Jayakirshna Flour Mills (P) Ltd. vs Director General of Foreign Trade, Joint Director General Foreign Trade, Office of the Joint Director General of Foreign Trade, Foreign Trade Development Officer, Office of the Joint Director General of Foreign Trade and Commissioner of Customs

K. Chandru, J.—The Petitioner has come forward to challenge an order of the second Respondent, dated 31.3.2009 and seeks to set aside the same. By the impugned order, the Petitioner was directed to pay duty with 15% interest to the Customs authorities for the unfulfilled portion of export obligation in the second block year within 15 days. Notice was issued to the Respondents. The Additional Solicitor General of India took notice. On notice from this Court, on behalf of Respondents 1 to 3, a counter affidavit, dated 1.7.2009 was filed together with supporting documents. On behalf of the fourth Respondent, a counter affidavit, dated 29.9.2009 was filed.

The case of the Petitioner was that their company was engaged in the process of Cereals and has a Flour mill at Thirumangalam. They also engaged in exporting of various types of Flour processed by it. The Government of India had announced through the first Respondent Director General of Foreign Trade a scheme known as Export Promotion Capital Goods Scheme (for short EPCG scheme), by which the machineries were permitted to be imported at concessional customs duty for the purpose of manufacturing of export products. Based on duty saved, the importer is required to export a specified quantity of products that can be manufactured/produced by using the goods imported. The said export was directed to be completed within a specified period. The Petitioner company had applied for licence with the second Respondent under the EPCG Scheme. They were also given licence on 2.7.2006. The licence was to import the roller mill, moisture controller unit, impact machine and flour packing machine. The licence was valid for 24 months. The savings available due to waiver of duty came to Rs. 7,58,258.00. As per the scheme, the Petitioner was required to export wheat products eight times duty saved on the import of capital goods spread over a period for eight years. The licence mentioned above was issued in terms of the Customs notification No. 55/03, dated 1.4.2003 for available benefits of customs duty exemption.

The company had imported machineries covered by the licence and it entered through Thoothukudi Port. The company is also entitled to fulfill its export obligation within a period of eight years. The first and second year is the first block in which there is no obligation to export. The block of third and fourth year required 15% of export obligation. The block of fifth and sixth year required 35% and the block of 7th and 8th year required 50%. Therefore, for the first two years upto 2.7.2006, the Petitioner was not obliged to make any export. In the subsequent two years, it requires only 15% of export obligation. However, by a notification, dated 8.10.2007, the Government of India banned total export of wheat products. In view of the ban, no export was permissible though there was obligation under the EPCG licence to do so. Therefore, the Petitioner company sent letters, dated 10.12.2007, 9.1.2008 and 23.8.2008 to the second Respondent informing them about the ban for the export of wheat products and requested waiver of export obligation in terms of paragraph 5.11.2 of the Handbook of Procedures. The company also sent a letter dated 15.10.2008 to the first Respondent followed by a reminder dated 3.3.2009. It is in respect of the reminder, the impugned order was sent to the Petitioner stating that paragraph 5.11.2 of the Handbook of Procedure in Volume-I was deleted through public notice, dated 23.3.2009. Therefore, it was directed to pay 15% interest to the customs authorities for unfulfilled portion of export obligation in the second block within 15 days.

The contention of the Petitioner was that if the ban order was disclosed to the Petitioner company earlier, its company would not have opted for obtaining licence and imported goods of concessional duty. The first application for waiver was made before the date of deletion of paragraph 5.11.2. They are entitled to claim waiver. Since the second block was to expire only on 2.7.2008 and the ban on export of wheat products to abroad came on 8.10.2007 before the due date of export, there cannot be any liability on the Petitioner.

In the counter affidavit filed on behalf of the Respondents 1 to 3, it was contended that the Petitioner had not taken any efforts during the first three years, i.e. from the date of installation upto 8.10.2007 in exporting any products. Since the Petitioner had availed duty concession, they have having obligation correspondingly to export the goods. Further the Handbook of Procedure in Volume-I for the year 2004-2009 also contains paragraph 5.11.4. The Petitioner did not make use of the said provision. In response to para 3 of the affidavit, in the counter it was averred as follows:

... Since duty concession had already been availed by the Petitioner and given evidence, the question of waiver of entire export obligation does not arise in view of prohibition imposed by the first Respondent for which Public Notice No. 26 (RE-2008)/2004-2009 dt.3.6.2008 has already been issued for fulfillment of export obligation."

In the counter affidavit filed by the fourth Respondent, an identical stand was taken by them. Since reliance was placed upon paragraph 5.11.2 of the Handbook of Procedure in Volume-I by the Petitioner and 5.11.4 by the second Respondent, it is necessary to extract both paragraphs from the Handbook, which reads as follows:

5.11.2. Waiver of EO may be considered where, because of force majeure or other unforeseen circumstances/reasons which are beyond the control of the exporters (like steep fall in international prices, technological obsolescence etc.), and the exporter is unable to fulfill export obligation. Such requests shall be considered by a committee comprising representative(s) of DoC and DoR under DGFT. Decision of this committee shall be notified by DoR for implementation.

5.11.4. Whenever a ban/restriction is imposed on export of any product, export obligation period in respect of EPCG authorizations already issued prior to imposition of ban of such export products, would stand automatically extended for a period equivalent to the duration of ban, without any composition fee and exporter would not be required to fulfill average E.O. as well as the ban period.

The contentions raised by the Respondents are well founded. The Petitioner having availed duty concession cannot rely upon the ban order which came subsequent to the first year of second block. Their bonafide was not proved during the first three years of their export obligation. Though for the convenience sake, eight years period has been divided into four block period, the Petitioner on the strength of the ban order cannot claim waiver of export obligation. On the other hand, they ought to have taken advantage of paragraph 5.11.4 issued on 3.6.2008. This provision was not even referred to in their affidavit for the reasons best known to them. In fact, the Government of India by a notification No. 41/2009-2014, dated 18.5.2010 had granted permission for export subject to certain quantities and a copy of the notification has also been produced.

In the light of the subsequent developments and also the stand taken by the Respondents, the Petitioner has not made out any case to set aside the impugned notification. Hence the writ petition will stand dismissed. However, there will be no order as to costs. Consequently, connected miscellaneous petition stands closed.