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In a significant relief to non-mega power projects, the Gujarat High Court on Thursday termed the Director General of Foreign Trade (DGFT) notification on recovery of deemed export duty drawback from these power projects as illegal.
A Division Bench comprising Chief Justice Bhaskar Bhattacharya and Justice Pardiwala said that while notifying the handbook of procedures, the DGFT had incorporated the provisions of the Customs and Central Excise Duty Drawback Rules, which contained powers to recover duty drawback erroneously granted.
“The said provision is unconstitutional as the DGFT being an administrative authority was seeking to legislate by resorting to ‘incorporation by reference’ of a substantial provision of law,” the High court held.
“The Gujarat High Court has essentially held that through various provisions of the Foreign Trade Policy and the procedures there under, the DGFT was exercising certain powers without legal basis,” said Sujit Ghosh, Partner and National Head – Tax Litigation and Controversies, Advaita Legal – counsel of petitioner, Alstom India.
“This is a significant victory for the power sector which has been subjected to irrational and inequitable actions perpetuated by the DGFT which initiated proceedings of recovery of duty drawback benefits granted in the prior years,” said Ghosh.
Notably, in March 2011, the DGFT under the Policy Interpretation Committee (PIC) had decided to deny deemed export drawback on imported and domestic plant and machinery to be supplied for building non-mega power plants.
The PIC interpreted the provisions of the Foreign Trade Policy to hold that deemed export drawback was not available to the supplies of plant and machinery to non-mega power projects, hence such benefits ought not to have been granted.
Several litigations in this regard, were filed in courts of law, including the Gujarat High Court.
Post the Gujarat court order, the recovery notices issued in the past to various non-mega power projects would become illegal, the petitioner’s counsel stated.
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