Union Of India & Anr. vs Himsheel International
2011 Latest Caselaw 3514 Del

*          IN THE HIGH COURT OF DELHI AT NEW DELHI

+                      L.P.A. No. 884 OF 2010

                                     Reserved on: 14th March, 2011
%                                 Date of Decision: 25th July, 2011

UNION OF INDIA & ANR.                                      ....Appellants
                Through                         Mr. B. Niren, CGSC.

                       VERSUS

HIMSHEEL INTERNATIONAL                                         ....Respondent

              Through                           None

CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE SANJIV KHANNA

1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not ? Yes.

3. Whether the judgment should be reported in the Digest ? Yes.

SANJIV KHANNA, J.:

Union of India and Director General of Foreign Trade have filed

the present intra court appeal assailing the decision dated 21st May,

2010, allowing the writ petition filed by Himsheel International, the

respondent herein.

2. The respondent is engaged in exports and on 19th March, 1998,

had received a confirmation order for supply of 10,000 jackets to a

company in USA. On 31st March, 1998, the foreign party issued an

irrevocable letter of credit issued by a commercial bank in USA, in

favour of the respondent. By 21 shipping bills, 10,000 jackets were

exported by the respondent to the said foreign party between the period

26th March, 1998 to 5th June, 1998 as per the details given below:-

"S.No.          S. Bill No. and     FOB Value as     Customs House
                Date order S/Bill

1.             007932/26.3.98       Rs. 502000       IGI Airport
                                                     New Delhi.
2.              009692/15.4.98      Rs. 501585.00    -do-
3.              009693/15.4.98      Rs. 501585.00    -do-
4.              009696/15.4.98      Rs. 501585.00    -do-
5.              009694/15.4.98      Rs. 501585.00    -do-
6.              009691/15.4.98      Rs. 501585.00    -do-
7.              009695/15.4.98      Rs. 501585.00    -do-
8.              011058/28.4.98      Rs. 499578.66    -do-
9.              011059/28.4.98      Rs. 499578.66    -do-
10.             001060/24.4.98      Rs. 485534.28    -do-
11.             012218/12.5.98      Rs. 499346.10    -do-
12.             012217/12.5.98      Rs. 498337.32    -do-
13.             012453/14.5.98      Rs. 499346.10    -do-
14.             012734/17.5.98      Rs. 499346.10    -do-
15.             012985/20.5.98      Rs. 499346.10    -do-
16.             013189/22.5.98      Rs. 499346.10    -do-
17.             013487/26.5.98      Rs. 499346.10    -do-
18.             013683/28.5.98      Rs. 499346.10    -do-
19.             014091/2.6.98       Rs. 499357.32    -do-
20.             014505/5.6.98       Rs. 302634.00    -do-
21.             014504/5.6.98       Rs.2,54,924.01    -do-

3. There is no dispute and the factum that the respondent received

payment in terms of the export order and the irrevocable letter of

credit.

4. The appellant has introduced Duty Entitlement Passbook

Scheme/Benefit (DEPB, for short). As per the said scheme, the

exporter is eligible to claim credit of a specified percentage of FOB

value of the exports made in freely convertible currency. The credit is

available against such export products and at such rates as may be

specified by the appellant No. 2 in the public notices. The DEPB copy

or scripts can be utilised for payment of customs duty at the time of

clearance of goods, except capital goods or the goods mentioned in the

negative list. DEPB scripts can be also sold by the exporters in the

market and utilised by the third party purchaser for payment of custom

duty. Referring to the objective and purpose behind the scheme, the

Supreme Court in Liberty India versus CIT, (2009) 9 SCC 328, has

observed :

"35. DEPB is an incentive. It is given under the Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralise the incidence of customs duty payment on the import content of export product. This neutralisation is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components, etc. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per the basic customs duty and special additional duty payable on such deemed imports."

5. Upto 15th April, 1998, the DEPB credit rate on Gents Jacket was

23% of the FOB value of goods as per Sl. No. 17 for Textile Groups in

the Exim Policy, 1997-2002. However, with effect from 15th April,

1998, the DEPB credit rate was modified and revised as follows:-

"Product Group : Textiles

S.No.17 Gents Jackets with or without lining.

(a) Knitted 16% with a value cap of Rs.200/-.

(b) Woven 20%."

6. By a circular dated 28th July, 1998, a "clarification" was issued

and it was stated as under:-

"It is clarified that the value cap on various types of garments are applicable both for woven as well as knitted garments."

7. As per the aforesaid clarification, the cap value of Rs.200/- was

applicable to woven jackets as well. The term „cap value‟ in DEPB

implies the maximum FOB value of exports per piece. In other words

the cap value of Rs.200/- per piece on DEPB entitlement means that

the exporter will get DEPB upto Rs.40/- per piece.

8. The respondent moved an application for credit of DEPB for the

shipments made including the aforesaid shipments. The respondent was

given credit for the export/shipment on 26th March, 1998 at Sl.No.1 as

per the rate prevailing before 15th April, 1998 i.e. 23% of the FOB

value on each exported jacket. However, for the balance exports from

Sl.No. 2 to 21 made after 15th April, 1998, the respondent was given

credit @ Rs.40 per jacket by applying the revised DEPB rate read with

the circular dated 28th July, 1998. FOB value per jacket was Rs.1,000/-

and thus the respondent was denied substantial benefit of DEPB credit

by restricting FOB credit to Rs. 200/- per jacket. In other words for

shipments at Sl. No 2 to 21, the respondent was given DEPB credit of

Rs 40/- per jacket.

9. The respondent made representations pleading promissory

estoppel and the factum that the respondent had entered into a contract

and even receipt of the irrevocable letter of credit prior to 15th April,

1998 is established. It was highlighted that the new rate of DEPB with

the cap value would result in reduction of DEPB rate of 23% to almost

1%. It was submitted that the contract which the respondent had

entered into was keeping in mind the earlier DEPB rate and such a

drastic reduction had made the entire transaction uneconomic and had

put the respondent to unbearable losses. Reliance was placed on

paragraph 1.5 of the Export-Import Policy and it was submitted that the

transitional clause should be applied and the respondent should be

given benefit.

10. The request made by the respondent was considered by the

appellants but was rejected by the letters dated 23rd July, 1999 and 13th

August, 1999.

11. The respondent thereafter approached the appellate authority but

was informed by letter dated 23rd February, 2000 that the appeal

regarding DEPB did not lay before the appellate authority.

Accordingly, the respondent filed the aforesaid Writ Petition (Civil)

No. 4098/2000 which has been allowed by the impugned judgment

dated 21st May, 2010.

12. The learned Single Judge while allowing the writ petition has

applied the principle of promissory estoppel making reference to the

judgment in the case of Union of India vs. Cosmique International,

1994(73) ELT 526 (Delhi). The said judgment deals with cash

compensatory support and withdrawal of benefit. Reference has also

been made to a Division Bench judgment in Southern Petrochemical

Industries Corporation Ltd. vs. Union of India decided on 23rd

November, 2009 in LPA No. 231/2008.

13. Doctrine of promissory estoppel has been explained and

expounded in several decisions of the Supreme Court, (see Motilal

Padampat Sugar Mills Co. Ltd. versus State of U.P. (1979) 2 SCC

409; State of Arunachal Pradesh versus Nezone Law House, (2008) 5

SCC 609; Sharma Transport versus Govt. Of A.P., (2002) 2 SCC

188; Jasbir Singh Chhabra v. State of Punjab, (2010) 4 SCC 192;

State of Bihar & Ors. versus Kalyanpur Cements Ltd., (2010) 3 SCC

274). It is principally evolved on equity and to avoid injustice. It is

applied to the Executive action of the State and is applied when it can

be shown that it would be equitable to hold the Government or the

public authority to the promise or representation made by it.

Promissory estoppel does not apply against a Statute but it applies

against the policy decision and executive action. Promissory estoppel

being a doctrine of equity does not also apply if the State or the

executive authority is able to show that larger public interest required a

change in the policy and it would be inequitable to enforce "estoppel"

against the Government. Thus, promissory estoppel being an equitable

doctrine must yield to the equity, if larger public interest so requires

and it can be shown by the Government or the public authority that

having regard to the facts as they have transpired, it would be

inequitable to hold the Government or public authority to the promise

or representation made by them.

14. In the present case, the appellants have not placed any factual

matrix on record to justify or show that the modification was made in

public interest. However, what was pointed out is that DEPB rates

were always susceptible to change at anytime. It was submitted that no

promise was made by the appellant that the rate fixed shall continue

when exports were made. Thus, the respondent was fully aware that

the DEPB rates may undergo reduction/modification. The appellants

have relied upon the handbook of procedures 1997-2002, Volume I, in

which it has been stated that DEPB rates and value cap shall be

applicable as on the date of export as per clause 15.15 of the handbook

of procedures.

15. For the sake of convenience, Clause 15.15 of the Hand Book is

reproduced below :-

"15.15 Date of shipment/despatch for the purposes of exports will be reckoned as under:-

MODE OF DATE OF SHIPMENT/ TRANSPORTATION DESPATCH

(i) By sea (a) For bulk cargo, the date of Bill of Lading or the date of mate receipt, whichever is later.

(b) For containerised cargo, the date of "Onboard Bill of Lading", or "Received for Shipment Bill of Lading", where the L/C provides for such Bill of Lading. For exports by containers from Inland Container Depot (ICD), the date of Bill of Lading issued by shipping agents at the time of loading of export goods in the ICD after customs clearance.

(c) For Lash barges, the date of Bill of Lading evidencing loading of the export goods on board.

(ii) By Air The date mentioned by the appropriate Officer of Customs on the Shipping Bill , evidencing loading or handing over of goods to the air cargo complex, which are not international airports, or by way of rotation of flight number and date.

(iii) By Post Parcel The date stamped on the postal

receipt.

(iv) By Rail The date of RR (Railway Receipt).

(v) By Registered The date affixed on Courier Receipt/Waybill Courier Service

(vi) By Road The date on which the goods crossed the Indian border as certified by the Land Customs Authorities.

However, wherever the Policy provisions have been modified to the disadvantage of the exporters, the same shall not be applicable to the consignments already handed over to the Customs for examination and subsequent exports upto the date of Public Notice. Similarly, in such cases where the goods are handed over to the customs authorities before the expiry of the export obligation period but actual Exports take place after expiry of the Export Obligation period, such exports shall be considered within the export obligation period and taken towards fulfillment of export obligation."

16. Clause 1 and 4 of the General Instruction for DEPB Rate reads

as under :-

"GENERAL INSTRUCTION FOR DEPB RATES

1. The DEPB rate and the value cap shall be applicable as existing on the date of export as defined in paragraph 15.15 of Handbook (Vol.1).

xxxx xxxx xxxx

4. The DEPB rate aims to neutralise the incidence of duty on the inputs used in the export product. Therefore, the DEPB rates as given in appendix 28A refer to normally tradable/exportable product..."

17. The respondent has, however, relied upon clause 1.5 of the Exim

Policy which reads as under:-

"In case an export or import that is permitted freely under this policy is subsequently subjected to any restriction or regulation, such export or import will

ordinarily be permitted notwithstanding such restriction or regulations, unless otherwise stipulated provided that the shipment of the export or import is made within original validity or irrevocable letter of credit establish before the date of imposition of such restriction."

18. It is the stand of the appellants that paragraph 1.5 of the Exim

Policy 1997-2002 is not applicable to DEPB credit as the same is

determined on the prevailing rates of custom duty on the import

content of the export product. The result is "neutralisation", (Refer

Liberty India (supra)).

19. Clause 15.15 is a general clause and fixes/prescribes the date of

shipment/export. This is the general principle/rule. However, the

aforesaid clause does not stipulate the effect or consequence when

there is an amendment or reduction but subsequent to or after an

exporter had entered into a firm contract. The question raised is

whether in such cases, principle of promissory estoppel can be applied.

20. Clause 1.5 of the Exim Policy may not be strictly applicable as

the same deals with export/import and imposition of restriction or

regulation within original validity or issue of irrevocable letter of credit

before such imposition of restriction but the said clause gives an

indication and supports the principle of promissory estoppels; that the

appellants do not want that the importers/ exporters should suffer

economic loss or hardship because of change or amendment in the

policy. Equity and fairness are the foundation of clause 1.5 of the

Exim Policy. The purpose and object behind clause 1.5, which is

transitory in nature, is to protect citizens and prevent hardships on the

importer/exporter when a regulation or restriction is imposed.

21. This brings us to the main issue that the principle or doctrine of

promissory estoppel cannot be invoked because the appellants could

change the DEPB rates at anytime and thus there was no promise.

Therefore the respondent cannot claim that the DEPB rate on the date

of the contract should be applied. The aforesaid contention is not new

and has been examined and dealt with by the Supreme Court in several

cases.

22. In Kasinka Trading and Another versus Union of India and

Another, (1995) 1 SCC 274, importers of PVC resin had prayed for

quashing of a notification by which an earlier notification granting

exemption from payment of customs duty was withdrawn before the

cut off date in the first notification granting exemption. The Supreme

Court rejected the plea of promissory estoppel, inter alia, holding as

under:

"21. The power to grant exemption from payment of duty, additional duty etc. under the Act, as already noticed, flows from the provisions of Section 25(1) of the Act. The power to exempt includes the power to modify or withdraw the same. The liability to pay customs duty or additional duty under the Act arises when the taxable event occurs. They are then subject to the payment of duty as prevalent on the

date of the entry of the goods. An exemption notification issued under Section 25 of the Act had the effect of suspending the collection of customs duty. It does not make items which are subject to levy of customs duty etc. as items not leviable to such duty. It only suspends the levy and collection of customs duty, etc., wholly or partially and subject to such conditions as may be laid down in the notification by the Government in "public interest". Such an exemption by its very nature is susceptible of being revoked or modified or subjected to other conditions. The supersession or revocation of an exemption notification in the "public interest" is an exercise of the statutory power of the State under the law itself as is obvious from the language of Section 25 of the Act. Under the General Clauses Act an authority which has the power to issue a notification has the undoubted power to rescind or modify the notification in a like manner. From the very nature of power of exemption granted to the Government under Section 25 of the Act, it follows that the same is with a view to enabling the Government to regulate, control and promote the industries and industrial production in the country. Notification No. 66 of 1979 in our opinion, was not designed or issued to induce the appellants to import PVC resin. Admittedly, the said notification was not even intended as an incentive for import. The notification on the plain language of it was conceived and issued on the Central Government "being satisfied that it is necessary in the public interest so to do". Strictly speaking, therefore, the notification cannot be said to have extended any „representation‟ much less a „promise‟ to a party getting the benefit of it to enable it to invoke the doctrine of promissory estoppel against the State. It would bear repetition that in order to invoke the doctrine of promissory estoppel, it is necessary that the promise which is sought to be enforced must be shown to be an unequivocal promise to the other party intended to create a legal relationship and that it was acted upon as such by the party to whom the same was made. A notification issued under Section 25 of the Act cannot be said to be holding out of any such unequivocal promise by the Government which was intended to create any legal relationship between the Government and the party drawing benefit flowing from of the said notification. It is, therefore, futile to contend that even if the public interest so demanded and the Central

Government was satisfied that the exemption did not require to be extended any further, it could still not withdraw the exemption."

23. No doubt the above said paragraph refers to Section 25 of the

Customs Act, 1962 and the power of the Government to withdraw or

impose taxes/concessions, but the aforesaid paragraph also refers to

public interest and the right of the Government to prematurely

withdraw tax concession/benefit and not abide by the cut off date in the

public interest. This is clear when we examine paragraph 23 of the

said judgment, which reads as under:

"23. The appellants appear to be under the impression that even if, in the altered market conditions the continuance of the exemption may not have been justified, yet, Government was bound to continue it to give extra profit to them. That certainly was not the object with which the notification had been issued. The withdrawal of exemption "in public interest" is a matter of policy and the courts would not bind the Government to its policy decisions for all times to come, irrespective of the satisfaction of the Government that a change in the policy was necessary in the "public interest". The courts, do not interfere with the fiscal policy where the Government acts in "public interest" and neither any fraud or lack of bona fides is alleged much less established. The Government has to be left free to determine the priorities in the matter of utilisation of finances and to act in the public interest while issuing or modifying or withdrawing an exemption notification under Section 25(1) of the Act."

24. The aforesaid decision and ratio was clarified in Shrijee Sales

Corporation and Another versus Union of India, (1997) 3 SCC 398 in

which again the same notification withdrawing tax concessions in the

case of PVC resin was in issue. It was held as under:

"7. The next question is whether the fact that the Notification No. 66 mentioned the period during which it was to remain in force, would make any difference to the situation. In other words, could it be said that an exemption notified without specifying the period within which the exemption would remain in force, would be withdrawn in public interest but not the one in which a period has been so specified? Once public interest is accepted as the superior equity which can override individual equity, the principle should be applicable even in cases where a period has been indicated. The Government is competent to resile from a promise even if there is no manifest public interest involved, provided, of course, no one is put in any adverse situation which cannot be rectified. To adopt the line of reasoning in Emmanuel Ayodeji Ajayi v. Briscoe quoted in M.P. Sugar Mills even where there is no such overriding public interest, it may still be within the competence of the Government to resile from the promise on giving reasonable notice which need not be a formal notice, giving the promisee a reasonable opportunity of resuming his position, provided, of course, it is possible for the promisee to restore the status quo ante. If, however, the promisee cannot resume his position, the promise would become final and irrevocable."

25. Similar view is expressed by the Supreme Court in State of

Punjab versus Nestle India Limited, (2004) 6 SCC 465 [also see A.P.

Steel Re-Rolling Mill Limited versus State of Kerala and Another,

(2007) 2 SCC 725)].

26. Several judgments on the subject of the promissory estoppel

were extensively examined in depth in Southern Petrochemical

Industries Company Limited versus Electricity Inspector & ETIO

and Others, (2007) 5 SCC 447 and the decision, ratio and explanation

of the reasoning in Kasinka Trading (supra) was reiterated. Reference

was made to MRF Limited, Kottayam versus Assistant Commissioner

(Assessment) Sales Tax and Others, (2006) 8 SCC 702, wherein it

was held that doctrine of promissory estoppel applies to notifications.

It has been accordingly held that when a Government makes a promise

intending or intended that it would be acted upon by the promisee and

the promisee acts by relying upon the promise and alters his position,

the Government should be held to be bound by the promise and the

promise would be enforceable notwithstanding that there was no

consideration and no formal contract was executed. However, the said

doctrine is based on equity and when over-riding equity in form of

"public interest" requires that the plea of promissory estoppel should

not be applied, the Courts would not issue a writ. In MRF Limited

(supra), it was also highlighted that in the case of Kasinka Trading

(supra) the burden of customs duty etc. had been passed on the

consumers and there was no question of the assessee being put to a

huge loss.

27. Again in the case of U.P. Power Corporation Limited and

Another versus Sant Steels & Alloys (P) Limited and Others, (2008) 2

SCC 777 principle of promissory estoppel was applied in case of a

notification issued under a legislative enactment, i.e., delegated

legislation. It was held that no doubt the Government has power to

revoke the notification but when the other party has suffered on

account of the revocation, then if a promise is made and acted upon,

principle of promissory estoppel can be applied. Delegated legislation

cannot be treated at par with the primary legislation and, therefore, are

not entitled to same degree of protection in respect of retrospectivity.

Further, the onus is on the Government to show that the concession or

benefit has been withdrawn in a public interest and evidence and

material must be brought on record to establish the plea of larger

public interest by the Government/authority.

28. In the present case, the appellant has not pleaded that why the

difference in the DEPB rate was made and what prompted the huge

and substantial reduction from 23% to bare 1%, in case the cap value

of Rs.200/- is taken into consideration. The appellants have not

endeavoured to justify or explain why this was necessary and required.

In the counter affidavit, it is pleaded as under:-

"The petitioners reportedly were given DEPB credit on one shipping bill of [email protected]% vide DEPB licence No.0127753 dated 18.2.1999. They were also given DEPB credit @ 20% with a value cap of Rs.200/-i.e. Rs.40/- per piece for their shipment dated 15.4.1998 which included six shipping bills. They were also given DEPB credit @ 20% with a value cap of Rs.200/- i.e. Rs.40/- per peiece for their shipment from 14.5.1998 to 26.5.1998 which included 5 shipping bills. Against other 9 shipping bills petitioner was given DEPB credit @ 20% with a Value cap of Rs.200/- @ Rs.40/- per piece. Petitioners application for [email protected] 23% which was pending before the DGFT was rejected vide order dt.23.7.1998 on the ground that DEPB credit is allowed only at the rate applicable on the date of export.

5. The petitioners aggrieved by a change in the EXIM Policy which prior to 15.4.1998 provided a credit entitlement of 23% on all knitted and woven jackets seek to challenge the same and impugn the order dated 23.7.1998 for non-grant of [email protected]%."

29. Even otherwise, as noticed above, the policy introduced and

implemented with effect from 15th April, 1998, had placed maximum

cap of Rs.200 per piece on knitted Gents Jacket with or without lining

and the DEPB rate was specified 16%. However, in case of woven

jackets the rate specified was 20% without any value cap. The value

cap for woven jackets was not specified and stated in the rates

introduced on 15th April, 1998. The value cap for woven jackets was

introduced only vide circular dated 28 th July, 1998 which has been

quoted above. The aforesaid circular though described as clarificatory

in nature, in fact imposes value cap for the first time on the woven

jackets. Such a circular cannot be given a retrospective effect. The

respondent should be given benefit of paragraph 15.15 of the handbook

i.e. entitled to DEPB rate as prescribed on the "date of export". This

will mean that the respondent is entitled to DEPB rate as in the policy

with effect from 15th April, 1998 @ 20% applicable to the woven

jackets without any value cap. In Suchitra Components Ltd. versus

Commissioner, Central Excise, (2007) 208 ELT 321 SC, It has been

held as under:

"2. ....The point raised by the learned counsel for the appellant is covered by the recent judgment of this Court in CCE v. Mysore Electricals Industries Ltd. In the said judgment, this Court held that a beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. Thus, when the circular is against the assessee, they have right to claim enforcement of the same prospectively."

30. In view of the aforesaid reasoning the appeal fails and is

dismissed. Decision and directions given by the learned single judge

are correct. They should be complied with within two months. No

costs.

(SANJIV KHANNA) JUDGE

( DIPAK MISRA ) CHIEF JUSTICE July 25th , 2011 NA/kkb