Bishwanath Industries Ltd. vs Director General, Foreign Trade & ...
2017 Latest Caselaw 1096 Del

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI

%                              Judgement delivered on:28th February, 2017

+                       WP(C) 1952/1997

      BISHWANATH INDUSTRIES LTD.            ..... Petitioner
                   Through: Mr. Rajesh Rawal, Adv.

                         Versus

      DIRECTOR GENERAL, FOREIGN TRADE & ANR ... Respondents

Through: Mr. Vivek Goyal, CGSC with Ms. Vanya Khanna, Adv. for UOI.

CORAM:

HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE NAJMI WAZIRI

NAJMI WAZIRI, J, (Oral):-

1. This writ petition has sought i) the quashing of a show cause notice dated 07.07.1995 issued by the respondent No. 2 as to why the Advance License dated 14.02.1994 issued to the petitioner be not cancelled and ii) a direction to the respondents to make corrections in the aforesasid Advance License showing export obligation to be made in Indian Rupees for an amount of Rs.14,69,26,650/- instead of USD 45,91,457/-.

2. By an agreement dated 18.06.1991, the petitioner had agreed to supply 21.25 lakh pieces of LDPE liner bags to a Moscow based buyer. The price of each bag was fixed in Indian Rupees i.e. at Rs,.70.00 per piece and the total value of the contract was specified -

again as INR14,87,50,000/- (Indian Rupees 148.76 million), equivalent to USD. Notably the quantum of USD was not specified. Terms of payment were: "Advance to the account of seller" i.e. the petitioner was to receive the sale consideration in advance. The delivery time was upto 31.03.1994 (this period was subsequently extended by the buyer). The quality of the product was specified as under:

"Quality : Width- 500 MM+- 10MM; Height 1000 MM+15-0 MM;

Above seal - 990MM + 15-0MM; Seal Width - 5MM, Below Seal - 10MM+-5MM, Thickness 220 Microns +-15%;

Weight of bag - 206 grams +-15%"

3. Upon petitioner's application dated 04.10.1993, the Reserve Bank of India (RBI) vide its memorandum dated 16.07.1993, permitted release of Rs.72,50,00,000/- into the petitioner's account through Punjab National Bank as advance from the bank for Foreign Economic Affairs of the USSR in terms of the agreement between the petitioner and the Russian purchaser. The petitioner applied for license under the Duty Exemption Scheme for Value Based Advance License under Appendix XVII of the Hand Book of Procedure 1992-

97. It specified the FOB value of exports as Rs.14,69,26,650/- in the column Currency of Exports and the CIF value of imports as Rs.7,34,63,325/- in the column for Currency of Imports. It reflected the corresponding USD values as 45,91,457.81 and 22,95,728.90 respectively. The application also mentioned that the Value Addition would be 100%. In column 20, regarding 'Payment Mode" the

petitioner had stated 'Advance payment' and reference was made to the aforesaid agreement dated 18.06.1991.

4. By a letter dated 03.12.1993, the Director General of Foreign Trade (DGFT) informed the petitioner that the Advance Licensing Committee had considered the application and rejected it on the ground that no norms had been fixed for LDPE liner bags. However in its subsequent meeting (No. 34/94) held on 04.01.1994 the ALC decided to grant the Advance License to the petitioner and communicated the same vide its Duty Exemption Entitlement Certificate dated 14.02.94. The description of goods was specified as "LDPE Moulding Grade 2550.80 MT.(2) Board/While Card Board - 14.16 MT for USD 15,576/- (3) Swan Timber of Species Relevant to be used in Export Product as packing material - 37.17 MT for USD 11,615.62 (the individual CIF value of items at Sr. No. 2 & 3 shall not be utilised for import of other items permitted in the licence)". The approximate value of CIF was mentioned as Rs.5,69,87,700 equivalent to USD 17,80,867/-. It further specified that the " firm shall export of 2125000 for LDPE liner bags having LDPE 2429.333 MT. Packed in Packing material made of Board/While Card Board weighing 13.49 MT and processed Timber weighing 35.4 MT for and FOB value of USD 45,91,457/- and realise the proceeds in free foreign exchange only by making exports to GDA (sic) countries in fulfilment of export obligation in this case."

5. Immediately upon receipt of the said license, vide its letter dated 2.3.94, the petitioner sought an amendment in the advance license to:

"................ to amend the condition at Serial No.4 on the reverse of the licence to read as that " the foreign exchange to be realised in Indian Rupees by making export to RPA countries. Further also amend FOB value stated on the front side of the licence as Rs.14,69,26,650 instead of USD 45,91,457/-.

The Original Licence (both Copies), conditions slip and DEEC Book (all in original) are enclosed herewith for necessary amendment and return to us, duly amended."

6. Six months rolled by uneventfully, then through a Show Cause Notice dated 23.09.1994, respondent intimated the petitioner that the license was issued apropos General Currency Area (GCA) countries. The communication noted inter alia:

"It has now come to the notice of this office that you have slipped badly in the exports schedule despite the fact that you had availed advance payments. In the circumstances you are requested to explain and intimate as to why the said licence may not be cancelled on account of non-fulfilment of export obligation. Your detailed reply should reach this office within t15 days from the date of receipt of this letter. Failure to reply will attract action as deemed necessary under ITC Regulations."

7. The petitioner replied vide letter dated 11.10.1994, that the payment had already been received from non-convertible bilateral Rupee account against contract No. 1082884 dated 18.06.1991 and that in terms of the RBI's Circular No. 30, the funds received from India Side in payment of State Credits granted by erstwhile Soviet

Union would be utilised by the Russian Side for purchase of any goods and services from India; that the time for effective export was till February, 1995, but they had already effected the exports for a value of Rs.69,68,36,000/- and goods of balance amount of Rs.2,81,64,000/- would be exported shortly. The petitioner followed up its correspondence with the respondents by letters dated 11.12.1994, 21.12,1994, 15.02.1995, two letters dated 08.03.1995, 07.04.1995 and 22.06.1995. All along intimating that the Licence and DEEC Book was lying with the office of the DGFT, New Delhi since March, 1994 and although the validity of the same license had expired, they had sought appropriate orders regarding corrections/amendment of the advance license in terms of their long pending request.

8. Nothing worthwhile transpired. Instead by a notice dated 7.7.95 under Section 9(4) of the Foreign Trade (Development and Regulation) Act, 1992, readwith Rule 10 of the Foreign Trade (Regulation) Rules, 1993, the respondent informed the petitioner, inter alia, that:

(a) You had suppressed the information that you were permitted by RBI in Mid 1993 to receive an advance payment of Rs.72.5 crores from Russia by your bankers, the Punjab National Bank (PNB) for a long term contract dated 18.6.1991. This money was released to you by PNB on 16.7.1993. It was also decided that the Ministry of Commerce would monitor the export effected against the advance payment by you.

(b) You had misrepresented facts in your application for grant of above cited licence by

failing to clarify that the FOB value of exports of Rs.14.49 crores approximately was equivalent to USD 4.59 lakh approximately which led to the licence being issue for export realisation in free foreign exchange."

9. However Respondent No. 2, after taking into consideration the petitioners contentions against the said notice concluded inter alia in his Order-in-Original dated 28.05. 1997:

"I have gone through the facts and records of the case carefully. The short point for decision by me is whether the firm had suppressed/mis- represented material information in their application for grant of the said value based advance licence. Perusal of the application dated 4.10.93 by the notice firm for grant of the value based advance licence in question shows the following entries clearly:

Col. 9 - Total FOB value of Exports: Rs.146926650 | in currency of Exports in USD 45,91,457.81 Col.20 - Payment Mode: S.No. 20 Advance Payment Col. 22 - Net FOB Value of Export/Supply Order: Rs. 146926650/- USD 4591457.81.

From the above it is seen that the notice firm had clearly indicated fob value of exports both in Indian currency and in US dollars. They had also not suppressed the fact that the mode of payment was advance payment. They cannot be held responsible if the Licensing Authority failed to take note of these facts stated so clearly. The allegations contained in the show cause notice dated 7.7.95 are thus clearly not sustainable. I therefore see no reason to proceed against the notice firm any further in this case. By virtue of powers vested on me under Section 9(4) of the

Foreign Trade (Development & Regulation) Act, 1992, I absolve the notice firm of the allegations contained in the show cause notice dated 7.7.95, and discharge he said notice."

10. Accordingly, the first prayer seeking quashing of the show cause notice has become infructuous. The petitioner, however, seeks amendment/modification and re-validation of its import license as per its request dated 2.3.94.

11. The respondents have opposed the grant of the said relief on the ground that although the Appendix XVII application of the petitioner under Duty Exemption Scheme indicates net FOB value of exports in Indian Rupees and USD and the mode of payment indicates Advance Payment, and after scrutiny by the Licensing Authority, the latter was satisfied that the conditions laid down by the RBI's Circular No. 30 (supra) were not met. Hence, the petitioner was not granted advance licence under rupee payment area. Nonetheless, the licensing authority was of the opinion that the advance licence may be issued for General Currency Area which meant that export proceeds were to be in freely convertible foreign exchange. The respondents contended that while such application in the prescribed form, is examined by the licensing authority and if advance payment is mentioned in the application as the mode of payment, the licensing authority generally assumes that the advance payment has been made by foreign buyer in terms of USD. Furthermore, the advance licence issued to the petitioner on 14.2.94 for making export was under General Currency Area and not in Rupee Currency Area. Accordingly, the show cause

notice dated 23.3.94 was issued followed by the show cause notice dated 29.9.95. The respondents further contend that although the respondent No. 2 found that there was no mis-representation by the applicant in the application for grant of advance licence and the SCN proceedings did not result in any advance action against the petitioner, nevertheless, it would not confer any right or benefit to the petitioner to have Advance License for Rupee Payment Area, for the reasons that it could be issued only for a General Currency Area.

12. By a letter dated 14.09.1999, the petitioner had informed the respondent that it had effected eight export consignments worth Rs.14,78,33,760.60 in terms of its aforementioned export order and the Advance License (page 359). It has also annexed copies of the Shipping Bills for Export of Duty Free Goods. These bills defined the product as "LDPE liner bags", Quality: Width- 500 MM+- 10MM; Height 1000 MM+15-0 MM; Shipping Marks - above seal - 990MM + 15-0MM; Seal Width - 5MM, Below Seal - 10MM+-5MM, Thickness 220 Microns +-15%; Weight of bag - 206 grams +-15%"

13. In the interim, upon the DGFT's query as to the category of the scheme under which the application for grant of advance license had been made, i.e., whether it was under the General Currency Area (GCA) or Rupee Payment Area (RPA), the RBI advised by its letter dated 15 September 1998 that the 'transaction in question pertains to exports from India against liquidation of rupee balance of the erstwhile USSR.'

14. During the pendency of the writ petition, the petitioner was heard by the Advance Licensing Committee on 21.09.1999 which

decided that because of quantitative factors relating to non-fulfilment of export obligation under the Advance Licence and absence of evidence about use of packing material, as spelt out in paras 4 & 5 thereof, the exports made by the petitioner was not eligible for grant of the relief of conversion of the exports into the duty drawback system. The reasons specified were:

"4. The Committee at their meeting held on 21st September, 1999 considered the entire matter. The Committee noted that Condition No.4 indicated on the reverse of the said Value Based Advance Licence No. 1526408 dated 14.12.l994 read as under:-

"4.The firm shall export 21,25,000 of LDPE Liner Bags having LDPE 2429.333 MT packed in packing material made of Board/White Card Board weighing 13.49 MT and processed timber weighing 34.5 MT for an FOB value of us $ 45,91.45781- and realise the proceeds in free foreign exchange only by making exports to GCA Countries in fulfilment of export obligation in this case. "

The Committee noted from the attached Statement of Exports that the petitioner firm had exported 21,30,000 of LDPE Liner bags against the export obligation of 21,25,000 Nos. imposed on the licence. However, as per the other condition of the licence cited above, the LDPE content in the export product should be 24,29.333 MT i.e. 24,29,333 Kgs. But the LDPE content in the export product had not been indicated in the shipping bills. In any case net weight of the 21,30,000 Nos. of LDPE Liner bags, as such, exported by the party works out to only 3,87,660

Kgs. representing only 15.95% of the LDPE content required to be present in the product to be exported, as per the condition of the licence.

5. The Committee took into consideration the evidence of exports stated to have been made towards discharge of export obligation of Advance Licence No. 1526408 dated 14.2.1994 under 8 Shipping Bills submitted by the representative of the firm on 14.9.1999. The Committee also noted that all these exports have been permitted by the Customs Authorities on 'provisional' basis. The Committee further noted that in the shipping bills only LDPE has been indicated as a Duty Exemption Entitlement Certificate (DEEC) item, which implies that the exempt material used in the export product was only LDPE and the other two items, namely, (a) Board White Card Board and (b) Sawn Timber were not utilised (as packing material) in exporting the product as was required by the aforesaid condition imposed on the licence. In other words, the shipping bills do not indicate whether the product exported was packed in packing material made of Board/White Card Board and Processed Timber, as was required by the aforesaid condition of the licence."

15. Rule 7 (1) of the Foreign Trade (Regulations Rules) 1993, lists the grounds under which the Director General of Foreign Trade could refuse to grant or renew a license. Clause (n) thereof permits such action if: "the applicant has attempted to obtain or has obtained cash compensatory support duty drawback, cash assistance benefits allowed to Registered Exporters or any other similar benefits from the Central Government or any agency authorised by the Central

Government in relation to exports made by him on the basis of any false, fraudulent or misleading statement or any document which is false or fabricated or tampered with".

16. However in the proceedings pursuant to the impugned SCN dated 9.9.1995 the Deputy Director General of Foreign Trade, in his order dated 28.05.1997, had already found that the petitioners had clearly indicated FOB value both in Indian currency and USD; that they had not suppressed that the mode of payment was advance payment and therefore, the issue of cancellation of license did not arise. All relevant information was duly disclosed to the respondents before the issuance of the Advance License. The currency of export was specified as Indian Rupees, therefore logically, the export obligation in terms mandated in dollar currency in the advance license was sought to be corrected/amended.

17. The Court would note in particular, that the agreement between the petitioner and the Russian importer, specified only the Indian rupee value and not its US dollar equivalent. General Rules of international trade may be laid down under domestic laws but such trade happens only under the peculiar and specific terms as may be agreed between the trading parties. It is for the parties to determine which permissible currency they wish to trade in. If the Indian Rupee was the agreed currency of exports, and the exports were made accordingly then the DGFT cannot override or rewrite the terms of the agreement and impose another currency of trade on the parties.

18. The fact that the export has been for an amount of Rs.147,83,33,760.60 is not in dispute. These exports were made in

eight tranches between 28th December, 1993 and 7th February, 1994. The quantity of bags, the net weight and the gross weight was declared in each Shipping Bill. If the respondent had any doubt apropos the correctness of the specification of the product, i.e., LDPE content of the bags, it could have sample-checked any consignment. But it chose not to do so. Nor did it issue any Show Cause Notice or ever raise any doubts, in the past 23 years about the veracity of LDPE contract of the bags. Hence, the respondent's contention that the net weight of 21,30,000 LDPE liner bags works out to only 3,87,660 kgs against the requirement of 24,29,333 kgs being 15.95% of the LDPE content, is unsubstantiated and arbitrary. In the absence of the respondents showing any scientific or special evidence to the contrary, the petitioners declaration apropos the LDPE content in the bags in its Shipping Bills for exports, would have to be accepted.

19. The petitioner's claim pertains to March, 1993. Almost 24 years have gone by. The Court would not lose sight of the fact that this petition has been pending for almost two decades and the respondents have not taken a specific view in the matter and has not communicated a final decision either.

20. Appendix XIII of the Handbook of Procedures of EXIM Policy 1992-97, reads as under:

"VALUE ADDITION NORMS FOR EXPORTS FOR WHCIH PAYMENTS ARE NOT IN FREELY COVERTIBLE CURRENCY "The trade with erstwhile Rupee payment Area countries has since been switched over to payment

in hard currency except (i) for exports from India against liquidation of Rupees balances to the credit of erstwhile RPA countries; and (ii) for exports to the Russian Federation against India's repayment of state Credits granted by the former USSR. Following value addition norms shall be application for exports to erstwhile Rupee payment Area countries:-

(a) For the trader taking place in hard currency the value addition norms will be the same as applicable to exports to GCA countries.

(b) For the exports from India against liquidation of Rupee balance to the credit of erstwhile RPA countries, the value addition norms shall be 100% or the percentage of value addition indicated in the Handbook of procedures (Volume-II) 1992-97, whichever is higher; and

(c) For exports to the Russian Federation against India's repayments of state Credits granted by the former USSR, the value addition norms shall be 100% or the percentage of value addition indicated in the Handbook of Procedures (Volume-II), 1992-97, whichever is higher .

In respect of exports indicated at sub-paragraphs

(b) and (c) above the following further relaxations shall be applicable:-

(i) The provisions of paragraph 126 of the Exim & Import Policy 1992-97 (revised edition March 1994) shall stand relaxed to the extent that exports contracts and invoices shall be determined in non-

convertible Indian Rupees; and

(ii) The provision of paragraph 231of the Handbook of Procedures (Volume -I), 1992-97 (revised Edition: March, 1994) shall stand relaxed to the extent that imposition and discharge of export obligation on the duty free licences, if availed under the Duty Exemption Scheme on such exports, shall be indicated in non- convertible India Rupees."

21. Quite clearly the EXIM Policy itself makes ample provision for discharge of export obligation in non-convertible India Rupees apropos exports 'from India against liquidation of Rupee balance to the credit of erstwhile RPA countries'. The RBI had permitted release of advance payment in the petitioner's account for the agreed exports. The petitioner has affected exports of the relevant amount. It neither mis-represented nor mis-declared any information for the grant of the Advance Licence. The RBI has clarified that the 'transaction in question pertains to exports from India against liquidation of rupee balance of the erstwhile USSR.' Therefore the respondents' contention that the EXIM Policy did not permit the discharge of export obligation in Indian Rupees, is untenable.

22. In the circumstances, for the reasons stated above the petitioner is entitled to the relief of amendment to the advance licence No. P/W/1526408 dated 14.02.1994 showing the export obligation to be in Indian Rupees for an amount of Rs.14,49,26,650/- instead of USD45,91,457. Appropriate orders in this regard shall be issued by the respondents within three weeks from today. The writ petition is allowed in the above terms.

23. No order as to costs.

NAJMI WAZIRI, J.

S. RAVINDRA BHAT, J.

FEBRUARY 28, 2017/acm