Cus - Computation of NFE would be FY wise and which would be beginning of FY following year in which manufacturing activity commences - Under no circumstances such period would be period anterior to date of manufacturing activity: High Court
By TIOL News Service
AHMEDABAD, SEPT 09, 2016 : THE petitioner was granted permission on 08.01.2002 to start a 100% Export Oriented Unit at GIDC, Jamnagar and they commenced manufacturing activity on 28.02.2003. As per the Foreign Trade Policy 2004-09, the petitioner was required to achieve positive net foreign exchange (NFE) earning during every block of five years of its existence.
The petitioner achieved such positive NFE in the first block of five years but during the second blockthey fell short by a sum of Rs. 55.73 lacs.
On account of such default, a SCN was issued calling upon the petitioner why penalty in terms of Section 11(2) of the FTDR Act, 1992 be not imposed.
According to the petitioner, since the manufacturing activity had commenced on 28.02.2003, the first block of such five years would comprise of financial year 2002-03 to 2006-07 & the second block of five years, therefore, would comprise of the financial year 2007-08 to 2011-12.
The adjudicating authority, however, held that the first block of five years would commence from 01.04.2003 and end on 31.03.2008 and, therefore, the second block would be the financial year 2008-09 to financial year 2012-2013. It is not in dispute that in this block of five years, the petitioner had not achieved positive NFE. Resultantly, the AA concluded that the petitioner had negative NFE of Rs. 55.73 lacs in the second block and imposed penalty of Rs. 5.50 lacs u/s 11(2) of the Act.
The appellate authority was of the opinion that the block period would start from the date of manufacturing activity itself and, therefore, the first block period would comprise of the period between 28.02.2003 to 28.02.2008 and the second block would cover a period between 28.02.2008 to 28.02.2013. However, during this second block period of five years also, the petitioner had negative NFE. Thus, on slightly different logic, he upheld the order of adjudicating authority and rejected the appeal of the petitioner.
The petitioner has challenged these orders in the present petition.
The petitioner submitted that they commenced the manufacturing activity on 28.02.2003,therefore, the first block of five years would commence with the financial year 2002-03. Thus, considered in the second block of five years, the petitioner had achieved the positive NFE. Inasmuch as no penalty is imposable.
The counsel for the department opposed the petition contending that the adjudicating authority had given correct interpretation to the policy applicable& since the appellate authority rejected the appeal through different grounds, the petition should be dismissed.
The High Court extracted paragraph 6.5 of the FTP 2004-09& the Policy Guidelines contained in Appendix 14-I-G and observed -
+ At first blush, Clause 6.5 of the foreign trade policy may suggest that the block of five years for computing NFE would commence immediately upon commencement of the production, a view which was favoured by the appellate authority.
+ However, when we appreciate this provision in conjunction with the guidelines for monitoring the performance of such unit, it becomes clear that the period envisaged would be the financial year immediately (after)starting the manufacturing activity.
+ The examination of the performance, therefore, is related to the financial year and quarterly performance is to be judged. Even in Clause (3) which refers to criteria for annual monitoring, there is a reference to keeping a watch if there is shortfall in achieving NFE by a unit at the end of first and second year which must be read in conjunction with clause (1) of the guidelines which has reference to the financial year.
+ Clause (5), which prescribes monitoring period, would make commencement further clear. It provides that the unit which has not completed one year from the date of commencement of commercial production will not be monitored. Further, a unit which has completed less than five years from the date of commencement of the commercial production, it would be monitored only for the number of completed years. The reference to completed years must be for a broken period between the date of commencement of production and the commencement of financial year.
+ As per the guidelines, the unit would be required to submit its quarterly performance report in prescribed format. It has reference to the quarterly period of a financial year viz. April-June, July-September, October-December and January-March. Thus, the computation of NFE would be financial year wise and which would be thebeginning of the financial year following the year under which the manufacturing activity commences. Under no circumstances such period would be the period anterior with the date of manufacturing activity.
+ All imports, exports and settlement of accounts would be largely relatable to the financial years. Providing guidelines for ignoring a part of financial year during which the manufacturing activity might have commenced, is a way of granting moratorium for a new industry whose performance during the early months would not reflect while considering a block of five years for ascertaining net NFE. It may be that, in the present case, considering the entire financial year during which only for a short period, the petitioner had undertaken manufacturing activity would be beneficial to the petitioner since the industry's later performance, due to whatever reason, was poor.
Holding that the interpretation of the policy does not favour the one which the petitioner canvasses so as to interfere with the order, the Petition was dismissed.
(See 2016-TIOL-2051-HC-AHM-CUS)
