Case: M/S. NOLA RAM DULICHAND DAL MILLS &amp; ANR.  Vs. UNION OF INDIA &amp; ORS

2. The present is a case pertaining to Vishesh Krishi Upaj Yojna for short, Yojna for giving incentives to promote export of fruits, vegetables, flowers, minor forest produce, dairy, poultry and their value added products. In the Scheme notified for the year 2005-06, the following exports were not to be taken into account for duty credit entitlement under the Scheme:3.8 VISHESH KRISHI UPAJ YOJANA (SPECIAL AGRICULTURAL PRODUCE SCHEME)3.8.2.2. Following exports shall not be taken into account for duty credit entitlement under the scheme:(a) Export of imported goods covered under Para 2.35 of the Foreign Trade Policy or exports made through transshipment(b) Deemed exports (even when payments are received in Free Foreign Exchange and payment is made from EEFC account)3. However, in the Scheme notified for the year 2006-2007 on 7 th April 2006, clauses 3.8 and 3.8.2.2 were changed. The clauses read as under:3.8 VISHESH KRISHI AND GRAM UDYOG YOJANA (SPECIAL AGRICULTURE AND VILLAGE INDUSTRY SCHEME)3.8.2.2. Following exports shall not be taken into account for duty credit entitlement under the scheme:(a) Export of imported goods covered under Para 2.35 of the Foreign Trade Policy or exports made through. (b) Deemed Exports. (c) Exports made by SEZs units and EOUs units. xx xx xx3.8.5. Government reserves the right in public interest, to specify from time to time the export products, which shall not be eligible for calculation of entitlement4. The Circular dated 21 st January, 2009 was issued so as to clarify the scheme notified for the year 2006-07. The relevant part of the circular reads as under:2. However, in FTP RE-2006 (issued on 7.4.2006), exports made by EOUs were made ineligible for benefits under VKGUY scheme [vide introducing Para 3.8.2.2 (c)]. In further, in FTP RE-2006, two new schemes, namely, Focus Market Scheme (FMS) and Focus Product Scheme (FPS) were introduced. Similar provisions were made under para 3.92.2(b) for FMS, and under Para 3.10.2.2 (b) for FPS. Accordingly, for the period from 1.4.2006 to 31.3.2007, exports made by EOUs (or through DTA units) are not eligible for benefits under VKGUY, FMS and FPSCivil Appeal Nos. 7233 of 2009 and 7257 of 200918. The appellant challenged the change in the Policy Vishesh Krishi Upaj Yojna wherein 100% export units were denied the benefit of exemption on the ground that the policy binds the respondents for a period of five years and that such policy is discriminatory as direct tariff areas were excluded. The High Court held as under:After hearing the counsel for the petitioners, we do not find any illegality in the impugned Notification dated 7.4.2006 (Annexure P-7) as by the said Notification the Government has taken a policy decision to withdraw the aforesaid benefit as the Export Oriented Units enjoy special status for tax exemptions and permission to source various requirements including the one in agricultural sector, duty free. They also enjoy income tax benefits and have been set up primarily for exports, therefore, they cannot be treated at par with DTA Units which do not enjoy all these benefits. Therefore, the benefit under the said Policy has not been extended to Special Economic Zone Units and Export Oriented Units.

Court's reasoning:
The Circular dated 21 st January, 2009 does not modify or amend the Scheme notified for the year 2006- 07. It only clarifies that 100% export-oriented units which are not entitled to seek exemption cannot avail benefit indirectly through the purchasers from them. It is modification or amendment of the Scheme which is required to be carried out by publication in the official gazette but not the clarifications to remove ambiguity in the existing Scheme. In terms of Clause 3.8.5 of the Scheme, the Government has reserved the right to specify from time to time the export products which shall not be eligible for calculation of entitlement. Since the Government has reserved right in public interest in terms of the Scheme notified under the Act, therefore, the Circular dated 21 st January, 2009 cannot be said to be illegal in any manner13. We do not find any merit in the argument that exports made through an Export Oriented Unit would be entitled to incentives. The purpose of the Scheme is that 100% Export Oriented Units or units situated in Special Economic Zone are not to be granted incentives. The purpose and object of the Scheme notified cannot be defeated by granting incentives to units which exports though 100% Export Oriented Units14. We do not find any merit in the argument that exports made through an Export Oriented Unit would be entitled to incentives. The purpose of the Scheme is that 100% Export Oriented Units or units situated in Special Economic Zone are not to be granted incentives. The purpose and object of the Scheme notified cannot be defeated by granting incentives to units which exports through 100% Export Oriented Units15. We do not find any merit in the argument that the Scheme excludes the benefit of exports by units in DTA in a Scheme pertaining to FMS notified along with Yojna in April 2006 for the reason that FMS has an explicit clause whereas the DTA was not excluded from claiming exemption under clause 3.8.2.2 related to Yojna. Since the appellant is a purchaser from 100% export- oriented unit, therefore, the medium of the appellant cannot be used to avoid the intended purport of the policy for the year 2006-07. We find that the export-oriented units cannot use the appellant for export under the Scheme and to claim benefit of export when it is not permissible for them directly.