Gujarat High Court
Messrs Sameer Industries vs Union Of India on 30 January, 2020
Author: Bhargav D. Karia
Bench: J.B.Pardiwala, Bhargav D. Karia
C/SCA/13735/2019 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 13735 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MR. JUSTICE BHARGAV D. 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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MESSRS SAMEER INDUSTRIES
Versus
UNION OF INDIA
==========================================================
Appearance:
AMAL PARESH DAVE(8961) for the Petitioner(s) No. 1,2
MR PARESH M DAVE(260) for the Petitioner(s) No. 1,2
MR DEVANG VYAS(2794) for the Respondent(s) No. 1,2
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CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 30/01/2020
ORAL JUDGMENT
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1. Rule, returnable forthwith. Mr. Devang Vyas, the learned Assistant Solicitor General waives service of Notice of Rule for and on behalf of the respondents.
2. By this petition under Articles 226 and 227 of the Constitution of India, the petitioners have prayed for the following reliefs :
"(A) That Your Lordships may be pleased to issue a Writ of Certiorari or any other appropriate writ, direction or order, quashing and setting the decision of the Board of Approval (BOA) recorded at para 89,14(i) of the Minutes of 89th meeting of the BOA for Special Economic Zone (Annexure -"J") with all consequential reliefs including renewal and extension of the Letter of Approval (LOA) dated 23.8.2016 (Annexure-"E");
(B) Your Lordships may be pleased to issue a Writ of Mandamus or a Writ of Certiorari or any other appropriate writ, order or direction thereby directing the Board of Approval and/or the Approval Committee to allow the Petitioner's application dated 28.3.2019 (Annexure-"I") to renew and extend the period of operation of the Petitioner's KASEZ Unit by extending and renewing LOA dated 23.8.2016 for a period of five years in accordance with the SEZ Act and the SEZ Rules;
(C) Pending hearing and final disposal of the present petition, Your Lordships may be pleased to stay decision of the Board of Approval recorded at para 89, 14(i) of the Minutes of its 89th meeting with a direction to the Development Commissioner (the 2nd Respondent herein) to allow the Petitioner to continue SEZ business operations in the Unit located at the address shown in the cause title of the petition;
(D) An ex-parte ad-interim relief in terms of prayer
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C/SCA/13735/2019 JUDGMENT
14(C)above may kindly be granted;
(E) Your Lordships may kindly be pleased to pass any other and further order/s and/or relief/s in the interest of justice;
3. The petitioner No.1 is a partnership firm and has filed this petition through its partner - petitioner No.2. Petitioner No.1 is engaged in business of manufacture of recycle scrap. The petitioner No.1 was established in September, 1995 in Kandla Free Trade Zone set up under the provisions of the Foreign Trade [Development and Regulation] Act, 1992.
3.1. The application filed by the petitioners for setting up a new unit in Kandla Free Trade Zone for manufacture of recycle scrap was allowed by the office of the Development Commissioner by issuing letter of permission dated 23rd September 1995. 3.2. It appears that the petitioners thereafter, shifted their business at Plot No.204 to 207 of Sector No. (IV) of the Kandla Free Trade Zone, which was permitted by letter of allotment dated 05.05.1995 issued by the Development Commissioner. 3.3. It appears that thereafter, the Special Economic Zones Act, 2005 (for short, the "SEZ Act, 2005") came into effect from 12.09.2006 and Kandla Free Trade Zone was not invited as Page 3 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT Special Economic Zone (SEZ). The Letter of Approval issued in favour of the petitioners was renewed by renewal / extension letter dated 26.06.2009 by the Respondent No.2- Development Commissioner of Kandla Special Economic Zone. The respondent No.2 granted extension under the letter dated 26.06.2009 to the petitioners upto 31st October 2010 and thereafter, renewal from November 2010 was not allowed and the operation of the petitioners was discontinued from November 2010 till April 2014. The renewal / extension of the letter of approval was allowed by the office of the Development Commissioner by letter of approval dated 28.04.2014 upto 2nd April 2016.
3.4. It appears that thereafter, renewal / extension letter dated 23.08.2016 was issued by the office of the Development Commissioner extending the validity of the letter of approval for a period of 5 years upto 2nd April 2019. The petitioners made all attempts to export maximum quantity of goods allowed to be manufactured in SEZ Units.
3.5. The petitioners, thereafter made an application in the year 2019 for further extension and renewal of the permission to manufacture and export the goods.
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C/SCA/13735/2019 JUDGMENT 3.6. The application of the petitioners was forwarded by the office of the Development Commissioner to the Board of Approval at New Delhi. The Board of Approval considered the application of the petitioners in its 89th Meeting held on 22nd April 2019 and rejected the application of the petitioners for extension / renewal of the letter of approval in terms of Rule 18(4)(d) of the Special Economic Zones Rules, 2006 (for short, "SEZ Rules, 2006"). The Board of Approval recorded following reasons for rejecting the application of the petitioner for renewal / extension of letter of approval for next 5 years as under :-
"89.14 Proposal of the unit for renewal of LoA for next five years.
89.14(i) Proposal of M/s Sameer Industries for renewal of LOA for next five years in terms of Rule 18(4) of SEZ Rules 2006.
BoA noted that there was an instance of violation of Customs Act, 1962 in the year 2005 by the unit wherein the jurisdictional Kandla Customs Authorities booked a case for illegal importation and DTA clearance of "druid" grade, copper scrap and jelly filled copper cables restricted for import and allowed to be sold in DTA only to registered CPCB recycles and also seized the goods lying in the premises and that only after payment of all the duties and penalties and redemption line as per the CESTAT Order, the seizure was vacated and the goods were ordered to be cleared only to CPCB registered recyclers.
Further, it was noted that unit was issued SCN for mis-declaration for providing false information in their APR for the year 2005-2006 and that a complaint against the Chartered Accountant was also made by Page 5 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT department to Institute of Chartered Accountant for taking appropriate action against the Chartered Accountant for certifying false APR.
It was also noted that unit consistently failed to achieve positive NFE both during the period 2005- 2010 and 2014-2019 (for period 2010-2014) LoA was not renewed by BoA.
The Board, after deliberations decided to reject the proposal in terms of Rule 18(4) (d) of the SEZ Rules, 2006.)"
3.7. The aforesaid decision of the Board of Approval was communicated to the petitioners by the office of the Development Commissioner by letter dated 27th May 2019.
3.8. The petitioners therefore, being aggrieved by the aforesaid rejection by Board of Approval has preferred this petition with the aforesaid prayers.
4. Mr. Paresh M. Dave, the learned advocate appearing on behalf of the petitioners submitted that the Board of Approval has decided to reject the application of the petitioners without giving any opportunity of hearing and therefore, there is a breach of principles of natural justice.
4.1. It was submitted that the Unit of the petitioners was operating in Free Trade Zone and Special Economic Zone for more than two decades and cannot be ordered to be shut down on the basis that Page 6 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT in case of violation of Customs Act in the year 2005 was against the petitioners and show cause notice for negative Net Foreign Exchange Earnings was issued against the petitioners for the period from 2006 to 2011.
4.2. It was pointed out by the learned advocate for the petitioners that such proceedings were sub judice and the request of the petitioners and application for cancellation / renewal were allowed in past by issuing explanation in June 2009, April 2014 and August 2016, even though the above referred cases were pending against the petitioners. It is therefore, submitted that the decision of the Board of Approval to reject the application of the petitioners on such sub judice matter is contrary to the approval / extension granted to the petitioners in past.
4.3. It was pointed out by Mr. Dave, the learned advocate for the petitioners that between the period from 2010 to 2014, the letter of approval was not renewed but thereafter, in the year 2014, it was renewed upto the year 2016, which was further extended upto the year 2019, and therefore, the basis on which the Board of Approval has rejected the application for renewal / extension is non-existent.
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C/SCA/13735/2019 JUDGMENT 4.4. With regard to the reasons for rejection given by the Board of Approval for not achieving positive Net Foreign Exchange Earning, it was pointed out that the petitioners could not achieve positive Net Foreign Exchange Earning as the operations of the petitioners Unit was discontinued for a long period from November 2010 till April 2014. It was pointed out that the petitioners have deposited the amount equal to 1% of short-fall in Net Foreign Exchange as per Rule 80 of the SEZ Rules, 2006. In such circumstances, Mr. Dave submitted that the unintentional lapse of not achieving positive Net Foreign Exchange during certain period now stands regularized.
4.5. It was further submitted that letter of approval issued through any manufacturing unit for export can be cancelled under Section 16 of the SEZ Act, 2005, if the condition prescribed therein are violated but in the facts of the case, there is no allegation against the petitioners for violation of any condition prescribed in Section 16 of the SEZ Act, 2005. It was therefore for prayed that the impugned decision taken by the Board of Approval is required to be quashed and set aside.
4.6. On the other hand, Mr. Devang Vyas, the learned Assistant Page 8 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT Solicitor General vehemently opposed the petition and submitted that under Rule 18(4) of the SEZ Rules, 2006, the Board of Approval is not required to grant any opportunity of hearing to the petitioners. It was submitted that the Board of Approval is Ministry of Commerce and Industry, Central Government empowered body constituted under Section 8 of the SEZ Act, 2005 and has power to decide the extension / renewal. Section 48 of the SEZ Act 2005provides protection of action taken in good faith to the effect that no suit, prosecution or other legal proceedings shall lie against inter alia the Board of Approval for anything done or intended to be done in good faith under this Act.
4.7. Learned advocate for the respondents relied upon the averments made in the affidavit-in-reply filed on behalf of the respondents and submitted that the Board of Approval in its 89th Meeting held on April, 22, 2019 has noted that there was an instance of violation of Customs Act, 1992, in the year 2002 by the petitioners' Unit for illegal importation and DTA clearance of the goods restricted for import and allowed to be sold in DTA, and goods were also seized lying in the premises of the petitioners, which was subsequently released as per the order dated September 30, 2010 passed by the CESTAT's on condition to Page 9 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT clear the goods only to the CPCB registered recyclers. Moreover, the show cause notice for mis-declaration for providing false information in annual performance report was also issued. It was also pointed out that the petitioners' Unit continuously failed to achieve positive Net Foreign Exchange earning during the period from 2005-2010 and 2014-2019. Considering these defaults on the part of the petitioners' Unit, the Board of Approval decided to reject the proposal in terms of Rule 18(4)(d) of the SEZ Rules, 2006. It was further prayed that no interference is required to be made in the impugned decision passed by Board of Approval. 4.8. With regard to the submission of the petitioners that the petitioners have deposited 1% of shortfall in Net Foreign Exchange as laid down in Rule 80 of Rules, 2006 is concerned, it was submitted that Rule 80 of SEZ Rules, 2006 was inserted on September, 19, 2018 and therefore, it would operate prospectively. 4.9. Reliance was placed on the Circular dated March, 14, 2019 issued by the Department of Commerce, Ministry of Commerce & Industry, wherein it is clarified that Rule 80 of the SEZ Rules, 2006 inserted in September 19, 2018 would apply prospectively. It was therefore, submitted by the learned advocate for the respondents that shortfall in Net Foreign Exchange Earnings by the petitioners Page 10 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT is therefore, required to be dealt with under the provisions of the Foreign Trade [Development and Regulation] Act, 1992. 4.10. With regard to the contention that Board of Approval could not have cancelled the letter of approval without following the procedure prescribed under Section 16 of the SEZ Act, the learned advocate for the respondents submitted that the Board of Approval has only rejected the renewal/extension of letter of approval while exercising power under Rule 18(4) of the SEZ Rules, 2006 and has not passed any order for cancelling the letter of approval as per Section 16 of the SEZ Act, 2005.
4.11. Learned advocate for the respondents therefore, prayed that the petition is required to be rejected as the same is devoid of any merits.
5. Having heard the learned advocates for the respective parties and having gone through the materials on record, the short question, which arises for consideration of this Court is whether the Board of Approval could have rejected the application for renewal / extension of letter of approval filed by the petitioners without giving any opportunity of hearing to the petitioners or not Page 11 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT and whether the order passed by the Board of Approval on the basis of the proceeding initiated in the year 2005 against the petitioners for not achieving the positive Net Foreign Exchange Earnings would be relevant factor for rejecting the application for renewal filed by the petitioners while exercising powers under Rule 18(4) of the SEZ Rules, 2006.
6. It would be necessary to refer to the various provisions of the SEZ Act, 2005 and SEZ Rules, 2006.
6.1. Sections 8 and 16 of the SEZ Act, 2005 read thus :
" Section 8 Constitution of Board of Approval: 8. (1) The Central Government shall, within fifteen days of the commencement of this Act, by notification, constitute, for the purposes of this Act, a Board to be called the Board of Approval.
(2) The Board shall consist of-
(a) an officer not below the rank of an Additional Secretary to the Government of India in the Ministry or Department of the Central Government dealing with Commerce - Chairperson, ex officio;
(b) two officers, not below the rank of a Joint Secretary to the Government of India, to be nominated by the Central Government to represent the Ministry or Department of the Central Govt. dealing with revenue
- Members, ex officio;
(c) one officer not below the rank of Joint Secretary to the Government of India to be nominated by the Page 12 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT Central Government the Ministry or Department of the Central Government dealing with economic affairs (financial services) - Members, ex officio;
(d) such number of officers, not exceeding ten, not below the rank of the Joint Secretary to the Government of India, to be nominated by the Central Government to represent the Ministries or Departments of the Central Government dealing with commerce, industrial policy and promotion, science and technology, small scale industries and agro and rural industries, home affairs, defence, environment and forests, law, overseas Indian affairs and urban development - Members, ex officio;
(e) a nominee of the State Government concerned -
Member, ex officio;
(f) the Director General of Foreign Trade or his nominee - Member, ex officio;
(g) the Development Commissioner concerned - Member, ex officio;
(h) a Professor in the Indian Institute of Management, being a society registered under the Societies Registration Act, 1860 or the Indian Institute of Foreign Trade, being a society registered under the Societies Registration Act, 1860, as may be, nominated by the Central Government - Member, ex officio;
(i) an officer not below the rank of Deputy Secretary to the Government of India dealing with the Special Economic Zones in the Ministry or Department of the Central Government, dealing with commerce to be nominated by the Central Government - Member- Secretary, ex officio:
Provided that the member, being the Joint Secretary nominated under clauses (b) to (d) of this sub-section, may, if he is unable to attend the meeting of the Board, authorise any other officer to attend the meeting of the Board on his behalf.Page 13 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021
C/SCA/13735/2019 JUDGMENT (3) The term of office of an ex officio Member shall come to an end as soon as he ceases to hold the office by virtue of which he was so nominated.
(4) For the purpose of performing its functions, the Board may co-opt as members such number of persons as it deems fit who have special knowledge of, and practical experience in, matters relating to, or relevant to activity connected with the Special Economic Zones and any such person shall have the right to take part in the discussions of the Board but shall not be counted for the quorum and shall not be a member for any other purpose and such person shall be entitled to receive such allowances or fees, as the case may be, fixed by the Board.
(5) The Board shall meet at such times and places as may be appointed by it and shall have the power to regulate its own procedure.
(6) One third of the total Members of the Board shall form a quorum, and all the acts of the Board shall be decided by a general consensus of the Members present.
(7) No act or proceeding of the Board shall be called in question on the ground merely of existence of any vacancy in, or any defect in the constitution of, the Board.
(8) All orders and decisions of the Board and all other instruments issued by it shall be authenticated by the signature of the Member-Secretary, or any other Member as may be authorised by the Board in this behalf.
Section 16, Cancellation of letter of approval to entrepreneur :
16. (1) The Approval Committee may, at any time, if it has any reason or cause to believe that the entrepreneur has persistently contravened any of the terms and conditions or its obligations subject to which the letter of approval was granted to the entrepreneur, Page 14 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT cancel the letter of approval:
Provided that no such letter of approval shall be cancelled unless the entrepreneur has been afforded a reasonable opportunity of being heard. (2) Where the letter of approval has been cancelled under subsection (1), the Unit shall not from the date of such cancellation, be entitled to any exemption, concession, benefit or deduction available to it, being a Unit, under this Act.
(3) Without prejudice to the provisions of this Act, the entrepreneur whose letter of approval has been cancelled under sub-section (1), shall remit, the exemption, concession, drawback and any other benefit availed by him in respect of the capital goods, finished goods lying in stock and unutilised raw materials relatable to his Unit, in such manner as may be prescribed.
(4) Any person aggrieved by an order of the Approval Committee made under sub-section (1), may prefer an appeal to the Board within such time as may be prescribed.
(5) No appeal shall be admitted if it is preferred after the expiry of the time prescribed therefor:
Provided that an appeal may be admitted after the expiry of the period prescribed therefor if the appellant satisfies the Board that he had sufficient cause for not preferring the appeal within the prescribed time. (6) Every appeal made under sub-section (4) shall be in such form and shall be accompanied by a copy of the order appealed against and by such fees as may be prescribed.
(7) The procedure for disposing of an appeal shall be such as may be prescribed:
Provided that before disposing of an appeal, the appellant shall be given a reasonable opportunity of being heard."
6.2. Rule 80 of the SEZ Rules, 2006 reads thus :
" Rule 80 : If an Special Economic Zone Unit, in case of bona fide default, fails to achieve the minimum specified Net Foreign Exchange or specified value addition, then such shortfall may be regulated after the Unit deposits an amount equal to one per cent. of Page 15 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT shortfall in Free on Board Value."
7. A bare reading of minutes recorded by the Board of Approval rejecting the application of the petitioners would go to mean that the letter of approval dated 2nd April 2014 is cancelled, having consequences as those provided under Section 16 of the SEZ Act, 2005. Section 16 of the SEZ Act, 2005 also refers to affording reasonable opportunity of being heard prior to cancellation of the letter of approval granted in favour of an entrepreneur.
8. On perusal of the facts of the case, it is not in dispute that no opportunity of being heard was afforded to the petitioners before taking decision in the 89th Meeting of the Board of Approval held on 22nd April 2019. We are, therefore, of the view that the decision on the renewal / extension of the letter of approval, which has a consequential effect of cancelling letter of approval, is in breach of the Section 16 of the SEZ Act, 2005.
9. In such circumstances, the petition is required to be allowed only on this ground, without expressing any opinion on merits, by quashing and setting aside the decision taken by the Board of Approval in the 89th Meeting held on 22nd April 2019 qua the petitioners with a direction to reconsider the case of the petitioners Page 16 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021 C/SCA/13735/2019 JUDGMENT after giving reasonable opportunity of hearing so as to adhere to the principles of natural justice.
10. In that view of the matter, the petition succeeds and is accordingly allowed. The impugned decision of the Board of Approval taken in the 89th Meeting held on 22nd April 2019 qua the petitioners is quashed and set aside and we remand the matter back to the Board of Approval to reconsider the application filed by the petitioners for renewal / extension of letter of approval, which was renewed on 2nd April 2014 and extended up to 2nd April 2019, after giving adequate opportunity of hearing to the petitioners. The Board of Approval is expected to carry out such exercise within a period of three months from the date of receipt of the writ of the order of this Court. Rule is made absolute to the aforesaid extent with no order as to costs.
(J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) KUMAR ALOK Page 17 of 17 Downloaded on : Fri Feb 12 23:31:32 IST 2021