16 August 2024 Business Laws >> Business & Commercial Law  

In a recent judicial review of Phoenix Industries Limited, Mumbai v/s The Union of India, Through the Secretary, Ministry of Commerce, New Delhi & Others, the Bombay High Court addressed the procedural shortcomings related to the submission of "Bills of Export" for Advance Authorisation (AA) in cases involving exports to Special Economic Zones (SEZs). This review centers around a petition challenging the decisions made by the Policy Relaxation Committee (PRC) regarding export obligation discharge.

Background:

The petitioner, a manufacturer and exporter of Non-Ferrous Metal Alloys, approached the court after their request to condone a procedural lapse was rejected. The petitioner had obtained an AA for duty-free import of goods intended for export to an SEZ unit. Although the final products were delivered to the SEZ unit, the necessary "Bills of Export" were not prepared due to an oversight. Despite other supporting documents being submitted, the PRC denied the petitioner's request for relaxation, citing the lack of "Bills of Export" as a mandatory requirement.

Key Issues and Legal Arguments:

The central issue in this case was whether the lack of "Bills of Export" could invalidate the export obligation discharge when other documentation, such as ARE-1 forms and evidence of delivery, was provided. The petitioner contended that their supplies to the SEZ should be considered valid for discharge of export obligation under the AA, despite the absence of "Bills of Export."

The court's scrutiny focused on several key aspects:

1. Legality of the PRC Decisions: The decisions from the PRC, issued in meetings held on June 21, 2022, and June 26, 2023, rejected the petitioner's request to accept alternative proof of export. The petitioner's argument was based on the premise that "Bills of Export" are not strictly necessary for SEZ supplies, and other documents provided should suffice.

2. Policy Circular No. 4 of 2024: The Directorate General of Foreign Trade (DGFT) had issued a circular relaxing the requirement for "Bills of Export" for SEZ supplies made before July 1, 2017. The petitioner argued that this circular supports their case, covering most of their supplies.

3. Precedent Cases: The petitioner cited previous judgments, notably Larsen & Toubro Limited vs. Union of India and Electromech Material Handling System (India) Pvt. Ltd. vs. Union of India, which established that failure to submit "Bills of Export" does not necessarily invalidate export obligations if other evidence is provided.

Court's Findings:

The court ruled in favor of the petitioner, emphasizing that the PRC's insistence on the "Bill of Export" despite other substantial evidence of export was unjustified. It was determined that the petitioner had fulfilled the export obligations through alternate documentation, including ARE-1 forms and proof of delivery and payment from the SEZ unit.

Key points in the judgment include:

• Relaxation of Procedural Requirements: The DGFT's policy circular effectively relaxed the strict requirement for "Bills of Export" for SEZ supplies made prior to July 1, 2017, covering most of the petitioner's transactions.
• Precedent and Fairness: The court reinforced the legal principle established in earlier judgments that procedural lapses can be overlooked if the evidence demonstrates that the export obligation has been met.

Conclusion:

The Bombay High Court's ruling underscores the flexibility inherent in regulatory compliance, particularly concerning export obligations. The decision to quash the PRC's minutes and mandate the issuance of Export Obligation Discharge Certificates (EODCs) reflects a judicial stance favoring substantial compliance over rigid procedural adherence. This case sets a precedent for similar disputes where procedural technicalities are contested, reinforcing the principle that the essence of regulatory compliance should take precedence over mere formalities.