Sri Thirumalai Spinning Mills vs Director General of Foreign Trade and Others

T. Raja, J.—The Petitioner-Firm Sri Thirumalai Spinning Mills at Madurai, on 30.03.2005, had applied to the 2nd Respondent-Assistant

Director General of Foreign Trade, New Delhi, for issuance of a licence under Export Promotion Capital Goods Scheme (in short ''EPCG''

Scheme) to permit them to import second-hand machinery manufactured in India, and the said Authority, by order dated 31.03.2005, rejected the

Petitioner''s application for grant of licence under EPC Gscheme, whereupon, an Appeal came to be filed before the Additional Export

Commissioner on 21.04.2005. The 3rdRespondent herein-Joint Director General of Foreign Trade, Madurai, decided to issue the EPCG licence

to the Petitioner-Firm provisionally on condition that the Firm should submit an undertaking, in a Stamp Paper binding itself to the decision of the

Head Quarters with whom reference is pending, to the effect that they would pay 100% of duty saved amount together with 15% interest thereon

from the date of import if the Head Quarters does not concur with the decisions of ZSDGFT, Chennai. Subsequently, the Joint Director General of

Foreign Trade, Madurai, issued the licence on 13.05.2005 and the Petitioner also furnished Bank Guarantee through Andhra Bank for a sum of

Rs. 3,90,000/-with an undertaking to pay100% of the duty saved amount together with 15% interest thereon from the date of import of machinery,

in case the Director General of Foreign Trade declines to concur with the issuance of licence. Subsequently, the 2nd Respondent, by the impugned

order, dated 04.07.2005, rejected the request of the Petitioner for issuance of licence to import Indian Origin second hand capital goods under the

EPCG Scheme. The Ministry of Commerce & Industry, Government of India, in the Circular, dated 15.07.2005, clarified the Foreign Trade

Policy as updated on 31.03.2005 to the effect that second-hand capital goods of Indian Origin shall not be permitted to be imported under EPCG

Scheme. Subsequent to the impugned letter dated 04.07.2005, the 3rdRespondent, by communication-dated 12.07.2005, directed the Petitioner

to pay duty with 15% interest immediately to customs authorities as per the undertaking given on 24.05.2005. The Petitioner wilfully evaded

payment of duty and therefore, a communication was sent by the authorities to the Manager, Andhra Bank, Madurai, to send a Demand Draft,

drawn in favour of the Commissioner of Customs, Tuticorin, for Rs. 3,25,000/-with a view to invoke the Bank Guarantee. Aggrieved by the same

and also seeking for a direction to the Respondents/authorities to issue an EPC Glicence in its favour, the Petitioner-Firm has come up with the

present writ petition.

Learned Counsel for the Petitioner, by stating that inasmuch as the Policy Circular, dated 15.07.2005, whereby second hand capital goods of

Indian Origin are not permitted to be imported under EPCG Scheme, does not operate with any retrospective effect, the same cannot be cited by

the Department to reject the Petitioner''s claim for issuance of EPCG licence, would submit that nowhere in the scheme as envisaged in the Foreign

Trade Policy, there is any provision available, by invoking which, an EPCG licence can be refused for import of second hand goods of Indian

Origin, for, paragraph-5.1 of the Foreign Trade policy explicitly states that second hand capital goods without any restriction of age may also be

imported under the EPCG Scheme; therefore, 5 rejection of the Petitioner-Firm''s request for import of such goods is without authority of law. In

the same line, it is further argued that when the Petitioner-firm did not even claim any specific benefit for re-import of Indian Origin goods as

applicable in terms of any exemption notification, there is no basis whatsoever to distinguish the goods of Indian origin and that of foreign make for

import under the EPCG Scheme. By pointing out that the goods/machinery, initially exported from India and which were used abroad by

manufacturers, are available at affordable rates and besides that, the quality of such machinery is definitely better than the foreign-make machines in

various aspects, it is further submitted that there is nothing wrong in importing those machinery as none of the relevant legal provisions is violated by

such exercise. Moreover, the communication of the 2nd Respondent in failing to specify the reasons for rejecting the Petitioner firm''s request is

contended as bad in law and not tenable. Therefore, according to the learned Counsel, the impugned proceedings of the 2nd Respondent in

rejecting the Petitioner-firm''s request for grant of licence and the subsequent proceedings of the authorities in demanding a sum of Rs. 3,25,000/-

by way of invoking the Bank Guarantee with R-5 towards Duty are liable to be interfered with by this Court.

Learned Assistant Solicitor General, appearing forRespondents-1 to 4 would, at the foremost, submit that the arguments advanced by the

learned Counsel for the Petitioner would fall to ground for the simple reason that the policy circular (No. 16), dated 15.07.2005 is not a new

decision but it is clarificatory in nature and further, it has not been withdrawn till date. In this regard, he referred to Policy Circular No. 16, dated

15.07.2005 as wells previous policy Circular No. 18, dated 10.01.2002, issued by the Ministry of Commerce and Industry, Directorate General

of Foreign Trade, which clarify para No. 5.1 of the Foreign Trade Policy 2004-2009 updated as on 31.3.2005,permitting import of second hand

capital goods without any age restrictions under EPCG scheme, to the effect that second hand capital goods of Indian origin shall not be permitted

to be imported under EPCG Scheme. Commenting on the attitude of the Petitioner-firm in not informing the4th Respondent regarding the 3rd

Respondent''s rejection of 7 the letter dated 21.04.2005, he further submitted that once the request of the Petitioner for issuance of EPCG licence

came to be rejected, it is the legal duty on the part of the 4th Respondent to collect the customs duty foregone amount with interest from the

Petitioner. It is pointed out that the 1st Respondent issued a letter vide No. 01/94/180/52/AM06/PCI/740, dated 04.07.2005, to the Petitioner

with a copy marked to the 3rd Respondent, who, based on such letter, called for the Petitioner on the aspect of duty payable with interest by

virtue of letter dated 12.07.2005, vide No. 35/36/21/300/am05/1950/1951, but there was no response from the Petitioner. The order of the 2nd

Respondent dated 04.07.2005 was passed with the concurrence of the 1st Respondent. The subsequent order of R-3 directing the Petitioner to

pay 100% customs duty with interest at 15% and the action initiated by R-4 for invoking bank guarantee from the 5th Respondent/Bank are legally

valid and correct; thus, there is no scope for interference by this Court with the impugned proceedings rejecting grant of EPCG licence and the

consequent proceedings to invoke the Bank Guarantee.

Learned Counsels appearing for R-4 and R-5respectively adopted the submissions made by the learned Assistant Solicitor General.

Considered the rival submissions made on either side.

It is seen that the Application made by the Petitioner-Firm for grant of EPCG licence was rejected by the 2ndRespondent by order dated

31.03.2005. While the Appeal preferred by the Petitioner-Firm was pending and later came to be rejected, the 3rd Respondent, before referring

the matter to the 1st Respondent, decided to issue the EPC License in favour of the Petitioner, on provisional basis and, on the direction of the

Zonal Joint Director General of Foreign Trade, Chennai, he called for the Petitioner to submit an undertaking to the effect that, in the event of the

authority at the Head Quarters/1st Respondent nonconcurring with the decision to allow import of second hand capital goods of Indian origin

under EPCG Scheme, the Petitioner would pay 100% of duty saved amount together with 15% interest thereon from the date of import of capital

goods. It is the admitted case that the Petitioner willingly submitted an undertaking to that effect in a stamp paper worth Rs. 100/-, whereupon,

EPCG Licence No. 3530000995, dated 13.05.2005, came to be issued incorporating the undertaking as aforementioned as a condition on the

said licence. Ultimately, the higher authorities viz., Respondent Nos. 1 and 2, declined for grant of EPCG licence as it goes contra to the policy

circulars of the Government and the clarifications contained therein, culminating in the impugned letter dated04.07.2005. The impugned letter was

followed by another letter-dated 12.07.2005 from R-3, requesting the Petitioner to pay duty with 15% interest immediately to the customs

authorities and to furnish the copy of challan. As there was no response, the Petitioner was apprised of impact of the policy circular on his request

for import of secondhand capital goods of Indian origin under the EPCG Scheme, and by letter dated 22.07.2005, the 4th Respondent requested

R-5/Bank for invoking the Bank Guarantee by the Department.

From the sequence of events as highlighted above, this Court could clearly discern that the Petitioner-Firm have not come to this Court with

clean hands and the prayer of the Petitioner is liable to be rejected at threshold for more than one reason. Admittedly, the Petitioner''s application

was rejected by the 2nd Respondent observing that allowing the request would amount to re-import of goods. Thereafter, by letter dated

21.04.2005, the Petitioner-firm appealed to the Additional Export Commissioner to consider their request as it involves the question of survival of

their small unit, whereupon, the3rd Respondent granted provisional licence only on the condition that the Petitioner would pay 100% of duty saved

amount together with 15% interest thereon from the date of import of the machinery, if the Head Quarters does not concur with the decision of

ZJDGFT, Chennai, in granting the licence. The Petitioner-Firm did not choose to question the rejection order passed by the 2nd Respondent as

well as the rejection of Appeal by way of Review etc., rather, they willingly accepted the provisional grant of licence and also undertook to pay the

duty with interest in the event of the Head Quarters taking a negative decision. Having acted so, now, the Petitioner has no locus stand whatsoever

to question the decision of the authorities culminated in the impugned proceedings arising from the circulars which clarify the policy of the

Government in respect of import of second hand machineries of Indian origin under the EPCG Scheme. When the Firm, after willingly accepted the

proposal of the 3rd Respondent and enjoyed the benefits available under the provision allicence by clearing the goods imported through Tuticorin

Port, was required to act as per the undertaking given by it for invocation of Bank Guarantees in favour of the Department subsequent to the

decision of the Head Quarters declining to grant the licence for import of Indian origin second hand capital goods under the EPCG scheme, it

ought to have instructed the Bank to allow the customs Department to invoke the Bank guarantee. The Petitioner, instead of doing so, seemingly

with a sole view to evade the duty payable to the Exchequer, initiated the present proceedings invoking the writ jurisdiction. This Court does not

deem it just and proper to go into the validity or otherwise of the impugned order for the mere reason that the Petitioner-Firm cannot even

challenge the same as they themselves satisfied over grant of a provisional EPCG License with a clear written undertaking on their part in a stamp

paper as mentioned above and subsequently enjoyed the benefits of the provisional EPCG licence by clearing the imported goods. Under such

circumstances, the Department imperfectly justified in invoking the Bank Guarantee so as to recover the customs duty due from the Petitioner after

rejection of their request by the Headquarters.

In the result, the Writ Petition is dismissed as devoid of merits. No costs. Connected Miscellaneous Petition is closed. Since interim injunction

was granted by this Court for a short period of two weeks only, if subsequent to expiry of such order, the Bank Guarantee wasn''t invoked and the

money due on the part of the Petitioner towards Duty is yet to be realised, the Respondent/Department is at liberty to proceed further for invoking

the bank guarantee from the Bank/R5 formalization of the duty due to the Department in accordance with law and the procedure involved therein.