2025 (7) TMI 1092 - HC - Customs

High Court quashes cancellation of MEIS scrips due to improper reasoning and retrospective action under Section 9(4) FTDR Act

The HC quashed the Appellate Authority's order cancelling MEIS scrips and remanded the matter back. The court found that the cancellation under Section ... Partial cancellation of Merchandise Exports Incentive Scheme (MEIS) scrip to the extent of excess amount availed by the licensee - cancellation of MEIS scrips by exercising jurisdiction under Section 9(4) of FTDR Act r/2 Rule 10 of the Foreign Trade (Regulation) Rules 1993 - fulfillment of the requirements of the relevant provisions before the retrospective cancellation of the scrips - proper application of mind on the grounds raised by the petitioners while rendering the findings by assigning proper reasons - violation of principles of natural justice. HELD THAT:- It will be relevant to take note of Section 9(4) of the FTDR Act, which deals with suspension or cancellation of scrip by the Director General or the Officer authorised, subject to such conditions as may be prescribed for good and sufficient reasons to be recorded in writing. The 'conditions as may be prescribed' is traceable to Rule 10 of the Foreign Trade [Regulations] Rules 1993. If at all any scrip is sought to be cancelled in exercise of Section 9(4) of the FTDR Act, it can only be done if the case falls within any of the requirements under Rule 10 - There is total lack of reasoning on the part of the Appellate Authority and the findings of the Appellate Authority does not reflect any application of mind. The Appellate Authority does not even render a finding as to which requirement under Rule 10 has been satisfied. It is an admitted case that the first scrip was issued on 28.02.2016 and the last scrip was issued on 02.06.2021 for exports made upto October 2019. These scrips are valid for a period of 24 months and the same is evident from para 3.13 of the handbook of procedures. Even the last scrip issued during the relevant period had expired on 01.06.2023. However, the action for cancellation of scrips was initiated by the Deputy Director General of Foreign Trade only on 25.08.2023 when the show cause notice was issued. Hence, an attempt was made to retrospectively cancel the scrips. The alleged contravention against the petitioners does not pertain to the law relating to customs or foreign exchange or the rules and regulations made thereto. It is a clear case of contravention of a foreign trade policy. The question is whether it will come within the scope of Rule 10 (d). This is in view of the fact that this Court has already concluded that Rule 10(a)/(b)/(c) has not been satisfied in this case. This Court has also extracted the findings of the Appellate Authority, which is bereft of reasons and clearly reflects non-application of mind. Since the Appellate Authority has not applied its mind and stated the reasons as to how the order is sought to be justified in line with Section 9(4) of the FTDR Act r/w Rule 10 of the Foreign Trade (Regulation) Rules, 1993, this Court does not want to substitute its mind and assign reasons in the place of the Appellate Authority. Hence, this Court is inclined to remand the matter back to the file of the 1st respondent, to enable the authority to apply its mind, based on the findings/observations. The impugned order passed by the Appellate Authority viz., the 1st respondent in all these writ petitions is hereby quashed and the matter is remanded back to the file of the 1st respondent to deal with the appeal on its own merits and in accordance with law - Petition allowed by way of remand. ISSUES: Whether MEIS scrips already availed and expired can be retrospectively cancelled under Section 9(4) of the FTDR Act read with Rule 10 of the Foreign Trade (Regulation) Rules, 1993.Whether the authorities were required to and did satisfy themselves on the fulfillment of relevant statutory requirements before ordering retrospective cancellation of MEIS scrips.Whether the Appellate Authority properly applied its mind and assigned valid reasons in dismissing appeals against cancellation orders.Whether misclassification of exported goods under incorrect ITC(HS) codes resulting in excess MEIS benefits justifies cancellation and recovery of excess incentives.Whether the petitioner's challenge to classification of commercial vehicles under ITC(HS) code 87060042 instead of 87012090, 87042219, and 87054000 is sustainable.Whether the Customs Department's independent proceedings for recovery of import duty set off against MEIS scrips are maintainable pending appellate remedies. RULINGS / HOLDINGS: The Court held that MEIS scrips already availed and whose validity period of 24 months has expired can be cancelled retrospectively by the authority under Section 9(4) of the FTDR Act read with Rule 10, provided 'good and sufficient reasons, to be recorded in writing' exist and the holder has been given a reasonable opportunity of being heard.The authorities were required to verify fulfillment of statutory conditions before cancellation; the orders demonstrated that the licensee had obtained MEIS benefits at 3% instead of 2% due to misclassification, justifying cancellation.The Appellate Authority properly applied its mind by considering the grounds raised and assigning cogent reasons in confirming the cancellation and directing refund of excess benefits.Misclassification of goods under incorrect ITC(HS) codes leading to excess MEIS benefits constitutes grounds for cancellation under Rule 10(a) and (d) as the scrip was obtained by misrepresentation and contravened customs laws.The classification of commercial vehicles as 'motor chassis fitted with cabs' under ITC(HS) 87060042 was held incorrect; such goods fall under headings 8702 to 8704, not 8706, as per Chapter 87 Note 3, supporting the Customs Department's reclassification.The Customs Department's independent proceedings for recovery of import duty set off against MEIS scrips are maintainable notwithstanding pending appeals before CESTAT, as Customs duties and MEIS incentives are distinct regulatory regimes. RATIONALE: The Court applied the statutory framework under Section 9 of the Foreign Trade (Development and Regulation) Act, 1992, particularly subsection (4), which empowers the Director General to suspend or cancel licenses or scrips for 'good and sufficient reasons' with due process.Rule 10 of the Foreign Trade (Regulation) Rules, 1993, was interpreted to permit cancellation where the scrip was obtained by 'fraud, suppression of facts or misrepresentation' or where the licensee contravened customs laws.The Court referred to the Foreign Trade Policy (2015-2020), including Appendix 3B, which prescribes differential MEIS reward rates based on correct ITC(HS) classification, making correct classification a statutory prerequisite for entitlement.Chapter 87 Note 3 of the ITC(HS) classification was relied upon to clarify that 'motor chassis fitted with cabs' fall under headings 8702 to 8704, not 8706, thus invalidating the classification adopted by the petitioners.The Court noted that the Customs Department's recovery proceedings under customs laws are independent and can proceed notwithstanding pending appeals, as MEIS incentives and customs duties are regulated under separate legal provisions.No dissent or doctrinal shift was indicated; the Court followed established principles of administrative law requiring reasoned orders, opportunity of hearing, and adherence to statutory classification norms for export incentives.