IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 01/10/2002 Coram The Honourable Mr. Justice V.S. SIRPURKAR and The Honourable Mr. Justice F.M. IBRAHIM KALIFULLA W.P. No.4320 of 2002 and W.P.No. 4321 of 2002 1. Adani Exports Limited rep. by its Director Ahmedabad 380 008 Regd. Office at Adani House 2. Rajesh S. Adani Director & Shareholder of Petitioner No.1 Adani House :: Petitioners in Navrangpura W.P.No.4320 of 02 Inter Continental (India) a Partnership Firm under Indian Partnership Act and having its Registered Office at Shikar, Navrangpura :: Petitioner in Ahmedabad W.P.No.4321 of 02 -Vs- 1. Union of India through Secretary Ministry of Commerce Udyog Bhavan New Delhi 110 001 2. The Director General of Foreign Trade, Udyog Bhavan, New Delhi 3. The Additional Director General of Foreign Trade, Udyog Bhavan New Delhi 4. The Joint Director of General of Foreign Trade 197 Whites Road Chennai 600 014 5. The Designated Authority 197 Peters Road :: Respondents in Chennai 600 014 both the W.Ps Petitions under Art.226 of the Constitution of India praying for a Writ of Mandamus as stated in the petitions For Petitioners :: Mr. P. Chidambaram Senior Counsel for M/s. P.S. Raman & P.R. Raman For Respondents :: Mr. V.T. Gopalan, Addl. Solicitor General assisted by Mr. Gajendran :ORDER V.S. SIRPURKAR, J. This judgment shall govern and dispose of two writ petitions, which were initially filed in the Gujarat High Court and originally registered as Special Civil Application Nos.3282 and 3279 of 1989. While Spl.C.A. No.3282 of 1989 was filed by Adani Exports Limited, Spl.C.A. No.3279 of 1989 was filed by one Inter Continental (India), a partnership firm. 2. Both these Special Civil Appeals as they were filed before the Gujarat High Court were allowed by the High Court by a common judgment dated 3-4-2000 and 17-2-2000. This judgment was challenged before the Apex Court by the Union of India, respondents herein vide Civil Appeal Nos.6320 and 6321 of 2000. The Apex Court allowed these appeals only on the ground of 'territorial jurisdiction'. Following is the operative part of the judgment: "For the reasons stated above, these appeals succeed and the same are hereby allowed. The impugned judgment is set aside. We further direct that Special Civil Application Nos.3282/99 and 3279/99 filed by the respondents are hereby directed to be transferred to the High Court of Madras at Chennai forthwith and on receipt of the papers, we request the Chief Justice of the High Court of Madras to place them before an appropriate Bench for disposal in accordance with law. We are also of the opinion that since the parties have already undergone one round of litigation before the High Court at Ahmedabad and thereafter in these appeals before us, it is appropriate to request the High Court to dispose of these appeals as early as possible. The appeals are, accordingly, allowed." In pursuance of the above direction, the matters were sent to this Court which were re-registered as W.P. Nos.4320 and 4321 of 2002 and have now been placed before us for disposal by the Hon'ble Chief Justice. 3. Though the controversy involved in these writ petitions is extremely narrow, the factual background is somewhat spread out. Fortunately, the factual background in both the writ petitions is practically identical and hence, we propose to dispose of these writ petitions by a common judgment as was done by the Gujarat High Court. 4. After seeing the pleadings of the parties in writ petitions and the counters filed on behalf of Union of India, the controversy revolves around only one question, viz.: "Whether the petitioners are entitled to avail credit of the customs duties under the 'passbook' scheme on the basis of the import contents of exports already made based on Standard Input/Output Norms, referred to as 'SION' hereafter, prevailing upto 31-3-1997 or whether such credit would be governed by the subsequent SION applicable to the parties starting from 1-4-1997 which are in respect of other duty exemption schemes other than the passbook scheme?" The question may still be compressed further to the effect: "whether the petitioners are entitled to the credit of customs duties in respect of Vitamin Mixes and Mineral Mixes at the rate of 227 Kg. for every metric ton of headless/head-on shrimps already exported by them as per SION prevailing in between 1st April 1992 and 31st March 1997 or the same should be restricted to only 27 Kgs. as per SION for the period beginning from 1st April 1997?" A still third question on the basis of the arguments raised before us by the learned Additional Solicitor General is to the effect as to: "Whether without proving the actual prior imports of Vitamin Mixes and Mineral Mixes can the petitioners claim the credit of customs duties at all on the basis of their exports of head-on/headless shrimps?" 5. For appreciating the controversies involved, the following undisputed factual details would be essential: 5.1 Both the petitioners are exporters and enjoying the status of 'Super Star Trading House' in the State of Gujarat on account of their quantum of exports. They are major foreign exchange earners. 5.2 Union of India and the other respondents, under the powers conferred upon them by the provisions of Foreign Trade (Development and Regulation) Act, 1992 (in short 'the Act') and more particularly by Sec.5 thereof announced Export and Import Policy (in short 'the EXIM Policy') for the period between April 1992 and March 1997. This policy was obviously for the purposes of giving fillip to the exporters and thereby earn more foreign exchange for the country. Under Chapter VII of the EXIM Policy, a Duty Exemption Scheme was framed. 5.3.1. Paragraph 48 of the said scheme speaks about 'Advance Licence' and describes it to be a licence granted for import of inputs without payment of basic customs duty. It further provides that such licence shall be subject to the fulfilment of a time-bound export obligation and value addition as would be specified. Such advance licences are either value-based or quantity-based. In short, under this advance licence the goods could be imported with the obligation to use those goods or the value thereof for the purpose of exports. These licences were specific and while in case of a value-based advance licence, it specified the names and description of items to be imported and exported, the CIF value of imports, and the FOB value and quantity of exports and in case of quantity-based advance licence, it specified the names and description of items to be imported and exported, the quantity of each item to be imported or, if the quantity cannot be indicated, the value thereof, the CIF value of imports and the FOB value and quantity of exports. 5.3.2. Vide Paragraph 51 standard norms for input-output and value addition were provided for in case of both value-based and quantitybased advance licences. Paragraph 51 reads as under: "Input-Output and value addition norms.- The standard input-output norms for the imports and exports for the grant of both value based and quantity based advance licences and value addition norms for value based licences shall be in accordance with the norms published by the Director General of Foreign Trade in the Handbook of Procedures ( Vol.2). However, in respect of quantity based Advance Licences for which such standard input-output norms have not been published, the quantitative norms will be as specified by the competent authority." 5.3.3. The most important part for this decision is paragraph 54 which speaks of a pass book scheme. It runs as under: "A Pass Book Scheme shall be available for some categories of exporters. A manufacturer-exporter or an exporter granted an Export House/ Trading House/Star Trading House/Super Star Trading House certificate, shall be eligible to avail the benefits of the Pass Book scheme. He may apply to the designated authority in the prescribed form for issue of the Pass Book. The designated authority may, after considering such matters as may be specified, issue a Pass Book to the applicant. The Pass Book Scheme shall apply only for the export of products where standard input/output norms have been published. The Director General of Foreign Trade shall appoint a designated authority, being an officer of the rank not less than a Deputy Director General in each of the Customs Houses at Delhi, Bombay, Calcutta and Madras and such other Customs Houses as may be specified by him in this behalf. The designated authority shall be the competent authority in respect of matters concerning the Pass Book Scheme and shall discharge his functions under the overall direction and supervision of the Collector of Customs. Upon the export of goods by a Pass Book holder, the designated authority shall calculate, on the basis of the standard input/output norms, the import content of the said exports and determine the basic customs duty payable on such imports. He shall credit the said amount in the Pass Book. Upon imports being made by the Pass Book holder, the credits may be utilised to pay the basic and additional customs duties on the imported goods. Payment shall be by a debit entry to be made in the Pass Book by the designated authority. The export goods shall not be eligible for drawback on the inputs for which credit in the Pass Book is taken. The import and export shall be made through the same port. Any goods which are not included in the Negative List of Imports or in the list of Sensitive Items may be imported under this scheme. The Pass Book shall be valid for a period of two years from the date of issue and may be renewed from time to time.” ( emphasis supplied) 5.3.4. The standard input-output norms (SION) would be necessary to be seen for the present controversy. The norm regarding the fish products and more particularly Entry 7 therein would be relevant for our purpose. The relevant entry regarding export item and import item is re-produced hereunder: I.O. Norms FISH PRODUCTS ------------------------------------------------------------------------------------------ Sl. Export Item Import Item Value No. Name Qty. Name Quantity Allowed Addition% Remarks ------------------------------------------------------------------------------------------ 1. Not Relevant 2. Not Relevant 3. Not Relevant 4. Not Relevant 5. Not Relevant 6. Not Relevant 7. Frozen Head-on/Headless Shrimps 1 MT Prawn Feed comprising of: 125 a) Fish Meal ) 1.65 ) ( cumulative) b) Shrimp Shell Meal ) c) Soya Meal d) Fish Oils/ 1.20 MT Oil Mixes (cumulative) e) Fish Soluble/ (None of these Liquid Fish Meal items should exceed 0.25 MT) f) Squid Liver Powder g) Squid Liver Oil h) Wheat Gluten i) Lecithin (Soya bean) j) Vitamin Mixes ) 0.227 MT consisting of ) Vitamin C, ) Vitamin E, ) Vitamin A/AD3, ) Vitamin B2/B6 ) ) k) Mineral Mixes ) Note:- 1. The above inputs shall be allowed only to the exporters having aqua culture and are growing the shrimps etc. in their own ponds on the certification of MPEDA. 2. All prawn feed ingredients mentioned at (a) to (k) above shall be specified as veterinary grade. ------------------------------------------------------------------------------------------ The petitioner claimed to have exported Head-on/Headless Shrimps and, therefore, claim credit on the custom duty for vitamin mixes consisting of vitamins at the rate of 227 kilos (0.227 MT) every metric ton of exports as per these norms. 5.3.5. Relevant parts of paragraph 114 of Chapter VII in the Handbook of Procedures, Volume 1, for the period commencing from 1st April, 1992 to 31st March, 1997, incorporating the amendments made upto 30 th April, 1995, provide as under: "... ... ... The Pass Book holder should specify in the export documents including the shipping bill that the export is under the Pass Book Scheme in terms of paragraph 54 of the Policy. Based on the standard input output and value addition norms (referred to in paragraphs 5 1 and 60 of the Policy), the Designated Authority will determine the basic customs duty deemed to have been paid by such an exporter and the said amount will be credited in the Pass Book. The exporter can utilise the credit so given for import of permissible items. The Pass Book will be valid for a period of two years from the date of issue. However, any credit in the Pass Book at the end of the period of two years may be utilised within a period of 12 months thereafter and any unutilised credit at the end of the period of three years shall lapse. ... ... ... After determining the applicable customs duties on such imports, clearance of imports will be permitted and the customs duties so arrived at will be debited in the Pass Book by the Designated Authority. ... ... ... The exports and imports and the debit and credit entries will be permitted only to the holders of the Pass Book. However, the Pass Book holder is free to sell the goods so imported. ... ... ..." (emphasis supplied) 5.3.6. Paragraph 54 of the Policy and more particularly the last part underwent a slight change which can be appreciated by the emphasis supplied. For the sake of convenience, the relevant changes are highlighted as they are heavily relied upon by the petitioners: "Pass Book Scheme - ... ... ... Upon the export of goods by a Pass Book holder, the designated authority shall calculate, on the basis of the standard input/output norms, including packing material as provided in General Note for Packing Material in the Handbook of Procedures (Vol.2), the deemed import content of the said exports and determine the basic customs duty payable on such deemed imports. He shall credit the said amount in the Pass Book. Upon imports being made by the Pass Book holder, the credits may be utilised to pay the basic customs duty on the imported goods. Payment shall be by a debit entry to be made in the Pass Book by the designated authority. In respect of additional customs duty the Pass Book holder will have an option to pay the same either by debit entry to be made in the Pass Book or in cash. The export goods shall not be eligible for drawback on the inputs for which credit in the Pass Book is taken. The import and export shall be made through the same port. Any goods which are not included in the Negative List of Imports may be imported under this scheme. Besides credit available under the Pass Book may also be utilised to pay customs duty while importing goods permitted against freely transferable Special Import Licences. The Pass Book shall be valid for a period of two years from the date of issue and may be renewed from time to time. (emphasis ours) This amended scheme came into effect from 25th March, 1996. However, Entry 7 of the SION remained as it is. Petitioners' claim is based on the unamended Entry 7 of SION as also on the unamended and the amended paragraph 54 pertaining to the Pass Book Scheme. 6. It is an admitted position that both the petitioners are availing of the Pass Book Scheme and had claimed that they had exported frozen Head-on/Headless Shrimps, covered under Entry 7 of SION entries (please refer to paragraph 5.3.4. for the entry). There is no dispute that these exports were made during the period of two years covered in the Pass Book Scheme. They, therefore, sought a credit commensurate to their exports of frozen Head-on/Headless Shrimps. The claim was that they should be given the credit for the item covered in entry (j) in the Import Items, viz. Vitamin Mixes at the rate of 227 kilos per metric ton. In short, petitioners claim that for every metric ton of the export made, they should be given the credit of the customs duty payable on 227 kilos of Vitamin Mixes. They claimed the rate of U.S.$36 per kilo. However, the customs authorities proposed that the credit should be granted by the respondents at the rate of U.S.$8 per kilo for Vitamin Mixes. It is significant to see here, at this stage there was no dispute regarding the quantity of 227 kilos for every metric ton of export. The dispute was only as regards the rate which, according to the petitioner, was U.S.$36 per kilo while according to the respondents, it was only U.S.$8 per kilo. An order to that effect was passed by the first respondent and the petitioners filed appeals before the Commissioner of Customs (Appeals) who allowed the appeals and accepted the petitioners' claim for the credit at the rate of U.S.$36 per kilo. The matter was carried by the Department by way of appeal to the Customs, Excise and Gold (Control) Appellate Tribunal (in short 'CEGAT') who ultimately passed the final orders and confirmed the order passed by the Commissioner of Customs (Appeals) holding that the rate claimed by the petitioners of U.S.$36 per kilo was the proper rate. It is reported that the orders passed in case of both the petitioners are challenged before the Apex Court in the Special Leave Petitions filed by the Department. 7. It is an admitted position again that during the pendency of the matters before the Commissioner of Customs (Appeals), the petitioners were granted the credit at the rate of 227 kilos of Vitamin Mixes for every metric ton of export. After the order was passed by the Commissioner of Customs (Appeals), during the pendency of the matter before the CEGAT, the Tribunal had rejected the stay application in respect of both the petitioners filed by the department and the credit was given to the petitioner in their Pass Book at the rate of 227 kilos per metric ton of export on the higher value, i.e. at the rate of U.S.$36 per kilo as per the claim of the petitioners. The petitioners, for that purpose, had also furnished bank guarantees for the 10% of the total credit amount and had also executed bonds for the full value of the credit amounts. The order of the CEGAT came to be passed on 22-12-1998. 8. Petitioners claim that after the orders by the CEGAT, petitioners once again approached the respondents for giving credit finally in their Pass Books in terms of their claim for the balance exports but, despite repeated requests and reminders, respondents failed to extend the credit to the petitioners. Petitioners have filed copies of the representations made by them in the month of April, 1999 which have been marked as Ex.E-1 and Ex.E-2 in both the petitions. However, petitioners came to know that the credit had been withheld on the instructions received by respondents 2 and 3. Petitioners also point out that though the Pass Book Scheme was discontinued by the Central Government, with effect from 1-4-1997, the Central Government from time to time kept on extending the period for availing the credit and for utilising the same on the basis of the earlier exports made during the period of two years when the Pass Book Scheme was in vogue. However, the respondents denied that credit to the petitioners, necessitating the filing of the petitions by the petitioners. 9. It seems that the stand taken by the respondents was that from 1-4-1997, new SION came into effect wherein the entry regarding the Vitamin Mixes which hitherto was a consolidated entry permitting the import of Vitamin Mixes/Mineral Mixes to the extent of 0.227 MT/MT was bifurcated and the permissible quantity under the new SION was Vitamin Mixes 0.027 MT and Mineral Mixes 0.200 MT. It seems that vide letter No.3/36/97-98/P&I dated 25-5-1998, the customs authorities were advised not to allow the clearance of Vitamin Mixes beyond the quantity of 27 kilos per metric ton of export. A stand was, therefore, taken regarding the claims of the petitioners that in respect of the advance licences issued prior to 1-4-1997 also, the new SION should be made applicable meaning thereby that for the import of Vitamin Mixes, credit should be given only at the rate of 27 kilos for every metric ton of export of frozen Head-on/Headless Shrimps. Needless to mention that similar was the stand taken by the respondents before the Gujarat High Court. It was suggested, more particularly in paragraph 6 of their reply affidavit, that 0.227 MT/MT of export product was the combined quantity allowed for Vitamin Mixes and Mineral Mixes. However, taking advantage of this grouping of quantities, some of the exporters/importers started claiming the duty free import/pass book credit benefit for the entire quantity of Vitamin Mixes and in order to prevent such practice, the standard input/output norms were subsequently revised/rectified with effect from 1-4-1997 allowing 0.027 Mts of Vitamin Mixes consisting of various Vitamin and 0.200 Mts of Mineral Mixes subject to the conditions imposed in the note below the revised SION. In paragraph 12 of the reply-affidavit, it was stated that the Court be pleased to direct the petitioners to restrict their claim for Vitamin Mixes at the rate of 27 Kg/MT only, which the respondents were ready to consider and settle the pending claims of credit. At this juncture, it will be better to see the relevant entry of the revised SION with effect from 1-4-1997, which reads as follows: Duty Exemption Scheme I. O. Norms FISH PRODUCTS ------------------------------------------------------------------------------------------ Sl. Export Item Import Item Value No. Name Qty. Name Quantity Allowed Addition% Remarks ------------------------------------------------------------------------------------------ D1 Not Relevant D2 Not Relevant D3 Frozen Headon/Headless 1 MT Prawn Feed ingredients Shrimps of species Black Tiger (Penaeus Monodon) a) Fish Meal ) 1.65 MT and White Shrimps b) Shrimp Shell Meal ) ( cumulative) (Penaeus Indicus) c) Soya Meal ) 1.20 MT d) Fish Oils Oil Mixes ) ( cumulative) e) Fish Solubles/Liquid Fish ) None of these Meal ) items should ) exceed 0.25 MT f) Squid Liver Powder ) g) Squid Liver Oil ) h) Wheat Gluton ) i) Lecithin (Soya Bean) ) j) Vitamin Mixes consisting ) 0.27 MT of Vitamin C, Vitamin E, ) Vitamin A/AD3, Vitamin B-1 ) HCL/B-1, Mono Nitrate ) Vitamin B2/B6 ) k) Mineral Mixes ) 0.200 MT Note: The feed ingredients - Vitamin Mixes and Mineral Mixes allowed above are to be permitted only in mixed form and not as individual vitamins/minerals. ------------------------------------------------------------------------------------------ When compared with entry (j) appearing in paragraph 5.3.4 of this judgment, the change becomes significant. In the earlier norms, there was nothing limiting the imports only to the Vitamin Mixes or only the Mineral Mixes. The quantity up to 0.227 kilos per metric ton could be imported in any proportion or even individually. The restriction was only the limit of 227 kilos per metric ton. When we see the amended entry (j), it becomes apparent that under the same now if the Vitamin Mixes are to be imported as against the exports that will be restricted only to 27 kilos per metric ton as against the export of 1 metric ton of frozen Head-on/Headless Shrimps. Similarly, the Mineral Mixes would be subject to the extent of 200 kilos per metric ton. The respondents insist and took a stand before the Gujarat High Court that it would be these amended norms which would be applicable even in respect of the exports which were made during the period of two years from 1-4-1995 to 31-3-1997. In short, the contention is that the petitioners if they want to claim the credit on the basis of Vitamin Mixes, it would be only to the extent of only 27 kilos as against the export of 1 metric ton of frozen Head-on/Headless Shrimps. It is on this issue that the parties are at loggerheads. 10. Learned senior counsel, Mr. P. Chidambaram, appearing on behalf of the petitioners firstly took us through the whole gamut of the EXIM Policy and pointed out the basic differences in the Advance Licence Scheme and the Pass Book Scheme. The argument is that the whole idea behind this policy was to boost the exports so as to earn more foreign exchange for the country. He pointed out that the Pass Book Scheme was in vogue only for a definite