By TIOL News Service

KOLKATA, OCT 07, 2016: DUTY Free Import Authorization (DFIA) is one of the duty exemption schemes under Chapter 4 of the Foreign Trade Policy. DFIA is issued to allow duty free import of inputs. DFIA may be either Post-export or Pre-export.

The petitioner company is a 'Merchant Exporter'.

Since the inception of the 2004-09 Policy, the petitioner company used to apply for issuance of Post-export DFIAs. After getting DFIAs, petitioner used to purchase diverse goods from various manufacturers upon payment of duty and all applicable taxes including excise duty and used to export the goods within the time specified in the DFIAs. After discharging its export obligation, they used to apply for transferability of the DFIAs under Clause 4.2.6 of the Policy and the respondent authorities used to endorse 'transferability' on the DFIAs, whereupon, the same became freely transferable.

Since petitioner did not avail of 'CENVAT' facility, while endorsing transferability on the DFIAs, the authorities made a note exempting the inputs from additional customs duty/excise duty in terms of Clause 4.2.6 (c) of the Policy. On the strength of such endorsement, petitioner either imported inputs itself or transferred the DFIAs to various importers. The goods imported on the basis of such DFIAs were exempted from payment of customs duty/additional customs duty, additional cess, antidumping duty and safeguard duty.

Incidentally, when one of the transferees of the said DFIA licences, in connection with permitted imports presented the licence for debiting of dues in lieu of cash payment of additional customs duty, the customs authorities refused to honour the same. Upon enquiry, it was found that the DGFT authorities vide letter dated 12 December 2014 had withdrawn the benefit of exemption from payment of additional customs duty in respect of 13 DFIAs.

A WP was filed praying for cancellation and/or recall ofDGFT's order dated 12 December 2014 and for extension of validity period of those licences, validity of which had expired during the pendency of the earlier writ petition. An interim order of injunction dated 8 April 2015 was passed restraining the respondent authorities from relying upon or giving effect to the order dated 12 December 2014.

The High Court, after considering the submissions made by both sides, has decided the issue.

The High Court observed -

Merits:

+ it is not in dispute that SESA did not avail of CENVAT facility. Clause 4.2.6 (c) of the Policy obviously envisages the conferment of benefit of exemption from additional customs duty on a party in whose favour the DFIA licence has been issued and who has not availed of CENVAT facility. The said clause does not make a distinction between a party who was entitled to avail of the CENVAT facility but refrained from doing so, and a party who did not avail of such facility because he was not entitled to do so.

+ had the framers of the Policy intended that only a party who is entitled to avail of CENVAT facility but did not do so, is eligible for the benefit of exemption from payment of additional customs duty, nothing stopped the framers from making it clear by proper wording the said clause.

+ it is trite law that in interpreting a taxing provision of law, if two interpretations are possible, the one that favours the assessee must be preferred. If on the basis of a provision of law, an authority imposes a liability on a citizen or proposes to withdraw a benefit already granted, that provision of law must be strictly interpreted against the authority and so far as possible in favour of a party who would be affected by the imposition of liability or withdrawal of benefit.

+ granting SESA exemption from payment of additional customs duty would not amount to conferring double benefit on SESA. The idea of such exemption is to give an incentive to exporters to boost exports which in turn enhances the foreign exchange reserve of the country. If such exporter has not availed of the CENVAT facility, then it cannot be deprived of the benefit of exemption from payment of additional customs duty just because the manufacturer of the export product has availed of the CENVAT facility. It is not disputed that SESA has purchased the export goods upon full payment of excise duty and in any event, the question of double benefit can arise only if the same entity avails of the same benefit twice. Such is not the case here. The manufacturer of the export products and SESA are two distinct entities and any CENVAT facility availed of by the manufacturer cannot be said to be a benefit reaped by SESA.

+ the direction of DGFT Authorities on the Customs Authorities not to allow exemption of additional customs duty to SESA or to the transferees of the licenses in question is erroneous and not sustainable.

Principles of Natural Justice:

+ endorsement of exemption from payment of additional customs duty was made on all the DFIA licenses issued in favour of SESA. This was, thus, a substantial benefit conferred on SESA akin to valuable property right. If the authorities, for whatever reasons and it is needless to say such reasons must be justifiable reasons, decides to withdraw such benefit, surely the authorities should have given an opportunity of hearing to SESA. Principles of natural justice have become one of the most important pillars of the Rule of Law. No order can be passed or action can be taken by the State or a statutory authority or any authority within the meaning of Art. 12 of the Constitution, without affording an opportunity of hearing to the parties who are likely to be adversely affected by such order or action.

+ it is settled law that an order of the State or a statutory authority which is passed in infraction of the rules of natural justice and which adversely affects a party is void and non-est in the eye of law. Both the orders under challenge i.e. the orders dated 20 November, 2014 and 12 December, 2014 suffer from this incurable infirmity and veritable vice and are thus void ab initio .

Illegality of order:

+ when the first writ petition was moved, an order dated 3 December, 2014 was passed by this Court directing maintenance of status quo as regards the concerned licenses. On 10 December 2014, the interim order was extended till disposal of the writ petition. Such order of status quo continues till today.

+ thus, the order dated 12 December 2014 was passed in violation of this Court's order dated 3 December 2014 as extended by the order dated 10 December, 2014. It is settled law that any order passed or action taken by any party in breach of an order of court is illegal. If an order is illegal having been passed in violation of a Court's order, the same must be set aside and cannot be allowed to have any effect.

Holding that the writ petitions succeed, orders dated 20 November 2014 and 12 December 2014 were quashed and the respondent authorities were directed to suitably extend the validity of the DFIA licences in question for a reasonable period of not less than 3 months from the date of extension.

(See 2016-TIOL-2405-HC-KOL-CUS)