Gujarat High Court
Union Of India vs Om Siddh Vinayak Impex Pvt. Ltd. on 20 March, 2019
Equivalent citations: AIRONLINE 2019 GUJ 323
Author: Anant S. Dave
Bench: Anant S. Dave, Biren Vaishnav
C/LPA/694/2017 CAV ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
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FOR APPROVAL AND SIGNATURE:
HONOURABLE THE ACTING CHIEF JUSTICE ANANT S. DAVE sd/-
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV sd
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C/LPA/694/2017 CAV ORDER
==========================================================
1 Whether Reporters of Local Papers may be allowed to YES see the judgment ?
2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the NO judgment ?
4 Whether this case involves a substantial question of law NO as to the interpretation of the Constitution of India or any order made thereunder ?
========================================================== UNION OF INDIA & 2 other(s) Versus OM SIDDH VINAYAK IMPEX PVT. LTD. & 1 other(s) ========================================================== Appearance:
MR. PARTH H BHATT(6381) for the Appellant(s) No. 1,2,3 MR MIHIR THAKORE, SENIOR ADVOCATE WITH MR SALIL M THAKORE(5821) for the Respondent(s) No. 1,2 MR SAURABH SOPARKAR, SENIOR ADVOCATE WITH MR AMAR BHATT(5821) for the Respondent(s) No. 1,2 ========================================================== CORAM: HONOURABLE THE ACTING CHIEF JUSTICE ANANT S. DAVE and HONOURABLE MR.JUSTICE BIREN VAISHNAV Date : 20/03/2019 CAV ORDER (PER : HONOURABLE MR.JUSTICE BIREN VAISHNAV)
1. Amendment granted.
2. These appeals, under Clause 15 of the Letters Patent, arise out of two different sets of petitions and different judgments rendered in each group of such petitions. In Page 7 of 62 C/LPA/694/2017 CAV ORDER common though is challenge to the policy circular dated 17.09.2013 issued by the Ministry of Commerce and Industry, Department of Commerce (SEZ Divisions).
2.1 In Letters Patent Appeal No. 1548 of 2017 and group matters, the judgment under challenge is dated 24.01.2017 by which the learned Single Judge, set aside the policy dated 17.09.2013 on units in SEZs carrying on recycling of plastic scrap or waste. The petitioners therein were in the business of manufacturing recycled plastic raw material from imported scrap.
2.2 In Letters Patent Appeal No. 694 of 2017 and allied appeals, the judgment under challenge is dated 14.02.2017.
The petitioners therein also were engaged in the business activities of import of worn and used clothing and thereafter, segregating and reconditioning the same into export worthy grade and non-exportable grade clothing. Export worthy grade clothing was thereafter exported whereas non-
exportable grade clothing was used after mutilation for obtaining industrial raw materials like industrial wiper, chindy and mutilated rags. In such cases too, the prayer was to set aside the policy circular dated 17.09.2013 which was a policy Page 8 of 62 C/LPA/694/2017 CAV ORDER to regulate functioning of worn and used clothing units in SEZs. In such petitions too, the learned Single Judge set aside the circulars.
2.3 Aggrieved by these judgments of the learned Single Judge, the Union of India is in appeal. Applications were filed by the original petitioners in these appeals for certain directions. Since, pending the appeals, the judgments of the learned Single Judges are stayed, we requested the learned advocates to address us on the appeals rather than on the applications for directions and it is in this context that the appeals were heard.
3. As far as the controversy involved with regard to plastic units in Letters Patent Appeal No. 1548 of 2017 and allied matters are concerned, for the sake of brevity, since the facts are not in dispute, rather than reiterate them, the same as set out by the learned Single Judge are reproduced hereunder (Special Civil Application No. 6107 of 2015):
"3.1 Since around 1997, about 20 units have been manufacturing recycled plastic raw material from the imported plastic scrap in the zone which was earlier known as Kandla Free Trade Zone. These units were established in the area which was treated as an Export Processing Zone (EPZ). Permission to each petitioner was granted for establishing the units on certain terms and conditions.Page 9 of 62
C/LPA/694/2017 CAV ORDER 3.2 In the year 2000, the Government of India came out with a special economic zone scheme under the Export Import Policy. Under the scheme, SEZs were set up in India for the first time. The Government of India issued a public advertisement and declared that certain Zones including Kandla, Santacruze (Mumbai), Kochi and Surat which were Export Processing Zones, to be converted into Special Economic Zones. In the said advertisement, certain features were described to attract the manufacturers to invest money by establishing different types of manufacturing units which were subsequently incorporated under the SEZ Act. Accordingly, a Resolution was issued by the Government of India on 1.11.2000, as far as Kandla Free Trade Zone is concerned. As per the said publicity made by the Government of India, the units which were in existence in Special Economic Zone on 1.11.2000, is to be a positive Net Foreign Exchange earner within a period of 3 years, as well as, permitted to sell of the manufactured goods in Domestic Tariff Area (DTA) on payment of full custom duty subject to import policy in force. The petitioners having found attractive benefits, continued to manufacture the plastic raw material and to sell the products in domestic tariff area subject to the exports policy existence at the relevant time.
3.3 The Parliament of India enacted SEZ Act in the year 2005 and most of the provisions of the SEZ Act came into force on 10.2.2006. Most of the Rules of the SEZ Rules also came into force on 10.2.2006. The units of the petitioners were treated as existing units as per Section 2 (l) of the SEZ Act and, therefore, the SEZ Act and the SEZ Rules were and are applicable to the petitioners.
3.4 As per Section 8 of SEZ Act, the Board of Approval was constituted. A meeting of Board of Approval was held on 8.2.2006 under the Chairmanship of the Special Secretary, Department of Commerce, to consider proposal for setting up Special Economic Zones. The members of the approval Board after verifying the material available, found that the manufacturer of recycled plastic units have no more export potential and, therefore, it was decided that no such new units should be allowed to set up in this zone. It was also observed that the units are paying full duty on clearance of DTA Page 10 of 62 C/LPA/694/2017 CAV ORDER and there are about 5,000 people employed by such units, extension of letter of approval to be issued to such units and accordingly, letters were issued to each of the petitioner. The letters of approval were granted to each of the petitioners for a period of five years subject to the provisions of SEZ Act and SEZ Rules and particularly, Rule 53 of the said Rules which compels a unit to achieve positive Net Foreign Exchange (for short NFE). The petitioners continued to manufacture the plastic raw material and did follow the conditions imposed by the letter of approval in accordance with Act and Rules and always maintained the positive NFE.
3.5 The manufacturing units were permitted to broad band the additional products by permission letters in the year 2003, 2004, 2007 etc. However, the Government of India (Department of Commerce, SEZ Division) distinguished the additional products which were permitted for broad banding into related and unrelated products and accordingly, a communication dated 4.11.2010 was issued to all the Development Commissioners. After issuance of the said letter, the respondent No.3 suspended all proceedings of broad banding of additional products granted to the petitioner and directed the petitioner to follow all the conditions of the said letter which is treated as Instruction No.69.
3.6 The petitioners requested the authority to permit to do broad banding as far as related Projects are concerned which was accepted by the authority by a communication dated 25.10.2012. However, a specific instruction was granted that the unit has to fetch the positive NFE on completion of 5th year block.
3.7 The respondent No.1 through Ministry of Commerce and Industry, Development of Commerce (SEZ Division) came with Policy dated 17.9.2013 with regard to the units who were engaged in the business of manufacturing recycled plastic raw material from imported plastic scrap or waste established in SEZ Area. By the said Policy, all the units have been compelled to follow the conditions referred in the said Policy. As per certain terms and conditions, the Units have been restrained from carrying out any broad band activity with regard to unrelated products, all the manufactured Page 11 of 62 C/LPA/694/2017 CAV ORDER goods are required to be physically exported out of country gradually from second year onwards and from fifth year onwards, 100% of goods manufactured in the SEZ is to be physically exported. Some penal actions have also been referred in the Policy for breach of any conditions.
3.8 Having found the practical incapability of the units to physically export the manufactured goods, made several representations to Union of India and brought to the notice* that if the sale in DTA is not permitted, the units are likely to be closed and there would be unemployment of 5,000 workers who are working in such 40 units. The petitioners did file their objections in detail, however, had executed a bond since the petitioners intended to continue the manufacturing work. Since the respondent No.1 did not withdraw or modify the conditions of the Policy, the present petitions have been filed."
3.1 In the context of the above facts, the appellant had sought for the following prayers in the Special Civil Application :
"A) That the Hon'ble Court be pleased to issue a writ of or in the nature of certiorari or any other appropriate writ, order or direction quashing and setting aside the policy on units in SEZs carrying on recycling of plastic scrap or waste dated 17.9.2013 (No. C.6/10/2009-SEZ) issued by Respondent No. 1 and letter of extension dated 12.12.2013 issued by Respondent No. 3 to the petitioner to the extent the said letter of extension imposes conditions not provided under the Special Economic Zones Act, 2006 or the Rules thereunder more particularly conditions no. 16, 17, 18, 21, 22, 24 and 25;
B) That pending the hearing and final disposal of this petition, the Hon'ble Court be pleased to pass an order:-
i) staying the operation and implementation of the policy on units in SEZs carrying on recycling of Page 12 of 62 C/LPA/694/2017 CAV ORDER plastic scrap or waste dated 17.9.2013 (No. C.6/10/2009-SEZ) issued by Respondent No. 1 and letter of extension dated 12.12.2013 issued by Respondent No. 3 to the petitioner to the extent the said letter of extension imposes conditions not provided under the Special Economic Zones Act, 2006 or the Rules thereunder more particularly conditions no. 16, 17, 18, 21, 22, 24 and 25;
ii) restraining the Respondents from taking any coercive steps against the petitioner under or pursuant to the policy on units in SEZs carrying on recycling of plastic scrap or waste dated 17.9.2013 (No. C.6/10/2009-SEZ) issued by Respondent No. 1 and letter of extension dated 12.12.2013 issued by Respondent No. 3 to the petitioner;
..."
3.2 From the aforesaid narrative, the grievance in short of the original petitioners was that as existing SEZs they were permitted to sell their products to the Domestic Tariff Area (DTAs). Such sales were achieving positive Net Foreign Exchange as per Rule 53 of the Special Economic Zones Rules, 2006 ("SEZ Rules" for short). The Special Economic Zones Act, 2006 (" SEZ Act" for short) did not prohibit supplying products to consumers in the Domestic Tariff Area.
However by the impugned circular the Units were required to physically export out of the country a minimum percentage of the unit's total turnover. Amendments to the letters of approval, mandating such minimum exports out of the country and introducing such a condition was contrary to the provisions of the SEZ Act and the SEZ Rules. No such Page 13 of 62 C/LPA/694/2017 CAV ORDER amendments could be made except as per the procedure prescribed under the Rules. The prescribed procedure was to table them in the Parliament. The policy cannot impose conditions which are not in consonance with the Rules and hence the Policy Circular was required to be set aside.
3.3 After discussion of the relevant provisions of the SEZ Act and the SEZ Rules, the learned Single Judge held as under:
"20. Now, as per the relevant provisions discussed and reproduced herein above, the conditions imposed by the Authority while issuing the LOA to each petitioner are in consonance with the guidelines of 2013. The relevant conditions which are referred to herein above are not in consonance with the Rules since none of the Rules prohibit the unit established in SEZ to remove the goods in DTA. Under Section 55 (3) of the SEZ Act, no rules are amended and, therefore, when the petitioner units are following the rules, particularly, Rule 53 of the Rule and in accordance with Section 30 of the Act and paying the custom duty in foreign currency, there was no need to impose conditions as per the guidelines of 2013. It is not the case of the respondent that any of the petitioner unit has committed breach of any provisions of other Act or Rules and not earned net foreign exchange earnings and has not paid custom duty in foreign currency."
3.3 Therefore, according to the learned Single Judge, as per the provisions of Sections 5, 2(i), 30, 55 and 15 of the SEZ Act, when read with Rules 47 to 49 and Rule 53 of the SEZ Rules, when sales to DTA was permissible on payment of custom duty and such transactions earned net foreign exchange, the terms and conditions were to be imposed in Page 14 of 62 C/LPA/694/2017 CAV ORDER accordance with Section 15(8) read with Rule 55 and since the conditions imposed were not in consonance with such Rules, the policy circular dated 17.09.2013 was set aside.
4. Similarly, let us go through the facts in Letters Patent Appeal No. 694 of 2017 which have been briefly set out by the learned Single Judge in Special Civil Application No. 6806 of 2014 in the case of the original petitioners therein. The relevant paragraphs of the judgment of the learned Single Judge setting out such undisputed facts are as under:
"2. Brief facts as emerging in Special Civil Application No.6806 of 2014 are as under:
2.1 The petitioners were granted Letter of Approval (for short, LOA) issued by the Development Commissioner prior to publication of Special Economic Zone Act, 2005 (for short, the Act) and Special Economic Zone Rules, 2006 (for short, the Rule). They are engaged in the business of sorting, segregating and grading worn and used clothing. Their LOA has been renewed from time to time and lastly it was renewed in December, 2013 and subsequently revised in May, 2014. As per the Rule 18 (4) (C), their LOA was renewed by the Board of Approval (for short, BOA) as they were existing units. They were allowed to import worn clothing and after sorting, segregating and grading, they export clothing which is export-worthy and they earn their foreign exchange from those exports as required under Rule 53. Whatever is not export-worthy is being completely mutilated and cleared in Domestic Tariff Area (for short, DTA) on payment of applicable duties and after examination by the Customs. As per Foreign Trade Policy (for short, FTP), mutilated used cloth is classified in Open General License (for Short, OGL) category. As per the terms of Page 15 of 62 C/LPA/694/2017 CAV ORDER their LOA, the petitioners are under only one obligation that is to be positive in Net Foreign Exchange Earnings (for short, NFEE) and this is to be monitored cumulatively at the end of block period of 5 years.
Defaulters are subjected to penal action under Foreign Trade Development and Regulation Act, 1992 (for short, FTDR). By virtue of notification dated 30th March 2006 issued by the Director General of Foreign Trade (for short, DGFT), the petitioners were allowed to sell un- mutilated worn clothing in DTA to the extent of 15% of CIF value of imports made in the previous year. By notification dated 19.05.2010, this provision came to be deleted. The petitioners may not be eligible for sale of 15% of un- mutilated worn clothing after the date of notification dated 19.5.2010 but they were eligible for their past accrued entitlement for the period from 1.4.2009 to 18.5.2010. This is because the notification dated 30.03.2006 provided that the petitioners would be entitled to sell in DTA un-mutilated worn clothing to the extent of 15% of CIF value of imports made in the previous year. This was denied to the petitioners by the respondents. On 3.4.2013, the respondents issued a Circular along with the draft policy to regulate the functioning for worn clothing units in Special Economic Zone (for short, SEZ) and the same was circulated to all the Ministries including Ministry of Textile, Ministry of Environment, Ministry of Finance and to the stakeholders. After considering the feedback from all the concerned, the respondents framed a policy dated 17.9.2013 wherein it was prescribed that in addition to achieving NFEE, the petitioners will be required to make physical exports out of India to the extent of 40% at the end of second year, 80% at the end of fourth year and 100% at the end of fifth year and thereafter, 100% every year of their total turnover. Apart from this condition, the units were shown to be entitled to sell their un- mutilated worn clothing being export surplus and export rejects to the extent of 15% of their FOB value of their exports. After issue of policy dated 17.9.2013, the LOA of the petitioners were renewed in December, 2013, wherein all the conditions of their policy were inserted. The petitioners agreed to the terms and conditions in its totality. On 30th January, 2014, the respondents unilaterally, arbitrarily deleted the portion of entitlement of selling of un-mutilated worn clothing Page 16 of 62 C/LPA/694/2017 CAV ORDER being export surplus and export rejects in DTA on payment of applicable duties and accordingly renewed LOA issued to the petitioners in May, 2014 directing the petitioners to accept the terms and conditions. The petitioners accepted the terms and conditions subject to outcome of this petition that they had filed and which is being disposed of.
3. The petitioners have challenged the policy dated 17.9.2013 in its entirety and letter dated 13.1.2014 issued by the Ministry of Commerce and Industry. Policy dated 17.9.2013 imposes conditions of physical exports out of India to the extent of 40% at the end of second year, 80% at the end of fourth year, 100% at the end of fifth year and thereafter 100% every year. The letter dated 30th January, 2014, issued by the respondents deletes the provisions of 15% of un-mutilated worn clothing which was provided in policy dated 17.9.2013, unilaterally and arbitrarily. The petitioners have sought in their SCA that defects of Notification dated 19.5.2010 can only be prospective and not retrospective. Therefore, the petitioners should be allowed to sell in DTA their past accrued entitlement of un-mutilated clothing up to 15% of the imports made till 18.5.2010."
4.1 The appellant had sought for the following reliefs in Special Civil Application No. 6806 of 2014:
"(A) Your Lordships may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or a writ of declaration or a writ in the nature of declaration or any other appropriate writ, order or direction, inter alia declaring that the petitioner company is entitled to past accrued entitlement at the rate of 15% of the CIF value of the imports, as per the notification dated 30.3.2006 (Annexure 'B' hereto) for the period upto 19.5.2010, when the same was withdrawn vide notification dated 19.5.2010 (Annexure 'C' hereto).
(B) Your Lordships may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or direction, quashing and setting aside the policy bearing No.D.6/35/2012-SEZ dated 17.09.2013 (Annexure 'H' hereto) to the extent to Page 17 of 62 C/LPA/694/2017 CAV ORDER which it imposes obligation in terms of minimum physical export levels to be achieved by SEZ Units in a period of first five years in a graduated upward scale, as well as the communication bearing No. D.6/35/2012-SEZ dated 30.1.2014 (Annexure-'L' hereto), both issued by the office of the respondent No.1 as being violative of Articles 14, 19(1)(g), 265 and 300 A of the Constitution of India.
(C) Your Lordships may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or a writ of declaration or a writ in the nature of declaration, or any other writ, order or declaration, declaring that the decision of the SEZ Board of Approval i.e. respondent No.2 herein, taken in the 60th Meeting (Annexure 'I' hereto) to the extent of imposing the condition to the effect that violation of the prescribed Minimum Physical Export obligation at the end of second, fourth and the fifth years, would lead to imposition of penalty and cancellation of the LoP, is in colourable exercise of power, and is bad in law and non-est;
(D) Your Lordships may be pleased to issue a writ of mandamus or a writ in the nature of mandamus quashing and setting aside the LoP (Annexure 'J' hereto) issued in favour of the petitioner company to the extent of incorporating the condition to the effect that any violation of the prescribed minimum physical export obligation at the end of second, fourth and fifth years would lead to imposition of penalty and cancellation of LoP, as being violative of Articles 14 and 19(1)(g) of the Constitution of India."
4.2 Here too the grievance is that the permission to sell worn clothing in the Domestic Tariff Area to the extent of 15% of the CIF value of imports made, by notification dated 30.3.2006, was deleted by notifications dated 19.5.2010. The vested rights accrued to the petitioners to sell worn clothing in the DTA were curtailed with retrospective effect. Further, Page 18 of 62 C/LPA/694/2017 CAV ORDER the policy circular dated 17.9.2013 is de-hors the policy of law. The authority has bypassed the mandatory condition as so prescribed under Section 55(3) of the SEZ Act and therefore the indirect imposition of conditions is against the prescribed law and therefore the authority has no power to impose such conditions on the existing units.
4.3 The learned Single Judge, in the judgment so impugned, held as under:
"19. This Court has gone through the entire record of the case and having heard the learned advocates for the respective parties. The definition of export given in Section 2(m) of the Act says that the exports can be physically or otherwise. For this purpose, Rule 53 provides number of transactions which are considered to be deemed export for the purpose of calculation of NFEE and to discharge of export obligation of the petitioners. Even in the policy dated 17.9.2013, the respondents have provided that the petitioners will be allowed to sell un-mutilated worn clothes, being export surplus and export rejects on payment of applicable duty to the extent of 15% of FOB value of their exports. The unilateral withdrawal of 15% from retrospective effect may not be justified. This industry is providing large employment to unskilled workers in the local area and phasing them out will result in loss of employment of about 12,000 workers. One of the key motive of establishment of SEZ is to generate maximum employment, which would be defeated if their LOAs are not renewed.
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26. The entire business of shoddy / blanket industry of Panipat procures their raw material from the worn clothing units in SEZ and thus huge number of indirect Page 19 of 62 C/LPA/694/2017 CAV ORDER labour employment has to be appreciated. Considering the provision of Section 15(8) (B) read with Section 2(w) of the Act it is apparently clear that no new condition can be imposed on the petitioners in their LOA without amending the relevant rules as such, policy dated 17.09.2013 is without any authority of law. The provisions of Section 55(3) lays a certain provision for making any amendment in the rules, which obviously has not been done in the present case. Imposing condition of physical export in phased manner as inserted LOAs of the petitioners is inconsistent with the provisions of Rule 53 and Rule 19(6). The subsequent deletion of 15% of the clearance of un-mutilated worn clothing in DTA vide letter dated 30.1.2014 is also arbitrary and illegal. Resultantly, aforementioned judgment relied upon by learned counsel for the respondents is not helpful to advance their case.
27. In regard to the past accrued entitlement, it is abundantly clear to this Court that the petitioners were entitled for the DTA sales of un-mutilated worn clothing being export surplus and export rejects on payment of applicable duties to the extent of 15% of their CIF value for their imports made in previous year i.e. from 1.4.2009 to 18.5.2010 and for the unutilized DTA entitlement as on 19.5.2010. If this is not allowed to them then it will be promissory estoppal on part of the Government. Had the respondents allowed past accrued entitlement of 15% at the relevant time, the petitioners would have cleared the same at the valuation norms prevalent prior to withdrawal of this 15% vide notification dated 19.5.2010.
28. In the the case Union of India Others V/s. Asian Food Industries (supra) relied upon by learned senior counsel is fully applicable to the facts of this case as notification can only have prospective effect and by reason of policy, vested or accrued right cannot be taken away. Such right cannot, therefore, be taken away by amendment thereof.
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31. Similarly, in yet another decision Union of India and others V/s. Ashokkumar Aggarwal, in para Nos.58 and Page 20 of 62 C/LPA/694/2017 CAV ORDER 59, it has been held that:
58. A Constitution Bench of this Court while dealing with a similar issue in respect of executive instructions in Sant Ram Sharma V/s. State of Rajasthan held: (AIR P.1914, para 7) 7&It is true that the Government cannot amend or supersede statutory rules by administrative instructions, but if the rules are silent on any particular point the Government can fill up the gaps and supplement the rules and issue instructions not inconsistent with the rules already framed.
59. The law laid down above has consistently been followed and it is a settled proposition of law that an authority cannot issue orders / office memorandum/ executive instructions in contravention of the statutory rules. However, instructions can be issued only to supplement the statutory rules but not to supplant it. Such instructions should be subservient to the statutory provisions.
32. So going through the aforementioned law laid down by the Apex Court, there is no hesitation to hold that the authority has bye-passed the mandatory provisions and issued the impugned instructions against the prescribed law which was beyond their jurisdiction.
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34. From the observations and findings of the Parliamentary committee on petitions or otherwise, it is evident that worn clothing units of SEZ provide large employment, they fulfilled their NFEE requirement by way of exporting same products to the various countries outside India. The worn clothing imported is non-
hazardous in nature, further import is fumigated at the origin to ensure that imported worn clothing is free from germs and they earn valuable foreign exchange for our country, thus there is no reason to impose extra conditions to regulate the functioning of the worn clothing units in SEZ that are over and above the provisions already provided in SEZ Act/ Rules.
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35. For the foregoing reasons, the petitions succeed and are, accordingly, allowed. The impugned policy dated 17.9.2013 is set aside. Consequently, LOAs of the petitioners are to be amended deleting extra conditions imposed vide policy dated 17.9.2013. Since policy dated 17.9.2013 is set aside, letter dated 30.1.2014 will have no relevancy with the present policy which is now set aside. Respondents are directed to allow the petitioners to clear their past accrued entitlement of DTA sales of un-mutilated worn clothing to the extent of 15% of their CIF value of imports made prior to 19.5.2010 and for un- utilized DTA entitlement of un-mutilated worn clothing as on 19.5.2010, DTA entitlement quantity of un- mutilated worn clothing to be calculated as per the valuation norms as prevalent on 19.5.2010 on payment of applicable duties and taxes. Since their past accrued DTA entitlement for sale of un-mutilated worn clothing has been delayed for abnormal period of about 6 years, this should be allowed to them within a period of 2 months from the date of this order."
5. From the aforesaid narratives, it is evident that what the units, plastic units and those dealing in worn clothes are aggrieved by is the policy circular dated 17.09.2013.
According to the Units, prescribing graded increase of exporting their products and rescinding their sale of 15% to DTA is contrary to the provisions of the SEZ Act and the SEZ Rules. As far as worn clothes' units are concerned, the additional grievance is that by deleting the condition of 15% of sales to DTA vide notification dated 19.5.2010, the vested rights for such sales for the accrued period from 01.04.2006 to 30.04.2010 have been taken away.
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6. Mr. Parth Bhatt, learned Assistant Solicitor General for the Union of India, has assailed the judgments in the respective appeals. Apart from taking us through the various grounds raised in the memo of appeals so filed, the focus of submissions of Shri Bhatt has been to suggest that the issuance of the policy circular is within the powers so prescribed under the SEZ Act and SEZ Rules. He has taken us through the provisions of Rule 18(4) of the SEZ Rules which empowers the authority i.e. the Board to insert conditions in the Letters of Approval. Inviting our attention to Section 9 of the SEZ Act, Mr. Bhatt contended that the Board is bound to follow directions on the question of policy as the Central Government may give in writing to it from time to time. The mandate is within the domain of the SEZ Act.
6.1 Rule 19(2) was pressed into service by Mr. Bhatt to suggest that it is open to specify in a letter of approval limitations, if any on Domestic Tariff Area sale of finished goods. According to Mr. Bhatt, the statutory provisions indicate that the Approval Committee or the Board of Approval has the powers of modification / rejection and imposing of any other terms and conditions with regard to limiting the Domestic Tariff Area Sale and the policy of Page 23 of 62 C/LPA/694/2017 CAV ORDER 17.09.2013 is therefore valid. He submitted that rule 15(4) of the Rules empowers the Board to incorporate such conditions in the Letter of Approval.
6.2 Mr. Bhatt submitted that the policy is in consonance with the objectives of Section 5 of the SEZ Act and Rule 53 of the SEZ Rules. As far as the communication dated 19.05.2010 in case of worn clothes units is concerned, Mr. Bhatt has submitted that no vested rights have accrued and the principle of promissory estoppel will not apply. In support of his submission, Mr.Bhatt has relied on the decision of the Supreme Court in the case of Kasinka Trading and Another vs. Union of India and Another., reported in (1995) 1 SCC
274.
7. Leading the arguments on behalf of the original petitioners- respondents in these appeals, Mr. Mihir Thakore, learned Senior Advocate appearing with Mr. Salil Thakore, has supported the impugned judgements. We have reproduced the synopsis of the submissions as given to us, so that, for the sake of brevity we keep the main focus on the arguments made by Mr. Thakore, while making oral submissions on the same lines.
Page 24 of 62C/LPA/694/2017 CAV ORDER "III Submissions in Brief A) Terms and conditions can be 'prescribed' by the
Central Government only by way of Rules to be laid before the Parliament. This is clear from the following sections of the SEZ Act:-
Section 2(w): "prescribed" means prescribed by rules made by the Central Government under the Act.
Section 15(8)(b) whereunder the Parliament has empowered the Central Government to prescribe terms and conditions.
Section 55(1) which provides that the Central Government shall make rules by notification.
Section 55(2)(o) Section 55(2)(za) Section 55(3) (a provision which provides for laying of Rules before the Parliament so that the Parliament which is the primary repository of legislative power is able to maintain checks over the exercise of delegated legislative power by the Central Government).
When a statute vests certain power in an authority to be exercised in a particular manner then the said authority has to exercise it only in the manner provided in the statute itself or not at all. Reliance is placed on the following judgments:-
1) (2004) 6 SCC (para 29. " a Constitution Bench of this Court reaffirmed the general rule that when a Statute vests certain powers in an authority to be exercised in a particular manner then the said authority has to exercise it only in the manner provided in the statute itself.")
2) (2002) 1 SCC 633 (para 27: "It is a normal rule of construction that when a statute vests certain power in an authority to be exercised in a particular manner then the said authority has to exercise it only in the manner provided in the statute itself.") Page 25 of 62 C/LPA/694/2017 CAV ORDER
3) (2001) 4 SCC (para 23. "It is a settled principle of law that where a power is given to do a certain thing in a certain manner, the thing must be done in that way or not at all.")
4) 2014 (2) SCC 401 (para 34-35) By way of the impugned policy (Ann. A - pg 30), the Central Government has imposed terms and conditions other than by way of Rules to be laid before the Parliament. Hence, the policy is bad and without any authority of law.
B) The imposition of minimum export requirements under Clause X of the impugned policy is contrary to the following provisions of the SEZ Act and Rules:-
The Act and Rules nowhere prohibits sale of goods into the DTA. In fact, section 30 of the SEZ Act and other provisions of the Rules expressly contemplates sale of goods into the Domestic Tariff Area and the policy which provides for minimum export conditions runs contrary to the said provisions. Upholding the policy would result in undoing the effect of some provisions of the SEZ Act and Rules.
For the submission that when a policy is contrary to the Act or Rules or is unconstitutional or is arbitrary or is beyond the power of the authority, the same is liable to be interfered with:-
(2015) 7 SCC 698 (para 6). " We also find ourselves unable to agree with the appellants submission that this is a policy matter and, therefore, should not be interfered with by the courts. In Federation of Railway Officers Assn v. Union of India, this Court has already considered the scope of judicial review and has enumerated that where a policy is contrary to law or is in violation of the provisions of the Constitution or is arbitrary or irrational, the courts must perform their constitutional duties by striking it down.") (2008) 2 SCC 672 (para 65): "Broadly, a policy decision is subject to judicial review on the following grounds: (a) if it is unconstitutional; (b) it is is dehors Page 26 of 62 C/LPA/694/2017 CAV ORDER the provisions of the Act and the regulations; (c) if the delegatee has acted beyond its power of delegation; (d) if the executive policy is contrary to the statutory or a larger policy."
(2006) 3 SCC 581 (para 67-A policy cannot be contrary to the Act and Rules.) C) Clause X of the impugned policy makes Rule 53 of the Rules redundant.
Under Rule 53 of the Rules, every SEZ unit is required to achieve Positive Net Foreign Exchange earnings.
Positive Net Foreign Exchange = A-B>0 Rule 53(A) provides different options for earning foreign exchange / achieving positive NFE and one of them is (n) whereunder supply of goods into the Domestic Tariff Area against payment in foreign exchange can be considered for calculating positive NFE.
Clause X which provides for minimum export requirement makes the Positive Net Foreign Exchange Rule (A-B > 0) under Rule 53 redundant, Clause X of the policy effectively wipes out Rule 53.
D) The policy is unreasonable, arbitrary, discriminative and hence violative of Article 14 of the Constitution of India. The policy is also violative of Article 19(1)(g).
The policy is discriminative: The impugned policy including X thereof (minimum export conditions) is applicable only to plastic recycling units. A similar policy has been issued for worn clothes units. However, except for plastic recycling units and worn clothes units, minimum export conditions have not been imposed on any other units. There is also no reason why restrictions have been put on broadbanding in second sentence of Clause IX of the policy. There is no reason why plastic recycling units and worn clothes units should have been targeted in this manner. The policy is discriminative and Page 27 of 62 C/LPA/694/2017 CAV ORDER arbitrary and hence violative of Article 14.
The Policy is unreasonable and arbitrary : The plastic recycling units manufacture products which have a demand in India especially in the agricultural sector, generate considerable revenue in the form of taxes for the public exchequer and provide employment to a large number of persons (5000 persons between 20 recycling units in Kandla SEZ). The policy which provides for minimum export conditions rings a death knell for the plastic recycling units which do not have much export potential, something that is to the knowledge of the authorities. (see Ann. G, pg 76, Ann T, pg 150). The policy has been issued without appreciating that the objectives given in Section 5 of the SEZ Act are not just promotion of exports but also (a) generation of additional economic activity, (b) creation of employment opportunities etc. The policy if permitted to be implemented will result in the closure of the plastic recycling units which will mean loss of economic activity, unemployment of workers, loss to public exchequer, loss of foreign exchange earnings and will frustrate every objective of Section 5.
The policy is violative of Article 19(1)(g) (right to do business) because its effect will be closure of the business of the plastic recycling units.
IV. Promissory Estoppel The plastic recycling units opted for the SEZ Scheme on the basis of widely publicised assurances of the government that sale into Domestic Tariff Area shall be permitted on payment of full duty. Clause X of the impugned policy prohibits supply of goods into India and is, therefore, in breach of the principles of promissory estoppel.
V. Consequential directions
a) Minutes of Board of Approval dated 8.11.2013 (pg 30.) Clause xii of policy dated 17.09.2013 (pg 30.) provides that while considering renewal, the Board has to keep in mind the requirements of the policy. Therefore, the Board of Approval has in its minutes (pg.
177) provided that the conditions stipulated in policy Page 28 of 62 C/LPA/694/2017 CAV ORDER dated 17.09.2013 shall be applicable. It goes without saying that if the policy dated 17.09.2013 is quashed, the minutes of the Board of Approval would consequently have no relevance.
The Board of Approval has not prescribed its own terms and conditions in the minutes and in fact could never have done so for the reasons mentioned below. \ The power to make laws is with the Parliament. No authority or body has the power to exercise any legislative power unless the Parliament has by statute delegated the said power to such body. Under the SEZ Act, the power to prescribe terms and conditions applicable to units has been delegated by the Parliament upon the Central Government and the same is to be done by way of Rules to be laid before the Parliament. This is evident from Section 2(w), Section 15(8)(b), Section 55(1), Section 55(2)(o), Section 55(2)(za) and Section 55(3) of the SEZ Act. The parliament has not delegated this power to prescribe terms and conditions and further that while the Central Government can do it only by way of Rules to be laid before the Parliament, the Board of Approval can do it without any such requirement. The Board of Approval has no power to prescribe its own terms and conditions and has not even done so in the present case. Rule19(2) can only mean that the Board of Approval can stipulate conditions which are provided by the Central Government by way of Rules to be laid before the Parliament. If the provision is interpreted in any other way, it would run contrary to the SEZ Act whereunder the power to prescribe terms and conditions has been delegated only to the Central Government and that too to be exercised by Rules to be laid before the Parliament. It is a settled principle of interpretation that no interpretation should be placed which would result in the Rules being in conflict with provisions of the parent Act. It is also a settled principle of interpretation that in case of conflict, the Act would prevail over the Rules. In the present case, the correct interpretation of Rule 19 (2) is the one canvassed by the units and the said interpretation is in line with the aforementioned principles of interpretation.
b) Conditions of extension letter based on the policy Page 29 of 62 C/LPA/694/2017 CAV ORDER Certain clauses in the extension letter dated 12.12.2013 at pg. 30 are incorporated from the impugned policy and are not found anywhere in the Act or the Rules. If the impugned policy is quashed, consequently clauses incorporated from the impugned policy are also liable to be quashed. Clause 16: The second sentence of this clause is based on the second sentence of Clause IX of the policy and the same is bad in law as it arbitrarily places restrictions on broadbanding, something not restricted under the Act or Rules. If the policy is quashed, this condition also deserves to be quashed. Clause 17: This clause is based on Clause X of the policy and is for the same reason bad in law. The second paragraph of Clause 17 of the extension letter contains something that is neither in Act nor in the Rules nor in the policy. If the policy is quashed, this clause also deserves to be quashed. Clause 25: This clause restricts the authorised operations to the business of recycling of plastic. This clause is inconsistent with the Act and the Rules which do not put any such restrictions and is also highly discriminative and hence violative of Article 14. The same is also violative of Article 19(1)(g) (right to carry on business). The clause is also inconsistent with the second sentence of Clause IX of the policy (and Clause 16 of the extension letter) which only restrict broadbanding of unrelated products but not broadbanding of related products. The contention of the appellant that the units have accepted the terms and conditions of the policy is not correct. As mentioned above, the units have raised several objections to the policy from time to time and have eventually challenged the same before this Hon'ble Court. Even letter dated 23.7.2014 (pg 149) is without prejudice to rights and contentions. Apart from this, if a policy is contrary to the Act and Rules and is without jurisdiction, it has to be struck down as ultra vires and no letter can ever validate it. Reliance is placed on observations in relation to dotted line contracts in para 33 of 2015 (16) SCC 125. Apart from this, a right of a party to initiate legal proceedings especially to invoke the writ jurisdiction of this Hon'ble Court to question the validity of a decision can never be taken away. This is an accepted and settled principle under contract law and constitutional law.
VI. Subsequent amendments to the policy as
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applicable to the plastic recycling units:
During the pendency of the appeals, policy dated 17.09.2013 as applicable to the plastic recycling units and which had already been quashed by the Hon'ble High Court was amended to the effect that the plastic recycling units have to export 35% of their total annual turnover. The amended condition is produced at Annexure R-1 (pg.208) of the additional affidavit filed by the appellant. It is submitted that when the policy is bad, the amendment thereto is also bad for the same reasons and which are reiterated. Without prejudice to the submission that the amended condition suffers from the same legal infirmities, it is submitted that the amended condition as applied to plastic units is a more feasible and reasonable one as compared to the earlier condition.
In view of what is stated above and in view of the oral submissions made at the time of hearing, it is humbly submitted that the appeals be dismissed."
7. Mr. Saurabh Soparkar, learned Senior Advocate appearing in some of the appeals has adopted the arguments made by Mr. Thakore and we therefore do not reiterate the same. According to the learned Senior Advocates, the learned Single Judges, in both the judgments under challenge, have rightly set aside the policy circulars dated 17.09.2013 as being contrary to the provisions of the SEZ Act and the SEZ Rules and the appeals filed by the Union of India therefore ought to be dismissed.
8. At the outset, before we set out to analyse the submissions made by learned advocates for the parties in Page 31 of 62 C/LPA/694/2017 CAV ORDER context of the issue involved in these appeals, it shall be in the fitness of things to reproduce, the relevant extracts of the Policy dated 17.09.2013, in the case of plastic manufacturers and used cloth. The same are accordingly reproduced herein below:
"No. C.6/10/2009-SEZ Government of India Ministry of Commerce & Industry Department of Commerce (SEZ Division) **** Udyog Bhawan, New Delhi-110107 Dated : 17th September, 2013 Subject: Policy on units in SEZs carrying on recycling of plastic scrap or waste.
In terms of Section 5 of the SEZ Act,2005, the main objective of the SEZ scheme are:
(I) generation of additional economic activity
(ii) promotion of exports of goods and services
(iii) promotion of investment from domestic and foreign sources
(iv) creation of employment opportunities
(v) development of infrastructure facilities.
The SEZs being set up under the SEZ Act, 2005 and the units being established therein are established towards the achievement of the above objectives. This yardstick applies equally to the plastics recycling units set up in SEZs. The matrix of fiscal benefits, duty concessions as well as obligations envisaged in the SEZ Act, 2005, and Rules framed thereunder are equally applicable to the units in SEZs carrying on recycling of plastic scrap or waste. Additional safeguards in respect of plastics recycling units have been provided by Rule 18(4) of the SEZ Rules, 2006, which states no proposal shall be considered for:-
(a) Recycling of plastic scrap or waste:Page 32 of 62
C/LPA/694/2017 CAV ORDER provided that extension of Letters of Approval for an existing Unit shall be decided by the Board.
(b) Enhancement of the approved import quantum of plastic waste and scrap beyond the average annual import quantum of the unit since its commencement of operation to the existing Units;
(c) Reprocessing of garments or used clothing or secondary textiles materials and other recyclable textile materials into clipping or rags or industrial wipers or shoddy wool or yarn or blankets or shawls:
provided that extension of Letters of Approval for an existing unit shall be decided by the Board."
Keeping in view the aforesaid provisions of the SEZ Act and Rules and inputs received from the various stakeholders, the following policy is being prescribed to be followed by the units in SEZs carrying on recycling of plastic scrap or waste:
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(ix) The Units are required to fulfill the export obligation criteria including positive Net Foreign Exchange (NFE) earnings as provided in Rule 53 of SEZ Rules, 2006, per provisions of this Policy. No broad banding of unrelated products shall be allowed for this purpose.
(x) To ensure that plastic reprocessing units in SEZ fulfill export obligations, in addition to meeting their NFE obligation, all such units would be required to ensure that certain minimum percentage of the unit's annual turnover is physically exported out of the country. The minimum physical export levels to be achieved by such a unit on a graduated upward scale, as a percentage of the unit's total turnover is prescribed as under:
Period Minimum Physical Export Obligation At the end of 2nd Not less than 40% of the total annua year turnover At the end of 4th Not less than 80% of the total annua year turnover Page 33 of 62 C/LPA/694/2017 CAV ORDER At the end of 5th 100% of the total annual turnover year The unit will be required to continue to physically export 100% of their annual turnover, thereafter.
(xi) All applicable laws, rules, regulations etc., pertaining to environmental and other areas, as amended from time to time, shall be strictly complied with by all the units in SEZs carrying on recycling of plastic scrap or waste.
(xii) Compliance with parameters for import of plastic, waste/scrap and other regulatory requirements as specified in this instruction and applicable through various legal provisions, as amended from time to time shall be kept in view by the Board of Approval while considering Letter of Approval (LoA) renewal cases etc., relating to units in SEZs carrying on recycling of plastic scrap or waste.
(xiii) The validity of LoAs of existing units in SEZs carrying on recycling of plastic scrap or waste would henceforth be governed by the provisions of this policy and would be appropriately amended / renewed as per the terms of this policy.
(xiv) As provided under Rule 53 of the SEZ Rules if a Unit does not achieve positive NFE Earning or fails to abide by any of the terms and conditions of the LoA or Bond-cum-Legal Undertaking, without prejudice to the action that may be taken under any other law for the time being in force, the said Unit shall be liable for penal action under the provisions of the Foreign Trade (Development and Regulation) Act, 1992 as well as liable for cancellation of its LoA as per provisions of the SEZ Act."
No. D.6/35/2012-SEZ Government of India Ministry of Commerce & Industry Department of Commerce (SEZ Division) **** Page 34 of 62 C/LPA/694/2017 CAV ORDER Udyog Bhawan, New Delhi Dated : 17th September, 2013 Subject: Policy to regulate functioning of worn and used clothing units in SEZs - regarding.
In terms of Section 5 of the SEZ Act,2005, the main objective of the SEZ scheme are:
(I) generation of additional economic activity
(ii) promotion of exports of goods and services
(iii) promotion of investment from domestic and foreign sources
(iv) creation of employment opportunities
(v) development of infrastructure facilities.
The SEZs being set up under the SEZ Act, 2005 and the units being established therein are established towards the achievement of the above objectives. This yardstick applies equally to the plastics recycling units set up in SEZs. The matrix of fiscal benefits, duty concessions as well as obligations envisaged in the SEZ Act, 2005, and Rules framed thereunder are equally applicable to the units in SEZs carrying on recycling of plastic scrap or waste. Additional safeguards in respect of plastics recycling units have been provided by Rule 18(4) of the SEZ Rules, 2006, which states no proposal shall be considered for:-
(a) Recycling of plastic scrap or waste:
provided that extension of Letters of Approval for an existing Unit shall be decided by the Board.
(b) Enhancement of the approved import quantum of plastic waste and scrap beyond the average annual import quantum of the unit since its commencement of operation to the existing Units;
(c) Reprocessing of garments or used clothing or secondary textiles materials and other recyclable textile materials into clipping or rags or industrial wipers or shoddy wool or yarn or blankets or shawls:
provided that extension of Letters of Approval for an existing unit shall be decided by the Board."
Keeping in view the aforesaid provisions of the SEZ Act and Rules and inputs received from the various stakeholders, the following policy is being prescribed to Page 35 of 62 C/LPA/694/2017 CAV ORDER be followed by the units in SEZs carrying on reprocessing / recycling of used clothing:
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(iv) To ensure that used clothing reprocessing units in SEZ fulfill their export obligations, in addition to meeting their NFE obligation, all such units would be required to ensure that certain minimum percentage of the unit's annual turnover is physically exported out of the country. The minimum physical export levels to be achieved by such a unit on a graduated upward scale, as a percentage of the unit's total turnover is prescribed as under :
Period Minimum Physical Export Obligation At the Not less than 40% of the total annual end of turnover 2 year nd At the Not less than 80% of the total annual end of 4th turnover year At the 100% of the total annual turnover end of 5th year The unit will be required to continue physically export 100% of their annual turnover, thereafter. Further the sales to DTA of un-mutilated clothing on account of export surplus or export rejects will not exceed 15% of the physical export turnover of the unit.
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(vii) Compliance with parameters for import of used clothing and other regulatory requirements as specified in this instruction and applicable through various legal provisions, as amended from time to time shall be kept in view by the Board of Approval while considering LoA renewal cases etc., relating to units in SEZs carrying on re-cycling of used clothing.
(viii) The validity of LoAs of existing units in SEZs Page 36 of 62 C/LPA/694/2017 CAV ORDER carrying on recycling of used clothing would henceforth be governed by the provisions of this policy and would be appropriately amended / renewed as per the terms of this policy."
9. Though extensive submissions have been made by the respective advocates at the Bar, we need to assess the judgments of the learned Single Judges and arrive at a conclusion whether to upturn or uphold the view so taken.
Perusal of the judgments of both the learned Single Judges reveal, one common thread, which has been the basis of setting aside the policy circular dated 17.09.2013 of the Union of India. Taking into consideration the definition of "prescribed" under Rule 2(w) of the SEZ Rules, 2006 read with provisions of Section 55(2)(o) and 55(2)(za) of the SEZ Act, Rules 47 to 49 of the Rules, Section 30 of SEZ Act, the learned Single Judges are of the opinion that amendment to the policy has to be by following the Rules framed under Section 55(3) of the Act. Conditions imposed on such units without following the procedure under the Act and the Rules are bad. According to the learned Single Judge in one of the impugned orders, the Act itself provides sale to Domestic Tariff Areas and the term "export" includes providing goods and services to another area and there are provisions which provide for removal of goods from SEZ to DTA. Having said Page 37 of 62 C/LPA/694/2017 CAV ORDER so, the learned Single Judge observed that since none of the provisions prohibit an SEZ to remove goods, in absence of amendment to Rules, guidelines of 2013 could not impose conditions. In absence of any breach, no such condition could be imposed.
9.1 The same opinion was reiterated in the subsequent decision of the learned Single Judge who held that, considering the provisions of Section 15(8) (B) read with Rule 2(w) it is apparently clear that no new condition can be imposed on the petitioners in their Letter of Allotment without amending the relevant rules as such. Section 55(3), according to the learned Single Judge, lays a certain provision for making an amendment and in absence of such procedure, the policy dated 17.09.2013 is without authority of law.
10. The short question, therefore before us is, whether, the learned Single Judges were right in pressing into service Section 15(8)(b), section 55(3) and Rule 2(w), Rules 47 to 49 in order to hold that the policy dated 17.09.2013 was bad and without authority of law. In order to appreciate and understand the validity of the policy circular dated 17.09.2013 in juxtaposition with the Page 38 of 62 C/LPA/694/2017 CAV ORDER submissions made at bar and the views taken by the learned Single Judges, we deem it appropriate to reproduce the relevant statutory provisions under the SEZ Act and the SEZ Rules. The relevant sections and the Rules, read as under:
" 2. Definitions.- In this Act, unless the context otherwise requires,-
(b) "Approval Committee" means an Approval Committee constituted under sub-section (1) of section 13;
(e) "Board" means the Board of Approval constituted under sub-section (1) of section 8;
(i) "Domestic Tariff Area" means the whole of India (including the territorial waters and continental shelf) but does not include the areas of the Special Economic Zones;
(j) "entrepreneur" means a person who has been granted a letter of approval by the Development Commissioner under sub-section (9) of section 15;
(l) "existing Unit" means every Unit which has been set up on or before the commencement of this Act;
(m) "export" means -
(i) taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or
(ii) supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or
(iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different Special Economic Zone;
(w) "prescribed" means prescribed by the rules made by the Central Government under this Act;
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5. Guidelines for notifying special Economic Zone.-
The Central Government, while notifying any area as a Special Economic Zone or an additional area to be included in the Special Economic Zone and discharging its functions under this Act, shall be guided by the following, namely:-
Guidelines for notifying special Economic Zone.
(a) generation of additional economic activity
(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) development of infrastructure facilities; and
f) maintenance of sovereignty and integrity of India, the security of the State and friendly relations with foreign States.
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9. Duties, powers and functions of Board.- (1) Subject to the provisions of this Act, the Board shall have the duty to promote and ensure orderly development of the Special Economic Zones.
(2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Board shall include -
(a) granting of approval or rejecting proposal or modifying such proposals for establishment of the Special Economic Zones;
(b) granting approval of authorised operations to be carried out in the Special Economic Zones by the Developer;
(c) granting of approval to the Developers or Units (other than the Developers or the Units which are exempt from obtaining approval under any law or by the Central Government) for foreign collaborations and foreign direct investments, (including investments by a person resident outside India), in the Special Economic Zone for its development, operation and maintenance;
(d) granting of approval or rejecting of proposal for providing infrastructure facilities in a Special Economic Zone or modifying such proposals;
(e) granting, notwithstanding anything contained in the Industries (Development and Regulation) Act, 1951 (65 Page 40 of 62 C/LPA/694/2017 CAV ORDER of 1951), a licence to an industrial undertaking referred to in clause (d) of section 3 of that Act, if such undertaking is established, as a whole or part thereof, or proposed to be established, in a Special Economic Zone;
(f) suspension of the letter of approval granted to a Developer and appointment of an Administrator under sub-section (1) of section 10;
(g) disposing of appeals preferred under sub-section (4) of section 15;
(h) disposing of appeals preferred under sub-section (4) of section 16;
(i) performing such other functions as may be assigned to it by the Central Government.
(3) The Board may if so required for purposes of this Act or any other law for the time being in force relating to Special Economic Zones, by notification, decide as to whether a particular activity constitutes manufacture as defined in clause (r) of clause 2 and such decision of the Board shall be binding on all Ministries and Departments of the Central Government.
(4) The Board may delegate such powers and functions as it may deem fit to one or more Development Commissioners for effective and proper discharge of the functions of the Board.
(5) Without prejudice to the foregoing provisions of this Act, the Board shall, in exercise of its powers or the performance of its functions under this Act, be bound by such directions on the questions of policy as the Central Government may give in writing to it from time to time.
(6) The decision of the Central Government whether a question is one of policy or not shall be final.
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14. Powers and functions of Approval Committee.- (1) Every Approval Committee may discharge the functions and exercise the powers in respect of the following matters, namely:-
(a) approve the import or procurement of goods from the Domestic Tariff Area, in the Special Economic Zone for carrying on the authorised operations by a Developer;
(b) approve the providing of services by a service provider, from outside India, or from the Domestic Tariff Area, for carrying on the authorised operations by the Page 41 of 62 C/LPA/694/2017 CAV ORDER Developer, in the Special Economic Zone;
(c) monitor the utilisation of goods or services or warehousing or trading in the Special Economic Zone;
(d) approve, modify or reject proposals for setting up Units for manufacturing or rendering services or warehousing or trading in the Special Economic Zone [other than the grant of licence under clause (e) of sub-
section (2) of section 9] in accordance with the provisions of sub-section (8) of section 15; Provided that where the Approval Committee is unable to decide whether a particular process constitutes manufacture or not, it shall refer the same to the Board of Approval for a decision.
(e) allow, on receipt of approval under clause (c) of sub- section (2) of section 9, foreign collaborations and foreign direct investments (including investments by a person outside India) for setting up a Unit;
(f) monitor and supervise compliance of conditions subject to which the letter of approval or permission, if any, has been granted to the Developer or entrepreneur; and
(g) perform such other functions as may be entrusted to it by the Central Government or the State Government concerned, as the case may be.
(2) The Approval Committee shall not discharge such functions and exercise such powers in relation to a Developer, being the Central Government, as may be specified by notification by the Central Government. Provided that till such time, the Approval Committee is constituted, the concerned Development Commissioner shall discharge all functions and exercise all powers of the Approval Committee.
15. Setting up of Unit .- (1) Any person, who intends to set up a Unit for carrying on the authorised operations in a Special Economic Zone, may submit a proposal to the Development Commissioner concerned in such form and manner containing such particulars as may be prescribed:
Provided that an existing Unit shall be deemed to have been set up in accordance with the provisions of this Act and such Units shall not require approval under this Act.
(2) On receipt of the proposal under sub-section (1), the Development Commissioner shall submit the same to the Page 42 of 62 C/LPA/694/2017 CAV ORDER Approval Committee for its approval.
(3) The Approval Committee may, either approve the proposal without modification, or approve the proposal with modifications subject to such terms and conditions as it may deem fit to impose, or reject the proposal in accordance with the provisions of sub-section (8):
Provided that in case of modification or rejection of a proposal, the Approval Committee shall afford a reasonable opportunity of being heard to the person concerned and after recording the reasons, either modify or reject the proposal.
(4) Any person aggrieved, by an order of the Approval Committee, made under sub-section (3), 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.
(8) The Central Government may prescribe,-
(a) the requirements (including the period for which a Unit may be set up) subject to which the Approval Committee shall approve, modify or reject any proposal referred to in sub- section (3);
(b) the terms and conditions, subject to which the unit shall undertake the authorised operations and its obligations and entitlements.
(9) The Development Commissioner may, after
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approval of the proposal referred to in sub-section (3), grant a letter of approval to the person concerned to set up a Unit and undertake such operations which the Development Commissioner may authorise and every such operation so authorised shall be mentioned in the letter of approval.
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30.Domestic clearance by Units.- Subject to the conditions specified in the rules made by the Central Government in this behalf:-
(a) any goods removed from a Special Economic Zone to the Domestic Tariff Area shall be chargeable to duties of customs including anti-dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975, where applicable, as leviable on such goods when imported; and
(b) the rate of duty and tariff valuation, if any, applicable to goods removed from a Special Economic Zone shall be at the rate and tariff valuation in force as on the date of such removal, and where such date is not ascertainable, on the date of payment of duty.
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55. Power to make rules .- (1) The Central
Government may, by notification, make rules for carrying out the provisions of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:-
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(l) the form in which the appeal shall be made and the fees for making such appeal under sub-section (6) of section 15;
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(n) the requirements (including the period for which a unit may be set up) subject to which the proposal may be Page 44 of 62 C/LPA/694/2017 CAV ORDER approved, modified or rejected under clause (a) of sub-
section (8) of section 15;
(o) the terms and conditions, for the Unit subject to which it shall undertake authorised operations under clause
(b) of sub-section (8) of section 15 and the obligations and entitlements of the Unit;
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(za) the conditions subject to which the Units shall be entitled to sell the goods manufactured in a Special Economic Zone to the Domestic Tariff Area under section 30;
(3) Every rule made by the Central Government under this Act shall be laid, as soon as may be after it is made, before each House of Parliament while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.
The Special Economic Zones Rules, 2006:
18. Consideration of proposals for setting up of Unit in a Special Economic Zone :
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(4) No proposal shall be considered for-- (a) recycling of plastic scrap or waste:
Provided that extension of Letter of Approval for an Page 45 of 62 C/LPA/694/2017 CAV ORDER existing Unit shall be decided by the Board;
(b) enhancement of the approved import quantum of plastic waste and scrap beyond the average annual import quantum of the unit since its commencement of operation to the existing Units;
(c) reprocessing of garments or used clothing or secondary textiles materials and other recyclable textile materials into clipping or rags or industrial wipers or shoddy wool or yarn or blankets or shawls:
Provided that extension of Letter of Approval for an existing Unit shall be decided by the Board;
(d) import of other used goods for recycling:
Provided that extension of Letter of Approval for an existing Unit shall be decided by the Board: Provided further that reconditioning, repair, and re- engineering may be permitted subject to the condition that exports shall have one to one correlation with imports and all the reconditioned or repaired or re- engineered products and scrap or remnants or waste shall be exported and none of these goods shall be allowed to be sold in the Domestic Tariff Area or destroyed;
(e) Export of Special Chemicals, Organisms, Materials, Equipment and Technologies unless it fulfills the conditions indicated in the Import Trade Control (Harmonized System) Classifications of export and import items;
(f) if there is any instance of violation of law or public policy by the promoters, having a bearing on the merits of the proposal.
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19. Letter of Approval to a Unit :- (1) On approval of a proposal under rules 18 and 19, Development Commissioner shall issue a Letter of Approval in Form G, for setting up of the Unit.
(2) The Letter of Approval shall specify the items of manufacture or particulars of service activity, including trading or warehousing, projected annual export and Net Foreign Exchange Earning for the first five years of operations, limitations, if any on Domestic Tariff Area sale of finished goods, by-products and rejects and other Page 46 of 62 C/LPA/694/2017 CAV ORDER terms and conditions, if any, stipulated by the Board or Approval Committee:
Provided that the Approval Committee may also approve proposals for broad-banding, diversification, enhancement of capacity of production, change in the items of manufacture or service activity, if it meets the requirements of rule 18 :
Provided that no such approval shall be granted by the Approval Committee in those cases which fall within the competence of the Board of Approval.
Provided also that the Approval Committee may also approve change of the entrepreneur of an approved unit, if the incoming entrepreneur undertakes to take over the assets and liabilities of the existing Unit. (3) An entrepreneur holding Letter of Approval issued under sub-rule (1) shall only be entitled to set up a Unit in processing area of the Special Economic Zone or Free Trade and Warehousing Zone, as the case may be:
Provided that a proposal for setting up of a Unit in a Special Economic Zone or Free Trade Warehousing Zone shall be entertained only after the processing area of the Special Economic Zone or Free Trade Warehousing Zone has been demarcated under rule 11.
(4) The Letter of Approval shall be valid for one year within which period the Unit shall commence production or service or trading or Free Trade and Warehousing activity and the Unit shall intimate date of commencement of production or activity to Development Commissioner:
Provided that upon a request by the entrepreneur, further extension may be granted by the Development Commissioner for valid reasons to be recorded in writing for a further period not exceeding two years: Provided further that the Development Commissioner may grant further extension of one year subject to the condition that two-thirds of activities including construction, relating to the setting up of the Unit is complete and a chartered engineer's certificate to this effect is submitted by the entrepreneur. (5) If the Unit has not commenced production or service activity within the validity period or the extended validity period under sub-rule (4), the Letter of Approval shall be deemed to have been lapsed with effect from the date on which its validity expired. (6) The Letter of Approval shall be valid for five years Page 47 of 62 C/LPA/694/2017 CAV ORDER from the date of commencement of production or service activity and it shall be construed as a licence for all purposes related to authorized operations, and, after the completion of five years from the date of commencement of production, the Development Commissioner may, at the request of the Unit, extend validity of the Letter of Approval for a further period of five years, at a time. (7) If an enterprise is operating both as a Domestic Tariff Area unit as well as a Special Economic Zone Unit, it shall have two distinct identities with separate books of accounts, but it shall not be necessary for the Special Economic Zone unit to be a separate legal entity:
Provided that foreign companies can also set up manufacturing units as their branch operations in the Special Economic Zones in accordance with the provisions of Foreign Exchange Management (Establishment in India of branch or office or other place of business) Regulations, 2000 as amended from time to time.] CHAPTER V CONDITIONS SUBJECT TO WHICH GOODS MAY BE REMOVED FROM A SPECIAL ECONOMIC ZONE TO THE DOMESTIC TARIFF AREA
47. Sales in Domestic Tariff Area:- (1) A Unit may sell goods and services including rejects or wastes or scraps or remnants or broken diamonds or by-products arising during the manufacturing process or in connection therewith, in the Domestic Tariff Area on payment of customs duties under section 30, subject to the following conditions, namely:
--
(a) Domestic Tariff Area sale under sub-rule (1), of goods manufactured by a Unit shall be on submission of import licence, as applicable to the import of similar goods into India, under the provisions of the Foreign Trade Policy:
Provided that goods imported or procured from the Domestic Tariff Area and sold as such without being subjected to any manufacturing process shall be subject to the provisions of the Foreign Trade Policy as applicable to import of similar goods into India;
(b) Domestic Tariff Area sale under sub-rule (1) of rejects or scrap or waste or remnants arising during the manufacturing process or in connection therewith by the Unit shall not be subject to the provisions of the Import Page 48 of 62 C/LPA/694/2017 CAV ORDER Trade Control (Harmonized System) of Classification of Export and Import Items:
Provided that the Central Government may notify restrictions, as it deems fit on all or any class of such goods mentioned under this clause.
(2) Scrap or dust or sweeping of gold or silver or platinum may be sent to Government of India Mint or Private Mint from a Unit and returned in standard bars in accordance with the procedure specified by Customs authorities or may be sold in the Domestic Tariff Area on payment of duty on the gold or silver or platinum content in the said scrap:
Provided that the value of samples of gold or silver or platinum sweepings or scrap or dust taken at the time of clearance and sent to the Government Mint or Private Mint for assaying and assessment shall be finalized on the basis of reports received from the Government Mint or Private Mint, as the case may be.
(3) Surplus power generated in a Special Economic Zone's Developer's Power Plant in the SEZ or Unit's captive power plant or diesel generating set may be transferred to Domestic Tariff Area on payment of duty on consumables and raw materials used for generation of power subject to the following conditions, namely:--
(a) proposal for sale of surplus power received by the Development Commissioner shall be examined in consultation with the State Electricity Board, wherever considered necessary:
Provided that consultation with State Electricity Board shall not be required for sale of power within the same Special Economic Zone;
(b) norms for production of a unit of power shall be approved by the Approval Committee;
(c) sale of surplus power to other Unit or Developer in the same or other Special Economic Zone or to Export Oriented Unit or to Electronic Hardware Technology Park Unit or to Software Technology Park Unit or Bio- technology Park Unit, shall be without payment of duty;
(d) for sale of surplus power in Domestic Tariff Area, the Unit shall obtain permission from the Specified Officer and the State Government authority concerned;
(e) duty on sale of surplus power to the Domestic Tariff Area shall be as provided for in this rule. (4) Valuation and assessment of the goods cleared into Domestic Tariff Area shall be made in accordance with Customs Act and rules made thereunder.Page 49 of 62
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48. Procedure for sale in Domestic Tariff Area:-
(1) Domestic Tariff Area buyer shall file Bill of Entry for home consumption giving therein complete description of the goods and/or service namely, make and model number and serial number and specification along with invoice and packing list with the Authorised Officers:
Provided that the Bill of Entry for home consumption may also be filed by a Unit on the basis of authorization from a Domestic Tariff Area buyer.
(2) Valuation of the goods and/or services cleared into Domestic Tariff Area shall be determined in accordance with provisions of Customs Act and rules made thereunder as applicable to goods when imported into India (3) Where goods procured from Domestic Tariff Area by a Unit are supplied back to the Domestic Tariff Area, as it is or without substantial processing, such goods shall be treated as re-imported goods and shall be subject to such procedure and conditions as applicable in the case of normal re-import of goods from outside India:
Provided that in the case where such goods are supplied back to the Domestic Tariff Area, as it is, and where the import duty on such goods is "Nil" and while procurement of such goods no export benefits were allowed against such goods, the Unit may be allowed to supply back such goods to Domestic Tariff Area on the basis of invoice only and filing of Bill of Entry in such cases shall not be required.
49. Domestic Tariff Area removals - abatement of duties in certain cases :- (1) A Unit may remove capital goods to Domestic Tariff Area after use in Special Economic Zone on payment of duty as under:--
(a) duty shall be levied on such goods on the depreciated value thereof and at the rate in force on the date of removal of the goods;
(b) depreciation in value shall be allowed for the period from the date of commencement of production or where such capital goods have been received in the Unit after such commencement of production from the date such goods have been put to use for production till the date of presentation of Bill of Entry for home consumption;
(c) depreciation shall be allowed in straight line method as specified below, namely:--
(i) for computer and computer peripherals for every Page 50 of 62 C/LPA/694/2017 CAV ORDER quarter in the first year at the rate of ten per cent. for every quarter in the second year at the rate of eight per cent. for every quarter in the third year at the rate of five per cent. for every quarter in the fourth and fifth year at the rate of one per cent.;
(ii) for capital goods other than computer and compute peripherals for every quarter in the first year at the rate of four percent. for every quarter in the second year at the rate of three percent. for every quarter in the third year at the rate of three percent. for every quarter in the fourth and fifth year at the rate of two and half per cent.
and thereafter for every quarter at the rate of two per cent.
Explanation : For the purpose of computing depreciation for any part of a quarter, the rate applicable to such quarter in full shall be considered.
(2) Goods supplied by a Unit to Domestic Tariff Area on payment of duty may be brought back to the Unit for the purpose of repair within a period of six months from the date of clearance, or within such period as may be extended by the Specified Officer or within the warranty period whichever is later, on payment of duty on the value of repairs subject to the condition that the identity of goods is established to the satisfaction of the Specified Officer.
(3) Goods on which any export entitlements were availed at the time of procurement of goods may be supplied back to the Domestic Tariff Area on payment of duty equivalent to the export entitlements availed subject to the condition that the identity of goods being supplied back to the Domestic Tariff Area is established to the satisfaction of the Specified Officer:
Provided that where no export entitlements are availed, such goods may be supplied back to the Domestic Tariff Area without payment of duty.
(4) A Unit may remove following goods from the Special Economic Zone to Domestic Tariff Area without payment of duty:--
(a) goods imported and admitted into the Special Economic Zone after payment of applicable duty and such goods are cleared into Domestic Tariff Area, without any processing, subject to the condition that the identity of goods is established to the satisfaction of the Page 51 of 62 C/LPA/694/2017 CAV ORDER Specified Officer;
(b) used packing materials except metal containers;
(c) computer and computer peripherals, including printer, plotter, scanner, monitor, key board and storage units (whether imported or procured from Domestic Tariff Area) donated with the approval of the Specified Officer to the recognized non-commercial educational institutions or registered charitable hospitals or public libraries or public funded research and development establishments or organizations of Government of India or Government of a State or Union Territory, after two years of admission of goods and use by a Unit.
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53. Net Foreign Exchange Earnings.- The Unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of five years from the commencement of production according to the following formula, namely:--
Positive Net Foreign Exchange = A - B > 0 Where :--
A : is Free on Board value of exports, including exports to Nepal and Bhutan against freely convertible currency, by the Unit and the value of following supplies of their products, namely:--
(a) supply of goods against Advance Licence or Duty Free Replenishment Certificate under the Duty Exemption or Remission Scheme or Diamond Imprest Licence under the Foreign Trade Policy;
(b) supply of capital goods to holders of licence under the Export Promotion Capital Goods Scheme under the Foreign Trade Policy;
(c) supply of goods to projects financed by multilateral or bilateral agencies or funds as notified by the Department of Economic Affairs, Ministry of Finance under International Competitive Bidding in accordance with the procedures of those agencies or funds, where the legal agreements provide for tender evaluation without including the customs duty;
(d) supply of capital goods, including those in unassembled or disassembled condition as well as plants, machinery, accessories, tools, dies and such goods which are used for installation purposes till the stage of production and spares to the extent of ten per Page 52 of 62 C/LPA/694/2017 CAV ORDER cent. of the free on rail value to fertilizer plants;
(e) supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty;
(f) supply of goods to the power projects and refineries not covered in (e) above;
(g) supply to projects funded by United Nations Agencies;
(h) supply of goods to nuclear power projects through competitive bidding as opposed to International Competitive Bidding;
(i) supply made to bonded warehouses set up under the Foreign Trade Policy or under section 65 of the Customs Act and free trade and warehousing zones, where payment is received in foreign exchange;
(j) supply against special entitlements of duty free import of goods under the Foreign Trade Policy;
(k) export of services by services units including services rendered within Special Economic Zone or services rendered in the Domestic Tariff Area and paid for in free foreign exchange or such services rendered in Indian Rupees which are otherwise considered as having been paid for in free foreign exchange by the Reserve Bank of India;
(l) supply of Information Technology Agreement items and notified zero duty telecom or electronic items, namely, Color Display Tubes for monitors and Deflection components for colour monitors or any other items as may be notified by the Central Government;
(m) supply to other units and Developers in the same or other Special Economic Zone or Export Oriented Unit or Electronic Hardware Technology Park or Software Technology Park Unit or Bio-technology Park Unit provided that such goods and services are permissible for import or procurement by such Units and Developers;
(n) supply of goods to Domestic Tariff Area against payment in foreign exchange from the Exchange Earners Foreign Currency account of the Domestic Tariff Area buyer or Free Foreign Exchange received from overseas;
(o) supply of goods against free foreign exchange by a Free Trade and Warehousing Zone Unit.
Explanation : For the purposes of this sub-rule, the supplies under clause (m) shall be against procurement certificate, as applicable and the supplies under clauses (d) to (h) and (j) shall be as Page 53 of 62 C/LPA/694/2017 CAV ORDER per the terms and conditions of the respective duty exemption notified by the Central Government, in the Ministry of Finance; and B : consist of sum of the following:--
(a) sum total of the Cost Insurance and Freight value of all imported inputs used for authorized operations during the relevant period and the Cost Insurance and Freight value of all imported capital goods including goods purchased on high seas basis even though paid for in Indian Rupees and the value of all payments made in foreign exchange by way of export commission, royalty, fees, dividends, interest on external commercial borrowings during the first five year period or any other charges;
(b) value of goods obtained from other Unit or Export Oriented Unit or Electronic Hardware Technology Park or Software Technology Park Unit or Bio-technology Park Unit or from bonded warehouses or procured from international exhibitions held in India or precious metals procured from nominated agencies;
(c) the Cost Insurance Freight value of the goods and services, including pro-rata Cost Insurance Freight of capital goods, imported duty free or leased from a leasing company or received free of cost and/or on loan basis or on transfer for the period they remain with Unit.
Explanation : For the purposes of this sub-rule "Inputs" mean raw materials, intermediates, components, consumables, parts and packing materials;
(d) for annual calculation of Net Foreign Exchange, value of imported capital goods and lump sum payment of foreign technical know-how fee shall be amortized at the rate of ten per cent. every year from the first year to tenth year.
12. As can be seen from the sections quoted hereinabove, Section 2(b) of the SEZ Act defines the term "Approval Committee" as an approval committee constituted under sub-
section(1) of section 13 of the SEZ Act. Similarly, "Board"
under section 2(e) means the Board of Approval constituted Page 54 of 62 C/LPA/694/2017 CAV ORDER under section 9 of the SEZ Act. Section 8 of the Act provides duties, powers and functions of the Board. The power includes granting of approval or rejecting proposal or modifying (emphasis supplied) such proposals for establishment of the Special Economic Zones. It also has to perform such other functions as may be assigned to it by the Central Government.
Sub-section (5) of section 9 states that, without prejudice to the foregoing provisions of the Act, the Board shall, in exercise of powers or the performance of its functions under the Act, be bound by such directions on questions of policy as the Central Government may give in writing to it from time to time. Sub- section (b) further states that the decision of the Central Government whether a question is one of policy or not shall be final.
12.1 Section 14 deals with powers and functions of the approval committee. It has, under clause (d) of sub-section (1) of section 14 to approve, modify or reject proposals for setting up units. Section 15 provides that the approval committee either may approve a proposal to set up a unit or modify such a proposal. Section 15(8) says that the Central Government may prescribe the terms and conditions subject to which the Unit shall undertake the authorised operations and its Page 55 of 62 C/LPA/694/2017 CAV ORDER obligations and entitlements. Rules, known as the Special Economic Zones Rules, 2006 have been framed in exercise of powers conferred by Section 55 of the SEZ Act. Chapter III of the Rules pertains to procedure for establishment of a Unit.
Rule 18 of this chapter pertains to consideration of proposals for setting up of Unit in a Special Economic Zone. Rule 18(4) provides that no proposal shall be considered for recycling of plastic scrap or waste, provided that extension of Letter of Approval for an existing unit shall be decided by the Board.
Similarly, no proposal shall be considered for reprocessing of garments or used clothing or secondary textiles materials and other recyclable textile materials into clippings or rags or industrial wipers or shoddy wool or yarn or blankets or shawls, provided that extension of Letter of Approval for an existing Unit shall be decided by the Board. Reading of the Rule 19 of the Rules which pertains to Letter of Approval to a Unit indicates that the Letter of Approval shall specify the items of manufacture or particulars of service activity, including trading or warehousing projected annual export and Net Foreign Exchange Earnings for the first five years of operations, limitations, if any on Domestic Tariff Area sale of finished goods (emphasis supplied) if any, stipulated by the Board of Approval. It is therefore open to Page 56 of 62 C/LPA/694/2017 CAV ORDER the authorities, by virtue of operation of this Rule to incorporate limitations, if any, on the Domestic Tariff Area sale of finished goods.
13. Thus, analysing all these provisions, in a nutshell would indicate as under:
(A) That the guidelines notifying Special Economic Zone have to be read conjointly and not in isolation of each other.
One cannot pick and choose one parameter as suggested by the learned advocates for the original petitioners -
respondents herein, such as generation of additional economic activity or creation of employment opportunities. The guidelines also suggest promotion of exports of goods and services. Keeping in view the statement of objects and reasons for which SEZ has been created, we see no reason to see any impediment for the Union to suggest measures for Units to undertake activity which promotes exports, in line with the intentions of the SEZ Act.
(B) True it is that the definition of the term "export" in sub-
section 2(m), the term "prescribed" in section 2(w) and section 30 of the Act which provides for Domestic Clearance Page 57 of 62 C/LPA/694/2017 CAV ORDER by Units cannot be read in isolation but have to be read in juxtaposition with section 15 of the Act as so canvassed.
However, when Section 15(8)(a) is read, the requirements including the period for which the Unit may be so set up is subject to which the approval committee as defined in Section 2(b) shall approve, modify or reject any proposal.
(C) Section 55 of the SEZ Act empowers the Central Government to notify Rules for carrying out the provisions of the Act. Clauses (n); (o) and (za) of sub-section (2) of section 55 indicate the field of the Rules which may be so framed.
Reading of Rule 18(4) with Rule 19 clearly indicates that it is open for the Union of India to provide to include, while granting extension of Letter of Approval, limitations on Domestic Tariff Area Sale.
(D) With respect to the learned Single Judge, the error has crept in by completely not considering Rules 18 and 19 of the SEZ Rules. The learned Single Judges appear to have been misled into believing that as per Section 55(3), procedure prescribed, unless the Parliament passes such a modification, it cannot be done. Such an interpretation would work in thwarting the working of the Act.
Page 58 of 62C/LPA/694/2017 CAV ORDER (E) Reading of the provisions of section 9 and the Rules would indicate that there is an inbuilt mechanism which empowers the Board / Approval Committee by giving a play in the joints to modify proposals, impose conditions regarding granting of approvals and subsequent renewals. When the Central Government does bring out a policy change, the Board/ Approval Committee is bound to carry out such policy directions.
(F) Reading of all the statutory provisions very clearly indicate that the Board / Approval Committee has the power of modification / rejection and imposing of any other conditions, more particularly limitation in domestic tariff area sale pertaining to the Letter of Approval of SEZ Units. The power is so vested in accordance with Rule 19(2) of the SEZ Rules.
(G) Merely because, in the perception of the petitioners, by carrying out 15% of their sale to DTAs' they are earning Net Foreign Exchange as prescribed under Rule 53, would not deter the Union in bringing in a policy change which otherwise is keeping in view the guidelines of Section 5 of the SEZ Act. We need not go into the accounting principles of Net Foreign Exchange under Rule 53 to adjudge the validity of Page 59 of 62 C/LPA/694/2017 CAV ORDER such a policy, if the exercise of framing such a policy is within the powers of the Union, which, as aforesaid, we hold it is. It cannot be said that the policy initially framed by virtue of the notifications dated 17.09.2013 in case of both, plastic and worn clothes to be without authority of law.
14. As far as the argument in case of worn clothing that the subsequent communication dated 19.05.2010 took away vested rights, we hold otherwise. It is not in dispute that an exemption, once granted can be withdrawn. The concept of promissory estoppel cannot bind the Union in all cases. When such a withdrawal is in public interest and in furtherance of a policy decision, based on a rationale, in absence of any malafides, withdrawal of such benefits are always permissible.
It cannot be said to take away vested rights. Provisions of the statute when read indicate that, keeping in view the guidelines of section 5 of the SEZ Act, the power vests with the Board / Approval Committee to alter, modify or bring in limitations to DTA sales. In absence of any motive attributed and when such exercise is done in furtherance of the provisions of the Act, it cannot be faulted. The challenge on the touchstone that it violates Article 14 and 19(1)(g) should also therefore fail.
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15. We therefore reverse the decisions rendered by the learned Single Judges dated 24.01.2017 and 14.02.2017 and set aside the directions given therein. The impugned judgements are accordingly quashed and set aside. All these appeals are allowed with no order as to costs. In view of disposal of appeals, the Civil Applications stand disposed of, accordingly.
16. Before parting we may note that the respondents -
original petitioners have brought to our notice that though the policies in question were quashed and set aside by the learned Single Judge, the Office of the Development Commissioner, Special Economic Zone, pursuant to the show cause notice, has issued an order dated 15.01.2019 pending the present appeals. However, by way of an additional affidavit, the Joint Development Commissioner, Kandla Special Economic Zone has stated that the Orders-in-Original dated 15.01.2019 passed by the Development Commissioner, Kandla Special Economic Zone for non-compliance of export obligations as per Department of Commerce, Government of India's Policy guidelines dated 17.09.2013, as further amended vide letter dated 13.02.2018 have been kept in abeyance with immediate effect till outcome of the present appeals and that the Page 61 of 62 C/LPA/694/2017 CAV ORDER appellant undertakes not to take any coercive action on the basis of the Orders-in-Original till the outcome of the present appeals. Since we have allowed the appeals and the judgements of the learned Single Judge have been quashed and set aside, the order dated 15.01.2019 which has been issued pending these appeals and kept in abeyance till date shall not be implemented for a further period of four weeks from today.
sd/-
(ANANT S. DAVE, ACJ) sd/-
(BIREN VAISHNAV, J) FURTHER ORDER :
After pronouncement of the judgment, learned advocate for the respondents has requested for suspension of operation of the judgment. Request is rejected.
sd/-
(ANANT S. DAVE, ACJ) sd/-
(BIREN VAISHNAV, J) DIVYA Page 62 of 62