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Judgment
Anil Dev Singh, J.—By this writ petition the petitioners seek quashing of condition No. 10 contained in the communication of the first respondent Steel Authority of India Limited, dated May 18/25, 1998 (Annexure P-3) inviting offers in respect of tender dated May 6, 1998 for sale of Value Based Advance Licences for duty free import of Non-alloy Steel Melting scrap issued in favor of the former under the Export Import Policy 1992-97, Input Output Norm No. 1282 or as applicable on the date of issue of the licence(s) and Export Import Policy 1997-2002. Input Output norm No. C512, whereby the end use of the material is sought to be restricted for melting alone. The petitioners also seek quashing of the first respondents communication dated June 22, 1998 (Annexure P-4) requiring the tenderers to submit Income Tax clearance certificate from the Income Tax Department for the year 1997-98, Sales-Tax registration certificate and Sales-tax assessment order in respect of 1997-98. Facts are not many and can be briefly stated thus :-
The first respondent - Steel Authority of India Limited, a Government of India Undertaking, has been securing various types of import licences including duty free advance licences for import of non-alloy Steel Melting Scrap under Export Import Policy of the Government of India as given in the Handbook of Procedure, Volume II. In the past some of the licences of the value of about Rs. 50 crores which were not utilised by the first respondent were sold by it to the second respondent who further transferred it to the fourth respondent.
On May 6, 1998, the first respondent floated tenders for the sale of some of the Value Based Advance Licences secured under Input Output Norm No. 1282 of the Export Import Policy 1992-97 and Input Output Norm No. C512 of Export Import Policy 1997-2002 on the terms and conditions contained in the letter dated May 18/25, 1998. As per Condition No. 10 of the tender, the licence(s) are to be used for import of Non-Alloy Steel Melting Scrap in accordance with Import Tariff General Exemption No. 121, Sl. No. 109.
The tenderers are also required to certify in advance that the licences shall be utilised for the import of non-alloy melting scrap for ultimate use by actual users only and "the savings from non-payment of the customs duty is at the concessional rate of duty applicable for the purpose". Basically the petitioners challenge the actual user condition imposed by the first respondent.
The respective stands of the petitioner and the first respondent can be encapsulated as follows :-
Petitioner''s stand:
Advance licence(s) issued in favor of the first respondent do not prescribe actual user condition in the licence(s). But the first respondent for further transfer of the licences has prescribed actual user condition by asking the tenderers to certify that the licences shall be utilised for import of non-alloy melting scrap for ultimate use by actual users only. As is evident from the past transactions, by prescribing the actual user condition in the tender the purchasers get duty benefits of 55.25% to 61.46%, while the premium which the first respondent secures is much lower than what can be obtained if such a condition is not imposed. In the past after receipt of the licences the same were not even sold by the first respondent to actual users. They were sold by the first respondent to the second respondent Metal and Scrap Trading Corporation, who in turn sold them to the fifth respondent Baron Impex Ltd., a non-actual user. Nonalloy steel melting scrap can be imported on duty free basis under duty free advance licences issued to exporters against their foreign exchange earnings. It can also be imported under the Open General license (OGL). There are different rates of duties prescribed for import of non-alloy steel melting scrap under the OGL. The rates of duty inter alias are as follows :
55.25% if imported for sale.
61.46% if imported by the licensee for his own use other than for melting in arc furnace, or induction furnace, or high blast copuloa.
14.4% if imported for use in electric arc furnace, or induction furnace, or high blast copuloa.
10% if for sale to another for use in electric arc furnace, or induction furnace.
Therefore, the duty chargeable would depend upon the end use of the said material. Since the license does not prescribe that the end user must utilise the material for melting, the first respondent should not impose a condition of actual user while selling the same. If such a condition is not imposed the first respondent could fix the reserve melting which is much higher than the duty chargeable for melting scrap. The first respondent by including the condition of actual user has eliminated fair competition. The premium is deliberately kept low so that the fifth respondent is able to make a huge profit by selling the license routed to it through the second respondent. The above modus operandi adopted by the first respondent is for benefiting the fifth respondent.
First Respondent''s stand :
The sale of licences has not been restricted to actual users and the same can be purchased by non-actual users. However, the final user of the material should be an actual user for melting of the scrap. Since under the O.G.L. the duty payable for import of the scrap for melting purposes in accordance with Sl. No. 123 [(Sl. No. 109 in 1997-98) of exemption notification 121 is 14.4% the first respondent has been keeping 75% of the same as reserve price for the sale of the licence(s)]. By following this method of sale no loss is caused to the exchequer and at the same time the buyers of such licences are prevented from misusing the licences. The first respondent has nothing to do with the fifth respondent and the allegation of conferring undue favor is false and beseless. It has never made any sale to the fifth respondent. The sales were made to the second respondent a public sector undertaking owned and controlled by the Govt. of India.
The conditions prescribed in the tender are based on the guidelines on advance licences and special import licences framed by the first respondent on the suggestions made by the Department of Steel, Ministry of Steel and Mines, Governments of India, by their communication dated June 16, 1998. The rationale behind the inclusion of condition of actual user is that the use of the material imported against the said license is made by the actual users of non-alloy steel melting scrap in order to ensure that no other material is imported under the said licence. The first respondent has not restricted or limited competition by inclusion of the said condition. In the past the licences in respect of non-alloy steel melting scrap were being sold to respondent No. 2 pursuant to the decision taken by the management of the first respondent on the request of the second respondent forwarded by the Government of India, Ministry of Steel and Mines, by their letter dated July 6, 1995. The first respondent agreed to the request of the second respondent and conveyed its decision to the Ministry of Steel and Mines by its letter dated August 19, 1995.
The first respondent is to ensure that the licences are not misused by the buyers to deprive the Government of India of its legitimate import duties. The advance licences issued to it are for import of non-alloy steel melting scrap and, Therefore, it cannot charge premium beyond 14.4%. If non-alloy steel melting scrap is imported against the advance licences and the same is actually melted, then such imports are duty free. However, when non-alloy steel melting scrap is imported against an open general license other than the advance license for the purpose of melting, then the maximum duty payable on the said scrap is 14.4%, but if the same material is used for rolling or other purposes after imports (without advance licences) then the import duty for the same material would range between 55% to 61%. In case the first respondent charges premium beyond 14.4%, then in that event it would be obvious that the licence(s) would be utilised for import of scrap for use other than melting which would amount to misuse of the licences. In order to prevent such a misuse the condition of actual user is introduced by the first respondent.
In a nut shell, the stand of the first respondent is that the advance licences can be purchased by non-actual users but the end user must import the material for melting purposes only. Therefore, the first respondent does not fix reserve price beyond 14.4% and invites tenders on that basis.
I have considered the respective stands of the parties. I have also heard learned senior counsel representing them. It needs to be noticed that since the year 1996 the Value Based Advance Licences for duty free import of Non-Alloy Steel Melting Scrap issued in favor of the first respondent have been sold to the second respondent at the request of the latter which was routed through the Government of India, Ministry of Steel. After acquiring the licences from the first respondent the second respondent sold the same to the fifth respondent. The fifth respondent not being the actual user in turn sold the licences to various parties. It is significant to note that the Government of India by its letter dated June 16, 1998 to the first respondent suggested the adoption of the guidelines for conducting the sale of advance licences. The guidelines relevant for the purposes of the writ petition are :-
Sale of licence(s) be done 100% through open tenders.
In future licence(s) be sold after obtaining transferability of the license from the DGFT.
Tenderers may be asked to furnish their latest Income Tax clearance certificates along with their bids.
If any tendered is an actual user of the licence(s) a declaration need be obtained from it that it does not intend to sell the licence(s).
A copy of the latest sales tax assessment order by concerned sales tax assessment authorities need be obtained from the tenderers.
Reserve price for every tender be fixed which should be the basis for taking a decision on the quotation received.
In view of these suggested guidelines, which appear to have been accepted by the first respondent quotations have been invited from the parties for the purchase of the licence(s) in respect of non-alloy steel melting scrap. The last date for submission of tenders was fixed as June 15, 1998. Subsequently, the date was extended to June 30, 1998. The petitioner, feeling aggrieved of the actual user condition and the other conditions mentioned above, filed the writ petition on June 29, 1998. The writ petition came up before the Vacation Judge, who while issuing notice to the respondents to show cause, restrained the respondents from taking any further steps pursuant to the tender notice dated May 6, 1998. The parties have not only filed detailed pleadings but have also filed written submissions, besides advancing oral arguments. In accordance with the policy the first respondent is entitled to fix a reserve price for the tender in question. The main question for determination is whether the first respondent is justified in keeping the actual user condition. In case the first respondent is justified in keeping the actual user condition. In case the first respondent is justified in keeping the actual user condition then the stand of the first respondent is that in view of Serial No. 123 (Sl. No. 109 in 1997-98) of the General Exemption No. 121 issued under sub-section (1) of section 25 of the Customs Act, 1962 it can not charge premium beyond 14.4%, i.e., the duty payable under the OGL for importing the non-alloy steel melting scrap for melting purposes. The said Serial No. 123 (Sl. No. 109 in 1997-98) reads as follows :
S. Chapter Description of goods Stan- AddiCondi No. or Headdard tion- corporation ing No. Rate al duty No.or sub-Rate heading No.(1) (2) (3) (4) (5) (6)"xx xx xx 123. 72.04 Melting scrap of iron - - 17 (Sl. No. or steel (other than 109 in stainless steel or 1997-98) heat resisting steel), for use in electric arc furnace or induction furnace or melting in a hot blast cupola or for supply to a unit for use in electric arc furnace or induction furnace ormelting in a hot blast cupola.Condition No. 17 mentioned in Serial No. 123 (Sl No. 109 in 1997-98) reads as follows: ANNEXURE Condition No. Conditions"xx xx xx17 If, -
(a) the importer furnishes an undertaking to the Assistant Commissioner of Customs that such melting scrap will be used for the purpose specified and in the event of his failure to comply with this condition, he shall be liable to pay, in respect of such quantity of the said scrap as is not proved to have been so used, an amount equal to the difference between the duty livable on such quantity but for the exemption under this notification and that already paid at the time of importation, and
(b) the importer produces to the said Assistant Commissioner, within six months or such extended period, as that Assistant Commissioner may allow, a certificate issued by the Assistant Commissioner or Central Excise in whose jurisdiction the said furnace or induction furnace or melting in a hot blast cupola, that the said melting scrap has been so used.
Under the Exam Policy 1997-2002 declared on April 13, 1998 non-alloy steel melting scrap is importable under the OGL. The rate of customs duty chargeable on non-alloy steel melting scrap is prescribed under sub-heading 7204.49 of the Customs Tariff Act. The third respondent by means of an affidavit affirmed on August 21, 1998 and filed through the Under Secretary, Government of India, Department of Revenue, has also taken this position. The relevant part of the affidavit reads as follows :-
(ii) The present rate of customs duty chargeable on non-alloy steel melting scrap (sub-heading No. 7204.49 of the Customs Tariff Act) is :
(a) 30%+5% Special duty + 15% Additional duty = total 55.25% duty if imported for sale;
(b) 30%+5% Special duty + 15% Additional Duty + 4% Special Additional duty = Total 61.46% duty if imported for his own use other than in electric arc furnace or other than in induction furnace or for use other than in induction furnace or for use other than melting in hot blast cupola;
xx xx xx
(iii) That non-alloy Steel Melting Scrap is going to be imported against the Advance license issued to SAIL where the requisite Export Obligation is already fulfilled ;the present rate of Customs duty chargeable on the above scrap on its import will be "Nil" if imported for own use or 15% if otherwise."
xx xx xx
Thus, it is obvious from the above that under the OGL the duty on import of scrap under the above said tariff entry is between 55.25% to 61% and in case the scrap is imported for the purposes of melting by the actual user the duty payable under the exemption notification No. 121 would be 14.4%. Therefore, the duty payable on imports under the OGL is linked with the use of the material. But if the import of the scrap is under an advance licence, the duty payable is ''Nil''. Since the value based advance licences issued in favor of the first respondent do not prescribe the condition of actual user for the import of the scrap, it is not necessary for the first respondent to include actual user condition. The reserve price of the material, Therefore, is not to be linked to duty chargeable in respect of non-alloy steel melting scrap prescribed under Serial No. 123 (Sl. No. 109 in 1997-98) of General Exemption No. 121. By linking it with Serial No. 123 (Sl. No. 109 in 1997-98) of General Exemption No. 121, the premium payable to the first respondent is being depressed unnecessarily. The premium must be linked with the duty chargeable on import of non-alloy steel melting scrap under Tariff sub-heading 7204.49 of the Customs Tariff Act. It is important to note that the advance licences made available to the first respondent are freely transferable without any restriction after endorsement of transferability by the licensing authority as the export obligation has been fulfilled prior to the issue of the licence. In this regard para 67 of the Exam Policy 1992-1997 read with para 7.19 of Exam Policy 1997-2002 and para 7.16 of Handbook of Procedure 1997-2002 Vol. I can be noticed. These paras read as follows :-
Exam Policy 1992-1997:
"67. A value based Advance license or the materials imported against it may be freely transferable after the export obligation is fulfilled and the bank guarantee/LUT redeemed.
A quantity based Advance license (except a Special Imprest Licence) or the materials imported against it may be freely transferable after the export obligation is fulfilled and the bank guarantee/LUT redeemed."
Exam Policy 1997-2002 :
"7.19(a) A duty free license except Special Imprest license and/or materials imported against it is transferable after the completion of export obligation and endorsement of transferability by the licensing authority.
(b) Notwithstanding anything contained in the paragraph (a) above.
(i) Advance Licences issued with Actual User condition under paragraph 7.4(i) and/or material imported against it shall not be transferable, sold or otherwise disposed off by the license holder under any circumstances:"
Handbook of Procedure 1997-2002 :
"7.16 Licences granted under this scheme shall be subject to the Actual User condition till endorsement of transferability by the licensing authority."
Thus it is obvious that duty free license granted under duty exemption scheme is subject to actual user condition till endorsement of transferability is given by the licensing authority. This position has also been reiterated by the fourth respondent Director General of Foreign Trade, in its affidavit filed on August 14, 1998. The relevant part of the affidavit reads as follows:-
"In accordance with Para 67 of Exam Policy 1992-97 which is annexed hereto as Annexure ''A'' and para 7.19 of Exam Policy of 1997-2002, which is annexed hereto as Annexure ''B'', a Duty Free license except a Special Imprest license and/or materials imported against it is freely transferable after Export obligation is fulfilled .Endorsement of transferability in such cases is given by the Licensing Authorities.
In accordance with para 7.16 of Hand-Book of Procedure, 19977-2002, Vol. 1, which is annexed herewith as Annexure ''C'' Duty Free license granted under Duty Exemption Scheme shall be subject to Actual user condition till endorsement of Transferability is given by Licensing Authority.
In the light of the above mentioned Exam policy provision/Proceudre, Duty Free Advance Licences endorsed with transferability are freely transferable to any person."
Thus, the stand of the Director General of Foreign Trade is that actual user condition after endorsement of transferability by the licensing authority is not necessary. Para 20 of the Export and Import Policy 1992-1997 makes the Director General of Foreign Trade the final arbiter in the matter of interpretation of provisions contained in the policy. Para 20 of the said policy reads as follows :-
"20 If any question or doubt arises in respect of the interpretation of any provision contained in this policy, the said question or doubt shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding.
For the removal of doubts, it is hereby declared that if any question arises whether a license has been issued in accordance with this policy or if any question arises touching upon the scope and content of a licence, such question shall also be referred to the Director General of Foreign Trade for a decision."
The interpretation placed by the DGFT deserves to be taken note of. It is not disputed that one of the utilised licences bearing No. P/W/2058027/C dated March 27, 1995 sold by the first respondent to the second respondent found its way to the fifth respondent who in turn transferred it to Shanti Alloys Pvt. Ltd. Shanti Alloys Pvt. Ltd. imported different quantities of melting scrap under Bill of Entry Nos. 005011 of 1998 and 005012 of 1998. Though Shanti Alloys Pvt. Ltd. is not an actual user it availed full exemption of duty. This is apparent from part ''D'' of the Duty Exemption Entitlement Certificate attached to the licence. Column IV Therefore describes the imported goods as non-alloys steel melting scrap. Column VII records the heading of the Customs Tariff under which the said item was imported as 7204.49 and also describes the notification under which exemption of duty had been allowed. Column No. 8 which is provided for recording the ''rate of duty'' livable but for exemption reads as follows :-
"Duty livable but for exemption
Rate of duty
(i) Basic (ii) Additional (iii) Auxiliary 8 30% + 5% + 15%"
Therefore, from the above it is clear that in case the above said licences utilised by Shanti Alloys were open General Licences and not Advance Licences the customs would have charged duty livable under subheading 7204.49 of the Customs Tariff Act, 1975 and not under Serial No. 123 (Sl. No. 109 in 1997-98) of the exemption notification number 121. The insistence of the first respondent to link the reserve price for sale of Advance Licences with Serial No. 123 (Sl. No. 109 in 1997-98) of Exemption Notification 121 is unwarranted. Such a linkage affects the revenue of the first respondent adversely and does not advance its commercial interests especially when the customs but for the imports under the zero duty Advance Licences would have levied duty under Tariff sub-heading 7204.49. It is also significant to note that despite the actual user condition imposed by the first respondent the above said license was utilised by Shanti Alloys Pvt. Ltd., for purpose other than melting of the steel alloy. Not only the high rate of duty was saved but the premium received by the first respondent on the license was extremely low. In such a situation neither the first respondent secured the correct value for its license nor were the Customs paid the duty. Therefore, there is no justification for imposing the condition of actual user as it causes loss of revenue to the first respondent. Such a condition is liable to be misused by the purchasers for their financial benefit at the cost of the first respondent and the Customs. The first respondent has produced on record a certificate which the second respondent had issued on May 2, 1998 for fulfilling the actual user condition. The certificate reads as follows:-
M.S.T.C. Limited
(A Govt. of India Enterprise)
Date: 2.5.98
WHOMSOEVER IT MAY CONCERN
REF : SALE ORDER NO. SAIL/CD/AL/97\\98 MSTC DATED 12.6.1997
MSTC LTD HEREBY CERTIFY THAT THE LICENCES HANDED OVER UNDER THE ABOVE CONTRACT HAVE BEEN UTILISED FOR IMPORT OF NON-ALLOY MELTING SCRAP FOR ULTIMATE USE BY ACTUAL USERS ONLY AND THE SAVINGS FROM NON-PAYMENT OF THE CUSTOMS DUTY IS AT THE CONCESSIONAL RATE OF DUTY APPLICABLE FOR THE PURPOSE.
FOR MSTC LIMITED
Sd/-
(U.K. Barik)
MANAGER (FOREIGN TRADE)
Part ''D'' of the Duty Exemption Entitlement Certificate attached to the license sold to ''Shanti'' by the fifth respondent after purchasing it from the second respondent who had earlier obtained it from the first respondent shows, that the above said certificate(s) issued by the second respondent were in the nature of a formality and in practical terms have no meaning. Neither the first respondent nor the second respondent can keep tabs on the transferees for monitoring the fulfillment of the actual user condition. Therefore, the actual user condition imposed in the tender is not only against the interests of the first respondent but is also not warranted by law.
The reserve price has to be fixed by the first respondent keeping in view the public interest and from the stand point of a prudent business man.
Learned counsel for the petitioners submitted that the condition imposed by the first respondent vide its letter dated June 22, 1998 requiring Income Tax clearance certificate for the year 1997-98, sales tax registration certificate and sales tax assessment order for the year 1997-98 is arbitrary. It is not necessary to consider the submission of the petitioners in as much as the learned counsel for the first respondent has submitted that in the case of Energetic Marketing Private Limited the first respondent had clarified that latest Income Tax clearance certificate can be submitted. It had also issued the necessary clarification with regard to sales tax registration certificate. I have no manner of doubt that in case the petitioners had sought clarification from the first respondent with regard to the conditions imposed by letter dated June 22, 1998, the same would have been clarified to the satisfaction of the petitioners.
Having regard to the above discussion, the writ petition succeeds and the actual user condition contained in the tender is quashed. The first respondent while fixing the reserve price for the sale of the licences shall keep in view the fact that the duty on import of non-alloy steel melting scrap under sub-heading 7204.49 of the Customs Tariffs Act is between 55.25% to 61.46%. Since during the pendency of the writ petition some of the advance licences issued in favor of the first respondent would have expired, it is directed that the appropriate authority shall extend their life suitably so that the first respondent is not put to loss and is able to sell the advance licences keeping in view the above observations. On the filing of the applications by the first respondent for extension of the life of the advance licences, the appropriate authority shall renew the same suitably within four weeks of the receipt of the applications. In case some advance licences issued in favor of the first respondent are going to expire and have not been utilised due to the pendency of these proceedings, the first respondent shall be entitled to their renewal for a suitable period provided an application is made to the appropriate authority for extension of the licences who shall renew the same suitably within four weeks of the receipt of the application.
With these observations and directions, the writ petition is disposed of.