"No law or ordinance is mightier than understanding"
– Plato
Laws that are enacted to benefit the individuals and to ensure that the society functions peacefully must be free from lacunae or conflicts. However, quite often legal professionals are seen resolving inconsistencies by unfolding the real meaning behind those conflicts of law.
One such conflict is with respect to availability of incentive under Remission of Duties and Taxes on Exported Products ('RoDTEP') scheme when goods are exported to Nepal or Bhutan and payment is in Indian Rupee ('INR').
Background and Conflict
It all started when Reserve Bank of India ('RBI'), vide A.P. (DIR Series) Circular No. 10 dated July 11, 2022, allowed the invoicing, payment and settlement of exports and imports in INR. This was done to encourage and support the growing interest of the global trading community in INR.
In pursuance to said RBI circular, suitable amendments have been introduced in the FTP and HBP to encourage and allow for international trade settlement in INR.
Foreign Trade Policy ('FTP') vide Notification No. 43/2015-2020, dated November 9, 2022, and Handbook of Procedures ('HBP') vide Public Notice No. 35/2015-20, dated November 9, 2022, have allowed export benefits under FTP even where the export proceeds are realised in INR. This is subject to adherence of procedure mentioned in the RBI Circular.
The Customs laws, however, allows RoDTEP incentive vide. Notification No. 76/2021-Customs dated September 23, 2021 ('RoDTEP Notification), only when the export proceeds are realised against irrevocable Letter of Credit ('LC') in freely convertible currency.
Control on RoDTEP De jure?
Chapter 4 of FTP, inter alia, provides for scheme that enables remission of duties and read as under:
"(e) Scheme for Remission of Duties and Taxes on Exported Products (RoDTEP) notified by Department of Commerce and administered by Department of Revenue"
Thus, the RoDTEP scheme is notified by Department of Commerce and the Department of Revenue is merely an administrative body for the scheme.
When looked into Customs RoDTEP Notification, the Government borrowed powers from Section 51B of the Customs Act, 1962 ('CA 1962') to provide for the condition specified therein. Interestingly, Section 51B does not empower the Government to provide any condition or restriction on the RoDTEP except for its utilisation. Section 51B only empowers the Government to specify the manner of issuance of RoDTEP scrips.
Now, reading Chapter 4, Section 51B and Customs RoDTEP Notification, following conclusion can succinctly be drawn:
- FTP is the origin of this scheme and not customs since it is the Department of Commerce who gave birth to RoDTEP incentive. Customs comes in picture for procedural aspects.
- Customs RoDTEP Notification may be held ultra vires to the extent it restricts the RoDTEP benefit based on currency of realisation. Section 51B does not empower the Government to do so.
FTP v. Customs – The Moot Question
In Authors' view, the conflict ends in previous point where illegality of restrictions provided in Customs RoDTEP Notification is discussed.
Assuming this illegality does not exist, let's assume on the ground of some internal communication from RoDTEP Policy Committee to Customs, the moot question would be 'whether FTP provisions would override the Customs Notification?'.
It is cardinal principle that the Legislature never intends to include two conflicting provisions in a statute because doing so would be self-contradictory. The same principle would apply to contradictory provisions in two different laws.
To solve these conflicts, the Judiciary either applies the principle of 'pith and substance' in the context of encroachment on other's power or the doctrine of 'harmonious construction' in case where both provisions can be given effect simultaneously.
Hon'ble Supreme Court, in the case of Union of India v. Dileep Kumar Singh(2015) 4 SCC 421, held that if a cohesive reading of two provisions is not possible, it must be decided as to which is a leading provision and which is a subordinate provision, and finally, which one must take precedence over the other.
It is clear from the above discussion that Customs RoDTEP Notification is supposed to provide an administrative support to the scheme notified under FTP. Hence, the FTP shall be considered as a leading provision and precedence shall be afforded to the same.
FTP v. Customs – The Judicial View
The Delhi High Court ('HC'), in the case of Greatship India Ltd. v. UOI 2016-VIL-269-DEL-CU, was dealing with the prohibition on import of goods imposed by Customs Authorities where customs duty was paid using Served From India Scheme ('SFIS'). However, the FTP did not provide so in the entire framework of SFIS or the policy. The Court, while holding the customs notification illegal, held that DGFT is the final authority for interpreting the FTP and not Customs. The Court further observed that FTP and notification under CA 1962 should form part of one harmonious statutory scheme and not contradict with each other.
Recently, the conflict between the contradictory interpretations given by two ministries of the Government was dealt by Bombay HC in Renaissance Global Limited v. UOI, WP No. 2003/2009 dated November 18, 2022. The Court quashed the customs action of seizure of goods which was for the purpose of SEZ. The clarification issued by SEZ authorities on the impugned matter was ignored by the Customs.
The Hon'ble Supreme Court in the case of Central Warehousing Corporation v. Adani Ports Special Economic Zone,2022-VIL-84-SC-CU, had also observed that two departments of the Government cannot be permitted to opposite stands.
In the case of Ericsson India Global Services (P) Ltd. v. Union of India, (2021) 3 HCC (Del) 534, the Delhi HC observed that the instructions issued by the Customs for the exclusions of SEIS to be violative of FTP and held that it was against the intention of FTP.
Even in the case of Reliance Industries Ltd. v. CC, (2013) 293 ELT 679, CESTAT upheld that provisions of FTP shall override the customs notification in the context of export promotion benefit.
In the context of conflict between FTP and Customs Notification, the Supreme Court, High Courts and Tribunal have held that FTP would override the Customs Notification, where an export benefit originated from FTP is concerned. However, when it comes to exemptions from customs duties, the customs notification would prevail over FTP.
Conclusion
In Authors' view, when the question pertains to a benefit attached to exports, the FTP may hold an upper hand over a Customs notification especially when the customs notification is merely an administrative extension of the policy. Secondly, in the absence of any specific delegation, the notification imposing restrictions on exports benefits granted under FTP may also be challenged in courts.
Exporters have now started liasoning with the Department to allow RoDTEP on such exports. However, the Customs Authorities are not allowing RoDTEP where export proceeds are in INR. Thus, we may expect a new series of litigation on this topic soon.
This Article was first published by Taxmann
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
