Gujarat High Court
Geetanjalil Woollens Pvt Ltd & vs Union Of India & 3 on 3 April, 2014
Bench: Akil Kureshi, Sonia Gokani
C/SCA/16768/2013 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION No. 16768 of 2013
================================================================
GEETANJALIL WOOLLENS PVT LTD & 1....Petitioner(s)
Versus
UNION OF INDIA & 3....Respondent(s)
================================================================
Appearance:
Mr KAMAL TRIVEDI Sr Advocate with Mr PARESH M DAVE and Mr. PARITOSH GUPTA,
Advocates for the Petitioners
Mr IH SYED, Asstt. Solicitor General of India with
Mr RITURAJ M MEENA, ADVOCATE for the Respondent(s) No. 1
NOTICE SERVED for the Respondent(s) No. 2 4
================================================================
CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI
and
HONOURABLE Ms. JUSTICE SONIA GOKANI
3rd April 2014
ORAL ORDER (PER : HONOURABLE Mr. JUSTICE AKIL KURESHI)
Petitioners have challenged the action of the respondents in restricting the Letter of Permission {"LOP" for short} granted in favour of the petitioners as also a decision of the Board of Approval dated 8 th October 2013 by which the Board refused to accept the petitioners' representation to withdraw the restrictions on the LOP. The petitioners have also challenged para 7 of Appendix 14IC of the Exim policy as being ultra vires Articles 14, 19(1)(g) of the Constitution of India. There are consequential prayers but all revolve Page 1 of 33 C/SCA/16768/2013 ORDER around these main two challenges.
2. Facts in brief are as under : 2.1 The petitioner No. 1 is a company registered under the Companies Act, 1956. The petitioner No. 2 is its Chairman and Managing Director. The petitioners are engaged in the business of manufacture of textile products like fibers and clips and are recognized as 100% Export Oriented Undertaking ["EOU" for short].
2.2 On 1st October 1997, the Government of India granted LOP to the petitioners which was subject to the conditions contained in such letter as well as in a separate annexure annexed to the LOP. Some of the relevant conditions were that the unit would export its entire production in the domestic tariff area as per the provisions of Export and Import policy for a period of five years. At the end of such period, the unit would have an option either to seek renewal of its EOU status or to debond for production for domestic market "in light of the industrial policy in force at the time in relation to manufacture of the items reserved for small scale sector and sectoral policy prevailing at that point of time." The unit had to achieve specified standards of export in value. The commercial production had to start within three years from the date of issuance of LOP. The petitioners had to confirm the acceptance of the said terms and conditions.
Page 2 of 33 C/SCA/16768/2013 ORDER 2.3 At the end of the period of validity of first LOP, the petitioners were granted periodic extensions. The first extension was granted under letter dated 15/21st February 2000 where certain conditions were added but it was specified that all other terms and conditions mentioned in the LOP would remain unaltered. In further extension granted on 19th March 2004, the validity of LOP was extended upto 23rd October 2005. On 29th November 2010, yet another extension was granted to the petitioners for a period upto 23rd October 2015. In such letter, it was specified that the LOP dated 1st October 1997 was extended for a further period of five years upto 23rd October 2015, on the basis of revised projections in terms of para 6.6 [a] of the Foreign Trade Policy 20092014. It was specified that, "this permission is issued subject to guidelines issued by the Department of Commerce from time to time on the subject of reprocessing of the used garments".
2.4 Despite such extension upto 23rd October 2015, the petitioners received a letter from Deputy Development Commissioner {I/C}, Kandla Special Economic Zone dated 28th September 2012 in which it was stated as under : "I have been directed to convey that the Board of Approval, in its meeting of 14.09.2012, has decided to curtail the validity of your LoP No. PER/276 (1997)/EOB/289/97 dated 01.10.1997 and Green Card No. KASEX/36/0506 dated 25.10.2005 from Page 3 of 33 C/SCA/16768/2013 ORDER 23.10.2015 to 31.03.2013."
3. The petitioners, therefore, approached this Court challenging the abrupt restriction on the validity of the LoP. The Court, by an order dated 6th March 2013 granted ad interim relief to the petitioners. Eventually, the writ petition was disposed of by an Order dated 26th June 2013 requiring the petitioners to make a detailed representation to the Board of Approval and the Board of Approval to decide such representation within the time frame, after granting personal hearing to the petitioners.
4. The petitioners appeared before the Board, made a representation as well as filed detailed written submissions, as also appeared in person. In the written submissions dated 15th July 2013, they raised several contentions with respect to legality of the action of the respondents to restrict the period of validity of the LoP. The Board of Approval, however, by the impugned order dated 8th October 2013, rejected such representation holding that worn clothing and other worn articles is a restricted product. While considering the proposal of one Ms. Prayas Woolens for extension of validity of LoP, who was also engaged in the similar activities, in addition to rejecting such request, the Board had directed that validity of LoP in respect of all similar units should be limited upto 31st March 2013. It was further observed as under : Page 4 of 33 C/SCA/16768/2013 ORDER "7. The unit made its representation before the BOA vide its letter dated 15.07.2013. The unit was, accordingly, asked to appear before the BOA for EOUs during its 4 th meeting (2013) held on 30.08.2013. Representatives of the unit Shri Surendra Goel, Managing Director and Shri Deepak Goel, Director appeared before the BOA and handed over the written submissions, which were taken on record. The representative of the Unit informed that they have nothing more to add to what has been mentioned in the written submissions. The issue was discussed by the BOA in detail. The BOA took into consideration the explicit provision of Chapter 6 of the Foreign Trade Policy [200914] which governs the EOU scheme wherein it has been clearly stated that "Activities pertaining to reprocessing of garments/used clothing/secondary textiles materials/clipping/rags/industrial wipers/shoddy wool/ yarn/blankets/shawls and other recyclable textile materials will not be allowed under EOU schemes". Based on the above, the BOA arrived at a consensus decision that no further extension of validity of LOP of the EOU M/s. Geetanjali Woollens Private Limited would be permitted. In view of the Hon'ble High Court's decision, the validity of LOP would not be permitted beyond 30th September 2012. The appeal was accordingly disposed of."
4.1 The petitioners thereupon once again approached this Court in the present petition. Learned senior counsel Shri Kamal Trivedi for the petitioners drew our attention to the documents on record and raised the following contentions.
Page 5 of 33 C/SCA/16768/2013 ORDER [a] Import and Export policy can be laid down only by the Government of India. The Director General of Foreign Trade has no power or authority to lay down any such policy. The LoP of the petitioners, therefore, cannot be curtailed with reference to any socalled change in the policy made by the Director General of Foreign Trade;
[b] The expression used in para 7 Appendix 14IC to the Exim Policy [2009 14] is that the activities pertaining to reprocessing of the garments etc., "will not be allowed under EOU/SEZ schemes". Such policy could therefore be applied only to the new units seeking permission to start fresh industries. It cannot apply to the existing units, like the petitioners.
[c] Such policy in any case is violative of Articles 14 & 19 (1)(g) of the Constitution - firstly, because no such restriction is imposed on units situated in SEZ areas in the policy promulgated on 17th September 2013; secondly, the activity does not cause any pollution or involve any hazardous substance injurious to the environment. When large number of other activities are freely permitted, putting unreasonable restrictions on the present activities would be violative of Articles 14 and 19 (1)(g) of the Constitution of India. 4.2 It was also contended that such policy was not implemented in case of units situated in SEZ areas.
4.3 In any case, once the extension was granted till 23rd October 2015, the Page 6 of 33 C/SCA/16768/2013 ORDER same could not have been curtailed under any circumstances. That too on the basis of a policy which was prevalent when the extension was granted. It was submitted that on the basis of the permission granted by the respondents, the petitioners have made sizeable investments, undertaken serious commitments, doubled the manpower, machinery and have made imports. Sudden restriction on the validity of the LoP would seriously harm the petitioners' economic interests. The petitioners having undertaken such serious commitments on the basis of the period of validity of the LoP, any curtailment therein would be hit by the principle of promissory estoppel. In this respect, reference was made to several decisions to which we would refer to at a later stage.
5. On the other hand, learned Assistant Solicitor General Shri Saiyed opposed the petition. Relying on the contents of the impugned order of the Board of Approval and the affidavitinreply filed by the respondents, he submitted that due to change in the policy, it was not possible to grant extension to the petitioners for the same activity. While taking up the case of M/s. Prayas Woolens for extension, it was noticed that number of other units have been granted extension in breach of the new policy. The Board of Approval, therefore, decided to curtail the period of all such units.
6. Having thus heard learned counsel for the parties, we notice that the Page 7 of 33 C/SCA/16768/2013 ORDER Foreign Trade [Development & Regulation] Act, 1992 [hereinafter referred to as "the Act of 1992"] was enacted to provide for the development and regulation of foreign trade by facilitating imports into and augmenting exports from India and for matters connected therewith. Section 3 of the Act of 1992 pertains to powers to make provisions relating to imports and exports and reads as under : "3. Powers to make provisions relating to imports and exports (1) The Central Government may, by Order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports.
(2) The Central Government may also, by Order published in the Official Gazette, make provision for prohibiting, restricting or otherwise regulating, in all cases or in specified classes of cases and subject to such exceptions, if any, as may be made by or under the order, the [import or export of goods or services and technology].
[Provided that the provisions of this subsection shall be applicable, in case of import or export of services or technology, only when the service or technology provider is availing benefits under the foreign trade policy or is dealing with specified services or specified technologies.] (3) All goods to which any Order under subsection (2) applies shall be deemed to be goods the import or export of which has been prohibited under section 11 of the Customs Act, Page 8 of 33 C/SCA/16768/2013 ORDER 1962 (52 of 1962) and all the provisions of that Act shall have effect accordingly.
(4) without prejudice to anything contained in any other law, rule, regulation, notification or order, no permit or licence shall be necessary for import or export of any goods, nor any goods shall be prohibited for import or export except, as may be required under this Act, or rules or orders made thereunder."
7. Section 5 of the Act of 1992 pertains to Foreign Trade Policy and provides that the Central Government may, from time to time, formulate and announce, by notification in the Official Gazette, the foreign trade policy and may also, in like manner, amend that policy. Section 6 pertains to appointment of Director General and his functions. Subsection (3) thereof empowers the Central Government to direct that any power exercisable by the Government of India under the Act, other than those under Sections 3, 5, 15, 16 and 19 may also be exercised in such cases and subject to such conditions, as may be specified, by the Director General or the officer subordinate to him.
8. In exercise of power under section 5 of the Act of 1992, the Central Government notified the Foreign Trade Policy, 20092014, which came into effect from 27th August 2009. Para 1.2 of the said Policy provides that it shall come into force with effect from 27th August 2009 and shall remain in force upto 31st March 2014, unless otherwise specified. Chapter 2 of the said policy Page 9 of 33 C/SCA/16768/2013 ORDER contains general provisions regarding imports and exports. Para 2.4 pertaining to the procedure reads as under : "2.4 Procedure DGFT may specify procedure to be followed by an exporter or importer or by any licensing/regional authority or by any other authority for purpose of implementing provisions of FT [D&R] Act, the Rules and the Orders made thereunder and FTP. Such procedures, or amendments if any, shall be published by means of a Public Notice."
9. Chapter 6 pertains to export oriented units [EOUs], Electronics Hardware Technologies Parks [EHTPs], Software Technology Parks [STPs] and BioTechnology Parks [BTPs]. Para 6.1 pertains to eligibility of the units. Para 6.2 pertains to Export and Import of Goods. Clause (b) thereof reads as under : "{b} An EOU/EHTP/STP/BTP unit may import and/or procure, from DTA or bonded warehouses in DTA/international exhibition held in India, without payment of duty, all types of goods, including capital goods, required for its activities, provided they are not prohibited items of import in the ITC (HS). Any permission required for import under any other law shall be applicable. Units shall also be permitted to import goods including capital goods required for approval activity, free of cost or on loan/lease from clients. Import of capital goods will be on a self certification basis. Goods imported by a unit shall be with actual user condition and shall be utilized for export production."
Page 10 of 33 C/SCA/16768/2013 ORDER 9.1 Para 6.6.1 pertains to letter of permission/letter of intent and legal undertaking and reads as under : "(a) On approval, a Letter of Permission (LoP)/Letter of Intent (LoI) shall be issued by DC/designated officer to EOU/EHTP/STP/BTP unit. LoP/LoI shall have a initial validity of 3 years, by which time unit should have commenced production. Its validity may be extended further upto 3 years by competent authority. However, proposals for extension beyond six years shall be considered in exceptional circumstances, on a casetocase basis by BoA. Once unit commences production, LoP/LoI issued shall be valid for a period of 5 years for its activities. This period may be extended further by DC for a period of five years at a time.
(b) LoP/LoI issued to EOU/EHTP/STP/BTP units by concerned authority, subject to compliance of provision in para 6.2 above, would be construed as an Authorization for all purpose.
(c) Unit shall execute an LUT with DC concerned. Failure to ensure positive NFE or to abide by any of the terms and conditions of LoP/LoI/IL/LUT shall render the unit liable to penal action under provisions of FT (D&R) Act and Rules and Orders made thereunder, without prejudice to action under any other law/rules and cancellation or revocation of LoP/LoI/IL."
10. In exercise of powers conferred under para 4.2 of the Foreign Trade Page 11 of 33 C/SCA/16768/2013 ORDER Policy, 20092014, DGFT notified the Handbook of Procedures and the Appendices with such Handbook which would come into effect from 5 th June 2012. Appendix 14IC thereof pertains to sector specific requirements for Export Oriented Units. Para 7 of the said Appendix pertains to textiles and reads as under : "[7] Textiles :
Activities pertaining to reprocessing of garments/used clothing/secondary textiles materials/ clipping/rags/industrial wipers/shoddy wool/yarn/ blankets shawls and other recyclable textile materials will not be allowed under EOU schemes."
11. We have referred to above literature from the policy which is currently prevailing. We may, however, notice that the similar provisions were contained in earlier Handbooks also which was made effective from 1st September 2004. Here also, in Appendix 14IC to the Handbook, with reference to Textiles at para 7, it was provided that activities pertaining to reprocessing of garments/used clothing/secondary textiles materials/ clipping/rags/industrial wipers/shoddy wool/yarn/blankets shawls and other recyclable textile materials will not be allowed under EOU/SEZ schemes.
12. From the above materials, it could be seen that in exercise of powers under Section 5 of the Act of 1992, the Central Government declares the Foreign Trade policies from time to time, typically for a period of five years. With effect Page 12 of 33 C/SCA/16768/2013 ORDER from 27th August 2009, such policy for the period 20092014 came to be announced. Under such policy, scheme has been made available granting permission to the intending units to start their manufacturing activities in EOU scheme. For such purpose, the unit would have to apply for Letter of Permission, subject to compliance of all other requirements. 12.1 In terms of para 2.4, DGFT would specify procedure to be followed by an exporter or importer or by any licensing or regional authority for the purpose of implementing provisions of the Act of 1992 or the rules and the orders made thereunder, as also the Foreign Trade policy. It was in exercise of such powers that the Handbook of Procedures and Appendixes annexed to the handbook came to be published by the DGFT. In para 6.2.2 of the Handbook, it is provided as under "6.2.2 Applications for setting up units under EOU scheme other than proposals for setting up of unit in service sector (except R&D, software and IT enabled services, or any other service activity as may be delegated by BoA), shall be approved or rejected by Units Approval Committee within 15 days, as per criteria indicated in Appendix 14IB and sector specific conditions relating to approval as in Appendix 14IC. In other cases, approval may be granted by DC after clearance by BoA."
13. In this context, we need to refer to Clause 7 of Appendix 14IC, since application for setting up of units under EOU scheme have to be approved or Page 13 of 33 C/SCA/16768/2013 ORDER rejected as per criteria indicated in Appendix 14IC, and sector specific condition relating to the approval as indicated in Appendix 14IC. In the present case for Textiles, such clause (7) provides that the activities pertaining to reprocessing of garments/used clothings/secondary textiles materials, etc., will not be allowed under EOU/SEZ schemes. It is under these conditions that the restrictions were imposed. We do not think that such restriction is invalid or unauthorized. We have traced the source and origin of power for imposing such conditions. Any one desirous of setting up a unit under EOU/SEZ scheme, therefore, had to fulfill such conditions. It would be improper to suggest that such conditions could not have been imposed altogether and that the applications would be governed merely by the Act of 1992 and the Foreign Trade policy promulgated by the Government of India. To implement the purpose of Foreign Trade policy, DGFT was authorized to issue procedures and directives. It was in terms of such powers flowing from para 2.4 of the Foreign Trade Policy : 20092014 that such Handbook of Procedures alongwith Annexures was published.
14. We have referred to this position from the Foreign Trade Policy and the Handbook published by the DGFT which are currently applicable. The same position would obtain for the earlier period under similar circumstances. It would be, therefore, not be necessary to refer to such provisions and to Page 14 of 33 C/SCA/16768/2013 ORDER duplicate our arguments in this respect.
15. The next question is could such policy be applied to the existing units. We may recall that the petitioners were granted LoP in the year 1997, when admittedly such restriction was not existing. Such restriction was applied for the first time in the Policy with effect from 1st September 2004. The contention of the petitioners is that the words used in para 7 is that for the purpose specified therein, permission will not be granted. Second limb of the petitioners' contention is that in any case, such conditions would apply to the new units applying for setting up units under EOU scheme for the first time and not to the units seeking extension of permission already granted.
16. In our opinion, such a contention cannot be accepted. Firstly, even a unit which has been granted LoP, enjoys the same permission for a limited period. Initially, the same was granted, in the present case, for a period of three years and thereafter extended from time to time for a period of five years at a time. In the initial permission itself, one of the conditions was that after the export obligation is over, the unit would have an option to renew its EOU status in light of the industrial policy in force at the time and the sectoral policy prevailing at that time. Renewals therefore had to be governed by the current policy of the Government and a unit which has been recognized and granted Page 15 of 33 C/SCA/16768/2013 ORDER permission at one point of time would have no right to contend that such permission must be renewed as long as the unit fulfills the conditions of the first LoP. No unit would have a right to enjoy LoP in perpetuity only on fulfilling the conditions contained in the first licence, irrespective of any change in the Government policy. Atleast at the end of the period of validity of the LoP, the unit must yield to the Government of India policy changes. In that context, the language used in para 7 that in specified conditions permission will not be granted must be construed as applying equality to any existing unit seeking extension under the Government of India policy. Its applicability cannot be curtailed to only to the new units seeking fresh permission. 16.1 The contention that change in the policy is hit by Articles 14, 19 (1)(g) of the Constitution of India also cannot be accepted. In the affidavitinreply, the respondents stated that the import of used clothing classified under Customs Chapter heading No. 6309 is restricted. Whereas, the used clothes which are mutilated are not restricted and would fall under Customs Chapter Heading No. 6310. It is further stated that, "..the intention of the Government is that the unit who are engaged in the reprocessing and second hand textiles materials should not import any consignment of unmutilated clothing in India in the name of reprocessing that is why the Government has imposed such restriction in Customs Rules and Regulations."
Page 16 of 33 C/SCA/16768/2013 ORDER
17. We notice that a letter dated 17th September 2013 of the Director, SEZ Division, Government of India contains a policy to regulate functioning of worn and used clothing units in SEZs, in which, regarding reprocessing of used garments, detailed provisions have been made. While still permitting SEZ units to deal in such used garments for manufacture of yarn for export, strict conditions have been laid down. In the context of permitting such imports to SEZ units, in the affidavitinreply, it is contended that such policy is exclusively for SEZ units and not for those situated outside SEZ areas. Such units are situated in a demarked area which is surrounded by high walls, operating in SEZ areas under constant watch and monitoring by the Governmental agencies. On such basis, the differentiation for SEZ units and units under EOU scheme is made.
17.1 When the purpose of change in the policy is presented before the Court and which is otherwise reasonable, vulnerability of such policy of the Government in view of Articles 14 and 19 (1)(g) of the Constitution of India would not be lightly attached. It is well settled that in economic and fiscal matters, the Courts recognize considerable leverage in Government's discretionary powers. Reference in this respect can be made to a decision of the Supreme Court in case of Income Tax Officer v. Tikin Roy, reported in 103 ITR
82. In case of PTR Exports (Madras) Private Limited & Anr. vs. Union of India Page 17 of 33 C/SCA/16768/2013 ORDER & Ors., reported in (1996) 5 SCC 268, it was observed that the Government or Legislature has power to evolve its new fiscal policy in public interest which includes its power to withdraw the old policy. The restriction imposed on import of the goods in question cannot be held unconstitutional merely because the industry is a non polluting or is otherwise not environment unfriendly.
18. It is true that between 2004 and 17th September 2013, such policy was common for both the units covered under EOU as well as SEZ schemes. It is true that in case of the present petitioner and other similarly situated units, attempt was made by the respondents to curtail the period of licence on the basis of changed policy. However, no such attempt was made in case of units situated in SEZ areas. Had a new clear policy making a distinction between EOU and SEZ units not coming into existence, as was done on 17th September 2013, a serious question of discrimination between the two otherwise similarly situated industries may have arisen. We have based the EOU and SEZ units on the same platform in this context because as per the earlier Government policy, in case of both the units, restriction for import of worn or used clothings, etc. was commonly applied. Be that as it may, we are in a period post 13 th September 2013 when the Government policy clearly restricts such activities at the hands of EOU units but continues to recognize the same for SEZ units on stricter and more stringent conditions.
Page 18 of 33 C/SCA/16768/2013 ORDER
19. The last question is could the validity of LoP be curtailed ? In this respect, our answer is to be in the negative, and it is so for the following reasons 19.1 After granting LoP in the year 1997, the same was extended from time to time. First extension was made in the year 2000. Thereafter in 2005, for a further period of five years. When this extension was granted on 25 th May 2005, the change in policy had already been brought into effect despite which, for the reasons best known to the respondents, extension for a period of five years was granted. Even after completion of these five years, fresh extension was granted by an order dated 29th November 2010. Thus, being fully aware of the limitations of the new policy, two extensions were granted. By the last extension, the period or LoP was extended upto 23rd October 2015. 19.2 It was only while examining extension application of another unit engaged in the same activity that the Board of Approval suddenly wokeup to an idea that several other units carrying out same activity, extension has been granted despite change in the policy. At one stage, therefore, unilaterally and without hearing the petitioners and other similarly situated units, BoA terminated their LoPs. When the High Court quashed such order and placed the matter back before the BoA, in the fresh round after hearing the petitioners, such termination was made effective w.e.f 30th September 2013. Page 19 of 33 C/SCA/16768/2013 ORDER 19.3 The petitioners had raised detailed submissions before the Board of Approval as well as before us with respect to the promissory estoppal. In the written submissions before the Board of Approval, following aspects were highlighted.
"[C] The approval granted to the petitionerCompany on 1.10.1997 for setting up of a unit under EOU scheme and further approvals/extensions allowed on 25.02.2005 and 29.11.2010 notwithstanding the guidelines contained in Appendix 14IC of the HBP have made the petitioners to believe that their EOU was allowed to operate by the Government authorities and their officers without any restriction or limitation in terms of time/period of operation and therefore the petitioners have altered their position to their detriment. Since the Government authorities herein have never raised any objection against the petitioner's EOU nor have they suggested at any point of time that the petitioner's activities of reprocessing worn clothing and producing clips and fibers therefrom would not be allowed any longer because of conditions in Appendix 14IC, the petitioners have invested substantial funds in their EOU for expansion and also for improvement of technology. The gross block of assets in the audited balance sheets of the company shows that huge funds are invested by the petitioner company year after year because the Government authorities have allowed the petitioner company to operate as an EOU even after guidelines were made in September 2004, and investment of more than Rs. 43.63 million (approximately) is made by the petitioner company in the above EOU by now. A fresh term loan of Rs. 4.5 Crores is Page 20 of 33 C/SCA/16768/2013 ORDER also sanctioned by the petitioner's Bankers on the basis of the projections shown by the petitioners to the Bankers.
The petitioner company has set up two wholly owned subsidiaries namely Kariba Textiles Limited in Zambia and Debre Berhan Blanket Factory PLC in Ethiopia and both these wholly owned subsidiaries utilize raw materials namely clips and fibers supplied to them by the petitioner company under the EOU scheme, and therefore both these subsidiaries would be rendered nonoperational and they would have to be completely closed down if the EOU operations of the petitioner company are not allowed to continue by the Government authorities.
In view of the permissions and extensions granted to the petitioners by the Government authorities from time to time, the petitioner Company has also made long term contracts with various overseas buyers for selling and supplying clips and fibers and the petitioner company would be liable for damages for non performance of contractual obligations if the EOU is not allowed to operate any longer.
The petitioner company has also embarked upon expansion of activities in as much as the manufacturing of yarns is also proposed to be undertaken in the EOU though manufacturing only till clips and fiber stage is undertaken presently. Fibers are a raw materials for Yarns and the petitioner company has therefore envisaged the project for manufacture of yarns in the existing EOU by using Fibers produced out of worn clothing and this activity would ad value to the products that the petitioners would be exporting from EOU. Plant and machinery as well as equipments for Page 21 of 33 C/SCA/16768/2013 ORDER manufacturing yarns have been ordered, part payments for such plant, machinery and equipment have also been made and certain equipments and machinery have already been imported by the petitioner company and they are in process of being installed in the factory. A separate set of buildings and sheds is also constructed by the petitioner company for this plant meant for Yarns. However, the entire project of manufacturing Yarns would have to be shelved if the EOU is not allowed to operate beyond 31.03.2013.
By way of specimen, the details of the sales and supplies made to the above referred two wholly owned subsidiaries and also an Italian buyer who are purchasing the highest quantities of goods from the petitioner company, the letter of Bank of Baroda sanctioning fresh term loan, long term sales contracts and documents about expansion planned by the petitioners are enclosed and marked as AnnexureR. The petitioner company would not have altered their position if the Government Authorities had informed the petitioners in September 2004 when the guidelines for textile sector in EOU SEZ scheme were incorporated in HBP but these guidelines not having been made applicable in case of existing EOU like the petitioner company and extension of 5 years each having been granted twice after the above guidelines were made effective in September 2004; these facts have created a bona fide impression that petitioners would be allowed to operate as an EOU for producing fibers and clips out of worn clothing. If the petitioner's EOU is not allowed to operate beyond 31.03.2013 then substantial loss and huge damages would be caused to the petitioners which would virtually bring Page 22 of 33 C/SCA/16768/2013 ORDER a complete closure and disastrous consequences like litigation for damages, etc. The actions of the Governmental Authorities in allowing the petitioner company to operate even after guidelines were introduced in September 2004 for textiles in respect of EOU/SEZ scheme and also two extensions allowed to the petitioner company for operating as an EOU without any restrictions and limitations gave also resulted in various expectations on part of the petitioner company and such expectations from the Government authorities herein could also therefore not be taken away in the situation like the present one.
It is also significant to note that the petitioner company would never be in a position to continue manufacturing operations in the unit if its EOU status is cancelled because the price that goods of this quality ordinarily fetch in the international market could not be paid by the manufacturers of textiles in India. The petitioner company has developed the technology and skills for producing clips and fibers of these qualities which are required in European countries whereas the consumers located in African countries like Ethiopia, Zambia etc. also produce Yarns and other textile materials from the clips and fibers produced from the petitioner company for being sold in European and American continents; and there is also no big market of such clips and fibers in India that the entire production of the petitioner company could be sold. There are a few other manufacturing units in the petitioner's group which procure clips and fibers from the petitioner company for utilizing them in relation to manufacture of goods like Yarns and also blankets for being sold to Red Cross and such other international agencies, and closure of the petitioner's EOU Page 23 of 33 C/SCA/16768/2013 ORDER activities would therefore adversely affect such other manufacturers and their operations also thereby resulting in further unemployment and also further loss of foreign exchange earnings.
However, if the petitioner's activities are not curtailed, then the Yarn manufacturing facilities proposed to be implemented would create opportunities for further employment and higher foreign exchange earnings also because of requirements of more workers for producing Yarns and higher value of Yarns in the international market compared to the value of fibers and clips.
Thus, a grave and serious prejudice would be caused to the petitioners if their EOU is shut down at this stage. Grave prejudice would also be caused to the people of Halol area in Panchmahal District and loss of foreign exchange would also be caused to the Government of India. These facts show that the balance of convenience is also in favour of the petitioners in allowing them to continue their EOU as otherwise irreparable loss and damage would be caused to the petitioners that cannot be compensated in terms of money, and similarly serious prejudice and loss would be caused to the people of the area which could also not be compensated in terms of money. Appropriate protection to the petitioners is therefore required to be granted in the facts and circumstances of this case."
20. The concept of promissory estoppal has be discussed by the Supreme Court on number of occasions. In case of M/s. Motilal Padampat Sugar Mills Company Limited v. State of Uttar Pradesh & Ors., reported in (1979) 2 SCC Page 24 of 33 C/SCA/16768/2013 ORDER 409, the Supreme Court observed that the principle of promissory estoppal is based on doctrine evolved through equity in order to prevent injustice. Where the promise is made by the person knowing that it would be acted upon by the person on whom it is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it. It was further held and observed as under : "24. This Court finally, after referring to the decision in the Ganges Manufacturing Company v. Sourujumull (Supa), Municipal Corporation of the City of Bombay v. Secretary of State of India (supra) and Collector of Bombay v. Municipal Corporation of the City of Bombay (supra), summed up the position as follows :
Under our jurisprudence the Government is not exempt from liability to carry out the representation made byit as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it, nor claim to be the judge of its own obligation to the citizen on an ex parte appraisement of the circumstances in which the obligation has arisen.
The law may, therefore, now be taken to be settled as a result of this decision, that where the Government makes a promise knowing or intending that it would be acted on by the promise and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Page 25 of 33 C/SCA/16768/2013 ORDER Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. It is elementary that in a republic governed by the rule of law, no one, howsoever high or law, is above the law. Everyone is subject to the law as fully and completely as any other and the Government is no exception. It is indeed the pride of constitutional demoncracy and rule of law that the Government stands on the same footing as a private individual so far as the obligation of the law is concerned : the former is equally bound as the latter. It is indeed difficult to see on what principle can a Government, committed to the rule of law, claim immunity from the doctrine of promissory estoppel. Can the Government say that it is under no obligation to act in a manner that is fair and just or that the Government not be held to a high "standard of rectangular rectitude while dealing with its citizens?" There was a time when the doctrine of executive necessity was regarded as sufficient justification for the Government to repudiate even its contractual obligations; but let it be said to the eternal glory of this Court, this doctrine was emphatically negatived in the IndoAfghan Agencies case and the supremacy of the rule of law was established. It was laid down by this Court that the Government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action. If the Government does not wants its freedom of executive action to be hampered or restricted, the Government need not make a promise knowing or intending that it would be acted on by the Page 26 of 33 C/SCA/16768/2013 ORDER promisee and the promisee would alter his position relying upon it. But if the Government makes such a promise and the promisee acts in reliance upon it and alters his position, there is no reason why the Government should not be compelled to make good such promise like any other private individual. The law cannot acquire legitimacy and gain social acceptance unless it accords with the moral values of the society and the constant endeavour of the Courts and the legislature must, therefore, be to close the gap between the law and morality and bring about as near an approximation between the two as possible the doctrine of promissory estoppel is a significant judicial contribution in that direction. But it is necessary to point out that since the doctrine of promissory estoppel is an equitable doctrine, it must yield when the equity so requires." 20.1 In case of MRF Limited, Kottayam v. Asstt. Commissioner (Assessment), Sales Tax & Ors., reported in (2006) 8 SCC 702, the facts in brief were that the petitioner was a company, whose one of the industrial units was located in the State of Kerala, which was engaged in the manufacture of automotive tyres, tubes, compound rubber, etc. The Government of Kerala from time to time declared and introduced several incentives to promote industrial growth and expansion in the State of Kerala by granting exemptions, concessions or reduction in sales tax, electricity duty and electricity tariff, etc to the new industries as well as to existing industrial units undertaking substantial expansion, diversification or modernization. Acting on such Page 27 of 33 C/SCA/16768/2013 ORDER incentives, the petitioner approached the Government of Kerala with a proposal to make substantial expansion and diversification for its industrial unit. An MOU was signed by petitioner and the State of Kerala which indicated that upon expansion/diversification of its existing industrial unit, the petitioner would be entitled to tax exemptions. Pursuant to the MOU, the petitioner also invested nearly 80 crores for substantial expansion of its existing industrial unit and also for setting up of a new unit. The commercial production also commenced shortly thereafter. The State of Kerala thereafter issued notification withdrawing the tax exemptions w.e.f 1st January 2000. Based on such withdrawal, the petitioner received a notice from the Sales Tax department of the State for denying the exemptions claimed by the petitioner. It was on this basis that the Supreme Court discussed the law on the issue of promissory estoppel and held and observed as under : "39. MRF made a huge investment in the State of Kerala under a promise held to it that it would be granted exemption from payment of sale tax for a period of seven years. It was granted the eligibility certificate. The exemption order had also been passed. It is not open to or permissible for the State Government to seek to deprive MFR of the benefit of tax exemption in respect of its substantial investment in expansion in respect of compound rubber when the State Government had enjoyed the benefit from the investment made by MRF in the form of industrial development in the State, contribution to Page 28 of 33 C/SCA/16768/2013 ORDER labour and employment and also a huge benefit to the State exchequer in the form of the State's share ie. 40% of the Central excise duty paid on compound rubber of Rs. 177 crores within the State of Kerala. The impugned action on the part of the State Government is highly unfair, unreasonable, arbitrary and therefore, the same is violative of Article 14 of the Constitution of India. The action of the State cannot be permitted to operate if it is arbitrary or unreasonable. This Court in E.P Royappa v.
State of Tamil Nadu, 1974 SCC (L&S) 165 observed that where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Article 14. Equity that arises in favour of a party a a result of a representation made by the State is founded on the basic concept of "justice and fair play". The attempt to take away the said benefit of exemption with effect from 15.1.1998 and thereby deprive MRF of the benefit of exemption for more than 5 years out of a total period of 7 years, in our opinion, is highly arbitrary, unjust and unreasonable and deserves to be quashed. In any event, the State Government has no power to make a retrospective amendment to SRO No. 1729/93 affecting the rights already accrued to MRF thereunder."
20.2 In case of U.P Power Corporation Limited & Anr. v. Sant Steels & Alloys (P) Limited & Ors., reported in AIR 2008 SC 693, the Supreme Court considered a case where the State Government had issued a notification granting development rebate to new industrial units in hill areas for a period of five years. Writ petitioners established industrial units in hill areas making Page 29 of 33 C/SCA/16768/2013 ORDER huge investment, after executing agreements with the U.P Power Corporation. Substantial concession which was earlier granted was reduced by the Corporation from 33.33% to 17%. This decision was challenged on the ground of principle of promissory estoppel. The Court upheld the decision of the High Court striking down the withdrawal of the part of concession by observing as under : "20. In this 21st century, when there is global economy, the question of faith is very important. Government offers certain benefits to attract the entrepreneurs and the entrepreneurs act on those beneficial offers. Thereafter, the Government withdraws those benefits. This will seriously affect the credibility of the Government and would show the shortsightedness of the governance. Therefore, in order to keep the faith of the people, the Government or its instrumentality should abide by their commitments. In this context, the action taken by the appellantCorporation in revoking the benefits given to the entrepreneurs in the hill areas will sadly reflect their credibility and people will not take the word of the Government. That will shake the faith of the people in the governance. Therefore, in order to keep the faith and maintain good governance it is necessary that whatever representation is made by the Government or its instrumentality which induces the other party to act, the Government should not be permitted to withdraw from that. This is a matter of faith.
21. Therefore, as a result of our above discussion, we hold that the view taken by the Allahabad High Court on revoking Page 30 of 33 C/SCA/16768/2013 ORDER the principle of promissory estoppel is correct and the respondentunits will be entitled to such benefits till the U.P Electricity Reforms Act, 1999 came into force. Since after coming into force the Act of 1999 no such concession has been granted, therefore, the concession shall survive till the Act of 1999 came into force. The appeals are accordingly disposed of with no order as to costs."
21. In the present case, as we have noticed, the petitioners were granted LoP for manufacturing yarn as an EOU, which permission is effective upto 23rd October 2015. Though right from the year 2004, a conscious decision was taken not to permit such activities in the EOU, two extensions were granted to the petitioners, after such a change in the policy. Thus, as a conscious decision, the respondents twice permitted the petitioners to carry on the same activity as an EOU. It was only when another unit engaged in the same activity, also an EOU, applied for fresh extension in the year 2012 that the competent authority decided to terminate all such licenses of similar industries, even without granting them opportunity of hearing. The case of M/s. Prayas Industries was for grant of an extension. The said case could not have been equated with that of the petitioners in whose case, the extension was already granted. May be, after the period of extension is over on 23rd October 2015, the respondents may implement the Government policy to derecognize such unit as EOU, if that is what the uniform decision to apply in all cases is. However, when the Page 31 of 33 C/SCA/16768/2013 ORDER petitioners were granted such extension and on the basis of which, the petitioners would and in the present case, as stated by the petitioners had, managed its affairs, it would not be open for the respondents to curtail the period of licence merely on the ground that the policy of the Government of India does not permit such activity to a unit covered under EOU scheme.
22. In the modern day, the complex requirements of importexport and manufacturing activities would require a certain prospective planning. When an industrial unit is conveyed that its licence/permission for carrying on a certain activity is valid for a period of five years, such a unit would be in a position to manage its affairs on such basis. In the present case, the activity would require import of used clothes, extracting yarn from such clothes and re exporting such yarn. This would not only require fine tunning of import of the raw materials, having export orders on hand but also require executing the order which would require deployment of manpower and machineries. It is pointed out that for such purpose, the petitioners had made substantial investments and also employs on regular basis hundredths of the workers - many of them are women workers. Such prospective planning would require not only capital investment but also engaging manpower on permanent or semipermanent basis. When such investment, expansion of the facilities for manufacturing and deployment of manpower is based on a licence extended at Page 32 of 33 C/SCA/16768/2013 ORDER a time for a period of five years, its abrupt curtailment without there being any change in policy or any public interest involved in doing so, would be hit by the principle of promissory estoppel. In the present case, the only excuse offered for curtailment of the period is that though the policy had already changed years back, in the year 2004, the same was not implemented with any rigour. When two extensions were granted to the petitioner, even after the change in the policy, such reason put forth by the respondents would hold no validity.
23. Under the circumstances, the petition is allowed to the limited extent of striking down the order of the authority dated 8th October 2013 and by further providing that the LoP in case of the present petitioners shall continue to be valid till 23rd October 2015 ie., the full period of its validity and upto such period, the respondents shall not prevent the petitioners from carrying out its above mentioned activities; subject of course to fulfillment of other rules and regulations.
24. Writ petition stands disposed of accordingly.
{Akil Kureshi, J.} {Ms. Sonia Gokani, J.} Prakash* Page 33 of 33