M/S. R.K.Machine Tools (P) Ltd. & ... vs Union Of India & Ors.
2012 Latest Caselaw 3980 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

%                         Date of Decision: 9.07.2012

+                         W.P.(C) No.1330/1986

M/s. R.K.Machine Tools (P) Ltd. & Anr.                   ... Petitioners


                                  versus

Union of India & Ors.                                    ... Respondents


Advocates who appeared in this case:

For the Petitioners       : Mr.V.N.Koura & Ms.P.K.Benipal,

For the Respondents       : Mr.Jatan Singh, Central Govt. Standing Counsel
                          & Mr.Tushar Singh, Advocate


CORAM:
HON'BLE MR. JUSTICE ANIL KUMAR

ANIL KUMAR, J.

*

1. The petitioner, M/s. RK machine tools, has sought the quashing

of the order dated 14th May, 1986 passed by Respondent No.2, the Chief

Controller of Imports and Exports, New Delhi and a declaration that

„deemed exports‟ as defined in the Government notifications covers the

cases of advance licenses in the same manner as they cover the case of

duty replenishment licenses in the facts and circumstances of the

petitioner.

2. The brief facts as contended by the petitioners are that the

petitioner No.1 is a company duly registered under the Indian

Companies Act and is also a member of the Engineering Export

Promotion Council since 1974, while petitioner no. 2, is a shareholder

and one of the directors of petitioner no.1.

3. Petitioner No.1 was manufacturing and trading company of

Northern India and Asia and was engaged in the business of making

metallic goods, including defense equipment, machine tools, textile

machinery, stainless steel utensils etc. for over two decades.

4. According to the petitioner by letter dated 2nd August 1981, an

order was placed for the supply of stainless steel utensils and cutlery of

special specifications of the value of Rs1,38,02,000/- by M/s V. K.

Topline of 40, Thomas Street, Manchester, England and in order to

execute the supply order the petitioners had applied to respondent no.2

for the grant of an „advance license‟ under the Duty Exemption Scheme

as detailed in the Revised Import Policy for the year 1981- 82, for the

import of 425 metric tons of stainless steel of the CIF value of the Rs

90, 86,560/-. The intent of the petitioners was to export the utensils

made out of the imported stainless steel against foreign currency with a

view to fulfill the export obligation arising out of the grant of the

advance license. However, despite fulfilling all the requirements for the

grant of the advance license, the respondents had issued an import

license to the petitioner on 5th January, 1982 for only half the quantity

applied for by the petitioners i.e. license was given for the import of

212.8 metric tonnes of stainless steel or the CIF value of

Rs. 45,43,280/- only. One of the conditions for the issuance of the

advance license was that a bank guarantee for the sum of Rs 90,

86,500/-was to be given by petitioner no.1 and also that the goods

exported against the Advance License were to be utilized in accordance

with the provisions of the customs notifications, as amended from time

to time. It was further stipulated that in case the petitioner failed to

export the utensils manufactured out of the imported steel, then it

would be liable to pay to the customs authorities the amount of duty

which otherwise would have been payable on the imported material of

which the corresponding export was not made. The petitioners were,

however, not liable to pay any duty on the stainless steel imported by

them against the above-mentioned license for the manufacture of

utensils etc. if such utensils/ cutlery of the value of Rs. 45,43,289/-

were actually exported and consequently, foreign-exchange was earned

by the country. The petitioners however, clarified that they imported

only 180 metric tons of stainless steel of the CIF value of Rs.35,

50,192.70/-, against the quantity of 212.8 metric tons of CIF value of

Rs. 45,43,280/- allowed under the advance license and thus, as per the

entry in Appendix 5 to Schedule 19 of the Import Export policy, for 1 Kg

of the finished product to be exported, the actual user was permitted to

import 1.33 KG of steel, which meant that 33% in wastage was

permitted. The quantity allowed for the purposes of duty exemption was

fixed at 1 to 1.125. According to the petitioner on applying the same

principle, the petitioner was required to export only 135 metric tons of

finished goods as against the import of 180 MT of steel. The export

liability under the license, as well as, under the scheme was confined to

and corresponded to the extent of the raw material actually imported for

the manufacture of the exportable goods. Therefore, the export liability

of the petitioners against the advance license coupled with the admitted

quantum of actual import of the raw material automatically stood

reduced to the maximum quantity of exportable goods which was

expected to be manufactured out of the actually imported quantum of

raw material. According to the petitioner the Maximum foreign

exchange expected to be earned by the export of utensils manufactured

out of 135.34 metric tons, could not exceed Rs 53.24 lakhs after

providing for the statutory permissible wastage in the process of

manufacture.

5. After the receipt of the imported material the petitioners

commenced the process of manufacturing the stainless steel utensils as

per the specifications given by the foreign importer. The petitioners had

also sent a letter dated 1st October, 1982 to M/s V & K Topline,

requesting them to arrange for the Letters of Credit and/or bank draft

for about Rs. 8 lakhs to enable the petitioners to ship the goods as soon

as possible. However, conflict had crept between the President and the

Managing Directors of M/s V & K Topline, England, which was

communicated to the petitioners by letter dated 15th October, 1982, due

to which reason it was requested that the shipment of the goods be

delayed by a few months, and assurance was also given stating that the

commitment given by them would be fulfilled. Subsequently, however,

by a letter dated 18th November, 1982 the order placed with the

petitioner was cancelled and a request was made to dispose of the goods

to some other party or to at least delay the supplies till May, 1983.

According to the petitioner since the goods were manufactured as per

the special specifications laid down by M/s V & K Topline, it was not

acceptable to any other foreign exporter in bulk and thus the petitioners

were constrained to fulfill their export obligation by resorting to the

officially recognized method of effecting „deemed exports‟ of the entire lot

of the utensils manufactured by them, out of the quantity of the

stainless steel which was actually imported. Therefore, the petitioners

sold the said goods to foreign tourists on temporary visits to India,

against the foreign exchange paid by them, through M/s. Deepamani,

Bombay, which is a registered foreign exchange dealer, duly licensed by

the Reserve bank of India. As a result of this measure, the Petitioner

No.1 was able to earn foreign exchange of Rs.59,32,271.75/- for the

country, by the sale of 157.09 metric tons of steel against the official

expectations of earning foreign exchange of Rs. 53,24,000/-

6. After effecting the exports from July 1983 to February/March

1984 the petitioner, by letter dated 19th March, 1984 addressed to

respondent no.3, explained the above mentioned problems encountered

by the petitioners and the consequent measures undertaken by them

and also sought the release of the bank guarantee on account of the

petitioner having discharged its export obligation in terms of entry 131

read with Para 157 of the policy. The respondents, however, by letter

dated 21st September, 1984 refused to accept the sale made to foreign

tourists as fulfillment of export obligation against the advance license

and the petitioner was, therefore, asked to deposit a sum of

Rs.86,15,590/- towards customs duty on the raw material imported by

the petitioner with 18% interest. According to the petitioner this

amount specified by the respondents is erroneously calculated, as it

was based on the assumption that the total maximum licensed quantity

of 212.8 metric tons was imported by the petitioner, inspite of the fact

that the duty exemption entitlement certificate dated 21st January,

1982 clearly provided for duty exemption benefit on import of 180

metric tons only. It is the case of the petitioner that even if it is

presumed that the petitioner had failed to export the utensils made

from 180 metric tons of stainless steel, then also the maximum liability

could not exceed the amount payable on import of 180 metric tons or

such lesser quantity to the extent of which exports were not affected.

Thereafter, the petitioner wrote a letter dated 5th October, 1984 seeking

a personal hearing with regard to the exparte order passed by

respondent no.3 by letter dated 21st September, 1984.

7. However, an abeyance order dated 13th December, 1984 was

issued by respondent no.3 under clause 8B of the Import (Control)

Order 1955 by which the petitioner company was ordered to be "kept in

abeyance" for a period of six months, and along with the said order a

show cause notice dated 1st January, 1985 was also sent to the

petitioner.

8. Despite the question of fulfillment/non fulfillment of the export

obligation by the petitioner being not answered and the petitioners‟

representation dated 5th October, 1984 pending against the said ex-

parte order, a demand dated 30th January, 1985 against the petitioner

for a sum of Rs.88,55,966.58 with 18% interest was issued by

respondent no.4, Collector of Customs, on the ground that the material

imported by the petitioner has become dutiable, on account of non

furnishing of any proof of fulfillment of the export obligation. Thereafter

a written statement was filed in response to the show cause notice

dated 1st January, 1985 issued to the petitioner and the counsel for the

petitioners also appeared before respondent no.3 on 18th January, 1985

and submitted that the export effected by the petitioner falls under the

category of "deemed export". According to the petitioner the respondent

was also satisfied regarding the aspect of "deemed export" however, the

only objection raised at the time, was with respect to the fact that no

entries were made in the DEEC of the exports effected by the

petitioners. On account of this objection, a clarification was also sought

by the petitioners by a letter dated 24th January, 1985 on the objection

raised by respondents no.4, who, by official letter dated 28th January,

1985 informed the petitioner that "no entries are required to be made in

the DEEC book relating to "Deemed exports" to foreign tourists against

foreign exchange. The petitioner communicated the letter dated 28th

January, 1985 to the respondents, however, by letter dated 28th

February, 1985 respondent no.2 stated that sales of good to foreign

tourists cannot be accepted towards the discharge of export obligation.

Aggrieved by the decision conveyed by letter dated 28th February, 1985

the petitioners filed applications dated 16th March, 1985, 6th June,

1985 and 12th February, 1986, reiterating the legal position and asking

for a clear interpretation of the relevant rules on the points of issue.

However, by order dated 14th May, 1986 the respondents concluded that

the sale of goods to the foreign tourists could not be accepted towards

the discharge of the export obligation against advance license.

9. Aggrieved by the order dated 14th May, 1986 the petitioners have

approached this Court under its writ jurisdiction. According to the

petitioners the expression "in the domestic market" was used for the

first time in the impugned order and that the same is misconceived as

the foreign tourists cannot be deemed to be a part of the domestic

market. The petitioners have challenged the impugned order dated 14th

May, 1986 and the abeyance order 13th December, 1984 on the ground

that the same is capricious, discriminatory, illegal, vague, arbitrary and

suffers from errors apparent on the face of the record. It is also

contended that the said orders were passed in violation of the principles

of natural justice. The petitioners have urged that the that the

expression "deemed export" by sale to foreign tourists against foreign

exchange through recognized Reserve Bank of India agents, is covered

under both the REP License, as well as, the advance duty free licenses,

and that there is no distinction between the two as both relate to

fulfillment of export obligation. According to the petitioners the fact

that there was no distinction between REP Licenses and Advance

Licenses is also clear from the fact that they are inter-changeable and

in this regard reliance is placed on Para 79(10) on Pg. 20 of the Hand

Book of Import Export Procedure (1981-1982). It is submitted that since

the objective of the policy was to earn valuable foreign exchange for the

country, which was a rare commodity at the time, there was no rational

basis for discriminating in the matter of fulfilling export obligations in

respect of Advance Licenses between physical exports and deemed

exports, both of which fulfill the same objective, namely sale of goods

against the payment of foreign exchange. The petitioner had also placed

reliance on the decision of Supreme Court in the case of M/s Liberty Oil

Mills and Others vs. Union of India and Others (Civil Appeal No. 274 of

1984), wherein the Apex Court had interpreted clause 8(B) of the

Import(Control) Order, 1955 and contended that without extending the

period of abeyance, the respondents are treating the petitioner as under

abeyance, which was not in existence at the time, thereby, leading to

serious public injury, as substantial amount of foreign exchange is

being lost and a large number of workers of the petitioner's are being

rendered liable to retrenchment. It was also submitted that after filing

the writ petition before this Court, the petitioner supplied 190,18"

Shaper machines to Vocational Training Project, which was aided by the

World Bank. Under the 1992-97 EXIM Policy, a supply of equipment to

World Bank aided projects fell within the ambit of "deemed exports".

According to the petitioners supplied were made from the period of 9th

July, 1993 to 18th July, 1995 and a total amount of Rs. 14,06,000/-

was refundable towards Terminal Excise Duty, for which order have to

be passed by the DGFT. The petitioner also executed two other orders

dated 10th July, 1995 for 108 Sharper 450 mm machines and 147

Slotters Machines, and against the said supplies, the petitioner entitled

to receive a refund towards Terminal Excise Duty of Rs. 17,15,500/-,

which also has not been paid to it due to the pendency of the present

writ petition. Therefore, the petitioner has prayed for directions to the

respondents to release the amount towards the Terminal Excise Duty,

which has been withheld due to the pendency of the writ petition and

also the quashing of the impugned orders passed by the Chief

Controller of Imports and Exports by order dated 14th May, 1986.

10. The respondents have refuted the pleas and contentions raised by

the petitioners by filing a Counter affidavit dated 24th July, 2006 of

Sh.Vijay Kumar Gupta, Joint Director General of Foreign Trade,

Ministry of Commerce and Industry at Ludhiana presently at Delhi.

According to the respondents Para 149 and para 150, read with

Appendix 19 of the Import Policy for the year 1981-82 covers the cases

of Advance Licenses and Para 157 of the Import policy covers the

scheme for „Sale to Foreign Tourists‟. The learned counsel for the

respondents has further contended that the „Import Replenishment

Scheme‟ for registered exporters and „Advance License Scheme‟ are

independent of each other as in the former the replenishment is made

after the exports are effected, whereas, under the duty exemption

scheme the advance licenses are issued to import duty free inputs

required to manufacture the item to be exported to the overseas buyers,

as per the export obligation fixed under the said scheme and the

petitioner in the present case had specifically opted for the advance

license under the duty exemption scheme. The respondent further

contended that in any case duty exemption scheme was not available in

the case of sale to foreign tourists and that it was available only for the

physical export of goods outside the country, and thus the petitioners

have failed to substantiate how they have fulfilled the export obligation

attached to the advance license given to them. It is submitted that that

since the license was granted to the petitioner under 1981-82 Import

Policy under Para 149, Appendix 19, therefore, the conditions

prescribed in Appendix 19 would be applicable. It was further urged

that since the scheme of „Special Imprest License‟, i.e. Import allowed

outside the duty exemption Scheme, was applicable in the case of

supplies to projects in India against contracts entered with IBRD/IDA,

Bilateral, Multilateral external assistance, ONGC, OIL, GAIL, these

supplies were treated as deemed exports, however, this does not mean

that sales to foreign tourists would also be "deemed exports"

automatically covered under the duty exemption scheme for advance

licenses, when the said scheme specifically provides for import of duty-

free material required for the manufacture and the export of the said

goods outside the country.

11. The learned counsel for the respondents has contended that

„Deemed Exports", „Tourist sale" as well as "advance license" are all

separately defined and that the exporter had the option to opt for any

scheme as per his requirement and since the petitioners opted for the

duty exemption scheme under the advance license and enjoyed the

benefits under the said scheme, such as high premium on imported

inputs they cannot take the plea of discrimination now. It is also

pointed out that the petitioners were required to export goods physically

out of the country, whereas, they have simply diverted the imported raw

material and sold the same to the foreign tourist to show it as export,

which cannot be allowed, as it is against the provisions of the Import

Policy under which the petitioners had obtained the advance license. It

is also pointed out that as per the provisions of Appendix 19 of the Duty

Exemption Scheme read with the notification dated 9th June, 1978 from

the Ministry of Finance (Department of Revenue Customs, Government

of India) as per GSR 117(F) the exempt material of any portion thereof

shall not be sold or otherwise transferred to any other person or utilized

or disposed of in any other manner, without the previous permission of

the committee (advance licensing committee) before whom the

application under the scheme was placed for obtaining the advance

license. Thus, as per the respondents the petitioners were required to

first seek the permission of the advance licensing committee before

selling the steel utensils to the foreign tourists.

12. It is further submitted that along with the advance licenses,

DEEC (Duty Exemption Entitlement Certificate) are also issued in

which the particulars of the item of import, their quantities, CIF value

and the particulars of the resultant product, their quantities, and FOB

value are mentioned and that after every import and export actually

made, the particulars in respect of the same are entered in the DEEC

by the custom authorities and after the completion of all the import

and exports in DEEC Books are duly made, the DEEC certificates are

then audited by the customs departments, and only then the bank

guarantee/legal undertaking furnished by the exporter is redeemed.

According to the respondents the petitioners failed to submit the DEEC

books for the Import and Export, duly authenticated by the Customs,

which is a basic requirement of duty-free advance license, as the

petitioner was required to maintain proper accountability of the duty-

free imported raw materials by way of physical export of the said

utensils. The respondents have further alleged that the petitioners by

selling the goods to foreign tourist have acted without any authority of

law and has therefore mis-utilised the license, by availing premium on

the imported raw materials, and escaping the customs duty imposable

on the imported raw material and diverted the goods to the local

market for making undue profits, and at the same time, defrauded the

government by not fulfilling the export obligation, and thereby

contravened the provisions of the IMPEX Act and Customs Act.

13. The Respondent also submitted that the petitioner, instead of

approaching this court, should have in the normal course filed the

reply to the show cause notice and represented before the adjudicating

authority. The respondent have justified the abeyance order dated 13th

December, 1984 vide order number 33/84 -85/ASR under The Import

(Control) Order, 1955 on the ground that the same was passed in

public interest as the petitioner did not export any of the goods, and

instead they sold the same to the foreign tourists in the domestic

market to give it a color of export which is in violation of the provisions

of the duty exemption scheme. According to respondent it is a case of

fraudulently availing high premium on duty-free imported inputs and

abusing the legal process for 25 years by delaying the payment of

custom duty with interest.

14. The petitioners, thereafter, have filed a rejoinder dated 7th August,

2006 against the pleas and contentions raised by the respondent by

contending inter alia that it is the respondents who have delayed the

proceeding, as they filed their counter affidavit for the first time after

the expiry of almost 20 years. It is also pointed out that the allegations

of mis-utilizing the license are baseless and unsubstantiated as there

is nothing on the record to establish the allegation that the petitioner

had dishonestly sold the stainless steel imported by the petitioner at a

premium, by not utilizing the same. The petitioner has further

contended that even though an Advance License for 212.8 Metric Tons

was allowed, the petitioner had only imported 180 Metric Tons for the

value of Rs.33,54,392. Thus, the petitioner had no intention to mis-

utilize the said license. It is also reiterated that the petitioners had sold

the utensils to the foreign tourists against foreign exchange and that

no sale was made in the domestic market as alleged by the

respondents and that since the sale was made to foreign tourists, there

was no need to make entries regarding the same in the DEEC Book

from the custom authorities. It was also argued that since the

petitioners had completed their export obligation, therefore, the action

taken under clause 8-B of the Import (Control) Order, 1955, was

uncalled for. It is further emphasized that even though an export

obligation of Rs. 53,00,000/- had been imposed on the petitioners,

they had managed to earn foreign exchange worth 59,30,000/- by

selling the steel utensils to the foreign tourists, and therefore, they had

diligently discharged their export obligations, for which reason they

should not be penalized on the illegal and discriminatory ground that

"deemed exports" is not covered under the advance licenses. It is also

urged that since sales were made to foreign tourists there was no

requirement to maintain entries of the same in the DEEC Books and

get them verified by the custom authorities, which was clarified by the

respondents themselves by letter dated 28th January, 1985. In any

case it is submitted that the petitioners had maintained detailed

account of the imported raw material, as well as, its utilization by sale

to foreign tourists. The interpretation given by the respondents to the

relevant clauses, as well as, the procedure contained in the Import &

Export Policy was denied by the petitioners and it was asserted that

the respondents have merely tried to confuse the Court, with complete

disregard to the intent of the said provisions, which was to earn foreign

exchange as per export obligation. The allegation of availing huge

premiums on imported raw material was also denied by the petitioners

and it was urged that the petitioner no.1 is a reputable company and

that it has never entered into any illegal activities and that the

respondents themselves have failed to substantiate these allegations by

way of documentary proof.

15. This Court has heard the learned counsel for the parties, and

examined the writ petition, reply of the respondents and the documents

filed by the parties and the provisions of the Import Policy April 1981-

March1982 and the Handbook of Import-Export Procedures 1981-1982.

It is clear from the pleas and contentions that the main issue that

needs to be adjudicated in the present matter is whether or not

"deemed exports" by sale of goods to foreign tourists will be covered

under the scheme of Advance License especially in the present facts and

circumstances of the petitioners. The learned counsel for the

respondents has contended that sale to foreign tourists cannot be

accepted as exports for the fulfillment of export obligation against an

advance license which requires that physical export of the goods takes

place outside the country. According to the respondents "deemed

exports" is covered only under the REP Licenses. While on the other

hand the learned counsel for the petitioners contended that since the

objective is clearly to earn foreign exchange, the concept of an export

would also include "deemed exports", namely, sale of goods to foreign

tourists within India against valuable foreign exchange earned for the

country especially in the present facts and circumstances as the order

of the petitioners to export the goods was cancelled on account of

differences between the officials of importer firm in UK. Reliance has

also been placed on Para 175 (i) under Chapter 18 which states that

"Deemed Exports" referred to in Para 131 will count on par with other

exports.

16. "Deemed exports" is explained only in Para 131 of Chapter 17 of

the Import Policy 1981-82 titled as „Import Policy for Registered

Exporters‟, under the sub-heading of Eligibility which stipulates that

sale to foreign tourists of the items specified in para 157 would qualify

as "deemed exports". Para 131 and 157 are reproduced as follows:

131. The Following types of "deemed exports" will also qualify:-

(a) Sales to foreign tourists of the items specified in para 157 hereunder.

(b) Supplies made to IBRD/IDA aided projects in India where such supplies are made under the procedure of international competitive bidding:

(c) Supplies made in India to United Nations Organisations or under the Aid Programmes of United Nations and other multi-national agencies, at international prices and paid for in free foreign exchange;

(d) Sales to foreign shipping companies, where payment is received in foreign exchange or in Indian Rupees obtained from the exchange of foreign currency;

(e) Supplies of fitment items (of Capital Goods nature) to Indian shipyards building ocean-going ships;

(f) Other supplies made in India against international competitive bidding where the payment is received in free foreign exchange.

Sales to foreign Tourist

157. Sales to foreign tourists in respect of the following goods will qualify for import replenishment under the import policy for Registered Exporters:

              (a)     Gem and Jewellery,

              (b)     Handicrafts,

              (c)     Leather goods, namely, footwear, handbags, belts,
                      purses, etc.

              (d)     Carpets, Rugs, and druggist and namdahs,

(e) Cotton Sarees, Cotton dress materials, Cotton table linen, bed spreads, bed covers, Cotton stoles, scarves, shawls and Cotton furnishing material,

(f) Ready-made garments,

(g) Silk fabrics and made-up articles, including furnishing material,

(h) Consumer electronics items,

(i) Disc records,

(j) Books/stationery, and

(k) Stainless steel utensils/cutlery.

17. Thus, it is clear on examining the said provisions, that there is no

such stipulation that "deemed exports" by sale to foreign tourists would

only be covered under REP Licenses and not Advance Licenses or any

other licenses, as has been asserted by the learned counsel for the

respondents. Para 157 merely specifies that sale to foreign tourists in

respect of the certain goods which would qualify for import

replenishment under the Import Policy for Registered Exporters. It is

thus apparent that under the Import Policy, Registered Exporters have

the option of either availing an REP License, Advance License, or an

Imprest License. It is also cannot be disputed that the petitioner no.1. is

a certified registered user, and consequently he is covered under the

provisions of Chapter 17 titled as "Import Policy for Registered

Exporters" of the Import policy April 1981-March1982. Thus, the plea of

the respondents that deemed exports, applies only to REP Licenses is

not borne from the provisions of the Import Policy. According to the

respondents the REP licenses are completely different from Advance

Licenses and that deemed exports only allow for import replenishment

and not the benefit of duty free imports. To test this plea it is imperative

to carefully examine the provisions pertaining to the said licenses.

18. The term "Advance Licenses" is explained in Para 149 of the

Import Policy 1981-1982 and it refers to the cases where import is

allowed under the duty exemption scheme, whereas, the "Imprest

License" is issued outside the duty exemption scheme. Both Advance

License and Imprest License are intended to supply imported inputs for

export production and thus it bears a suitable export obligation which

needs to be fulfilled. The details of the duty exemption scheme and the

procedure for issuance of advance licenses are given in Appendix 19.

19. While in the case of REP Licenses/ import replenishment license

is issued for the purpose of replenishment of imported items against

which exports are already made and the details regarding the issuance

of the REP License is given in Appendix 17.

20. Thus it is apparent that an advance license is granted, prior to

the export, and it is issued for the import of inputs/raw materials

without the payment of basic customs duty. Such imports are subject

to the fulfillment of time bound export obligations. While on the other

hand in cases of REP licenses, the registered exporter, first carries out

the export of the manufactured products and then claims

replenishment of the duty imposed on the import of raw material

utilized in the manufacture of the exported products. Therefore, it is

clear that the criterion in both the licenses is to claim duty free import

of certain raw materials, which are utilized for the manufacture of

exportable goods.

21. While in the case of Advance License the raw materials are

imported duty free i.e. before the export is made, with regard to REP

Licenses, reimbursement of the duty imposed on the imported goods is

sought after the export is made, and this is where the difference

between the two schemes ends. Since it is clear that these licenses were

designed to encourage exports with a view to bring in valuable Foreign

exchange into the country. Thus the substantive intent behind the two

schemes is the same, even though the procedural technicalities might

differ, due to the difference in the stages at which they are applicable.

That the two schemes are similar in their substantive intent is also

clear from the fact that REP Licenses are inter-changeable or

convertible to Advance Licenses. This is evident from the contents of

Para 10, Pg 20 of the Handbook of Import Export Procedures 1981-

1982 which states that in incase of applying for a fresh license under

the scheme, it will also be open to the exporter to get any of the

following types of licenses, which includes Import Replenishment (REP)

Licenses, converted into advance license under the scheme, provided

the items to be imported are covered by the license. The learned counsel

for the respondents, however, has heavily relied on the subsequent

endorsement in Para 10 stating that for conversion of the other licenses

to advance license, the exporter will be required to follow the same

procedure as if he were to apply for a fresh advance license, to contend

that this clearly proves that the two licenses are entirely different.

However, this court does not accept such inference as drawn by the

learned counsel for respondents, since clearly this condition has been

stipulated in view of the fact that in the case of advance license,

exemption on the imported goods is sought before the export of the

same is effected, therefore there is a requirement to attach an export

obligation to the same, which is not required in the case of REP

Licenses, since the same is availed after the export is carried out and

thus the exemption would commensurate with the same. In the present

case since the petitioners had applied for the advance license, they were

well aware of the export obligation attached to the same, which they

duly sought to discharge by making sales to foreign tourists, which as

discussed above is a recognized measure under "deemed exports".

22. Thus as reasoned hereinbefore "deemed exports" cannot and

should not be restricted to REP Licenses only if the prime objective is to

earn foreign exchange which is also the objective under the Advance

Licenses as well. Since the main objective of both the licenses is to earn

foreign exchange, which is achieved even when sales are made to

foreign tourists, the plea of the respondents that deemed exports can be

done only in case of REP license cannot be accepted. It is also pertinent

to note that under Chapter 18 in Para 175(i) it is specified that deemed

exports referred to in Para 131 will be considered on par with other

exports. Learned counsel for the respondents has tried to contend that

Chapter 18 applies to Export Houses and as such it would be applicable

to registered exporters only. However, such a plea defies any logic and

is without any rationale, since regardless of whether it is an Export

House or a Registered Exporter, the meaning of export cannot be

changed to apply differently on either, especially since even in the case

of Export Houses there are three licenses provided i.e. Advance License,

REP License and Imprest License as is in the case of Registered

Exports. Thus a careful consideration of all the provisions reveal that

"deemed exports" are to be considered as exports, for the purposes of

Advance Licenses as well.

23. It is also important to note that it was envisioned by the policy

makers themselves that there may be certain anomalies or

discrimination arising in the application of the said Policy, which in

such cases would be ironed out/ and or remedied, for which Para 167

of the Import Policy 1981-82 gave the Government the power to

appropriately deal with the Policy relaxations on a case to case basis.

Para 167 is reproduced as follows:

Relaxation of Policy

167. Cases for relaxation of the existing policy where it creates genuine hardship or where a strict application of the existing policy is likely to affect the export effort adversely will be considered by CCI&E on merits.

24. In the present facts and circumstances it is not disputed that the

petitioner had obtained an advance license for 212.8 Metric Tons of the

CIF value of Rs. 45,43,280/-, against which the petitioner had actually

imported only 180 Metric Tons of the stainless steel of the CIF value of

Rs. 35,50,192.70/-. Thereafter, on account of conflict between the

President and the Managing Director of the Foreign importer, which

couldn‟t be resolved in the near future, the export order on the basis of

which the advance license was obtained had been terminated. However,

the petitioners had already utilized the imported stainless steel and

made the products of the unique specifications demanded by the

Foreign Company, due to which reason they were faced with the

predicament of finding another purchaser for the said goods. These turn

of events were verified by the Enforcement officer of the Respondent

No.2, as well, as he had sent a letter dated 23rd December, 1982 to the

importers in England to verify and confirm whether the order placed by

them on the petitioners was in fact a genuine one or not. Pursuant to

this, a letter dated 7th January, 1983 was also sent to the said

Enforcement Officer by M/s V & K Topline, whereby they confirmed to

the respondents that the order placed with the petitioners was indeed a

genuine one. Thus the respondents were well aware of the genuine

problem faced by the petitioner, and understandably the petitioners

were stuck with a huge consignment of steel utensils made to the

unique specifications demanded by the Foreign Company, for which

reason the petitioners found no other buyers in the Foreign Market.

Ultimately the petitioners were left with no other alternative but to fulfill

their export obligation by selling the said utensils to foreign tourists

within the country, which as already discussed above, is a recognized

method of effecting "deemed exports". As a consequence of this the

petitioner managed to earn foreign exchange to the tune of Rs.

59,32,271.75 by the sale of 157.09 metric tons of stainless steel

utensils against the official expectation of earning foreign exchange

worth Rs. 53,24,000/-.

25. The petitioners had also maintained detail records of all the sales

made to the foreign tourists, which was done through M/s Deepamani,

Bombay, a registered foreign exchange dealer duly licensed by the

Reserve Bank of India. The entire sale proceeds of the manufactured

material in foreign exchange was, thereafter, collected by the said

authorized dealer and put into scheduled banks. Thereafter the details

of the amounts of foreign exchange, the currencies in which it was

received by them and the persons and parties from which it was

received with their passport numbers, etc. and other relevant details in

the prescribed performa was duly furnished by the petitioners, while

requesting the release of the bond executed by them. The petitioners

have also appended with the writ petition the formal certificates from

the respective bankers, of having received the corresponding foreign

currency from M/s Deepamani, Bombay, giving the details of the

currency, the amount and the rupee equivalent thereof. Thus, in the

present case it is clear that the hardship suffered by the petitioner was

bonafide, which was verified by the respondents as well, and that

inspite of the dire circumstances, the petitioners sought to dispose of

their export obligations by making genuine sales to foreign tourists and

getting consideration for sale in foreign exchange which was the

primary and main objective of the scheme.

26. The respondents have failed to negate the veracity of the

documents appended to the writ petition in proof of the foreign

exchange earned by the petitioner, or establish any illegality to the

documentary proof given by them. Their only stand at every stage has

been that the sale made to the foreign tourists who paid the

consideration in foreign exchange cannot be accepted as exports for the

fulfillment of export obligation against advance license. In the facts and

circumstances, however, the respondents have failed to establish as to

how when the petitioners had earned the foreign exchange of Rs.

59,30,000/- against the estimated export obligation of Rs. 53,00,000/-,

they have not fulfilled their export obligation.

27. The learned counsel for the respondents has also taken up

another technical plea that the DEEC books specifying Import and

Export, which were required to be duly authenticated by the Customs,

and which is a basic requirement of duty-free advance license, as the

petitioner was required to maintain proper accountability of the duty-

free imported raw materials by way of physical export of the said

utensils, was not done by the petitioners. However, the petitioners have

stated that since no actual exports were made the same were not

endorsed in the DEEC, and instead the petitioners had maintained all

the records of the sale made to the foreign tourists and the respective

foreign exchange earned from them, which was also explained in detail

to the respondents, with the required documentary proof supporting the

same, while requesting the release of the bond. The respondents too

had themselves clarified by letter dated 28th January, 1985 that no

entries were required to be made in the DEEC Book relating to "deemed

exports" to foreign tourists against foreign exchange. Thus solely on

account of not maintaining the DEEC Book and getting them verified by

Customs, it cannot be concluded that the petitioner has not fulfilled

their export obligation, especially in light of the ample documentary

proof supplied by them with regard to the deemed exports effected by

them and the foreign exchange of Rs. 59, 50,072.45/- being earned by

the petitioners.

28. In the facts and circumstances it is clear that the respondents

have turned a blind eye to the genuine problem faced by the petitioners,

the real cause for the termination of the export order, and the

subsequent foreign exchange earned by the petitioner, beyond the

export obligations attached to the advance license has not been denied.

Thus solely on the technical ground that the petitioners had not sought

the permission of the competent authority before affecting the deemed

exports, and that the DEEC Books were not maintained, such strict

mechanical application of the provisions of Import and Export Policy in

the facts and circumstances cannot be accepted, when the substantive

intent behind the issuance of the advance license has been achieved by

the petitioners. In these circumstances imposition of any penalty on the

petitioners will be iniquitous and not justifiable considering the

objective of the policy.

29. It is the Courts duty to harmonize the procedure with the

substantive intent of the legal provisions, in order to negate

arbitrariness or discrimination. Procedures cannot negate the

substantive intent of the policies and cannot be restricted to become

mere technicalities. Procedures have to construed in a manner as to

promote and achieve the object of the policy, rather than allow it to

destroy substantive intent of it.

30. In Pasupuleti Venkateshwarlu v. The Motor and General Traders

(AIR 1975 SC 1409) it was observed by the Apex Court that procedure is

the handmaid and not the mistress of the judicial process and that

equity justifies bending the rules of procedure, where no specific

provision or fair play is violated, with a view to promote substantial

justice subject of course, to the absence of other disentitling factors or

just circumstances.

31. In Mangalore Chemicals & Fertilizers v. Deputy Commissioner of

Commercial Taxes (1991) 83 STC 234 the Supreme Court had

enunciated the principle that a distinction between the provisions of a

statute which are of substantive character and were built-in with

certain specific objectives of the policy on the one hand and those which

are merely procedural and technical in their nature on the other must

be kept clearly distinguished. The Apex Court also observed that the

stringency and mandatory nature of statutory provisions must be

justified by the purpose intended to be served. The mere fact that it is

statutory does not matter one way or the other. While some conditions

might be substantive, mandatory and based on considerations of policy

others may merely belong to the area of procedure and thus it would be

erroneous to attach equal importance to the non-observance of all

conditions irrespective of the purposes they were intended to serve.

32. In Union of India v. M/s Suksha International & Nutan Gems &

Anr. 1989 (39) ELT 503 (SC) the respondents M/s Suksha International

was granted an Imprest License for the import of „uncut‟ and „unset‟

diamonds with corresponding export obligations. Upon due fulfillment

of its export obligations the respondents had become entitled to

revalidation and endorsement for import of OGL items of the Imprest for

which reason the respondents applied under Para 185(4) of AM-83

policy. However, this claim of the respondent was rejected by order

dated 21st September, 1983. The respondents had approached the High

Court after which they were allowed revalidation and endorsement

under Para 185(4). The petitioners approached the Supreme Court on

the ground that under the Import-Export Policy, 1982-83 the registered

export houses were entitled for revalidation and endorsement of OGL

items under Para 185(4) subject to the express limitation in Clause (7).

The Supreme Court after careful consideration held that Para 185(4)

was intended to provide certain incentives to the export houses which,

upon grant of Imprest License, fulfill their countervailing obligations in

the matter of export commitments. Thus the provision was a beneficial

one. It was observed that even though clauses (4) and (7) on plain

wording presented certain constructional difficulties, however, on a

harmonious construction it was decided to hold that Para 185(4) of the

policy would not be attracted to the case of Export Houses which are

granted Imprest License, since a restrictive view would otherwise curtail

the scope of the beneficial provision.

33. Even though the facts of the said case are completely different

from the facts of the present case however, the fact that the Apex Court

had resorted to a more harmonious construction of the provisions of the

Import Policy, rather than a restrictive view on the ground of procedural

compliance, is in principle very pertinent to the facts of the present

case. In the circumstances it is apparent that the petitioners had a

bona fide hardship, which they tried to overcome and meet the

requirement of export liability by effecting deemed exports and did earn

the requisite foreign exchange, though not in the manner as had been

envisaged by the respondents. The allegation that the petitioners earned

huge premium has remained unsubstantiated and it is rather a reckless

allegations made by the respondents without any factual and legal

basis. Thus solely on the ground that permission was not sought before

making the sale to the foreign tourists from the competent authority,

especially since the respondents were very much aware of the fact that

the foreign importer had cancelled the export order, and that all

documentary proof was provided to substantiate the foreign exchange

ultimately earned by the petitioners, it cannot be held that the

petitioners had not discharged their export obligation and the

petitioners are thus liable to pay the duty demanded by the impugned

order.

34. From the above discussion it is evident that the Petitioner had

produced sufficient materials to substantiate their claim that the

deemed export obligation had in fact been fulfilled. It is a matter of

record that though the license for import was for more material,

however, the petitioners imported the material which was required and

after the goods imported were used in making the products required for

export, did try to export, however, on cancellation of export order, sold

the goods though recognized export house and earned the foreign

exchange which was also remitted to the authorized bank with proof of

all the sale transactions. However, these facts have been completely

ignored by the respondents in the impugned order and therefore it

deserves to be set aside.

35. The respondents have further alleged that the petitioner by selling

the goods to foreign tourist have acted without the authority of law and

have mis-utilized the license, by availing premium on the imported raw

materials, escaping customs duty and thereafter diverting the goods to

the local market for making undue profits at the same time. Thus it is

urged that the petitioners have defrauded the government by not

fulfilling the export obligation, and thereby contravened the provisions

of the IMPEX Act and Customs Act. However, this is a bald plea by the

respondents without any factual and legal basis. The respondents

rather have admitted that the RBI had accepted the foreign exchange

received from the sale to the tourist with full and complete account. The

there is no doubt that the petitioners had indeed made the sale of the

finished goods through the authorized export house, made from the

duty free imported goods, to the foreign tourists, and sale was for

foreign exchange. The respondents are rather unable to show factually

and legally as to how the petitioners have defrauded the government or

quantified any loss caused to the Government by the alleged mis-

utilization of the advance license.

36. It is curious to note that order dated 30th January, 1985 imposes

a duty of Rs. 88,55,966.58 with 18% interest on the petitioners, which

has been challenged by the petitioners on the ground that it appears to

have been calculated on the assumption that the petitioners had

actually imported the total maximum licensed quantity of 212.8 Metric

Tons instead of the actual import of 180 Metric Tons. However, despite

specific assertion by the petitioners, the respondents have failed to

explain the calculation or the basis on which the said amount was

imposed on the petitioners, as duty to be paid in view of non-fulfillment

of export obligation. In any case since it has been established that the

export obligation of the advance license had been fulfilled by the

petitioners, therefore, the order dated 30th January, 1985 deserves to be

set aside.

37. The Respondents have also submitted that the petitioner, instead

of approaching this court, should have in a normal course filed the

reply to the show cause notice and represented before the adjudicating

authority, and that thus this Court ought to refrain itself from

interfering under Article 226 of the Indian Constitution. However, from

the record it is clear that the petitioner had replied to the show cause

notice issued against him, along with many applications, however,

ultimately respondent no. 2 had passed the order dated 14th May, 1986

holding that the petitioner had not complied with the export obligation

and thus was liable for the payment of custom duty of Rs. 88,55,966.58

with 18% interest without giving a reasonable opportunity to the

petitioners and in violation of principles of natural justice.

38. Even though alternative remedy might have been available to the

petitioner, however, it cannot be accepted that on this sole ground the

writ petition deserves to be dismissed after so many years in the facts

and circumstances of the case. This aspect has been considered by the

Courts in a number of cases a few of which are as follows.

39. In Harbans Lal Sahnia & Anr v. Indian Oil Corporation Ltd and

Ors; (2003) 2 SCC 107, it was held by the Supreme Court that rule of

exclusion of writ jurisdiction by availability of an alternative remedy is a

rule of discretion and not one of compulsion. In appropriate case,

inspite of availability of alternative remedy, the High Court may still

exercise its jurisdiction in at least three contingencies; i) where the

petition seeks enforcement of any of the fundamental rights; ii) where

there is a failure of principles of natural justice; or iii) where the orders

or proceedings are wholly without jurisdiction or the vires of an act is

challenged.

40. The writ petition was filed by the petitioners in the year 1986 and

the reply to the writ petition was filed by the respondents almost after

two decades. After the passage of such considerable period, the writ

petition should not be dismissed on the ground that alternative remedy

is available to the petitioners. In A.P. Industrial Infrastructure

Corporation Ltd and Anr v. Recovery Officer, Debts Recovery Tribunal,

Bangalore & Ors; AIR 2004 AP 198, the Court had declined to dismiss

the writ petition which was filed challenging the sale proclamation of

property by the Debts Recovery Tribunal on the ground that alternative

remedy of appeal under Section 20 of the Recovery of Debts Due to

Banks Act was available to the petitioners, after 5 years of admission of

writ petition by the High Court. The Supreme Court had held that there

are at least two well recognized exceptions to the doctrine with regard to

the exhaustion of statutory remedy. It was held that doctrine has no

application in a case where impugned order has been made in violation

of principles of natural justice. Moreover, in a case where the Court

having admitted the writ petition and having put the parties to trial

normally cannot refuse to exercise its jurisdiction and dismiss the writ

petition on the ground of availability of an alternative remedy. In para

69 and 70 at page 211, the Court had held as under;-

"69. We are not impressed by the submission. It is a true and very well established proposition of law that when an alternative and equally efficacious remedy is open to a litigant he should be required to pursue that remedy and not to invoke the special jurisdiction of the High Court under Article 226 of the Constitution of India. It is equally well settled that the existence of a statutory remedy does not affect the jurisdiction of the High Court to issue a writ. It may be one of the factors that may have to be taken into consideration in the matter of granting writs. It is a rule of self imposed limitation, a rule of policy, and discretion rather than a rule of law. The Court in exceptional cases can always issue a writ such as a writ of certiorari, notwithstanding the fact that the statutory remedies have not been exhausted. There are at least two well-recognised exceptions to the doctrine with regard to the exhaustion of statutory remedies. In the first place, it is well settled that where proceedings are taken before a Tribunal under a provision of law, which is ultra vires, it is open to a party aggrieved thereby to move the High Court under Article 226 for issuing appropriate writs. In the second place, the doctrine has no application in a case where the impugned order has been made in violation of the principles of natural justice.

70. It is not possible to dismiss the petitions under Article 226 of the Constitution of India as not maintainable on the ground of there being an alternative remedy available in cases where the Court has entertained and admitted the writ petition and was heard on merits. It is a different matter altogether when the Court in exercise of its discretion refused to interfere even at the threshold on the ground of availability of an alternative and efficacious remedy. But in a case where the Court having admitted

the writ petition and having put the parties to trial normally cannot refuse to exercise its jurisdiction and dismiss the writ petition on the ground of availability of an alternative remedy. It is a matter always well within the discretion of the Court and that discretion is required to be exercised in a judicial and judicious manner. It is equally a well settled proposition of law that where the order is illegal and invalid as being contrary to law, a petition at the instance of person adversely affected by it would lie to the High Court under Article 226 of the Constitution and such a petition cannot normally be rejected on the ground that an appeal lies to the authorities specified under an enactment. It needs no restatement at our hands that the Court has imposed a restraint in its own wisdom on its exercise of jurisdiction under Article 226 of the Constitution where the party invoking the jurisdiction has an adequate, alternative and efficacious remedy. The availability of alternative remedies does not oust the jurisdiction of this Court. (See for the proposition: Khurai Municipality v. Kamal Kumar, MANU/SC/0227/1964:

[1965]2 SCR 653, Baburam v. Zilla Parishad, MANU/SC/0399/1968: [1969]1 SCR 518, Hirday Narain v. I.T. Officer, Bareilly, MANU/SC/0268/1970: [1970] 78 ITR 26(SC), and Ram and Shyam Company v. State of Haryana, MANU/SC/0017/1985: AIR 1985 SC 1147).

41. Similarly, in the case of Ram and Shyam Company v. State of

Haryana, AIR 1985 SC 1147, it was held that an appeal in all cases

cannot be said to provide in all situation an alternative effective remedy

keeping aside the nice distinction between jurisdiction and merits. In

Coffee Board, Bangalore v. Joint Commissioner Tax Officer, Madras and

Anr, AIR 1971 SC 870, it was held in a case where demand of tax was

not backed by valid law, the petitioner would have a right to move the

Supreme Court for enforcement of fundamental rights. In light of the

prepositions laid down by the various Courts it cannot be held that the

writ petition will be barred, as alternative remedy is available to the

petitioners.

42. In any case the petitioners have taken an alternative plea also

that they became entitled to the REP License for 50% of the deemed

export of Rs. 59,50,072.45. The petitioners were therefore, entitled to

exemption from the duty on goods of a value of approx. Rs. 29,75,362

against which the petitioner has imported goods of value Rs.

33,53,228.60. Therefore the petitioner is at the most liable to pay duty

of 220% on the differential amount of Rs. 3,78,192.35, which amounts

to a duty of Rs. 8,32,023.17 only. However, since this Court has already

held that the petitioners had met their export liability, the petitioners

shall not be liable for this amount, in case their liability is construed in

this manner.

43. The petitioner has further contended that they are entitled to the

refund of the duty draw back on the Deemed exports on the World Bank

Contract between 1993 and 1997. The petitioner has urged that this

payment too has not been released because of the pendency of the

present dispute and thus it is prayed that the amount may be released

after adjusting the same against any amount payable by the Petitioner,

and then the balance ought to be released.

44. Thus, for the forgoing reasons the impugned order dated 14th

May, 1986 is set aside and the writ petition is allowed. The petitioners

shall also be entitled for release of their bank guarantee of Rs.90,86,500

in the facts and circumstances. Therefore, the respondents are directed

to release the bank guarantee of Rs. 90, 86,500/- of the petitioners

within four weeks. With these directions, the writ petition is disposed of.

The petitioners shall also be entitled for a costs of Rs.20,000/- in the

facts and circumstances. Costs be paid within four weeks.

ANIL KUMAR, J.

JULY 9, 2012 vk