2011 (3) TMI 112 - HC - Customs

Licensing authorities can amend licenses retrospectively under Rule 8 of Foreign Trade Rules 1993

The High Court held that licensing authorities have the power to retrospectively amend licenses under Rule 8 of the Foreign Trade (Regulation) Rules, ... Power of licensing authority to amend licence retrospectively - amendment of EPCG licence and conversion of licence - preclusion of customs authorities from challenging DGFT amendments - bonafide exercise of administrative power - duty recovery for non compliance with condition No.5 of Notification No.29/97 - Rule 8 amendment power of the Foreign Trade (Regulation) Rules, 1993Power of licensing authority to amend licence retrospectively - Rule 8 amendment power of the Foreign Trade (Regulation) Rules, 1993 - Licensing authority (DGFT) is empowered to amend or convert an EPCG licence with retrospective effect in appropriate cases. - HELD THAT: - Rule 8 confers on the licensing authority a power to amend any licence 'in such manner as may be necessary'. Where an application for conversion of a licence is made and the EPCG Committee (which includes customs representatives) considers and approves the conversion, the licensing authority may treat imports made under the earlier licence as imports under the converted licence. The power to amend may be exercised retrospectively to the advantage of the licence holder when exercised bona fide and within the scope of the Foreign Trade Policy and Rules; consequently, the larger Bench's categorical prohibition on retrospective amendments is unsustainable in such facts. The court emphasised that the present conversion was permitted to relieve the licence holder from the specific obligation under condition No.5, and there was no allegation of mala fides in the exercise of the power by the licensing authority or the EPCG Committee. [Paras 13, 14, 17, 18, 23]DGFT/licensing authority has power under Rule 8 and the Foreign Trade Policy to amend/convert an EPCG licence retrospectively in deserving cases where the exercise is bona fide and within policy.Amendment of EPCG licence and conversion of licence - preclusion of customs authorities from challenging DGFT amendments - duty recovery for non compliance with condition No.5 of Notification No.29/97 - bonafide exercise of administrative power - Customs authorities cannot, in the facts of this case, recover duty, interest and penalty on the ground that condition No.5 was breached once the licensing authority and EPCG Committee converted the licence and certified discharge of export obligation. - HELD THAT: - The EPCG Committee, which includes customs representatives, approved the conversion of the zero duty EPCG licence into a 10% duty EPCG licence. Once the licensing authority issued the export obligation discharge certificate and the DGFT/EPCG Committee bona fide found that export obligations were fulfilled under the converted licence, the customs authorities were bound by that decision and could not treat prior imports as illegal for the purpose of recovery. The court noted that the larger Bench of the CESTAT could not, in proceedings where DGFT was not a party, rule that the licensing authority lacked retrospective amendment power and then permit customs to act contrary to the EPCG Committee's decision. In these circumstances the demand for duty, interest and penalty on the footing of breach of condition No.5 was quashed. [Paras 16, 17, 19, 22, 23]The demand by customs for duty, interest and penalty based on alleged breach of condition No.5 is quashed insofar as it conflicts with the bona fide conversion of the licence and the licensing authority's certification of discharge of export obligation.Final Conclusion: The larger Bench decision of the CESTAT (18/1/2008) and the Division Bench order (11/5/2010) insofar as they hold that licensing authorities lack power to amend licences retrospectively are set aside; the conversion of the petitioner's EPCG licence is upheld and the customs demand for duty, interest and penalty on the basis of a breach of condition No.5 is quashed. Issues:1. Whether licensing authorities have the power to amend the license with retrospective effectRs.2. Can customs authorities challenge the powers of licensing authorities for license amendmentsRs.3. Whether the conversion of a license from zero duty EPCG to 10% duty EPCG is valid retrospectivelyRs.Analysis:1. The petitioner sought relief from duty liability due to the conversion of their zero duty EPCG license into a 10% duty EPCG license. The larger Bench of CESTAT held that licensing authorities lack the power to amend licenses retrospectively. However, the High Court disagreed, citing Rule 8 of the Foreign Trade (Regulation) Rules, 1993, which grants licensing authorities the power to amend licenses. The High Court emphasized that the conversion was a bona fide decision to enable the petitioner to comply with license conditions.2. The High Court noted that the decision to convert the license was made by the DGFT with the approval of the EPCG Committee, which includes customs authorities. As such, the customs authorities were bound by this decision and could not challenge it. The Court criticized the larger Bench's contradictory stance on the powers of licensing authorities, highlighting that such conflicting decisions cannot be upheld.3. The Court referenced a case from the Punjab & Haryana High Court to distinguish between amendments made to prejudice the license holder and those made at the license holder's request. In this case, the conversion was initiated by the petitioner after the license had expired and after customs authorities had taken action for non-compliance. The Court concluded that the conversion was intended to operate retrospectively, relieving the petitioner from duty obligations.4. The High Court also considered the powers of the DGFT under the Foreign Trade Policy, noting that the licensing authority had confirmed the fulfillment of export obligations under the 10% EPCG license. Consequently, the customs authorities could not challenge the legality of imports under the license. The Court set aside the CESTAT decisions and quashed the customs authorities' attempts to recover duty, interest, and penalty based on the alleged violation of license conditions.