Park (
EHTP) unit or a Software Technology )arks (STP) Unit and allowed to be sold in
India under and in accordance with the provisions of Sub paragraphs (a)(b)(c)
and (d) of paragraph 9.9 or of paragraph 9.20 of the Export and Import Policy,
1, April, 1997 till 31 March, 2002, from so much of the duty of excise
leviable thereon under Section 3 of the said (Central Excise Act) as is in
excess of the amount calculated at the rate of fifty per cent of each of the
duties of customs, which would be leviable under the Customs Act, 1962 (52 of
1962) or under any other law for the time being in force, read with any
notification for the time being in force in respect of the duty so chargeable
on the like goods produced or manufactured outside India if imported into
India.”
26. Further attention of the court was drawn to the definition of
licence as defined in Section 2 (g) of the Foreign Trade ( Development and
Regulation) Act, 1992. The very nature of Licence under the Scheme definitely
means not only a licence to import or export, but includes a customs clearance
permit and any other permission issued like DTA Sales or grant under the Act.
27. Section 9 of the Foreign Trade (Development and Regulation) Act,
1992 provides for suspension and cancellation of licence. Sub section (4) of
Section 9 reads thus:-
“(4) The Director General or the officer authorised under sub section
(2) may, subject to such conditions as may be prescribed, for good and
sufficient reasons, to be recorded in writing, suspend or cancel any licence
granted under this Act.
Provided that no such suspension or cancellation shall be made except
after giving the holder of the licence a reasonable opportunity of being
heard.”
28. When once the court comes to the conclusion that DTA Sale is a
part of the licence, which privilege the EOU earns by its exports, then it
follows that it is part of licence which enables the EOU to effect DTA sales.
Being a licence or part of licence or one facet of licence granted under the
EXIM policy, which was notified in exercise of powers conferred under Section
5 of the Foreign Trade ( Development and Regulation) Act, 1992, the suspension
of the license shall be effected, if at all only in terms of the provisions of
the Act and the Rules framed thereunder and not otherwise.
29. Before suspending the licence in terms of Proviso to Sub section
(4) of Section 9 it is mandate to give a notice to the holder of the licence,
a reasonable opportunity of being heard. Proviso to Sub Section (4) mandatory
and it obligates the Director General or Officer authorised to grant a
reasonable opportunity of being heard before suspending the licence which
licence also takes in or include the DTA Sales. That apart, the Director
General has to record reasons in writing before suspending the licence. Such
suspension could be imposed for good and sufficient reasons as it is a
restriction o the licence and that part of DTA Sales already earned.
30. In the present case, admittedly, the petitioner has not been
given a reasonable opportunity of being heard. Section 9 (4) makes no
difference between a suspension of a licence as a substantial order of penalty
or an interim suspension. Under section 19 of the Foreign Trade (Development
and Regulation) Act, 1992 Rules have been framed. Rule 9 provides for
suspension of a licence. The licence could be suspended under Sub Rule (1) of
Rule 9, if an order of detention has been made under The Conservation of
Foreign Exchange and Prevention of Smuggling Activities Act, 1974, or if such
an order of detention has been passed against a partner or a Managing Director
of Partnership firm or a Private Limited Company Being grantee of a licence,
sub rule (2) of Rule 9 provides that the Director General or an Authorised
Officer may suspend the operation of any licence under the Rules when
proceeding for cancellation of such licence has been initiated under Rule 10.
31. In the present case Sub rule (1) has no application. Sub Rule (2
) of Section 9 if at all could be a source of power to suspend. But, sub rule
(2) of Rule 9 could be invoked provided proceedings for cancellation of such a
licence is initiated or being initiated under Rule 10. Rule 10 contemplates
cancellation if the license is obtained by fraud, suppression of facts or
misrepresentation or the licensee has committed a breach of any of the
conditions of the licence or the licensee has tampered with the licence in any
manner or the licensee has contravened any law relating to customs or foreign
exchange or the rules and regulations relating thereto.
32. In the present case, assuming for the purpose of arguments that
an order of cancellation could be passed for the alleged violation which was
detected by the Central Excise Authority, but, till date no proceeding has
been initiated to cancel the licence granted under the Rules. Therefore Rule
10 cannot be relied upon.
33. DTA Sales, though it comes under the third facet of the licence,
suspension of DTA Sales which is nothing but suspension of a privilege
conferred under the licence, such suspension should be in conformity with the
statutory provision and DTA Sales cannot be suspended as a matter of course
since it is a privilege which the EOU has earned by its earlier exports. In
other words, even suspension of one facet of the licence also attract the same
rule and such suspension shall also be only in terms of the said Rules.
34. On a conspectus reading and consideration of the statutory
provision, the rules and license conditions, the order of suspension of the
third facet of the licence, namely DTA Sales , if at all could have been made
under Sub Section (4) of Section 9 and such suspension shall be made after
giving a reasonable opportunity. Concedingly, no such reasonable opportunity
has been afforded to the petitioner as seen from the very impugned
proceedings. Though it is pointed out that the import by the petitioner is
not interfered, So also the export, but DTA Sales alone has been interfered,
this would mean the third facet of licence or privilege conferred under the
licence granted to the petitioner, a valuable right accrued in favour of the
the petitioner, a 100% Export Oriented Unit, is suspended and such suspension
not being in conformity with the statutory provisions, is liable to be
quashed.
35. In the result, the writ petition is allowed. The impugned
proceedings is quashed. However, liberty is given to the respondents to pass
fresh orders according to the provisions of the Act and the Rules framed
thereunder.
Consequently, connected WPMP is closed. The parties shall bear their
respective costs.
Index:Yes
Internet:Yes
gkv
copy to:-
1. The Joint Development Commissioner,
Madras Export Processing Zone
Tambaram, Chennai-45
2. The Assistant Commissioner of Central Excise
Virudhunagar
3. The Commissioner of Central Excise
Madurai