Patel Engineering Ltd. vs Union of India

Heard both sides. Rule. The Respondents waive service. By consent, rule is made returnable forthwith. The Writ Petitioner is dissatisfied with the decision taken by the Policy Interpretation Committee in its meeting No. 10/AM-11 held on 15th March 2011. The Petitioner seeks that in pursuance of this Policy alone, the show cause notices are issued to the Petitioner. In such circumstances, Mr. Sridharan, learned Senior Counsel appearing on behalf of the Petitioner submits that since the show cause notices specifically refer to the minutes of the Policy Interpretation Committee and the decision taken therein that no useful purpose will be served by appearing before the Adjudicating Authority mid showing cause to the show cause notices, copies of which are annexed to the Petition at Annexures P-1 onwards.

It is the case of the Petitioner that these show cause notices are based on the clarification and the clarification could not be made applicable to the case covered by the Government of India, Ministry of Commerce, Directorate General of Foreign Trade decision dated 5th December 2000 or in any event 2011 decision as contained in the minutes of the meeting, cannot be applied retrospectively that this Writ Petition should be entertained, more particularly, when there are no disputed questions of facts.

Since we have to deal with the objection on maintainability of this Writ Petition, we would refer to the decisions cited by Mr. Sridharan, learned Senior Counsel appearing on behalf of the Petitioner and Mr. Avasia, learned counsel appearing on behalf of the Respondents.

Mr. Sridharan referred to a decision of the five Judges Bench of the Hon''ble Supreme Court in the case of Filterco and Another Vs. Commissioner of Sales Tax, Madhya Pradesh and Another, .

The Hon''ble Supreme Court held that when superior officer-Commissioner of Sales Tax has already passed a well considered order in exercise of his statutory jurisdiction and substantial portion of the tax has to be deposited before the Sales Tax Act 1958, filing of such an Appeal would be an exercise in futility.

Mr. Sridharan took assistance from this finding in this decision of the Hon''ble Supreme to urge that no useful purpose will be served by appearing before the Adjudicating Authority and showing cause simply because the Adjudicating Authority is bound to apply and follow the latter policy decision of 2011. He has clearly referred to the same in the show cause notice. The foundation of the show cause notice is this decision of the Policy Interpretation Committee dated 15th March 2011. The Adjudicating Authority would not be in a position to consider a challenge to this decision of the Policy Interpretation Committee and whether it has any prospective effect, or it could be applied to the case of deemed exports pursuant to the earlier decision and carried out prior to the impugned decision of the Policy Interpretation Committee. That would have to be considered by this Court and bearing in mind the position of the Adjudication Authority.

He therefore submits that to the same effect are the observations of the Division Bench of this Court in the case of Piramal Glass Limited (formerly known as Gujarat Glass Limited) Vs. The Union of India (UOI) and Others, . Mr. Sridharan also relied upon the Supreme Court decision in the case of Union of India (UOI) Vs. Ahmedabad Electricity Co. Ltd. and Others, .

On the other hand, Mr. Avasia, learned counsel appearing on behalf of the Respondents, submits that the show cause notice referred to certain Power Projects in relation to that there is no factual foundation has been laid in the subject Writ Petitions. Apart therefrom, it is only a matter of construing the minutes of the Policy Interpretation Committee and whether they would apply in the given facts and circumstances. That is a jurisdictional aspect of the matter which can very well be adjudicated during the course of the proceedings and in Appeal against the decision of the Adjudicating Authority. In that regard, a reference was made to the Foreign Trade (Development and Regulation) Act, 1992 and Section 15(2) thereof. According to Mr. Avasia, this provision would allow the Central Government to look into and the Central Government would be in a position to consider all the aspects including whether the latter clarification would govern the case covered by the earlier 2000 decision. Therefore, Writ Petitions should not be entertained and particularly in the above background.

After having heard the learned counsel for the Respondent and finding that the Writ Petitions raises a issue of applicability of the Circular, which was issued earlier in 2000 and to the goods supplied thereunder and whether that aspect should be decided in the light of the subsequent decision of the Policy Interpretation Committee dated 18th March 2011, that we are of the opinion that no useful purpose would be served by relegating the Petitioners to the alternate remedy suggested by Mr. Avasia. The Writ Petitions are pending in this Court form 2012. During their pendency, a reply affidavit was called for, both on jurisdictional and maintainability aspects also merits. In response thereto, a detailed affidavit in reply has been filed. In these circumstances and when the show cause notices are based or founded only on the decision of the Policy Interpretation Committee dated 15th March 2011 that we are of the opinion that no assistance can be derived by Mr. Avasia of the decision on the rule of availability of alternate remedy and Section 15(2) of the Act. It would be desirable and in the given facts and circumstances that this Court should decide the larger issue which has been raised. It is well settled that the rule of not entertaining a writ petition because of alternate, equally efficacious remedy is of caution and prudence and that by itself will not constitute as a bar to the entertainment of a Writ Petition under Article 226 of the Constitution of India.

Having dealt with and rejected the preliminary objection, we proceed to refer to the basic facts. The case of the Petitioner is that they are a Company incorporated and registered under the Indian Companies Act, 1956, specializing in construction and development of infrastructural projects. They are inter alia engaged in the construction of certain Hydro Electric Power projects which are financed by the multilateral or bilateral agencies as notified by Department of Economic Affairs under international competitive bidding and power projects specified in paragraph 8.2(d) and 8.2(g) of the Foreign Trade Policy. The Petitioners have further pointed out that they are involved in certain projects and contracts. The first one is that of the Government of Maharashtra, Irrigation Department, for construction of Upper Dam, Saddle Dam No. 1 and Lower Dam in Roller Compacted Concrete for Ghatghar Pumped Storage Scheme. This project is funded by Overseas Economic Co-operation Fund and it is claimed that the said project is eligible for "deemed export" benefit. Then in paragraph 6 of the Writ Petition, a reference is made to the projects of Andhra Pradesh Electricity Board. A reference is then made to certain projects under the North-Eastern Electric Power Corporation Ltd. They are referred to from paragraphs 7 to 11 of the Petition.

A reference is then made to National Hydroelectric Power Corporation Ltd. contracts and which are found in paragraphs 12 to 15. Thus, it is the case of the Petitioner that the above referred projects would be coming within the purview of the Foreign Trade Policy. The salient features of the Foreign Trade Policy are set out in the Petition from paragraphs 17 to 18. Then, our attention is invited by Mr. Sridharan, learned Senior Counsel to the Government of India, Ministry of Commerce, Director General of Foreign Trade communication, Annexure ''H'' dated 5th December 2000. The same reads as under:-

"2. It is noted that it is not possible for a single contractor to manufacture himself all the items required for completion of such projects and hence certain items, either imported or indigenous have necessarily to be procured from other sources. These items are often directly supplied to the project for assembly, commissioning, erection, testing etc. at site. It is, therefore, clarified that for all such directly supplied items whether imported or indigenous as are used in the project, the condition of ''manufacture in India'' a pre-requisite for grant of deemed export benefits, in satisfied in view of the fact that the aforesaid activities being undertaken at the project site constitute ''manufacture'' as per the definition given in para 3.31 of the EXIM Policy and accordingly the duties (customs and central excise) suffered on such goods shall be refunded through the DBK route.

In the case of civil construction projects falling under para 10.2(d) of the EXIM Policy read with this office clarification issued vide Policy Circular No. 32 (RE-98) 1997-2000 dated 20-8-98, a doubt has been raised as to whether excise duty paid on items such as cement, steel etc. supplied to the project authority, and used in the construction could be refunded through DBK route. In a civil construction project, it is noted that the items such as cement, steel etc. are used at compulsory inputs and constitute as material supply, distinct from service portion of supplies. It is, therefore, clarified that the excise duty paid on supply of these inputs shall be refunded through DBK route in the same manner as in any other case, of excisable goods being supplied to any other project qualifying for deemed export benefits, subject to the project authority certifying the receipt and use of said inputs in the project."

Mr. Sridharan, learned Senior Counsel submits that after the relevant applications were made by the Petitioners seeking refund of excise duty paid on the iron and steel, cement and fuel supplied to these mega projects, what they came across is a decision contained in the minutes of the Policy Interpretation Committee meeting and copy of which is at page 132 of the paper-book at Annexure ''I''.

Mr. Sridharan submits that the Petitioners were therefore anxious as to how these applications would be dealt with but eventually the refund was granted. However, they came across these minutes and immediately thereafter what followed are series of communications requiring the Petitioners to refund/return/pay back the benefit of deemed export. Thus, the argument is that each of the applications made for refund were processed and the refund was granted but by way of these communications, the Petitioners were called upon to return or pay back the benefit of deemed export. This benefit was granted by refund of excise duty paid for the goods supplied to the projects.

Mr. Sridharan submits that the show cause notice being solely based on the decision of the Policy Interpretation Committee that this Court should in the given facts and circumstances hold that the interpretation placed by the Department on 15th March 2011 would not govern the cases where unless refund is sanctioned and granted. There is no question of Petitioners being called upon to pay back the amount which has been refunded to them. In such circumstances, it is submitted that the 2011 decision cannot apply to the concluded exports of the Petitioners.

In that regard, what we find from the affidavit in reply of the Respondents viz. Deputy Director General of Foreign Trade, is that such a Policy was indeed framed. In paragraph 14 of the affidavit the deponent states that the Central Government for the period from 2004-2009 and 2009-2014 formulated and announced Foreign Trade Policy. In paragraph 1.2, the Foreign Trade Policy specifically provides that the said Policy incorporating provisions relating to export and import of goods and services, shall come into force with effect from 1st September 2004 and shall remain in force upto 31st March 2009 unless as otherwise specified and shall come into force with effect from 27th August 2009 and shall remain in force upto 31st March 2014 respectively unless otherwise specified. Thus, all exports and imports on and with effect from 1st September 2004 and 27th August 2009 including deemed exports shall be governed only by the provisions of respective policy and not by any earlier policy, circulars, public notice or interpretation. It is submitted that the communication dated 5th December 2000 which was in relation to the then existing Policy cannot be made applicable to the present case. Then, a reference is made to the Foreign Trade Policy and its provisions. It is submitted that where question or/doubt arises as regards interpretation of the provisions contained in the Foreign Trade Policy or classification of any item in ITC(HS) or Handbook of Procedure, Volumes 1 and 2 or Schedule of DEPB Rates, the said questions or doubts are to be referred to the Director General of Foreign Trade (DGFT) whose decision thereon shall be final and binding. It is in these circumstances that the argument is canvassed that it is open for the DGFT to interpret the provisions of Chapter 8 or in other words to interpret what is meant by deemed export and who is entitled to claim benefit of such deemed exports including power to clarify as to whether a particular transaction is or is not a deemed export so as to qualify for any of the benefits mentioned in clause 8.3(a)(b)(c) of the Policy. The determination of eligibility in terms of the existing policy does not amount to amendment thereof but is an interpretation of the same. It is this power which has been exercised according to the Respondents. The Petitioner''s case is not referred to at all in the paragraph shown by the Respondents. In fact, what has been stated is that on 9th September 2011 in a meeting of the Policy Interpretation Committee under the Chairmanship of the Director General of Foreign Trade, various issues relating to deemed exports, were considered and as per the deliberation in the said meeting, clarifications were issued. The minutes of the meeting of the Policy Interpretation Committee held on 15th March 2011 are at page 132 of the paper-book and it is submitted that the deliberations were held in a meeting convened by the DGFT of representatives of the Department of the Revenue, Department of Economic Affairs and Ministry of Power. The Regional Authorities were advised that in case any payment has been made which is contrary to the clarification issued in the meeting dated 15th March 2011 that all such cases should be reviewed and recovery be made.

The Petitioner cannot rely upon the communication dated 5th December 2000, since it was preceded by Policy Circular No. 32, dated 20th August 1998 issued to all Licensing Authorities. Therefore, the Recovery Notices were issued to the Petitioner for surrender of export deemed benefit availed. Since they failed to respond, the Respondents issued the show cause notices as per the Foreign Trade (Development and Regulation) Act, 1992. The affidavit thus contains a justification as to why show cause notices have been issued. We find in the entire affidavit that the Respondents have not explained as to why they decided to recover the benefits earlier granted and from parties like the Petitioners, why the Petitioners were not entitled to the benefits in terms of the earlier policy and specifically is not explained. All that we find is that the deemed exports were for certain categories. In that regard, what we find is that the interpretation which was placed on the provisions of the Foreign Trade policy and particularly Chapter 8 by the Committee in its meeting dated 15th March 2011 is extensively referred to. The denial of duty drawback for excise duty paid on High Speed Diesel, Steel, Cement has been correctly done as per this interpretation. Paragraph 41 on page 175 of the affidavit in reply reads as under:-

"41. Para 8.4.4 of FTP allows deemed export benefits for the following categories:

(i) In respect of supplies made under para 8.2(d), (f) and (g) of FTP supplier shall be entitled to benefits listed in paragraphs 8.3(a), (b) & (c) whichever is applicable.

(ii) In respect of supplies mentioned in paragraphs 8.2(d), supplies to projects funded by such agencies alone, as may be notified by DEA, MoF shall be eligible for deemed export benefits. A list of such agencies/funds is given in Appx. 13 of HBP Vol. I.

In case of supply under 8.2(d) fuel is not allowed to be given benefit as has been clarified by DGFT in PIC meeting dated 15-3-2011. Hereto annexed and marked as Exhibit ''4'' is the copy of Minutes of the Policy Interpretation Committee Meeting dated 15-3-2011.

(iii) Benefits of deemed exports under para 8.2(f) of FTP shall be applicable in respect of items, import of which is allowed by DoR at zero customs duty, subject to fulfillment of conditions specified under Notification No. 21/2002-Customs dated 1-3-2002, as amended from time to time.

(iv) Supply of capital goods and spares upto 10% of FOR value of capital goods to power projects in terms of paragraphs 8.2(g), shall be entitled for deemed export benefits provided the ICB procedures have been followed at independent power producer (IPP) Engineering and Procurement Contract (EPC) stage. Benefits of deemed exports shall also be available for renovation/modernization of power plants. Supplier shall be eligible for benefits listed in paragraphs 8.3(a) and (b) of FTP, whichever is applicable. However, supply of goods required for setting up of any mega power project as specified in S. No. 400 of DoR Notification No. 21/2002-Customs dated 1-3-2002, as amended shall be eligible for deemed export benefits as mentioned in paragraph 8.3(a), (b) & (c) of FTP whichever is applicable, if such mega power projects complies with the threshold generation capacity specified therein, in Custom Notification.

In view of the provisions for mega power projects under FTP provides deemed export benefits in respect of only those goods which are as per Sl. No. 400 of Notification No. 21/2002-Customs dated 1-3-2002, as emended from time to time (Custom Notification No. 12/2012-Customs dated 17-3-2012 has replaced Notification dated 1-3-2002). Sl. No. 400 of Notification No. 21/2002 covers supplies which are covered under heading No. 98.01 of ITS(HS) Classification cover all item of machinery such as prime movers, instruments, apparatus and appliances etc. Thus, the conclusion is that supplies of cement and steel to mega power projects are not eligible for deemed export benefits. Hereto annexed and marked as Exhibit No. 5 and 6 are the copies of Custom Notification No. 21/2002 dated 1-3-2002 and Chapter 98.01 of Customs.

Further para 8.4.7 sets out conditions for benefit for supply to NPCIL under para 8.2(j) of FTP as reproduced under:

"In respect of supplies made to nuclear power project under para 8.2(j) of FTP, the supplier would be eligible for benefits given in para 8.3(a), (b) & (c) of FTP, whichever is applicable. Supply of only those goods required for setting up any nuclear power project specified in list 43 at Sl. No. 401 of Notification No. 21/2002-Customs dated 1-3-2002, as amended from time to time having a capacity of 440 MW or more as certified by an officer not below rank of Jt. Secretary to Government of India in Department of Atomic Energy, shall be entitled for deemed export benefits where procedure of competitive biding (and not ICB) has been followed. Here again, the relevant custom notification allows only capital goods covered by Chapter 98 of the custom tariff to be imported. The goods so covered are capital goods like machinery only as stated above, thus cement, steel etc. cannot get the benefit of deemed export as not covered by the conditioned attendant to the eligibility of supply for deemed exports. Moreover, in the context of Terminal Excise Duty, it is the duty suffered by a product under supply when it is removed from the factory premises. With regard to drawback it is a refund of duty suffered by the inputs to manufacture of the goods to supply would constitute the drawback. Alternatively, if exemption on the duty on inputs be obtained for goods under manufacture and supply to project authority then Advance authorization for import without payment of duty for inputs can be taken. So, it is a very distinct identity and cannot be loosely used."

We find that this paragraph explains as to why cement, steel, etc. cannot get benefit of deemed export. The clarification given by these items not being covered is that only capital goods covered by Chapter 19 of the Customs Act can be imported and in that regard reference is made to certain Notifications issued under the Customs Act and amendment made to them from time to time. Those amendments are in relation to power projects. We are of the opinion that this paragraph virtually contains the decision taken by the various authorities. It is also concluded by them in the context of terminal excise duty which is the duty suffered by product when it is removed from the factory premises. With regard to drawback it is a refund of duty suffered by the inputs to the manufacture of the goods to supply goods constituted the drawback. The alternative argument is that exemption on the duty of inputs be obtained for goods under manufacture and supply to project authority, then, advance authorization for import without payment of duty for inputs can be taken. The Petitioner is being proceeded against as in the opinion of the Respondents, they are not fulfilling conditions of the Policy Interpretation Committee dated 15th March, 2011. The entire reply thus contains justification for the interpretation placed in 2011 and the action taken in pursuance thereof.

A bare perusal of this clarification shows that the meeting of the Policy Interpretation Committee was held. A Zonal Joint Director and some of the Regional Authorities were invited to obtain response from them and particularly their experience in processing export goods. In paragraph 2 of the minutes which has been stated that these authorities pointed out their inability to settle the deemed export claims due to inadequate budgetary provisions. These difficulties are noted in paragraph 2 further and there is a reference to Public Notice issued on 1st March 2011. In paragraph 3 of the minutes, the issue of claiming deemed export benefits issued by the project authority was discussed. After detailed deliberations, it was decided that if the bill of entry is in the name of Project Authority, the deemed export benefit would not be available.

Then reference is made to the refund of Terminal Excise Duty for supplies to non-mega power projects. A reference is made to the Foreign Trade Policy 2009-14 and it is stated that the benefit of this refund is not available for such supplies. In such case, excise duty paid at the terminal stage of supply is not to be refunded in any manner including as drawback. It was clarified that any supply made directly to the Project Authority by an entity other than the main contractor or the sub-contractor shall not be eligible for the deemed export benefits. Then, a reference is made to the cases for deemed export benefits for supplies of fuel, cement, steel etc.

The show cause notices are issued to the Petitioner with reference to paragraph 6 of the clarification given on 15th March 2011. The show cause notices despite the Petitioner giving complete clarification at their end, state that the cases of deemed export benefits are being reviewed in the case of the Petitioner, who obtained the refund in violation of the interpretation of Foreign Trade Policy of deemed exports as detailed in Chapter 8 and that is why on 15th July 2011, the Petitioner was requested to refund certain amount which was wrongly claimed.

Thus, from paragraphs 3 to 6 of the show cause notice and copies of which are annexed as Annexure ''I'' onwards, we have no doubt that the foundation or basis of the allegation therein is the decision of the Policy Interpretation Committee dated 15th March 2011 and the interpretation placed on the Policy therein. We are of the clear opinion that unless and until the clarification could have been applied to cases which are already concluded and where refund has already been sanctioned and granted, the Petitioner could not be proceeded against if paragraph 6 of the minutes do not contain anything contrary to paragraph 8.2(d) of the Foreign Trade policy. These minutes cannot override the same. We are of the opinion that the Department having clarified and interpreted its policy for the first time in March 2011, it could not have relied upon such clarification to reopen the concluded cases or review them as attempted. This is a clear case of afterthought. If the Policy was earlier applied and to cases including that of the Petitioner, as pointed out in the petition itself, then, that having not been reopened at any time, reliance on such clarification or interpretation cannot take the case of the Department any further. The Department may have been called upon to interpret the Policy in the light of the several difficulties and particularly the objectionable provision but that should not have been the basis for reopening the case of the present Petitioner or review it merely on the strength of the policy or the interpretation placed thereon. The Petitioner could not have been called upon to refund the amount duly paid and disbursed to them.

As a result of the above discussion, writ petitions succeed, show cause notices referred to in prayer clause (a) of the Petitions are quashed and set aside. It is declared that the decision taken by the Policy Interpretation Committee in its meeting on 15th March 2011 cannot be applied to the Petitioner''s case and which has been concluded prior thereto. Rule is made absolute in the above terms with no order as to costs.

At this stage, Mr. Sridharan, learned Sr. Counsel points out that though the show cause notices and the petitions proceed on the footing that there are refunds already granted but equally what is highlighted by the Petitioner are the pending applications. It is the case of the Petitioner that where steps have been taken prior to impugned clarification dated 15th March 2011 the Applications shall be processed independently and without being influenced by the interpretation. The Petitioners are not pressing their cases any further than this clarification. Having clarified and adequately declared that the Petitioner''s case and pertaining to supplies prior to 15th March 2011, the interpretation placed on 15th March 2011 by the Policy Interpretation Committee would not govern or apply to them, we have no doubt that such cases would be processed by the authorities in accordance with the policy prevailing and as clarified but prior to 15th March 2011. Needless to clarify further that the Authorities must satisfy themselves regarding all compliances made in terms of the Foreign Trade Policy applicable to the Petitioners/suppliers. We would expect the Authorities to now process and take a decision thereon as expeditiously as possible and within a period of three months from the date of receipt of this order. No order as to costs.

1Paragraph number as per official text.