Gujarat High Court
Reliance Industries Limited vs Union Of India on 5 October, 2018
Equivalent citations: AIRONLINE 2018 GUJ 168
Author: Akil Kureshi
Bench: Akil Kureshi, B.N. Karia
C/SCA/7254/2018 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 7254 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
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RELIANCE INDUSTRIES LIMITED
Versus
UNION OF INDIA
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Appearance:
for the PETITIONER(s) No. 2
MR JAYDEEP PATEL, MS. SHILPA BALANI WITH MR DILIP L
KANOJIYA(3691) for the PETITIONER(s) No. 1
MR NIRZAR S DESAI(2117) for the RESPONDENT(s) No. 1
NOTICE SERVED(4) for the RESPONDENT(s) No. 2
UNSERVED WANT OF TIM(31) for the RESPONDENT(s) No. 3,4
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 05/10/2018
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Page 1 of 13 C/SCA/7254/2018 JUDGMENT
1. Petitioners have challenged an order-in-appeal dated 14.03.2018 passed by the Director General of Foreign Trade. The challenge arises in following background:
2. Petitioner No.1 is a public limited company. Petitioner No.2 is the Director of the company. During the period between June 2007 and March 2008, petitioner No.1-company was charging as 100% as Export Oriented Unit ['EOU' for short]. During such period, the respondent authorities had granted reimbursement of central sales tax on goods manufactured in India and received by the petitioner as an EOU. This was in terms of the Foreign Trade Policy 2004-09 and, in particular, para 6.11 (c) contained therein.
3. Nearly five years later, the respondents wrote a letter to the petitioner on 30.10.2013 stating that audit conducted had detected that the petitioner had been incorrectly granted reimbursement of CST paid on raw material, components, consumers' packing materials etc. purchased from units situated in Domestic Tariff Area ['DTA' for short]. According to the respondents, as per para 14-I-I of the handbook of procedures, an EOU would be entitled to reimbursement of CST in respect of only those purchases made from DTA which are used for production of goods meant for export or utilized for export services. The CST paid on raw materials etc purchased from DTA which are used in manufacture of goods sold in DTA would not be eligible for reimbursement of CST.Page 2 of 13
C/SCA/7254/2018 JUDGMENT
4. The petitioner replied to the said letter under communication dated 19.11.2013 contending inter alia that reimbursement of CST is granted under foreign trade policy 2004-09. Such substantive provision contained in the foreign trade policy did not envisage any restrictions on the right of reimbursement.
The provisions contained in the handbook of procedures cannot override substantive provisions made in the foreign trade policy.
5. For nearly two years thereafter, no further developments took place. The respondents, however, issued a show cause notice dated 31.12.2015/04.01.2016 to the petitioners in exercise of powers conferred under section 9 of the Foreign Trade [Development and Regulation] Act, 1992 (hereinafter to be referred to as the Act of 1992]. Under such show cause notice, petitioner No.1 was called upon to show cause why action should not be taken in terms of section 9 of the Act of 1992 for recovery of CST amounting to Rs. 3,68,25,760/- which was reimbursed to the petitioner during the period between 2007-
08. The prime reason indicated in the said show-cause notice was that the petitioner was not entitled to reimbursement of CST on goods purchased from DTA which were used in manufacture of final products and were allowed to be cleared in DTA.
6. The petitioner filed a detailed reply to the said show-cause notice on 16.06.2016 taking several grounds including the Page 3 of 13 C/SCA/7254/2018 JUDGMENT question of jurisdiction of the officer to cause recovery, the very foundation of the belief that reimbursement of CST was wrongly made and such other grounds.
7. Respondent No.2-authority passed order dated 09.09.2016 confirming the demand of Rs. 3,68,25,760/-. He also imposed penalty of Rs. 1 crore on the petitioner No.1.
8. The petitioners preferred appeal before the appellate authority against said order dated 09.09.2016. In such appeal, the petitioners placed heavy reliance on the decision of Division Bench of this Court in case of Ashahi Songwon Colors Ltd. vs. Union of India reported in 356 ELT 532. The petitioners also raised the ground of gross delay in initiation of the show- cause notice proceedings. The appellate authority, however, by impugned order dated 14.03.2018, dismissed such appeal. Hence, this petition.
9. Learned counsel for the petitioners mainly focused on the issue of delay in initiation of the proceedings and also on the very question of reimbursement of CST in facts of the case. Counsel for the petitioner submitted that in the Foreign Trade Policy, there is a clear right vested in an EOU to claim reimbursement of CST on the purchases made of raw materials inputs etc. from DTA units. This policy does not make any distinction whether such raw materials and inputs are utilized for goods which are ultimately exported or cleared in the local Page 4 of 13 C/SCA/7254/2018 JUDGMENT market. He pointed out that the policy of the Government of India permitted every EOU to clear a certain percentage of his produce within the domestic area. The handbook of procedures cannot override this provision. He further submitted that the reimbursements were made as far back as in the year 2007-08. Show-cause notice for recovery was issued in the year 2016. There was thus gross delay in initiation of the proceedings. Heavy reliance was placed on the decision of Division Bench of this Court in case of Ashahi Songwon Colors Ltd. (supra) in support of both the contentions. Reliance is also placed on another decision of this Court in case of Jayant Agro Organics Limited vs. Union of India dated 25.04.2018 in Special Civil Application No. 3434 of 2018. In such judgement, the Court, relying on the decision in case of Ashahi Songwon Colors Ltd. (supra), quashed the demand primarily on the ground of delay and laches on part of the department. Counsel pointed out that the department's SLP against the judgement of Ashahi Songwon Colors Ltd.(supra) was dismissed by the Supreme Court.
10. On the other hand, learned counsel for the department resisted the petitions contending that the authorities have passed orders in accordance with law. The fact situation in case of the present petitioner and Ashahi Songwon Colors Ltd. (supra) was different.
Page 5 of 13C/SCA/7254/2018 JUDGMENT 11. Having thus heard learned counsel for the parties and having
perused the documents on record we may notice that the Foreign Trade Policy 2004-09 contained Chapter-6 which pertained to Export Oriented Units, Electronic Hardware Technology Parks, Software Technology Parks and Biotechnology Parks. This chapter made certain special provisions and granted special benefits to such units. Para 6.9 recognized the right of an EOU to clear certain portion of their manufactured goods within DTA, of-course subject to conditions. Para 6.11 pertained to entitlement for supplies from the DTA. Clause (c) thereof inter alia provided that the supplies from DTA to EOU would be regarded as deemed exports and DTA supplier shall be eligible for relevant entitlements under Chapter 8 of FTP, besides discharge of export obligation, if any, on the supplier. Clause (c) of para 6.11 further provided that in addition, the EOU units shall be entitled to the benefits provided in clauses (i) to (vi) contained therein. Sub-clause (i) in particular, provided for reimbursement of central sales tax on goods manufactured in India.
12. The Foreign Trade Policy thus entitled an EOU to reimbursement of CST on its purchases made from DTA units. This provision did not make any distinction between the consumption of the goods purchased from DTA for production of goods meant for export or for domestic clearances.
Page 6 of 13C/SCA/7254/2018 JUDGMENT
13. The Director of foreign trade had laid down the procedure which was compiled in the form of handbook of procedures. Appendix 14-I-I contained therein laid down "the procedure to be followed for reimbursement of Central Sales Tax ['CST'] on supplies made to Export Oriented Units [EOUs] and units in Electronic Hardware Technology Park [EHTP] and Software Technology Park [STP]". The note contained in this Appendix also refers to para 6.11 (c)(i) of Chapter 6 of Foreign Trade Policy. Para 1 of this Appendix provides that the procedure given hereunder shall be applicable for reimbursement of Central Sales Tax. Relevant portion of para 2 reads as under:
"2. The Export Oriented Units (EOUs) and units in Electronic Hardware Technology Park (EHTP) an Software Technology Park (STP) will be entitled to full reimbursement of Central Sales Tax (CST) paid by them on purchases made from the Domestic Tariff Area (DTA), for production of goods and services as per EOU Scheme on the following terms and conditions:
(a) The supplies from DTA to EOU/EHTP/STP units must be utilized by them for production of goods meant for export and/or utilized for export of services and may include raw material handling equipment etc. on which CST has been actually paid by the EOU/EHTP/STP."
14. The respondents therefore rely on this condition to contend that there was erroneous reimbursement of central sales tax to the petitioners for the goods procured from DTA units which were utilized for manufacture of goods not for Page 7 of 13 C/SCA/7254/2018 JUDGMENT export but for clearances in the local market. In this context, the main argument of the petitioners is that the procedure laid down by the Government of India for granting reimbursement of central sales tax, cannot contain a condition which will curtail the right granted in the substantive provision contained in the Foreign Trade Policy.
15. Under very circumstances, such an argument came to be considered by this Court in case of Ashahi Songwon Colors Ltd.(supra). It was a case in which, the petitioner-company was situated in Kandla zone and was a 100% EOU. In the course of its manufacturing activity, the petitioner had purchased raw material manufactured in India. The manufacturers of such goods were situated either in DTA or non-domestic tariff areas such as EOU. In terms of Foreign Trade Policy 2004-09 on the purchases made by the petitioner between 2006-08, it claimed central sales tax reimbursement which included purchases of goods manufactured by units situated in EOUs. Such claims were granted and reimbursement which included purchases of goods manufactured by units situated in CST was also made. Many years later, the departmental authorities had a second thought. They were of the opinion that the petitioner's purchases of goods from non-domestic areas would not satisfy the conditions for reimbursement of CST as per Appendix 14-I-I of handbook of procedures. In this context, the Court upheld the contention of the petitioner therein that the handbook of Page 8 of 13 C/SCA/7254/2018 JUDGMENT procedure cannot override the substantive provisions made in the foreign trade policy. The Court held and observed as under:
17. As noted, the Foreign Trade Policy was formulated by the Government of India in exercise of powers under section 5 of the Act. Para. 6.11 of the said policy carries the title "Entitlement for supplies from the DTA". Though this title would prima facie suggest that para. 6.11 concerns the entitlement of an EOU when the goods are supplied from a DTA, however, as is well settled, a title to a statutory provision or for that matter any other document would not necessarily govern the plain language used therein and can, at best, be used for guidance. In this context, we may note that clause(a) of para 6.11 provided interalia that supplies from DTA to EOU/EHTP/STP/BTP units will be regarded as "deemed exports" and the DTA supplier would be eligible for relevant entitlements under chapter 8 of the Foreign Trade Policy, besides discharge of export obligation on the supplier.
Clause (b) of para. 6.11 provides that suppliers of precious and semiprecious stones, synthetic stones and processed pearls from DTA to EOU would be eligible for grant of replenishment authorisations at rates and for specified items. Thus these two clauses (a) and (b) specifically dealt with the supplies made by a DTA to an EOU or other similar units such as EHTP,STP, etc. In contrast clause(c) did not use any expression that the same would be confined to a sale by a DTA unit. Clause (c) starts with the expression "In addition, EOU/EHTP/STP/BTP units shall be entitled to the following". Subcause (i) of clause(c) provides for reimbursement of Central Sales Tax (CST) on goods manufactured in India. Subclause(ii) provides for exemption from payment of Central Excise Duty on goods procured from DTA on goods manufactured in India.
18. A minute scrutiny of these provisions contained in para. 6.11 would reveal that the language used in clauses (a), (b) and
(c), in general, was not made limited to the supplies from a Page 9 of 13 C/SCA/7254/2018 JUDGMENT DTA unit. As noted, clauses(a) and (b) both confined their application to the supplies made by the DTA unit. Clause(c) itself contained two situations. In subclause(i) what was envisaged was reimbursement of CST on goods manufactured in India. Subclause (ii) envisaged exemption from payment of CST on goods purchased from DTA on goods manufactured in India. Thus the policy wherever intended to limit the benefit of an EOU on procurement made from a DTA unit, it was so specifically provided. When therefore, subclause(i) of clause
(c) of para 6.11 did not make any such reference to the procurement from a DTA unit but used the expression "goods manufactured in India", it must be understood that this clause would govern the goods purchased by EOU unit from any unit as long as the condition of goods being manufactured in India is satisfied. In plain terms, therefore, the Foreign Trade Policy 20042009 did not limit the benefit of CST reimbursement to a EOU on purchases made only from a DTA unit.
19. If this be the conclusion, the immediate question that would arise is, could the authorities have restricted the benefit only in case of procurement from a DTA unit through the procedure laid down for implementation of Foreign Trade Policy? We have noticed that the Director General of Foreign Trade in terms of section 6 of the Act has certain delegated powers which would include powers to frame such procedures. Subsection(3) of section 6 however, excludes the delegation of such powers to those contained under sections 3, 5, 15, 16 and 19 of the Act. In exercise of powers under section 6, the Director General of Foreign Trade could not have framed or altered the Foreign Trade Policy. We may refer to the Division Bench judgment of this Court in case of Alstom India Ltd. v. Union of India reported in 2014 (301) E.L.T. 446 (Guj.), in which it was observed as under :
"28. We find that the Respondent No.2, namely, DGFT, through Para 8.3.6 of the HOP has incorporated by reference the provisions of Duty Drawback Rules mutatis mutandis to the FTP and HOP. We find substance in the contention of Mr Ghosh that the HOP is nothing but an administrative guideline as would appear from a combined reading of Para 2.4 of the Page 10 of 13 C/SCA/7254/2018 JUDGMENT FTP and Section 6 of the FTDR Act. We have already pointed out that Section 3 of the FTDR Act grants power to the Respondent No.1 to make provisions relating to imports and exports and the Respondent No.1 under Section 5 of the FTDR Act can formulate and announce the foreign trade policy. It further appears from Section 6(3) of the FTDR Act that of the powers conferred upon the Respondent No.1 under the FTDR Act, except those provided in Sections 3,5,15,16 and 19, all others can be delegated to the Respondent No.2 by order published in the Official Gazette. We find that the Respondent No.2 through Para 8.3.6 of the HOP has sought to incorporate the provisions of Duty Drawback Rules to deemed exports mutatis mutandis which is not permissible in view of the fact that no power has been granted to the DGFT under the FTDR Act to legislate either directly or by way of incorporation by reference. It is now a settled law that the separation of power between the legislature and executive forms part of the basic structure of the Constitution of India and any attempts by the executives to legislate without appropriate authority under the law would amount to violation of the basic structure of the Constitution of India. The power to legislate is incorporated under Article 246 of the Constitution of India and such power has been conferred on the Parliament and the State Legislature. Moreover, the power to frame Duty Draw Back Rules under the FTDR Act can be legislated by the Central Government only in exercise of power conferred under Section 19 in the manner prescribed under the FTDR Act and the same cannot be delegated to the Respondent no. 2 as expressly prohibited by Section 6(3) of the above Act.
29. We, thus, find that any attempt by the executives to legislate without the authority of law should be branded as a colourable device and therefore, the same is in violation of Article 246 of the Constitution of India. If we accept the contention of Mr Raval that the Respondent No.2 is authorized to incorporate the duty drawback Rules by reference, it would amount to acceptance of the proposition that the Respondent No.2 is authorized to deal with under the FTDR Act, the similar matters relating to duty and tax refunds as provided under Section 75 of the Customs Act, Section 37 of the Central Page 11 of 13 C/SCA/7254/2018 JUDGMENT Excise Act and Section 93A read with Section 94 of the Finance Act, 1994 although not authorized under the FTDR Act. We are in agreement with Mr Ghosh, the learned advocate for the petitioner, that the conferment of such power to the Respondent No.2 to adopt the duty drawback rules without any power to legislate either expressly or otherwise would amount to permitting the levy or collection of tax without authority of law in violation of Article 265 of the Constitution of India."
21. Even otherwise, the Hand Book of Procedures and in particular Appendix14-I-I contained therein nowhere aims to lay down any policy but prescribes the procedure to be followed for reimbursement of CST. It is undoubtedly true that para.2 of this Appendix restricts the CST reimbursement on purchases made by an EOU from a DTA unit. However, this restriction in our opinion would run counter to the terms of FTP itself and ultra vires the powers of the Director General of Foreign Trade. The title of the Appendix itself provides that it is a procedure to be followed for reimbursement of Central Sales Tax. Para.1 further clarifies that the procedure given in the said annexure shall be applicable for reimbursement of CST. There is little doubt therefore, that Appendix 14II aimed to lay down the procedure for claiming the benefit. In any case, such procedure could not have restricted the benefit by excluding the purchases from certain source which exclusion did not flow from the Foreign Trade policy itself."
16. The Court in the said case also found that the action initiated by the department was rather belated in this context. It was observed as under:
"24. There is yet another angle why we would not permit the respondents to make recoveries. As noted, the claim pertained to period between 2006 and 2008. They were made at the relevant time and granted by the respondents without any Page 12 of 13 C/SCA/7254/2018 JUDGMENT dispute. Such reimbursements are now sought to be recovered for which show cause notice came to be issued on 10.7.2015. It is not the case of the respondents that the petitioner was responsible for any misrepresentation or misstatement of facts which resulted into such erroneous reimbursement being granted and which came to the notice later on. That being the position, it was not possible for the respondents to make recoveries after unduly long period of time which in the present case happens to be more than seven years, that too, without any explanation for such delayed action."
17. Under the circumstances, order-in-appeal dated 14.03.2018 is set aside. Resultantly, the order in original would not survive. Petition is allowed and disposed of accordingly.
(AKIL KURESHI, J) (B.N. KARIA, J) JYOTI V. JANI Page 13 of 13