By TIOL News Service

CHANDIGARH, JULY 14, 2016 : THE petitioner seeks quashing of –

(i) Notification No. 31 (RE: 2013)/2009-14, dated 01.08.2013,

(ii) Circular No. 3 (RE: 2013)/2009- 14, dated 02.08.2013,

(iii) Public Notice No. 35 (RE: 2013)/2009-14, dated 30.10.2013, and

(iv) Notification No. 90 (RE: 30)/2009-14, dated 21.08.2014, issued by the Ministry of Commerce, Government of India.

The DFIAs were transferred by the original holder to the petitioner during the period of their validity and pursuant to the same, the petitioner imported Soda Ash under into-Bond B/E and subsequently sought duty free clearance thereof, against DFIA, by filing ex-bond B/E.

The Respondent directed the petitioner to pay full duty on the goods, thereby denying to it the benefit of duty free clearance under DFIA. This was, apparently because of the Notifications/Circular/Public Notice, issued by the Ministry of Commerce, through the DGFT and referred at the outset.

Before the High Court the petitioner contends that there was no justification for making the benefits available under the subject DFIAs, as originally issued, to the various conditionalities and limitations subsequently introduced by the impugned Notifications, Circular and Public Notice, which were never in existence on the date of issuance of the DFIAs themselves.

Additionally, the petitioner emphasised the impossibility of compliance with the conditions stipulated in the impugned Notifications, Circular and Public Notice, which require specifications to be inserted in the Shipping Bills whereunder the exports, in fulfillment of Export Obligation, are made and, further, imports, only of such items, to be effected, as were used in the manufacture of the export product, irrespective of the SION norms.

He submits that, where the exports were made prior to issuance of the DFIAs themselves, it is obviously impossible for the importer, importing goods thereafter, to limit the imports to the goods used in the product already exported, or to use the same in export goods, and stresses the absurdity of such a stipulation.

DFIAs issued prior to 01/08/2013 could not be subjected to conditions and limitations which came into being thereafter in the impugned Notifications/Circular/Public Notice, the petitioner re-emphasised. The doctrine of promissory estoppel is also pressed into service, in this regard.

The respondent for the department submitted that the various limitations, introduced by the impugned Notifications/Public Notice/Circular work in public interest, as considerable misuse of DFIAs, by importing inputs which had nothing to do with the export product, had been going on, which, according to him, was contrary to the very ethos of the DFIA Scheme.

After considering the submissions, the High Court extracted the notification/Circular/Public Notice referred in the petition and inter alia observed -

+ The DFIAs, in the present case were issued on post-export basis. In other words, the exports in fulfilment of the Export Obligation thereunder were effected by the Exporter / Licence holder prior to issuance of the said DFIAs. It would be impossible, therefore, for any additional indication/endorsement to be entered in the Shipping Bills whereunder the exports had already been effected. Clearly, therefore, requiring the holder or the transferee of the DFIA, which was issued on post-export bases, to comply with para-4.1.15 as inserted by the above-mentioned impugned Notification dated 01/08/2013, would amount to insisting on an impossibility. On the face of it, therefore, insistence on the said requirement would be hit by the well-established principle that no person could be required, by the law, to perform the impossible (lex non cogit ad impossibilia).

+ How an importer could be required only to import inputs which have actually been used in products which already stand exported. SION norms are notified to prescribe permissible inputs against any export product. The DFIA is issued on such standard basis. It cannot be argued that what is contemplated by these clauses is only replenishment, as replenishment is an entirely independent concept, in respect of which the FTP and the HOP contains separate clauses.

+ To say the least, such requirement is manifestly absurd, and it's very incorporation, in the impugned Notification and Public Notice, reflective of total non-application of mind, on the part of the authorities issuing the said Notification/Public Notice.

+ On the face of it, it appears that these covenants, by their very nature were never intended to cover the cases of post-export DFIA or transferees of such DFIAs. Else, the DFIAs would be rendered worthless for all such holders/transferees of the DFIAs. This, in our view, could never have been the intention of a beneficial schemes such as the DFIA Scheme. It is trite that beneficial schemes had to be so interpreted as to extend the availability of the benefit thereof, rather than accorded any restrictive interpretation, which would render the schemes worthless to the persons who seek to avail the promised benefit.

+ Neither Section 5 of the Foreign Trade (Development and Regulation) Act, 1992, nor para 1.2 of the FTP, whereunder the impugned Notifications dated 01/08/2013 and 21.08.2014 purport to have been issued, allow retrospective divesting, by any newly added provision, of the rights already available to the Licence holder /subsequent transferee, of the DFIA. It is well settled that the power to legislate retrospectively is not inherent, and has to be specifically conferred by statute no such power seems to emanate, either from Section 5 of the Foreign Trade (Development and regulation) Act, 1992, or from para- 1.2 of the FTP.

+ Clause 12 of the Terms and Conditions attached to the DFIA licences issued to the petitioner also stated they would be governed by the extent FTP, HOP and guidelines issued by the DGFT. Significantly, the words used in the said clause are "as amended" and not "as amended from time to time." In any event, the provisions of the FTP, HOP, Notifications, Public Notices and guidelines issued by DGFT as amended till the date of issuance of the DFIA, would govern the DFIAs during their entire life.

+ DGFT Circular No 72 dated 24.03.2009 which was also in existence on the date of issuance of the subject DFIAs, further clarified specifically in the context of the DFIA Scheme that since the objective of the SION was to allow duty free import of the inputs which are actually used or were capable of being used in the export product, the exporter had the flexibility to import the alternative inputs / products mentioned in the SION. This guideline, therefore, would govern the availability of import benefits under the subject DFIA during their lifetime.

+ Details of exports made in respect of subject DFIAs make it clear that even prior to issuance of the DFIAs exports had already taken place. Export Obligation Discharge Certificates (EODCs) in respect of the said DFIAs were also issued by the DGFT. This fact of discharge of Export Obligation also stands acknowledged by the DGFT by making endorsement of transferability on the body of the subject DFIAs which, as per para-4.2.6 of the FTP and para-4.3.6 of the HOP, could only be after fulfilment of Export Obligation.

+ For all the above reasons we are convinced that the various restrictions introduced by the impugned Notification No 31 dated 01.08.2013, DGFT Circular dated 02.08.2013, Public Notice No 35 dated 30.10.2013 and DGFT Notification dated 21.08.2014, could not be made applicable to imports effected under the subject DFIAs.

+ This would also flow from the principle of promissory estoppel, inasmuch as, at the time of issuance of the DFIAs, it was held out by the respondent to the DFIA holders as well as, consequently, to the transferees thereof, that all benefits accruing under the said DFIAs read with the then existing FTP, HOP and DGFT Circulars etc would be available thereunder. It was on the basis of this promise, as held out by the respondent, that the petitioner invested considerable amounts in purchasing the said DFIAs from the original holders thereof in the belief that import benefits available to the said DFIAs at the time of issuance thereof would not be denied to it merely by erroneously applying the restrictions which were introduced thereafter.

+ To the said extent, therefore, the impugned Notifications, Public Notice and Circulars, insofar as they make the restrictive conditions incorporated therein applicable to all imports made thereafter, even under DFIAs issued prior thereto, cannot sustain. The impugned DGFT Circular dated 02.08.2013 is also, consequently, illegal, insofar as it makes the Notification dated 01.08.2013 (supra) applicable to all imports effected under the DFIA scheme thereafter.

+ Any other interpretation would also render the statutory SION norms a dead letter. DFIA is issued in terms of the SION norms. Duty free import benefits on all items referred to in the said licences as per the SION as on date of its issuance have, therefore, to be guaranteed to the licence holder as well as to all bonafide transferees thereof. Such benefit cannot be whittled down and truncated on the basis of any notification or executive instructions that may be subsequently issued after issuance of the DFIA. All such notifications or instructions would, therefore, be inapplicable or liable to be struck down.

The Petition was partially allowed.

(See 2016-TIOL-1375-HC-P&H-CUS)