Furnishing Bank Guarantee by Two Star Export House - repugnancy between clause 4.7.3 of HoP and para 3.10.4(v) of FTP must be resolved in favour of FTP - High Court quashes direction of Addl DGFT to exporter to furnish BG
By TIOL News Service
NEW DELHI, SEPT 08, 2014: THE petitioner is a two star export house status holder and has filed the present petition impugning the communication dated 31.05.2013 issued by the office of Additional Director General of Foreign Trade. By the said communication, the Additional DGFT had informed the petitioner that it's entitlement under the Advance Authorization dated 09.05.2012, was limited to a sum of Rs 38,83,52,050/- instead of Rs 77,03,73,810/-. The petitioner was further advised to submit the said Advanced Authorization for endorsement of Bank Guarantee condition for the differential amount.
It is the petitioner's case that it was exempt from the condition of furnishing bank guarantees in respect of any scheme framed under the Foreign Trade Policy. Further, according to the petitioner, it was entitled to Advance Authorization of a higher value and, therefore, the reduction in the value of Advance Authorization as indicated in the impugned communication was not justified.
After hearing both sides, the High Court held:
On the entitlement of higher value:
The Foreign Trade Policy contains an Advance Authorization scheme. In terms of the said scheme Advance Authorization for imports is available for duty free import of inputs which are physically incorporated or consumed in manufacture of export product. The entitlement of the value of Advance Authorization is specified in paragraph 4.7.1 of the Handbook of Procedures.
It is seen from paragraph 4.7.1 of the Handbook of Procedures that a status holder which the petitioner, concededly, is entitled to an Advance Authorization of 500% of the value of exports in the preceding year. Thus, the petitioner was entitled to Advance Authorization for a value equivalent to five times its export in the preceding year. However, since the petitioner had applied for the Advance Authorization on 14.03.2012, the relevant preceding year would, obviously, be 2010-11. The fact that the Advance Authorization in question was issued on 09.05.2012 is not germane since the same only communicated the acceptance of the application made by the petitioner. It is also relevant to note that the petitioner's application was also made on the basis of the FOB value of its exports during the year 2010-11, which were declared to be Rs 7,76,70,410/-
Thus, in terms of paragraph 4.7.1 of the Handbook of Procedures the correct value of Advance Authorization would be five times the export declared by the petitioner i.e. Rs 38,83,52,050. Therefore, in so far as the impugned communication reflects the petitioner's entitlement to be Rs 38,83,52,050/-, the same cannot be faulted.
On Bank Guarantee:
Undeniably, one of the privileges extended to Export and Trading House status holder is that they are exempt from furnishing bank guarantee in schemes by virtue of clause (v) of paragraph 3.10.4 of the Foreign Trade Policy. A bank guarantee is an instrument to provide security in respect of the amount covered. It is, thus, not far to see why status holders have been granted the privilege in respect of exemption from furnishing bank guarantees. It is apparent that the Central Government in its wisdom thought it fit that exporters who had been recognised on account of their established track record should be considered creditworthy enough to be allowed the benefit of schemes under their policy without providing any security in the form of a bank guarantee. The requirement for furnishing bank guarantee in respect of Advance Authorization scheme as contained in the Handbook of Procedures must be viewed in this perspective.
Since the Foreign Trade Policy expressly provides that a status holder will have the privilege of exemption from providing a Bank Guarantee in respect of any scheme, the Handbook of Procedures - which is for providing the procedure in aid of the Foreign Trade Policy - cannot impose a condition which militates against the said Policy. Thus, in this view, the repugnancy between clause 4.7.3 of the Handbook of Procedures and paragraph 3.10.4(v) of the Foreign Trade Policy must be resolved in favour of the Foreign Trade Policy. The condition imposed under clause 4.7.3 of the Handbook of Procedures to the extent that it requires a “status holder” to provide a bank guarantee to the Custom Authorities for the duty free inputs is contrary to policy and is, thus, liable to be disregarded.
The impugned communication, to the extent that it calls upon the petitioner to submit the Advance Authorization No. 0510324315 dated 09.05.2012 for endorsement of the Bank Guarantee condition, is set aside.
(See 2014-TIOL-1526-HC-DEL-CUS)