Gujarat High Court
Phthalo Colours And Chemicals (India) ... vs Union Of India on 5 October, 2018
Bench: Akil Kureshi, B.N. Karia
C/SCA/12808/2018 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION No. 12808 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 ? No
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy of the judgment ? No
4 Whether this case involves a substantial question of law as to the No
interpretation of the Constitution of India or any order made thereunder ?
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PHTHALO COLOURS AND CHEMICALS (INDIA) LIMITED
Versus
UNION OF INDIA
==============================================================
Appearance :
Mr PRAKASH SHAH with Mr DHAVAL SHAH, Advocates for the PETITIONERS
Mr NIKUNT K RAVAL, Advocate for the RESPONDENT(s) No. 2
NOTICE SERVED (4) for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI
and
HONOURABLE Mr. JUSTICE B.N. KARIA
5th October 2018
ORAL JUDGMENT (PER : HONOURABLE Mr. JUSTICE AKIL KURESHI)
The petitioners have challenged an orderinoriginal dated 16th July 2018 passed by the respondent no. 2. The petitioners' challenge arises in the following background. Page 1 of 11
C/SCA/12808/2018 JUDGMENT The petitioner no. 1 is a company registered under the Companies Act, 1956. The petitioner no. 2 is the director of the petitioner no. 1Company. The company is engaged in the manufacturing and export of the goods. The petitionercompany is recognized as a 100% Export Oriented Unit ["EOU" for short] for its manufacturing activities. The petitioner would purchase raw materials and inputs from the units situated in Domestic Tariff Area ["DTA" for short]. The petitioner also would purchase furnace oil. In terms of the Foreign Trade Policy prevailing at the relevant time ie., the Foreign Trade Policy 20042009, the petitioner used to claim reimbursement of the Central Sales Tax paid on raw materials and inputs purchased from the units situated in DTA. On the purchase of oil, the petitioners would claim duty drawback in terms of the provision contained in the Foreign Trade Policy. Subject to fulfillment of conditions, a portion of the petitioners' production could be sold within the DTA.
Several years later, the respondents raised two objections viz., [i] the petitioners' claim of reimbursement of Central Sales Tax on the purchases made from the DTA units which were utilized Page 2 of 11 C/SCA/12808/2018 JUDGMENT for manufacture of goods sold in the local market; and [ii] the petitioners' claim of duty drawback on purchase of furnace oil on the ground that the same was not purchased from the depots of the domestic oil companies, but from its dealers.
Eventually, the respondentauthorities issued a show cause notice on 8th February 2017 and sought to recover both the amounts paid to the petitioner many years back. The petitioners resisted the proceeding on several grounds; including the ground of limitation. The authority passed the impugned order dated 16th July 2018 confirming the demands. Hence, this petition.
Learned counsel for the petitioners submitted that [i] the objection of the respondents to the reimbursement of the Central Salestax for the goods sold by the petitioners in the local markets was wholly unjustified. He submitted that the Foreign Trade Policy 20042009 granted the benefit of reimbursement of Central Sales Tax. This policy did not make any distinction between such goods being utilized for production of final products which would be sold within the local market, or which would be exported. He submitted that no such condition can be imposed through the Page 3 of 11 C/SCA/12808/2018 JUDGMENT Hand Book of Procedures, as was sought to be done in the present case. [ii] With respect to the petitioners' claim of duty drawback, counsel submitted that there was no restriction in the foreign trade policy. The drawback would be available only when the purchases are made by the Units from the depots of oil companies directly. The circular which imposes such a restriction is arbitrary and discriminatory. [iii] Counsel submitted that in any case, both the grievances were barred by latches and delay. [iv] Counsel for the petitioners submitted that these issues were considered at length by this Court in the case of Asahi Songwon Colours Limited v. Union of India, reported in 2017 [356] ELT 532 [Guj.].
On the other hand, counsel for the Department opposed the petition contending that the Hand Book of Procedures lays down a specific condition to claim reimbursement of Central Sales Tax. The petitioner had not fulfilled such conditions. The demand of refund was therefore justified. He further pointed out that as per the Government of India Circular dated 5th December 2005, only the fuel procured from the depots of domestic oil companies would qualify for duty drawback. In case of petitioners, the Page 4 of 11 C/SCA/12808/2018 JUDGMENT procurement was not from the depots of the domestic oil companies.
Material on the record suggests that the show cause notice made demand of recovery of Central Sales tax reimbursed to the petitioners between April to June 2007. Likewise, the demand of recovery of duty drawback also pertains to two quarters viz., April to June 2007 and October to December 2007. For such purposes, show cause notice was issued on 8th July 2017 ie., nearly ten years later.
In case of Asahi Songwon Colours Limited [Supra], this Court had examined the correctness of imposition of a condition in the Handbook of Procedures for claim of the benefit by an EOU which was granted under the Foreign Trade Policy. The Court was of the opinion that such condition which did not find place in the policy could not have been introduced in the guise of procedure to be followed for making the claim. In the said case, the Court also considered the question of delay in initiating procedure for recoveries. Relevant observations of the Court, read thus "18. A minute scrutiny of these provisions contained in para. 6.11 would reveal that the Page 5 of 11 C/SCA/12808/2018 JUDGMENT language used in clauses (a), (b) and (c), in general, was not made limited to the supplies from a 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 sub clause (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 Page 6 of 11 C/SCA/12808/2018 JUDGMENT 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 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 Page 7 of 11 C/SCA/12808/2018 JUDGMENT 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 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 Page 8 of 11 C/SCA/12808/2018 JUDGMENT authority of law in violation of Article 265 of the Constitution of India."
"21. Even otherwise, the Hand Book of Procedures and in particular Appendix14II 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.
23. xx xx xx
24. xx xx xx
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.Page 9 of 11
C/SCA/12808/2018 JUDGMENT They were made at the relevant time and granted by the respondents without any 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."
We find that the issue of reimbursement of Central Sales tax is substantially covered by the judgment of this Court in the case of Asahi Songwon Colors Limited [Supra]. On merits, regarding the claim of recovery of duty drawback, we find that the issue can be seen in light of gross delay and latches on the part of the Department and the observations made by this Court in the case of Asahi Songwon Colors Limited [Supra] in para21 noted above.
While therefore keeping the question of the Department's stand of non eligibility of duty draw back on oil purchases made Page 10 of 11 C/SCA/12808/2018 JUDGMENT from the distributors or dealers of the domestic oil companies and not directly from the depots open, this petition is allowed by setting aside the impugned order.
Petition stands disposed of accordingly.
[Akil Kureshi, J.] [B.N Karia, J.] Prakash Page 11 of 11