The Delhi High Court has held that in the absence of the Directorate General Of Foreign Trade (DGFT) having ruled upon the issue of classification or having expressed any doubt with respect to the eligibility of the writ petitioners/exporters to claim benefits under the Merchandise Exports from India Scheme (MEIS Benefits), it would be wholly impermissible for the respondents/department to take punitive action against the writ petitioners.
The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has directed the department to refund the amounts collected under duress and threat from the exporters being INR 5,47,000.
Table of Contents – MEIS Benefits
Background
The petitioner has challenged the actions initiated by the department seeking to deprive the benefits claimed and derived by the writ petitioners under the Merchandise Exports from India Scheme.
The dispute itself emanates from the export of what the petitioners contend to be handcrafted articles of stone and entitled to benefits under the MEIS by virtue of being classifiable under Harmonised System of Nomenclature Code 681599.
The dispute appears to have arisen in the backdrop of a letter issued by the Central Board of Indirect Taxes and Customs dated 31 May 2019 alluding to a discrepancy in the HSN Code liable to be ascribed to stone and marble handicraft products.
Based on a reading of that communication of the CBIC, the Commissioner of Customs, issued a Public Notice No. 57/2019 in terms of which it was apprised to all that stone and marble handicraft products are liable to be classified under Custom Tariff Heading 6802, subject to compliance being affected with the other conditions comprised in the various Explanatory Notes attached to that heading.
It was on a purported reading of the aforesaid communications and the portend of the view taken by the CBIC that action appears to have been initiated against the petitioners. The principal allegation appears to be that the petitioners had illegally obtained benefits under the MEIS and were, therefore, liable to refund the amount of benefit claimed under that scheme. It is this action which also led to the issuance of various summons under Section 108 of the Customs Act, 1962.
Arguments
The exporter argued that in the absence of any determination by a competent authority on the issue of whether the MEIS scrip could be said to have been obtained by way of collusion, wilful misstatement or suppression, the action as initiated by the respondents cannot be sustained. Even the audit objection letter as issued would not be liable to be viewed as referable to Section 28AAA, since the same in any event would be traceable only to the power to conduct an audit and which stands embodied in Section 99A.
The exporter contended that the MEIS scheme and the benefits claimed by the writ petitioners thereunder is traceable to the provisions made by the Union under the provisions of the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act). A prohibition, restriction or regulation of import or export of goods would be primarily governed by the orders which the Union may promulgate under the FTDR Act.
The department contended that MEIS was a scheme intended to incentivise exporters of certain kinds of goods and the benefits whereof would be accorded to products exported under a certain CTH and calculated based on the FOB value of goods exported. The benefits afforded to exporters under the MEIS was thus provided in the form of scrips of a certain value, constituting a certain percentage of the FOB value of the goods so exported. This scrip could thereafter be utilised for the payment of duty on goods imported by the exporters of a value equivalent to that of the scrip. In the alternative, the scrip could have also been sold by exporters to other importers who are entitled to use the same for payment of import duty.
The department argued that the role of the Export Promotion Council for Handicrafts26, was explained as being limited to providing its members with guidance in respect of classification of goods imported or exported. However, this would not detract from the authority of the customs officer to question the classification of goods. That according to learned counsel is a power which the statute places squarely within the domain of customs officers.
Court’s Findings
Assessment Under The Customs And FTDR Act
In order to evaluate the rival submissions noticed above, it would be appropriate to firstly deal with the scope of the assessment power that stands conferred upon the competent authorities under the FTDR Act and the Customs Act.
While examining the ambit and reach of the two statutes in question, if we were to turn our gaze firstly upon the Customs Act, it would be important to firstly take note of how that statute proceeds to define the word ‘assessment’.
Prior to the amendments which came to be introduced in Section 17 by virtue of Finance Act, 2018, the Proviso to Section 17(2) while identifying the criteria relevant for selection of cases for purposes of verification, had recognised that power being guided by factors such as the valuation of goods, classification, exemption or concessional duties availed in terms of a notification issued under that Act.
The Proviso had at the relevant time and prior to the passing of Finance Act, 2018 included the following phraseology ‘regarding valuation of goods, classification, exemption or concessions of duty availed consequent to any notification issued therefore under this Act’.
The observations appearing in ITC Limited and BT India assume significance when viewed in light of the various Bills of Entry as submitted by the writ petitioners on a self-assessment basis having been duly accepted and no questions in respect thereof having been raised.
The Bills of Entry would thus be liable to be viewed as having been duly assessed and accepted. Undisputedly, it is decades after those exports had been affected and assessments completed that the respondents now seek to reopen those transactions and seek to question the benefits claimed by the writ petitioners.
Recovery Of Duty Under Section 28 And 28AAA – MEIS Benefits
Section 28 creates two separate and independent streams of investigation and enquiry based upon whether, and in the opinion of the customs authorities, the transactions suffer from the vice of misdeclaration, misclassification or whether the declarations are tainted by suppression and wilful misrepresentation.
The authority of the respondents to demand a return of the amounts derived as benefits under the MEIS from the petitioners when tested on the anvil of Section 28(1) falters and disintegrates for two reasons.
Firstly, Section 28(1) applies to cases where a reassessment or reopening is sought to be initiated for reasons other than collusion, wilful misstatement or suppression of facts and which is the suggestion underlying the allegations levelled against the petitioners.
Secondly, the action under Section 28(1) postulates action being initiated within two years from the ‘relevant date’ and which expression stands defined in the provision itself. Undisputedly, the impugned action would fail to meet this threshold requirement.
Of pivotal significance to the challenge which the writ petitioners raise are the provisions enshrined in Section 28AAA. As was contended by Mr. Gulati, Section 28AAA clearly brings within its ambit situations where the statutory authorities may harbour a doubt with respect to the benefit that an exporter or importer may have claimed by virtue of an instrument.
Explanation 1 to Section 28AAAA, in clear and unambiguous terms, while defining that expression had explained it to mean any scrip, authorization, license, certificate or other document by whatever name called issued under the FTDR Act. Section 28AAA is thus clearly concerned with the validity of a scrip or certificate which may have been issued under the FTDR Act and on the basis of which a benefit may have been obtained.
It thus now enables the respondents to cast aside the instrument issued under the FTDR Act and to initiate steps for recovery of duty benefits that may have been claimed by the person concerned while holding the instrument so issued. Section 28AAA thus and in furtherance of the legislative objective, introduces a legal fiction by employing the phrase ‘shall be deemed never to have been exempted or debited……’.
Conclusion – MEIS Benefits
The court held that the issue of classification was indelibly connected with the right of the writ petitioners to avail benefits under the MEIS. The MEIS scrip was issued by the office of the DGFT. The issuance of the MEIS scrip was dependent upon the exported article falling in the detailed list of products which came to be published by the DGFT on 01 April 2015.
The court while allowing the petition quashed the audit objection letters and the summons.
Case Details
Case Title: Designco Versus Union Of India & Ors.
Case No.: W.P.(C) 14477/2022 & CM APPL. 44224/2022 (Stay)
Date: 22 November 2024
Counsel For Petitioner: P. C. Patnaik
Counsel For Respondent: Rakesh Kumar
