2006 (11) TMI 68 - HC - Customs

Ministry Circular on Duty Entitlement Pass Book Scheme Upheld: Deemed vs. Physical Exports

The Court upheld a circular by the Ministry of Finance regarding Duty Entitlement Pass Book Scheme under the Export-Import Policy, determining that deemed ... EXIM Policy – 100% EOU - Petitioner is engaged in the manufacturer of cotton yarn effected deemed export in terms of EXIM Policy against which allowed corresponding DTA sales entitlement – Authority decided to impose duty on petitioner and deny the future DTA sale entitlement Issues:Challenge to circular under Foreign Trade (Regulation & Development) Act, 1962, Export-Import Policy 1997-2002, and Constitution of India.Analysis:1. The petitioner, a 100% Export Oriented Unit (EOU) engaged in cotton yarn manufacture, challenged a circular issued by the Ministry of Finance regarding DTA sale entitlement. The circular imposed duties and denied future DTA sale entitlement based on an interpretation of Export-Import Policy provisions. The petitioner argued that the circular contradicted the Policy's provisions and violated constitutional articles.2. The petitioner contended that Export-Import Policy Paragraph 10 permits supplies in DTA for fulfilling export obligations by EOUs/EPZs. Deemed exports to EOUs/EPZs are considered exports under the Policy, entitling benefits. The petitioner emphasized that deemed exports should be treated equally with physical exports for duty refund and export obligation discharge.3. The respondents refuted the allegations, explaining that DTA sales entitlement differs from export performance and obligation. They highlighted the distinction between physical exports and deemed exports under Chapter 10 of the Policy. The respondents argued that deeming an activity as export for obligation purposes does not extend to local DTA sales or sales between EOUs.4. The Court analyzed the definitions of 'export' and 'deemed export' in the Policy, concluding that physical export differs from deemed export. The Court upheld the circular's interpretation that deemed exports cannot be equated to physical exports for DTA sales. It emphasized strict interpretation of fiscal statutes and upheld the clarity of the circular's terms in requiring physical exports for DTA sales compliance.5. The Court found no impropriety in the circular, stating that it did not infringe on the Policy, Foreign Trade Regulation Act, or constitutional articles. Without evidence of ultra vires provisions, the Court dismissed the writ petition. The petitioner was granted thirty days to submit a final reply to the show cause notice issued by the respondents, given the pending nature of the case for six years. The writ petition was ultimately dismissed without costs.