W.P. (C) No. 16559 of 2006 Page 1 of 20 IN THE HIGH COURT OF DELHI AT NEW DELHI W.P.(C) No. 16559 of 2006 M/S. SESAME FOODS PRIVATE LIMITED ..... Petitioner Through: Mr. Arjun Mitra, Advocate. versus UNION OF INDIA & ORS. ..... Respondents Through: Mr. S.K. Dubey, Mr. Ritesh Kumar, Mr. Akshay Singh, and Mr. Vanshdeep Dalmia, Advocates for R-1, R-2 and R-5. Mr. Abhishek Kumar, Advocate for R-7. Mr. Satish Aggarwala with Ms. Hrishika Pandit, Advocates for R-3 & R-4. CORAM: HON'BLE DR. JUSTICE S. MURALIDHAR 1. Whether Reporters of local papers may be allowed to see the judgment? No 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in Digest? Yes O R D E R 02.02.2010 W.P.(C) No. 16559 of 2006 & CM Nos. 13554 of 2006 (for stay), 15654 of 2007 (for directions), 1059 of 2008 & 7583 of 2008 1. The Petitioner which is an export oriented unit („EOU‟) having its office at Ansal Bhavan, Kasturba Gandhi Marg, New Delhi challenged the impugned order dated 15th/16th February, 28th February, 19th April and 18th September 2006 issued by the Respondents seeking to recover a sum of Rs.3,22,91,926/- stated to be the amount of duty drawback paid to it in excess. 2. In terms of a letter of permission dated 18th May 1999 the Petitioner was approved for manufacture and export of sesame seeds in terms of the Export W.P. (C) No. 16559 of 2006 Page 2 of 20 and Import Policy („Exim Policy‟) for the period 2002-07. The Petitioner states that its approval was up to 2011. 3. According to the Petitioner certain concessions are given to exporters operating from the EOUs to enable them to compete at the international level. Goods manufactured by the Petitioner, the raw material whereof is sourced from the Domestic Tariff Area („DTA‟) are eligible to the benefit of duty drawback. The Petitioner claims that it is entitled for refund/rebate of the amount corresponding to the duties both customs and excise suffered or leviable on the inputs that go into the manufacture of the exported products. In particular, the Petitioner relies upon 6.12(a) of the Exim Policy which provides that “supplies from the DTA to EOU will be regarded as “deemed exports” and the DTA supplier shall be eligible for the relevant entitlements under Chapter 8 of the Policy besides discharge of export obligation, if any, on the supplier. Further, notwithstanding the above, the EOU units shall, on production of a suitable disclaimer from the DTA supplier, “be eligible for obtaining the entitlements specified in chapter 8 of the Policy.” The said clause further provides that for the purpose of claiming the deemed export duty drawback, the EOU shall get Brand Rates fixed by the Development Commissioner, wherever All Industry Rates of Drawback are not available.” 4. The Petitioner made an application on 30th December 2003 to the Respondent No.2, Director General of Foreign Trade („DGFT‟) for fixation of the rate of duty drawback on “sesame seeds deemed export” under para 8.3(b) of the EXIM Policy 2002-07. Clause 8.3(b) of the EXIM Policy provides that the deemed exports draw back shall be eligible for deemed export duty W.P. (C) No. 16559 of 2006 Page 3 of 20 drawback. It is stated that on 25th May 2004 the Petitioner submitted the original payment certificates and disclaimers for all the claims with the office of the Deputy Commissioner, Noida Special Economic Zone („NSEZ‟), Respondent No.3 herein. The bankers of the Petitioner i.e. State Bank of India (SBI) are also stated to have sought clarifications from the NSEZ about the status of the drawback claims made by the Petitioner by the letter dated 8th June 2004. By a letter dated 16th June 2004 the NSEZ raised queries regarding the Petitioner‟s claims for deemed export duty drawback. The Petitioner was asked to explain how the claims submitted by the Petitioner showed duty paid as nil but duty was claimed at 30% and 20% of F.O.R. 5. On 16th June 2004 the Petitioner replied to the NSEZ taking the following stand: “(i) that the goods were neither directly imported by the Petitioner nor the same was a pre-requisite under the applicable policy; (ii) that the duties claimed goods were sourced from DTA supplier and have been treated as deemed imports as per the applicable Exim and Foreign Trade Policy. (iii) That the duties claimed were based on the duties chargeable based on duty confirmed by Federation of Indian Export Organisation (FIEO) vide their letter No. FIEO/EP. 10 (2)/04 dated 16-6-2004 (Annexure L). (iv) That although the duty paid would be shown as Nil, the claims were based not on the actual import duty to be paid but on the deemed import price worked out for the purposes of parity for deemed imported goods to cater to the needs of EOU. W.P. (C) No. 16559 of 2006 Page 4 of 20 (v) The Petitioner was not required to submit any bill of entry/import invoice nor any duty paying documents as queried.” 6. It is stated in para 15 of the writ petition that “since the Petitioner has exported the sesame seeds therefore it had claimed the duty drawbacks in respect of custom duty leviable on imports of sesame seeds.” It is claimed further that the Petitioner is “entitled for duty drawback of custom duty as applicable under the custom tariff irrespective of whether the seeds were sourced from actual import by paying import duty or the same were sourced from the domestic market.” The Petitioners claimed that they have already been granted deemed export drawback by DGFT on high speed diesel („HSD‟) on the basis of custom duties leviable as per custom tariff Manual on Free on Board („FOB‟) value of fuel. They sought similar grant of export duty drawback in respect of the sesame seeds. 7. On the basis of the Petitioners representation the Development Commissioner vide letter dated 4th October 2004 fixed the brand rate and the amount of duty drawback at Rs.168.12 lakhs for the period 1st October 2001 to 31st March 2002 (as against a sum of Rs.439.80 lakhs) which is claimed by the Petitioner. Likewise for the period 1st April 2001 to 30th September 2001 the duty drawback was fixed at Rs.61.89 lakhs. For the period of April 2002 to September 2002 at Rs.39,76,077, October 2002 to March 2003 Rs.90,06,466/- and April 2004 to September 2004 at Rs.24,97,129. The above amounts were paid to the Petitioner. Since the above settlements were less than what was claimed by the Petitioner it made a representation on 17th W.P. (C) No. 16559 of 2006 Page 5 of 20 January 2005. On 5th August 2005 the DGFT wrote to the Petitioner stating that the matter had been considered by it in consultation with the Department of Revenue Duty Drawbacks Directorate. The observations made by the Central Board of Excise & Customs had also been considered. It was pointed out that in order to qualify for „deemed export‟ the primary condition is that the goods should be manufactured in India and that “in the instant case the sesame seeds supplied by the DTA was not manufactured in India and was imported.” It was pointed out that the photocopy of the bill of entry was not submitted by the Petitioner and, therefore, the incidence of duty could not be established. 8. According to the Petitioner the definition of drawback did not mandate the proof of duty incidence. However there was no dispute in so far as the selling of goods in the international market. The Petitioner has made commitments to the banks, financial institutions and importers on the basis of claims paid. It is stated that on 15th/16th February 2006 a communication was received from the DGFT, with reference to the Petitioner‟s representation dated 21st December 2005 that “since payment of duty incidence has not been approved you are not entitled to deemed export drawback.” This was followed by a letter dated 28th February 2006 issued by the NSEZ asking the Petitioner to refund a sum of Rs.3,22,91,926/- paid to it in excess as deemed export duty drawback. The Petitioner was reminded that it had furnished a declaration/undertaking signed by it granting “immediate refund of the amount of drawback obtained… in excess and any amount/rate which may be re-determined by the Government as a result of post verification.” The Petitioner made a representation dated 2nd March 2006 which was rejected on 19th April 2006 by the DGFT. A W.P. (C) No. 16559 of 2006 Page 6 of 20 further representation dated 21st April 2006 was rejected by a letter dated 1st May 2006 issued by the Joint Development Commissioner, NSEZ once again raising a demand of Rs.3,22,91,926. This was reiterated by a further demand to the same effect dated 18th September 2006. 9. On 28th September 2006 the Petitioner was again informed by the Respondents that sesame seeds were not entitled to any duty drawback benefits as duty incidence on the same cannot be established and therefore the duty drawback claims forwarded for the year 1st April 2003 to 30th September 2003 and 1st October 2003 to 31st March 2004 were inadmissible. It was in the above circumstances that the present petition has been filed. 10. On 8th November 2006 while directing notice to issue to the Respondents an interim order was passed restraining the Respondents from taking steps to recover the amount demonstrated in the aforementioned letters. 11. In the counter affidavit filed by the Respondents, while it is not denied that the Petitioner is an EOU and an exporter of sesame seeds and that the Petitioner procured its raw material from the DTA suppliers it is pointed out that the Petitioner had been claiming duty drawback by producing disclaimers from the DTA suppliers. The Petitioner had not provided proof of incidence of duty suffered on the said goods procured from the DTA suppliers and “had been representing all the while that as the raw material supplied by the DTA suppliers was imported by it, the goods must have suffered customs duty as shown in the customs tariff.” It is stated that the brand rates of duty drawback on the Petitioner‟s application were fixed and the amounts were disbursed to W.P. (C) No. 16559 of 2006 Page 7 of 20 the Petitioner because the Petitioner had throughout represented that the raw material procured by it from the DTA supplier had been itself imported by the suppliers and the duties must have been paid on the same. A declaration was also furnished by the petitioner to this effect on 27th October 2004. Further at the time of disbursement the Petitioner had undertaken to indemnify the Respondents in case excess payment of export duty drawback was made to it. It appears that on 18th March 2005 the NSEZ had written to the DGFT expressing difficulty in fixing the brand rate and asked it to suggest a modus operandi to fix it for sesame seeds. In its letter dated 5th August 2005 the DGFT informed the NSEZ that since the goods supplied by the DTA to the Petitioner had not been manufactured in India the same could not be considered as „deemed exports‟ and therefore a clarification was sought from the Department of Commerce. The latter by its letter dated 14th October 2005 informed the NSEZ that since the Petitioner had not filed any proof of product having been imported no claim of drawback was permissible. 12. Meanwhile the Respondents detected several discrepancies and falsehood in the claims made by the Petitioner. It came to light that many of the DTA suppliers had not been paid for their goods by the Petitioner and were approaching the NSEZ for redressing their grievance. The bank statement submitted by the Petitioner as proof of payment of suppliers was not in the statutory format which required the form to be endorsed by the supplier‟s banker whereas the Petitioner‟s form had been endorsed by its own banker. No response had been received from the Petitioner‟s banker SBI for the clarification sought. Along with the counter affidavit the Respondents enclosed letters dated 3rd January 2007 and affidavits dated 31st January 2007 W.P. (C) No. 16559 of 2006 Page 8 of 20 issued by M/s. Amee Traders and M/s. Chandarana & Brothers both of Rajkot stating inter alia that they had not prepared the disclaimer certificates produced by the Petitioner although the signatures shown therein was similar to theirs. It was stated that since the sesame seeds were purchased from the local mandi it was not possible to provide any customs duty documents. The Respondents have with the counter affidavit also enclosed a letter dated 3rd January 2007 of the Agricultural Produce Market Committee (APMC), Rajkot has been enclosed stating that to the best of its knowledge “there is no import of sesame seeds into the State of Gujarat as the State has abundant product of sesame seeds locally grown.” 13. In the rejoinder affidavit of the petitioner it is inter alia sought to be contended that a criminal case filed by M/s. Amee Traders against the Petitioner was settled by them in the court of the Judicial Magistrate at Rajkot. Further both M/s. Chandarana Brothers and M/s. Amee Traders are owned by one and the same person. It is alleged that the affidavits and documents have been procured from him by Respondents 3 and 4 “by exercise of undue influence or misrepresentation in order to justify their illegal actions.” Several factors are pointed out to demonstrate that the said affidavits are per se false and contrary to the factual position. It is then pointed out that when brand rate drawback could be fixed for HSD by relying on the invoice value of the goods supplied and the cess chargeable, there was no difficulty in fixing the brand rate for the sesame seeds which can be considered as „deemed export.‟ It is stated that in view of the payments already received by the Petitioner, its banker SBI had assessed the commercial and fiscal viability of the Petitioner, had sanctioned loans and W.P. (C) No. 16559 of 2006 Page 9 of 20 disbursed funds. The SBI had a lien on the duty drawback claims payable to the Petitioner. A onetime settlement had been entered into by the Stressed Assets Stabilization Fund („SASF‟) of Industrial Development Bank of India („IDBI‟) with the unequivocal confirmation of the Respondents duly reconfirmed by the SBI. As per the said settlement, duty drawback claims amounting to Rs.11.459 crores were to be shared in the ratio of 60:40 per cent between SASF and the Petitioner. Accordingly it was pleaded that on the principles of promissory estoppel the Respondents should not be permitted to resile from the earlier action of granting the Petitioner the deemed export duty drawback and demand its refund more than two years later. 14. By a second additional affidavit dated 29th October 2007 the Respondents have placed the statements of two other DTA suppliers named by the Petitioner. Both of them categorically stated that sesame seeds supplied to the Petitioner were local produce of the State of Gujarat. 15. In the meanwhile the Petitioner filed an application CM No. 15635 of 2007 seeking to implead the SBI and the SASF and for directions to restrain them from initiating action for recovery of the dues owing to them by the Petitioner. By an order dated 16th February 2008 the SBI and the SASF were impleaded as parties. By the same order they were restrained from taking further action in respect of the property at House No.28 Sector 9A, Chandigarh and also from taking any action to recover the amounts due. The Petitioner was also directed to maintain status quo as regards the title in the properties. W.P. (C) No. 16559 of 2006 Page 10 of 20 16. Detailed written submissions have been filed by the Petitioner. The submissions of Mr. Arjun Mitra, learned counsel for the Petitioner and Mr. S.K. Dubey, learned counsel for the Respondent Union of India have been heard at great length. 17. Apart from reiterating the submissions already noted hereinbefore, the learned counsel for the Petitioner submitted that as long as the EOU purchases goods from the DTA suppliers and carries out the manufacturing activity as defined under Clause 9.3 of the Exim Policy and thereafter proceeds to export the finished goods, the sesame seeds so exported are entitled for the claim of deemed export duty drawback. Since the concept of duty export promotion is structured on a deeming event where there is no requirement of any actual incidence of duty having been suffered, there is no requirement for the DTA suppliers to actually import the goods. According to the learned counsel for the Petitioner the rationale for the deeming construction is to place the EOU at par with international competitors for the same and similar item or product so that it is given import price parity with such foreign goods. Reliance is placed on the letter dated 29th July 2004 written by the NSEZ to the Joint Secretary, Ministry of Commerce and Industry supporting the stand of the Petitioner that “even if the sesame seeds is not imported the price on which they have effected purchases are based on the import price parity and includes all duties such as customs duty etc.” therefore “the presumption can be drawn that sesame seeds (being oilseeds) supplied to the applicants would have import price parity. Therefore customs duty as applicable under custom tariff could be allowed through duty drawback.” As regards affidavits of DTA suppliers which have been placed on record by the Respondents it is stated W.P. (C) No. 16559 of 2006 Page 11 of 20 that these are false and have been procured by the Respondents. It is submitted that the sole purpose of disclaimer is to ensure that the drawback benefit is not claimed twice and it is nowhere suggested that apart from the Petitioner any one else has availed of the deemed export duty drawback. Learned counsel for the Petitioner points out that the only issue which required a decision making process on the part of the DGFT under the Exim Policy was whether AIR would be applicable. The DGFT had itself suggested to the Department of Commerce & Industry that the suppliers of the sesame seeds by the DTA suppliers to EOU “can be recorded as deemed export benefits as per the definition of deemed exports given in para 8.2 of the policy. In that case the deemed export benefit („DBK‟) shall be admissible in terms of para 8.3 of the Policy and the same can also be claimed by the EOU on the basis of disclaimers from the DTA suppliers in terms of para 6.11 of the Policy. Further, if no AI Rate exists on the product namely sesame seeds, the Development Commissioner, NSEZ can fix up a brand rate for refund of all applicable duties (customs/excise), levies, cess etc., as admissible under the DBK Rules.” It is submitted that the attempt by the Respondents to apply the foreign trade policy (FTP) which was applicable only prospectively, and to deny the benefit of deemed export duty drawback to which the Petitioner was legitimately entitled, was unjust and arbitrary. Learned counsel for the Petitioner placed reliance upon the decision of this Court in Agri Trade India Services Pvt. Ltd. v. Union of India 132 (2006) DLT 500. 18. Appearing for the Respondents, Mr. S.K. Dubey pointed out that the Petitioner has been changing its stand from time to time. The Exim Policy had to be read and interpreted consistent with the concept of “drawback” as W.P. (C) No. 16559 of 2006 Page 12 of 20 understood under the Excise and Customs Law. The deeming fiction of an export or import cannot be permitted to go beyond the original concept itself under the relevant statutes. Relying on the definition of „drawback‟ as given in P. Ramanatha Aiyar’s The Law Lexicon Second Edition (1999 reprint p. 594) he pointed out that drawback implies that a commodity in respect of which it is granted, has in fact suffered the incidence of duty. If it is locally manufactured it should have suffered excise duty and if imported it should have suffered customs duty. In this connection he also places reliance upon the judgment in State of UP v. Delhi Cloth Mills (1991) 1 SCC 454. It is submitted that sesame seeds being a marketable produce procured locally may not possibly have suffered excise duty. Since affidavits of the very traders from whom the Petitioner is stated to have procured the sesame seeds have confirmed that these were not imported, there was no question of the sesame seeds having suffered customs duty. He also refers that at no point in time the Petitioner could satisfy the Respondents that the sesame seeds in question suffered any incidence of duty and since this was the basic requirement, there was no question of the Petitioner being permitted deemed export duty drawback. 19. Given the scope of judicial review by this Court in exercise of its jurisdiction under Article 226 of the Constitution, the issue that arises for consideration is whether the action of the Respondents in seeking to withdraw the benefit of deemed export duty drawback granted to the Petitioner and demand its refund was just, fair and reasonable. The decision of the Respondents should have been based on some relevant material based on which it decided to withdraw the benefit of deemed export duty drawback W.P. (C) No. 16559 of 2006 Page 13 of 20 granted to the Petitioner. The incidental question would be whether the decision to withdraw the benefit was preceded by sufficient compliance with the principles of natural justice. In other words, was the petitioner given sufficient opportunity to put forth its version which was then considered. 20. Much argument has been advanced on the applicability of the relevant clauses of the Exim Policy. The relevant portion of Clause 6.12(a) of the Exim Policy, on which considerable reliance has been placed, reads as under: “Supplies from the DTA to EOU/EHTP/STP units will be regarded as “deemed exports” and the DTA supplier shall be eligible for the relevant entitlements under chapter 8 of the Policy besides discharge of EP if any, on the supplier. Notwithstanding the above, EOU/EHTP/STP units shall, on production of a suitable disclaimer from the DTA supplier, be eligible for obtaining the entitlements specified in chapter 8 of the Policy. For the purpose of claiming deemed export duty drawback, they shall get Brand Rates fixed by the DGFT wherever All Industry Rates of Drawback are not available. In addition the EOU/EHTP/STP units shall be entitled to the following…..” Clause 8.2(b) of the Exim Policy provides that the following categories of supplies of goods by the main/sub-contractors shall be regarded as “deemed exports” provided the goods are manufactured in India: “(b) Supply of goods to Export Oriented Units (EOUs) or Software Technology Parks (STPs) or Electronic Hardware Technology Parks (EHTPs) or Bio Technology Parks (BTP)” 21. The clauses require that an EOU, for the purposes of claiming deemed export duty drawback, should produce “a suitable disclaimer from the DTA W.P. (C) No. 16559 of 2006 Page 14 of 20 supplier”. The very basis for the claim is the disclaimer certificate. There are enough documents produced by the Respondents in the instant case to show that the very traders in the DTA from whom the Petitioner claims to have procured the sesame seeds have stated that such stock was not imported. The letter of the APMC, Rajkot as well as of these traders indicate that sesame seeds are grown in abundance locally. There was no occasion to import sesame seeds at all. This is at complete variance with the Petitioner‟s stand that the goods were imported. 22. At the time of disbursement of the claim, on 27th October 2004, the Petitioner gave the following declaration: “DECLARATION We, Sesame Foods Private