Allowed

Hawa Valves a Company Registered and Incorporated & Anr. v. the Union of India and Ors.

Delhi HC3 Jan 2018W.P.(C)/1180/2016

Case brief

AI extract

What is this about?

High court set aside a trade notice restricting incentives under the Foreign Trade Policy's Focus Product Scheme. The court held that industrial valves qualify as eligible products under the relevant serial number in the policy, distinguishing the broad HS classification from bicycle-specific parts.

What did the court decide?

The impugned trade notice was set aside; the court clarified that industrial valves are covered under serial no. 269 of Appendix 37D.

Hawa Valves a Company Registered and Incorporated & Anr. Vs the Union of India and Ors. — Delhi HC (2018) — LawSathi Research

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$~6

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IN THE HIGH COURT OF DELHI AT NEW DELHI

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- W.P.(C) 1180/2016 and CM No. 5175/2016

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HAWA VALVES A COMPANY REGISTERED AND INCORPORATED & ANR ..... Petitioners Through: Mr Devan Parikh, Senior Advocate with Mr Alok Yadav, Advocate.

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versus

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THE UNION OF INDIA AND ORS ..... Respondents Through: Mr Amit Mahajan, CGSC with Ms Aastha Jain, Advocate for UOI.

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CORAM:

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HON'BLE MR. JUSTICE VIBHU BAKHRU

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O R D E R % 03.01.2018

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VIBHU BAKHRU, J

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The petitioners have filed the present petition impugning a trade notice – Trade Notice no. 11/2015 dated 14.12.2015 - issued by respondent no.3. The petitioners claim that the said notice (hereafter referred to as „the impugned notice‟) is contrary to the provisions of the Foreign Trade Policy (FTP) 2009-2014.

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Petitioner no.1 is engaged in the business of manufacturing industrial valves, bulk of which are exported to other countries. According to the petitioners, petitioner no.1 is entitled to the benefits of the Focus Product Scheme (FPS) against its exports of industrial valves. The petitioners claim that in terms of the FPS, petitioner no.1 is entitled to licences equivalent to 4% of the FOB value of its exports. The petitioners are aggrieved as in terms of the impugned notice, such benefit is not available for export of industrial

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W.P. (C) 1180/2016

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valves and is restricted only to bicycle parts.

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The relevant paragraphs of FTP 2009-2014 containing the provisions relating to the FPS are set out below:-

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“ 3.15 FOCUS PRODUCT SCHEME (FPS)

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3.15.1 Objective of FPS is to promote export of products which have high export intensity/employment potential, so as to offset infrastructural inefficiencies and other associated costs involved in marketing of these products.

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3.15.2 (a) Export of products (listed in Table 1 of Appendix 37D of HBPv1) to all countries (including SEZ units) shall be entitled for Duty Credit Scrip equivalent to 2% or 5% of FOB value of exports (in free foreign exchange) for exports made from 27.8.2009 onwards, unless a specific date of export/period is specified by public notice/notification.

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(b) Certain Focus Product(s)/sector(s) listed in Appendix 37D shall be granted bonus benefit in the form of an additional Duty Credit Scrip equivalent to 2% of FOB value of exports (in free foreign exchange) over and above the existing rate for that product/sector from the admissible date of export/period specified in the public notice issued to notify the product/sector.”

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The list of products which are covered under the FPS are set out in Appendix 37D of the Handbook of Procedures (hereafter „HoP‟). The controversy relates to the products as specified at serial no. 269, which is set out below:-

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“APPENDIX 37D

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LIST OF NOTIFIED PRODUCTS UNDER FOCUS PRODUCT SCHEME (FPS) TABLE 1

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W.P. (C) 1180/2016

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SL. NO.	FPS PRODUCTCO DE	ITC (HS) CODE	DESCRIPTION
269	269	8481	ITEMS OF A USED ON BICYC TAPS, COCKS, V AND SI	KIND LES: ALVES MILAR
			APPLIANCES PIPES, BOILER S	FOR HELLS,
			TANKS, VATS O	R THE
			LIKE, INCL	UDING
			PRESSURE RED	UCING
			VALVES	AND
			THERMOSTATIC CONTROLLED VALVES”	ALLY

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The petitioners claim that in the past they had applied for and were granted licences against export of industrial valves. However, several applications made by the petitioners in the recent past were kept pending. The petitioners have filed a tabular statement (as Annexure - I) indicating the applications that are pending. According to the petitioners, they are entitled to licences for a total value of ₹3,68,47,195 against the pending applications.

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The petitioners received a deficiency letter dated 01.06.2015 in respect of one of their applications, which stated that their applications were rejected since the bills did not mention that the valves exported are of bicycles.

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Thereafter, petitioners made a representation to DGFT seeking a clarification “whether industrial valves falling under ITC (HS) Chapter 8481 were eligible for incentives under the FPS”. The petitioners pointed out that

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ITC (HS) Code mentioned against serial no. 269 of Table 1 of Appendix 37D clearly indicated the ITC (HS) Code of the eligible products as 8481. The petitioners also pointed out that wherever the products falling under a broad classification were sought to be limited for the purposes of granting the incentive, the specific eight digit ITC (HS) Code of the eligible product(s) was mentioned instead of the four digit broad classification. However, since the ITC (HS) Code mentioned against serial no. 269 was of four digits, it must be assumed that the intention is that exports of all goods covered under the broad classification were eligible for benefits under the FPS. The industrial valves exported by petitioner no.1 fell under ITC (HS) Code of 8481 80 30, which fell under the broad classification of 8481.

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The petitioners followed the aforesaid letter by another letter dated 21.10.2015 and a further representation dated 21.10.2015.

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According to the respondents, industrial valves were not covered under serial no. 269 of Appendix 37D of Table 1 and therefore, the DGFT issued the impugned notice. The relevant extract of which is set out below:-

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“TRADE NOTICE NO. 11/2015

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ALL IEC HOLDERS ALL EPCs ALL CHAMBERS OF TRADE AND INDUSTRY FEDERATION OF INDIAN EXPORT ORGANISATIONS ALL RA's OF DGFT

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Subject : Clarification on availability of benefit under Focus Product Scheme of Foreign Trade Policy 2009-14 on the export of items mentioned at Sl No. 269 of

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W.P. (C) 1180/2016

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Appendix 37-D, Table-1 of Foreign Trade Policy 2009-14 - of kind used on bicycle (ITC HS 8481).

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The product description appearing under ITCHS 8481 mentioned at Sl No. 269 of Appendix 37-D, Table-1 of Foreign Trade Policy 2009-14 notified vide public notice no. 52 dated 25.02.2014 is as under:

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„ITEMS OF A KIND USED ON BICYCLES: TAPS, COCKS, VALVES AND SIMILAR APPLIANCE FOR PIPES, BOILER SHELLS, TANKS, VATS OR THE LIKE, INCLUDING PRESSURE REDUCING VALVES AND THERMOSTATICALLY CONTROLED VALVES‟

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2. D GFT has received representations from exporters requesting for providing benefits under focus Product Scheme of Foreign Trade Policy 2009-14 on the export of industrial valves under items at Sl. No. 269 of Appendix 37-D, Table-1 of Foreign Trade Policy 2009-14 notified vide public notice no. 52 dated 25.02.2014 or under any other any other Sl. No. in the earlier public notices having same description and even to those items which are not used in bicycles.

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It is hereby clarified that intention from the beginning had been to grant incentive to bicycle parts only under this serial No. 269 under FPS and this intention has been clearly indicated. Other items, which are not parts of bicycle, appearing in the above mentioned description are not eligible for FPS benefit under FTP 2009-14. The Focus Product scheme has sunset on 31.03.2015, therefore, there is no merit in requests for providing benefit to other products.

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4. Cases where RA has issued any scrips against the export of parts other than those used in bicycle under ITCHS 8481 mentioned at Sl No. 269 of Appendix 37-D, Table-1 of Foreign Trade Policy 2009-14 notified vide

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W.P. (C) 1180/2016

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public notice no. 52 dated 25.02.2014 or under any other Sl. No. in the earlier public notices having same description, are liable to be reviewed and corrective measures be taken to recover such claims granted by over sight.

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(J.M. Gupta) JOINT DIRECTOR GENERAL OF FOREIGN TRADE e-mail: [email protected]”

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This Court is unable to accept that the relevant entry at serial no. 269 ought to be read in the manner as stated in the impugned notice for the reasons as stated hereafter.

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First of all, the product code noted against serial no. 269 is specified as 8481. Concededly, the said products are not restricted to items used in bicycles alone. The Indian Trade Classification based on Harmonised System was adopted in India for import export operations (these codes are commonly referred to as ITC (HS) Codes). The Harmonised Commodity Description and Coding System (commonly referred to as the Harmonised System or „HS‟) is an international nomenclature for clasification of products. It was indroduced in the year 1988 and is maintained and developed by World Customs Organization (WCO). The HS at the international level uses a six digit code for product description. The first two digits identify the chapter; the next two digits identify the groupings; and the next two digits specify the products.

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11.1 The ITC (HS) codes are also used by the Indian Customs. The ITC (HS) Code 8481 indicates that the products fall under chapter 84 of the ITC (HS), 2017, which is captioned “Taps, Cocks, Valves and similar appliances

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for pipes, Boiler Shells, Tanks, Vats or the like including pressure reducing Valves”. The ITC (HS) code 8481 as extracted from Schedule 1 to the import policy reads as under:-

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“ 8481	TAPS, COCKS, VALVES AND SIMILAR APPLIANCES FOR PIPES, BOILER SHELLS, TANKS, VATS OR THE LIKE, INCLUDING PRESSURE-REDUCING VALVES AND THERMOSTATICALLY CONTROLLEDVALVES
8481 10 00	Pressure-reducingvalves
8481 20 00	Valves for oleo hydraulic or pneumatic transmissions
8481 30 00	Check(non-return)valves
8481 40 00	Safetyor relief valves
8481 80	Other appliances:
8481 80 10	Taps,cocks and similar appliances of iron or steel
8481 80 20	Taps, cocks and similar appliances of non-ferrous metal

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”

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11.2 It is also relevant to observe that inner tube valves for bicycles is specified under ITC (HS) Code 8481 80 41 and bicycle valves are classified under the product Code 8481 90 10. Adopting a classification based on Harmonised System enables a definite product description. Concededly, ITC (HS) Code 8481 is a broad classification of various goods falling under the said heading and is not limited to parts of bicycle alone.

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11.3 It is also relevant to mention that the heading of chapter 84 and the broad description of goods under HS code 8481 under ITC (HS) is identical to the international HS as maintained by World Customs Organization (WCO).

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11.4 There is much merit in the contentnion that wherever the Central Government desired that only specific products under a broad heading be considered eligible for benefits under FPS, specific eight digit product code of those products were mentioned in Appendix 37D to restrict the eligible products to those of the specified description; however, in case of entry at serial no. 269, a broad classification of four digit product code is stated. This clearly indicates the intention to provide benefits to exporter exporting all products falling under the said broad classification.

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Secondly, the plain reading of the description of the product against serial no. 269 of Appendix 37D indicates that products such as valves for pipes, boiler shells, tanks, vats or the like including pressure reducing valves cannot possibly be considered as items used in bicycles. Thus, the only manner in which the said description of the goods can be read is to ignore the punctuation mark of colon after the word bicycle or read the same as a coma. It would plainly not be open for the description to be read in a manner so as to retain the meaning of the punctuation mark of colon after the word bycycle and ignore the text (which includes goods that cannot be possibly used in a bycycle) that follows.

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Lastly and more importantly, the FPS was discontinued with effect from 31.03.2015 and was replaced by a new incentive scheme captioned “Merchandise Exports from India Scheme” (hereafter MEIS). Paragraph 3.04 of the FTP provides for entitlement under the MEIS and reads as under:-

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“ 3.04 Entitlement under MEIS

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Exports of notified goods/products with ITC(HS) code, to

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notified markets as listed in Appendix 3B, shall be rewarded under MEIS, Appendix 3B also lists the rate(s) of rewards on various notified products [ITC (HS) code wise]. The basis of calculation of reward would be on realised FOB value of exports in free foreign exchange, or on FOB value of exports as given in the Shipping Bills in free foreign exchange, whichever is less, unless otherwise specified.”

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The relevant entry under Appendix 3B – Entry No. 4097 is set out

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below:-

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Sr. No	HS Code	ITC (HS) Code	Description of goods
4097		84807900	Other Moulds For Rubber/Plastics
	8481		Taps, Cocks, Valves and Similar Appliances for pipes, boiler shells, tanks, vats or the like including pressure-reducing valves and thermostatically controlled valves

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Thus, admittedly, export of goods covered under ITC (HS) Code 8481 is eligible for benefits under the MEIS. In the past, respondents had readily accepted that the industrial valves were covered under the products specified against serial no. 269 of Appendix 37D and were eligible for benefits under the FPS. Such benefits are also available under MEIS, which came into effect from 01.04.2015 and has effectively replaced the FPS. In this view, it would be difficult to accept that the intention of the Central Government was to not grant export incentives to industrial valves and restrict the same only to valves used in bicycles for a short intervening period.

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In view of the above, the impugned notice cannot be sustained.

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It is relevant to mention that the impugned notice was also subject matter of challenge before the Gujarat High Court in Intolcast Pvt. Ltd & Anr. v. Union of India and Anr. : 2017 (345) ELT 217 (Guj) , wherein Division Bench of the Gujarat High Court has set aside the impugned notice. The said decision was subject matter of a Special Leave Petition ( SLP (C) No. 033155-033158/2017 ) captioned Union of India & Anr. v. M/s Intolcast Pvt. Ltd . The said SLP was dismissed by the Supreme Court by an order dated 03.10.2017 expressly stating as under:-

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“Heard learned counsel for the petitioners and perused the relevant material. Application for exemption from filing certified copy of the impugned order is allowed. Delay condoned.

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We find no merit in the present Special Leave Petitions. The Special Leave Petitions are accordingly dismissed.”

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In view of the above, the petition is allowed and it is clarified that industrial valves falls squarely within the goods covered under serial no. 269 of Appendix 37D. This court respectfully concurs with the view of the Gujrat High Court in Intoclast Pvt Ltd. ( supra ) in setting aside the said impugned notice. The pending application is also disposed of.

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VIBHU BAKHRU, J

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JANUARY 03, 2018 pkv

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W.P. (C) 1180/2016

Hawa Valves a Company Registered and Incorporated & Anr. v. the Union of India and Ors.

Case brief

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Hawa Valves a Company Registered and Incorporated & Anr. v. the Union of India and Ors.

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