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CASE NO.: Appeal (civil)  3025 of 2003

PETITIONER: M/s. Larsen & Toubro Ltd.                                

RESPONDENT: Union of India & Ors.                                    

DATE OF JUDGMENT: 18/01/2005

BENCH: ASHOK BHAN & A.K. MATHUR

JUDGMENT: J U D G M E N T

BHAN, J.

       This appeal by grant of leave is directed  against the final judgment and order dated 3.4.2001  passed by the Madras High Court in Writ Appeal No.  943 of 1993 whereby the Division Bench has set aside  the order passed by the Single Judge of the High  Court and dismissed the writ petition filed by the  appellant.

       Larsen & Toubro Ltd. \026 the appellant herein,  has its workshop amongst other places within the  Kandla Free Trade Zone (hereinafter referred to as  ’the KFTZ\’) in the State of Gujarat.  In the year  1986 it obtained an export order for Rs. 24 crores  (48 million Malaysian Dollars) from the Malaysian  Government for the construction of two steel bridges  in Malaysia.  The Working Group, a High Level  Official Body of the Indian Government gave its  approval to the appellant’s project and for  fabrication required for the work to be done in the  appellant’s workshop at KFTZ on the condition that  there should be maximum utilization of indigenous  steel as raw material and that any import of steel  was to be done only after taking prior approval of  the Working Group.   

       The units which are located in the Free Trade  Zone like that of the appellant in KFTZ is entitled,  inter alia, to the following facilities and  incentives:- "(i)    An assured supply of power and good  quality of water, is available in these  zones at reasonable rates.  These zones  are also well served by banks, clearing  and forwarding agencies, postal and  telecommunication facilities and customs  clearance facilities.

(ii)    Simplified procedures coupled with single  point clearance.

(iii)   Non-requirement of import licence as  all imports into the zones have been  placed under the Open General Licence  (OGL).  The customs duty is not leviable.

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(iv)    Exemption from central excise duties and  other levies on products manufactured  within the zones.

(v)     Treating raw materials, components etc.  supplied to these zones from rest of the  country as exports and their eligibility  for all export benefits.  It means easy  availability of high quality inputs at  lower cost.

(vi)    The zones have all other infrastructural  facilities like warehousing, postal,  telecommunications and canteen  facilities.

(vii)   Complete tax holiday for a specified  numbers of years is also available.

(viii)  Foreign equity participation is  permitted upto 100%.

(ix)    Capital invested by foreign  investors/entrepreneurs including profits  ploughed back in the project in the zone  and dividends can be freely repatriated  after deduction of applicable taxes.

(x)     The EPZ units are permitted to sell to  the extent of 25% of their production in  addition to 5% of the rejects in Domestic  Market.

(xi)    Concessional financing facilities are  available.

       The Government of India had introduced a  special scheme known as International Price  Reimbursement Scheme (for short ’IPRS’) to ensure  that the supplies of steel required by the  engineering exporters for their export contracts are  made available to them at international price w.e.f.  9.2.1981 and to reimburse them the difference in the  price of indigenous steel and the imported steel.   The Scheme provided for an elaborate procedure and  also conditions under which the benefits could be  claimed.  Relevant clauses which are required to be  fulfilled for claiming the benefits under the Scheme  are :-

"1.     The scheme will not cover "deemed  exports" including supplies of IDA/IBRD  assisted/financed projects."

2.      Contracts eligible for reimbursement  would have to be got registered with the  concerned regional office of the EEPC  within 40 days from the date of the  cont\ract.

3.      Applications will have to be made on a  monthly basis covering all shipments made  during the month to the concerned  regional office of the EEPC.

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4.      After scrutiny of the claims, EEPC will  record all the statements of exports  furnished by the exporter in an  Entitlement Certificate.

5.      The licensing authority, after checking  the claims, will issue payments to the  EEPC and the EEPC will issue the cheque  for an amount as authorised by the  licensing authority."

       The appellant procured its requirement of steel  from domestic sources SAIL and TISCO at the then  prevailing domestic prices determined by the Joint  Plant Committee (for short ’JPC’) in preference to  their right to import steel at a much competitive  international price.  Appellant after fabricating  the two steel bridges at its unit in Kandla,  exported the same to Malaysia.  The appellant filed  its claim with the Government of India for  reimbursement of price difference in accordance with  the Price Reimbursement Scheme.  The Government  rejected the appellant’s claim by its order dated  12.2.1992.  Appellant filed Writ Petition No. 5499- 5500 of 1992 impugning the said order of rejection.   The learned Single Judge allowed the writ petition  by his judgment and order dated 8.6.1993.  It was  held that the appellant would be entitled to the  reimbursement of the difference in prices of  indigenous steel and the imported steel.   Accordingly, a direction was issued to the  Government to reimburse the appellant with the  difference in the price of indigenous steel and the  imported steel.

       The Government filed an appeal before the  Division Bench of the High Court in Writ Appeal Nos.  943 and 944 of 1993.  The appellate court reversed  the judgment of the learned Single Judge and held  that the appellant was not eligible to claim the  benefit of reimbursement under the IPRS as the raw  material procured by the appellant from domestic  sources amounted to "deemed export".

       It is a common case of the parties that "deemed  exports" have not been defined under the IPRS.  The  same have been defined in Chapter XVI of Import and  Export Policy (Vol. I). Paragraph 190 of the Policy  provides, inter alia, that the following categories  of supplies will be treated as "deemed exports" for  the purpose of benefits under the Import  Replenishment Scheme:- "(a)    Supplies made in India of indigenous  items against "Duty Free Licences" issued  under the Duty Exemption Scheme and the  Import Export Pass Book Scheme;

(b)                     xx              xx              xx

(c)                     xx              xx              xx

(d)                     xx              xx              xx

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(e)                     xx              xx              xx

(f)                     xx              xx              xx

(g)     Supplies made in India to units in free  trade zones/export processing zones or  100% export oriented units according to  the policy laid down under the respective  schemes;

(h)                     xx              xx              xx

(i)                     xx              xx              xx

(j)                     xx              xx              xx

(k)                     xx              xx              xx

(l)                     xx              xx              xx

       The Division Bench in the impugned judgment has  taken the view that since the supplies made in India  to the units located in the free trade zones/export  processing zones or 100% export oriented units are  deemed to be exports, the appellant is not entitled  to the benefit of reimbursement as provided under  the IPRS because the IPRS in terms states that it  will not cover contracts for "deemed exports".

       Shri A.K. Ganguly, learned Senior Counsel  appearing for the appellant has strenuously  contended that IPRS was introduced by the Government  of India to enable the Indian Exporters of  engineering goods to obtain reimbursement of the  difference between the domestic price and the  international price of steel required as raw  material for their export when procured from  domestic suppliers at a higher domestic price as  fixed by the Joint Plant Committee (JPC) from time  to time.  That the appellant’s claim for such  reimbursement could not be rejected without valid  and proper reasons by treating the physical export  made by the appellant to Malaysia with the input of  raw material of steel procured from domestic sources  as a "deemed export".  According to him, the concept  of "deemed export" was nothing but a legal fiction  incorporated by the Government of India in the  Import Export Policy with a view to extend the  export benefits which are otherwise available only  for physical exports so that the consumption of  indigenous raw material in the exports is encouraged  and foreign exchange is conserved.  It was submitted  by him that the Division Bench has erred in holding  that the transaction of procurement of steel by the  appellant from domestic supplies SAIL and TISCO was  a "deemed export" so as to deprive the appellant of  the benefit of IPRS.  According to him, "deemed  export" is only a legal fiction used in the Import  Export Policy in contradistinction to physical  export so that certain consignments made from one  domestic area to another domestic area within the  territory of India are deemed to be exports for the

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purpose of conferring certain benefits which are  otherwise available only for physical exports so  that suppliers of indigenous steel to domestic area  become eligible to claim the said export benefits  and the said concept has no relevance to the  physical export made by the appellant by procuring  indigenous steel at domestic price from domestic  supplier, both being mutually exclusive.

       The Government of India had formulated the IPRS  in order to ensure that the supply of steel required  by the engineering exporters for their export  contracts is made available to them at international  prices w.e.f. 9-2-1981 so as to enable them to  compete in the global market and, therefore, the  High Court should have considered the applicability  of the said scheme to the export made by the  appellant by procuring the indigenous steel as raw  material.   

       As against this, counsel for the respondent  contended that the IPRS was not applicable to the  appellant in the year 1985 when the goods were  exported.  It was extended to the units situated in  Free Trade Zones on 20.9.1991 and that too with the  rider that IPRS will not be admissible for deemed  exports.  Under the circumstances, the question of  claiming benefits of IPRS for export effected in  1985-1986 did not arise on facts.  Even on assuming  that the IPRS was applicable, it is evident from the  terms of the Scheme itself that it did not cover  contracts for "deemed exports".

                After due deliberations on the submissions made  by the learned counsel for the parties we are of the  view that there is no merit in this appeal.  The  units located in the Free Trade Zone are entitled to  certain facilities and incentives such as assured  supply of power and good quality of water at  reasonable rates.  Simplified procedures coupled  with single point clearance have been provided for  them.  All imports made by them into the zone were  placed under the Open General Licence (OGL).  Custom  duty was not leviable on the imported materials.   They were given exemption from central excise and  other levies on the products manufactured by them.   Complete tax holiday for specified number of years  was made available to them.  Like this, many other  benefits had been extended to them as is evident  from the perusal of the terms of the Scheme which  have been reproduced in the earlier part of the  judgment.  But the IPR scheme was not extended to  the units located in free trade zone.  The  appellant, as a matter of fact, through a number of  representatives had been seeking to persuade the  respondents to include the units located in Free  Trade Zone for IPRS benefits, though the units had  the facilities of sourcing the requirements of raw  material on duty free basis.  EEPC placed its  argument on behalf of the appellant before the Union  of India \026 the respondent herein, who by their  letter dated 20.9.1991 extended the IPRS to the  units located in Free Trade Zone with the rider that  IPRS will not be admissible for "deemed export".   

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As benefits under IPR Scheme were extended for the  first time in the year 1991 the question of claiming  benefits of IPRS for export effected in the year  1985-86 under the circumstances could not arise.   

Even otherwise, it is evident as per the terms  of the IPRS itself that it did not cover contracts  for "deemed exports".  The admitted fact is that the  appellant was entitled to import its raw materials  from Domestic Tariff Area (DTA) for its unit located  in Free Trade Zone at international price from DTA  or at international price under Open General Licence  (OGL).  Every import of raw material from DTA to FTZ  is "deemed export" as defined in para 190(g) of  Import and Export Policy which provides for  categories of supplies which will be treated as  "deemed export" and include supplies made in India  to units in FTZs.  Quite plainly, therefore, the  supplies of raw materials made by DTA for the units  of the appellant in FTZ would be "deemed export" in  terms of the definition at para 190(g) of Import and  Export Policy and thus on terms of IPRS itself, the  appellant will not be covered by the IPRS for the  benefits under it.

       It was submitted by the counsel for the  appellants that since the supplies made from the DTA  were not made at the international price, these  units will not be entitled to claim import  replenishment benefits for such supplies.  Whether  the import of raw material from DTA is made at  international price or otherwise is of no  consequence.  The fact that supplies of raw material  from DTA to units in FTZ can or cannot claim import  replenishment benefits for such supplies does not  impact on the fact that such supplies from DTA to  FTZ are "deemed exports".  There is nothing in the  language of IPRS or the scheme that the import  replenishment which provides that if a supplier in  DTA cannot claim import replenishment benefits, the  unit in FTZ would for that reason be entitled to  claim IPRS benefits.                  In the High Court the appellant had invoked the  equitable rule of promissory estoppel but in the  Special Leave Petition this ground has not been  taken.  However, during the course of arguments  before us the learned senior counsel appearing for  the appellant made submissions on the equitable rule  of promissory estoppel as well.  It is submitted by  him that the IPRS in express terms confers upon the  Engineering Export Promotion Council (EEPC) the  responsibility to administer the scheme by not only  sponsoring the demand of steel for export production  but by undertaking detailed scrutiny of the  applications for reimbursement of differential price  sought by the exporters and finally by making  payment to the exporters.  It was contended that in  respect of another export contract executed by the  appellant in June, 1985 for export of Steel Sliding  Gates to Nepal, EEPC not only categorically given  out that the appellant "will be eligible for  reimbursement of price difference on consumption of  steel/pig iron in the products exported provided all  documents as per the International Price

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Reimbursement Scheme are furnished to council" but  had, in fact, been reimbursed with the full amount  of the difference between the domestic price and the  international price of the indigenous material by  the EEPC.  The appellant therefore bona fide  believed that it was entitled to reimbursement of  the differential price under the IPRS.  That the  Working Group had approved the international pricing  of export contract on the basis of international  prices of the raw material.  That it is at the  instance of the Working Group that the appellant  instead of importing the steel at international  price without paying custom duty which it was  entitled to, being located in Free Trade Zone,  agreed to procure steel from SAIL and TISCO at a  much higher price determined by JPC only on the  assurance that it will be entitled to the  reimbursement of the differential price under the  IPRS.  Since the appellant had purchased the  steel/pig iron at a higher price from the domestic  market at the instance of the Working Group and on  the assurance given that he would be reimbursed of  the difference between the domestic price and the  international price, the Government is estopped from  denying the benefit of reimbursement of the  differential price under the IPRS.

As against this, counsel for the respondent  submitted that no representation had ever been made  on behalf of the Union of India or its officers that  benefits of IPRS would be extended to the appellant.   That applicability of Promissory Estoppel was not a  pure question of law.  The appellant was required to  provide precise factual data in support of his plea.   It was for him to show as to how supplies made to it  were not "deemed exports".  The appellant should  have placed the factual data to show that the  supplies had not been made to it at the  international price which it failed to do.   Particulars of the export, the amount of claim, the  price difference and the price at which materials  were supplied to it have not been furnished.  In the  absence of these facts, the appellant is not  entitled to invoke the equitable rule of promissory  estoppel.

       Strictly speaking since the appellant has not  raised this point in the special leave petition, we  are not called upon to adjudicate on this point, but  as we permitted him to make submission on the  equitable rule of promissory estoppel we might as  well decide this point.   In Union of India & Anr.   v.  Wing Commander R.R. Hingorani [ (1987) 1 SCC 551  ], this Court has held that before an estoppel can  arise, there must be first a representation of an  existing fact distinct from a mere promise made by  one party to other; secondly, that the other party  believing it must have been induced to act on the  faith of it; and thirdly, that he must have so acted  to his detriment.       In the present case, no  representation had ever been made by the Union of  India that IPRS would be applicable to the units  located in FTZ.  On the contrary, the appellant had  filed a number of representations seeking to  persuade the Union of India to include the units

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located in FTZ for IPRS benefits.  The Union of  India by its letter dated 20.9.1991, for the first  time, extended the IPRS to the units located in FTZ  but at the same time reaffirmed that IPRS will not  be admissible for "deemed exports".  This  reiteration is mere restatement of what is already  provided in IPRS and any modification thereof sought  by the appellant was not acceptable to the Union of  India.  Under the circumstances, the question of  promissory estoppel would not arise on the facts  itself inasmuch as no representation contrary to  IPRS had ever been made which could mislead the  appellant into altering his position to his  detriment.

       In S.B. International Ltd. & Ors.   v   Asstt.  Director General of Foreign Trade & Ors. [ (1996) 2  SCC 439 ], this Court has  taken the view that  applicability of promissory estoppel is not a pure  question of law.  Person invoking the equitable rule  of promissory estoppel is required to provide  precise data in support of his plea and specify the  various ingredients of the rule enunciated in  Motilal Padampat Sugar Mills Co. Ltd.  Vs.  State of  U.P. [1979 (2) SCC 409], wherein it was observed:

"So far as the argument of promissory  estoppel is concerned, it is equally  unsustainable in the facts and  circumstances of the case.  Having  regard to the nature of the advance  licence-import and export later \026there  is no room for this argument.  The  discretion inhering in the authority  to take into consideration the exports  effected after the date of filing of  the application for advance licence  does not detract from its essential  character, as explained hereinabove.   We may also mention that no precise  data has been furnished by the  appellant in support of the said plea.   In the absence of such data, the plea  of promissory estoppel is  misconceived.  The appellant has to  establish the various ingredients of  this rule, as enumerated by this Court  in Motilal Padampat Sugar Mills Co.  Ltd. Vs. State of U.P. (1979 (2) SCC  409) and other subsequent decisions.   It is not a pure question of law."

In the present case, the appellant has failed to  furnish the precise data in support of the pleas  raised in the Court.    What to talk of precise  data, in support of its claim, the appellant has  failed to furnish any data whatsoever.  It has  failed to set out as to how the supplies made to  them were not "deemed exports" or that the supplies  were not made at the international prices to them.   The precise data required for their entitlement has  not been given in their affidavits.  Even the  particulars of the exports, the amount of claim, the  price difference and the price at which materials  were supplied to them have not been furnished. The

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appellant has failed to show that any representation  had ever been made to it by the Union of India  contrary to what is contained in the IPRS.  Since  the appellant failed to show that it has acted on a  representation made by the Union of India to its  detriment, the appellant is not entitled to invoke  the equitable rule of promissory estoppel.

       For the reasons stated above, we do not find  any merit in this appeal and dismiss the same with  no order as to the costs.