DFIA exemption and transferability cannot be denied for supporting manufacturer's Cenvat credit; natural justice still applies.

Under the DFIA scheme, a merchant exporter could not be denied endorsement of transferability and exemption from additional customs duty merely because the supporting manufacturer had availed Cenvat credit, where the exporter itself had not. The Court applied the principle that in taxing provisions, a reasonable interpretation favouring the assessee must prevail, and rejected the double-benefit objection because the same entity had not taken the benefit twice. It further held that withdrawal of the endorsed benefit required notice and hearing, and an order passed in breach of a subsisting status quo direction could not stand. The impugned directions were quashed and the licence validity was directed to be extended.

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Issues: (i) Whether a merchant exporter under the DFIA scheme could be denied endorsement of transferability and exemption from additional customs duty merely because the supporting manufacturer had availed Cenvat credit, although the exporter itself had not; (ii) Whether the orders withdrawing the exemption were unsustainable for want of hearing and for being passed in breach of the subsisting status quo order.

Issue (i): Whether a merchant exporter under the DFIA scheme could be denied endorsement of transferability and exemption from additional customs duty merely because the supporting manufacturer had availed Cenvat credit, although the exporter itself had not.

Analysis: Clause 4.2.6(c) of the Foreign Trade Policy 2009-14 made exemption from additional customs duty available where Cenvat facility had not been availed. The clause did not distinguish between a person who could have taken Cenvat credit and chose not to, and a person who was not entitled to take it. The exporter had not availed Cenvat credit, and the manufacturer and merchant exporter were distinct entities. The Court applied the settled rule that if two interpretations of a taxing provision are possible, the one favouring the assessee must be preferred. The contention that exemption would amount to double benefit was rejected because the same entity had not enjoyed the same benefit twice.

Conclusion: The exporter was entitled to transferability and exemption from additional customs duty, and the benefit could not be denied merely because the supporting manufacturer had availed Cenvat credit.

Issue (ii): Whether the orders withdrawing the exemption were unsustainable for want of hearing and for being passed in breach of the subsisting status quo order.

Analysis: The benefit already endorsed on the licences was a substantial advantage affecting civil rights. Any withdrawal required observance of natural justice. No notice or hearing had been afforded before the impugned directions. In addition, the later order was made when a status quo order of the Court was operating, and an act done in breach of a court order could not be sustained in law. Both defects went to the root of the action and rendered the orders unsustainable.

Conclusion: The impugned orders were void and liable to be quashed for violation of natural justice and breach of the Court's status quo order.

Final Conclusion: The writ petitions succeeded, the impugned directions were quashed, and the authorities were directed to extend the validity of the concerned DFIA licences for a reasonable further period.

Ratio Decidendi: Under the DFIA scheme, exemption from additional customs duty cannot be denied to a licence holder who has not availed Cenvat credit merely because the supporting manufacturer may have done so, and any withdrawal of such benefit must comply with natural justice and subsisting court orders.

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