Werywin Defence Pvt. Ltd. v. Union of India & Ors.

Delhi High Court · 27 Feb 2023 · 2023:DHC:1440

Prathiba M. Singh

W.P.(C) 16832/2022

2023:DHC:1440

administrative appeal_allowed Significant

AI Summary

The Delhi High Court clarified that import of arms requires licences both from DDP under FTDR Act and 'Form X' licence from DGFT under the Arms Act, directing release of imported consignments upon compliance.

Full Text

2023/DHC/001440

W.P.(C) 16832/2022
HIGH COURT OF DELHI
Date of Decision: 27th February, 2023

W.P.(C) 16832/2022 &CM APPLs. 53265/2022, 53266/2022
WERYWIN DEFENCE PVT. LTD. ..... Petitioners
Through: Mr. ParitoshBudhiraja and Ms. Pooja Sharma, Advocates (M-9999439410)

VERSUS

UNION OF INDIA & ORS. ..... Respondents
Through: Mr. Kirtiman Singh, CGSC with Ms. Vidhi Jain, Advocate for UOI.
Mr. Santosh Kr. Tripathi, SC, GNCTD with Mr. Tapesh Raghav, Advocate for R-3.
Mr. Anurag Ojha, Sr. Standing Counsel with Mr. Gautam Barnwal and Mr. Kumar Abhishek, Advocates for R-5 (M-8969011590).
Ms. Urmila Rawat, Deputy Secretary, DDP.
Mr. MoinAffaque, Dy. DGFT.

CORAM:

JUSTICE PRATHIBA M. SINGH Prathiba M. Singh, J.(Oral)

JUDGMENT

1. This hearing has been done through hybrid mode.

2. The Petitioner- Werywin Defence Pvt. Ltd. has filed the present writ petition seeking issuance of import licences in ‘Form X’ format as per Rule 88 of the Arms Rules, 2016 (hereinafter ‘Rules’) in respect of the licences that it has already procured from the Department of Defence Production (DDP), Ministry of Defence. The Respondents in the present case are Union of India- Respondent No.1, Director General of Foreign Trade (DGFT), Ministry of Trade and Commerce - Respondent No.2, Joint Commissioner of Delhi Police- Respondent No.3, M/s Celebi Delhi Cargo Terminal Management India Pvt. Ltd. - Respondent No.4 and the Office of the Commissioner of Customs- Respondent No.5.

3. The Petitioner is a company engaged in the manufacture of various restricted items including firearms, ammunition and parts thereof. It is the case of the Petitioner that it obtained seven licences from the DDP for import of restricted items from the U.S. and various other countries. The details of the said licences are as under:

4. In terms of the licences dated 24th December, 2021 and 18th April,

S. No. Date of Licence Purpose

1 24th December, 2021 Demonstration by Indian Army and own R&D. 2 18th April, 2022 For indigenising the shotgun production in India. 3 23rd November, 2021 Ammunition components for assembly and manufacturing into finished cartridges. 4 4th May, 2022 Fitment into the revolvers firearm system. 5 10th June, 2022 For fitment into the pistol system with prototypes. 6 10th August, 2022 Components for fitment into the revolvers firearm system. 7 13th September, 2022 Actual user Components for fitment into the revolvers firearm system. 2022 at S. No. (1) and (2) above, the imports have already taken place and the imported products are lying with the Respondent Nos. 4 & 5. The said imports could not be cleared since the inspection that was to be carried out by the Delhi Police was not carried out. Vide letter dated 23rd September, 2022, Delhi Police had informed the Petitioner that since the application of the Petitioner was not accompanied by license issued in ‘Form X’, the inspection cannot be carried out. Therefore, the imported products of the Petitioner continue to lie at the cargo terminal.

5. Vide order dated 19th April, 2022, the Court had permitted the Petitioner to make a representation for moving of the goods under the two licences to a recognized warehouse in accordance with Section 49 of the Customs Act, 1962. The order dated 19th April, 2022 reads as under:

“3. Ld. counsel for the Petitioner highlights the fact that

the Petitioner is incurring high demurrage charges in

the IGI Airport. Ld. Counsel appearing for Respondent

No. 5- The office of the Commissioner of Customs

submits that an application maybe moved by the

Petitioner under Section 49 of the Customs Act, 1962

for shifting the goods to a warehouse. Section 49 of the

Customs Act, 1962 reads as:

23,992 characters total

“49. Storage of imported goods in warehouse

pending clearance or removal.--Where,--

(a) in the case of any imported goods, whether dutiable or not, entered for home consumption, the Assistant Commissioner of Customs or Deputy Commissioner of Customs is satisfied on the application of the importer that the goods cannot be cleared within a reasonable time;

(b) in the case of any imported dutiable goods, entered for warehousing, the Assistant Commissioner of Customs or Deputy

Commissioner of Customs is satisfied on the application of the importer that the goods cannot be cleared within a reasonable time; (b) in the case of any imported dutiable goods, entered for warehousing, the Assistant Commissioner of Customs or Deputy Commissioner of Customs is satisfied on the application of the importer that the goods cannot be removed for deposit in a warehouse within a reasonable time, the goods may pending clearance or removal, as the case may be, be permitted to be stored in a public warehouse for a period not exceeding thirty days: Provided that the provisions of Chapter IX shall not apply to goods permitted to be stored in a public warehouse under this section: Provided further that the Principal Commissioner of Customs or Commissioner of Customs may extend the period of storage for a further period not exceeding thirty days at a time.”

4. Accordingly, the Petitioner is permitted to make a representation to the Customs authorities for moving the cargo to a recognized warehouse. The same shall be considered and if the documents are found in order, the same shall be processed and decided within 3 days after moving of the representation.

5. List on 6th February, 2023.

6. Interim order already granted shall operate till the next date.”

6. Later, there was also a dispute which was raised as to whether there was any recognized warehouse which could store ‘full arms’ or not. However, today the Court has been informed that the said issue has now been sorted out between the Petitioner and the Customs Department and it is submitted by ld. Counsels that the Petitioner is in the process of shifting the goods to the recognized warehouse as required by the Customs authorities. Therefore, the questions that now remain to be considered in this writ petition are: ● Whether the already imported goods can be released to the Petitioner? ● Whether the goods which are yet to be imported under the remaining five licences can be permitted to be imported or not?

7. On behalf of the Petitioner, Mr. Budhiraja, ld. Counsel submits that the Petitioner has been duly licenced by DDP for import of these goods and it is the obligation of DDP to issue the licence under ‘Form X’ inasmuch as DDP is a duly delegated body under the Arms Act, 1959 and the Foreign Trade (Development and Regulation) Act, 1992 (hereinafter ‘FTDR Act’) for the issuance of licences in respect of restricted items such as arms.

8. He further submits that there is no provision which has been set out in the Standard Operating Procedure (SOP) dated 18th October, 2019 for applying under ‘Form X’ which is issued by the DDP. The said SOP merely contemplates filing of an application under ANF[1], ANF2M along with the necessary documents which the Petitioner has duly undertaken. The Petitioner has also paid the requisite fee to the DDP to enable the imports which is the basis on which the licences themselves have been granted. Thus, it is his submission that the non-release of the goods or non-permitting of goods to be imported unless and until ‘Form X’ licence is issued would be contrary to law inasmuch as the Petitioner cannot be expected to apply both to the DGFT and DDP for the same goods to be imported.

9. Mr. Budhiraja, ld. Counsel, further submits that once the power to issue a license is delegated to the DDP under the FTDR Act, DGFT ought not to be permitted to retain the power to issue ‘Form X’ licence under the Arms Act.

10. On the other hand, on behalf of Union of India, Mr. Kirtiman Singh, ld. CGSC submits that both these statutes, i.e., Arms Act and the FTDR Act, are applicable in the case of import or arms. Under the FTDR, the DGFT is the overarching body which issues licences in respect of imports. Under the Arms Act, the Ministry of Home Affairs (MHA) has delegated the power to issue licenses for import of arms and ammunition to DGFT. Though the DGFT may have delegated its powers under the FTDR Act to the DDP, insofar as power to issue licence qua imports under the Arms Act is concerned, the DGFT continues to retain its powers. Moreover, the insistence of the Respondents upon applications being made in requisite format and issuance of licence in ‘Form X’ is in terms of Rule 88 of the Arms Rules. Thus, the Petitioner ought to have applied both to the DDP under the FTDR Act as also to the DGFT under the Arms Act and Rules to get the import licence. The Petitioner having not done so, the imports have been rightly stopped by the Customs and Delhi Police.

11. On the last date of hearing, i.e., 20th February, 2023, the Court had directed officials from DGFT, Office of Commissioner of Customs, and Ms. Urmila Rawat, Deputy Secretary, DDP to appear before the Court. Today, in compliance of the said order, Ms. Urmila Rawat, and Mr. Moin Afaque, Deputy DGFT, have appeared before the Court.

12. A specific query from the Court as to whether the stand of the Union of India, as submitted by the ld. CGSC before the Court today, is reflected in the SOP or not. Both the officials submit that there is no reference given to the Arms Act or the Rules in the SOP. The DGFT’s stand, however, is that since the MHA requires a licence to be issued under ‘Form X’, the importer was well aware that he had to make the necessary application under ‘Form X’. On behalf of the DDP, it is now submitted that since the SOP did not deal with application to be made under ‘Form X’, in view of the prevalent situation, a recent circular has been issued on 8th February, 2023 by the DDP wherein it has been clarified that licences from both the DDP and the DGFT under ‘Form X’ would be required for imports of arms and ammunition including parts thereof.

13. Mr. Kirtiman Singh, ld. CGSC has also brought to the notice of this Court a recent decision of a ld. Single Judge of this Court in Syndicate Innovations International Limited v. The Office of the Commissioner of Customs and Ors [W.P.(C) 10143/2022, date of decision 7th October, 2022]., wherein it has been clarified as under:

“63. Before concluding, the Court also deems it necessary to dispose of two minor issues which came to be raised. The respondents had urged that the requirement of obtaining a license under Form X is a stipulation which continues to apply notwithstanding the import permission granted by the DGFT. This submission was made in light of the contention addressed on behalf of the petitioner that once the power to issue an import permission stood delegated to the DGFT, there is no legal obligation on an importer to apply for and obtain a license under Form X. The Court notes that Section 10 of the Act specifically deals with the power to issue licenses in connection with import of arms and parts thereof. It is that power which stands delegated and transferred to the DGFT. The DGFT has thus for all practical purposes stepped into the shoes of the MHA which was prior to the delegation acting as the licensing authority. While this issue no longer survives in this petition in light of the respondents having subsequently granted the license, it may only be observed that the DGFT while dealing with the subject of import of arms would have to ensure that compliances are affected not just with reference to the 1992 Act but also the Act and the 2016 Rules. 64. The writ petitioner has also sought reliefs with respect to the liability of demurrage which has come to

be foisted upon it on account of the controversy which arose in respect of the shipment in question and formed subject matter of the instant writ petition. However the Court notes that the liability to bear demurrage charges shifts from the importer to importer to the licensing and the customs authorities if any delay be caused in inspecting the consignment as per Rule 88(6) of the 2016 Rules. The third respondent however in the facts of the present case cannot be called upon to shoulder that liability since it had dutifully inspected the consignment within the time specified in Rule 88(6). That authority has thus not caused any delay so as to warrant any directions being framed against it and as claimed in the writ petition. More fundamentally and bearing in mind the contentious questions which came to be raised, the facts of the present case would not warrant the grant of relief (d) as claimed in the writ petition.”

14. It has further been brought to the attention of the Court that this judgment is the subject matter of LPA No. 695/2022 titled The Ministry of Home Affairs & Anr. v. Syndicate Innovations International Limited & Ors. and connected matters. In the said matter, vide order dated 6th February, 2023 the importers were permitted to take goods on supratnama but were directed to not to dispose of the said items. The said matters are currently pending before the ld. Division Bench and are stated to be next listed on 10th May, 2023.

15. Heard ld. Counsel for the parties and perused the record.

16. The factual situation reveals that in view of the applicability of the FTDR Act and the Arms Act, there has been some confusion between the authorities as to the manner in which licenses are to be granted for import of arms and parts thereof. The stand of the DGFT is that ‘Form X’ license would be required for import of fire arms in India. However, on a specific query as to whether there was any methodology prescribed for filing an application under ‘Form X’ on the DGFT portal, the Court has been informed that there is no procedure for online application under ‘Form X’ and a physical copy would have to be filed by the importer.

17. Insofar as the DDP is concerned, though, it is the delegatee of the DGFT under the FTDR Act, insofar as the Arms Act is concerned, the power of granting import licence under the said Act has not been delegated. Even during the submissions before this Court when officials from both the authorities have appeared, it is clear that there was a lack of clarity on this matter which led to the issuance of the circular dated 8th February, 2023 by the DDP, which now seeks to clarify all the required forms to be filled, the authorities to deal with the same and the permissions thereof to be granted. The Respondents themselves having recently clarified the position in respect of ‘Form VII’, Rule 54 of the Arms Rules, 2016, ‘Form X’ and the manner in which the said applications for issuance of import licence have to be made, in the opinion of the Court, the Petitioner alone cannot be held to blame.

18. In the present case, the position that has currently, emerged is that under the SOP dated 18th October, 2019 which was issued by the DDP as a delegatee of the DGFT under the FTDR Act, the application was to be filed under ANF[1], ANF2M along with the necessary documents. The relevant clauses of the SOP are set out below:

“1. BACKGROUND The Directorate General of Foreign Trade (DGFT) vide Order dated 28/05/2018 (Annexure-1) has authorized the Department of Defence Production (DDP) for the items enclosed therewith to grant or renew or refuse to grant or renew license or to suspend or cancel a licence for the purpose of import of such

class or classes of goods or services or technologies. In order to process the applications for import of Defence items in a time-bound and user-friendly manner, the DDP hereby notifies the following guidelines:

2. ISSUANCE OF IMPORT LICENCE The DDP shall issue the Import Licenses under the following categories- Category 1: Items for the end use of Indian Armed Forces, DRDO, DPSUs, OFB, MHA, other Government Departments and State governments and Category 2: Items for the purposes of design & development, export, repairs, fitment into a system, participation in Tenders/Exhibition, Testing & Evaluation.

3. EXEMPTION FROM THE APPLICATIONS OF RULES Agencies/Organizations mentioned in DGFT’s Amendment Order, 2017 dated 25.07.2017 (F. No.01/93/180/16/AM-16/PC-2(B)), as amended from time to time, shall be exempted from seeking import authorization of defence items.

4. MODE OF APPLICATION The Indian Manufacturers are required to file applications in ANF[1], ANF2M along with the necessary documents [including Appendix 2P (ANF2K(i), Annexure 2(i), (ii) & (iii)) for imports from USA. The certificate notified in such documents would continue to be issued by DGFT as agreed under Indo US MOU signed by DGFT]. They would also enclose the copy of Purchase Order / End User Certificate counter-signed by the end user. The applications alongwith the scanned copy of EUC/purchase order may be sent through email to usepc@ddpmod.gov.in till an on-line system is made available for the purpose.

5. DOCUMENTS REQUIRED FOR PROCESSING OF THE APPLICATIONS

(i) A copy of Purchase Order/Supply order/End User

(ii) End User Certificate (EUC)/self-declaration by

Importer for items covered under 'Category 2' with relevant documents regarding participation in Tenders/Exhibition, Testing & Evaluation and any other use as applicable;

(iii) Technical Specifications of the items intended to be imported.

(iv) Copy of Industrial Licence, Manufacturing Licence along with undertaking/confirmation that there is no change in the Board of Directors since the issue of Industrial Licence/Manufacturing Licence till the date of application.

(v) A summary of contract details in tabular format specifying following:-

(i) Contracting parties with their address (ii) Date of contract (iii) Validity of the Contract

(vi) The contact details of End-Users specifying Name

19. It is the admitted position on record that the Petitioner has made the applications in terms of the SOP and has been awarded licences for import of arms. Under the two licences dated 24th December, 2021 and 18th April, 2022, imports have already been effected. Under the remaining five licences, the Petitioner is stated to have paid a substantial part of the consideration to the concerned manufacturer from whom the purchases are to be made but the imports have not been made yet owing to lack of clarity in respect of ‘Form X’.

20. The Court has perused the two licenses in question in the present case, dated 24th December, 2021 and 18th April, 2022 and in the opinion of the Court they make it completely clear that the purpose of the licence is for demonstration to the Indian Army and for indigenisation of production of the said arms in India under Technology Transfer Collaboration with various companies. In respect of the other five licences in respect of which imports are yet to be made, the stand of the Union of India is that they are in respect of import to ‘manufacture and assemble’ restricted items. Thus, before any commercial sale can be made, an application under Rule 54 of the Rules would have to be made for the purposes of commencement of commercial production and sale. In response, Mr. Budhiraja, ld. Counsel submits that the Petitioner has no intentions to commercially sell the imported restricted goods at this stage and the requisite licences would be taken by the Petitioner before commercial sale is commenced.

21. The clear position that therefore emerges is that the Petitioner has been issued licences for imports by the DDP. Two consignments have already arrived in India. These two consignments are in respect of licences which are at pages 61 and 64 of the writ petition. Both these consignments are meant for indigenisation of rifle production in India under Technology Transfer Collaboration with LMT Defence, USA, and for indigenisation of shotgun production in India under Technology Transfer Collaboration with Hugul Firearms Cooperative, Turkey. Such imports are crucial and clearly are meant to expedite indigenisation which is an important aspect of achieving self-sufficiency for defence purposes. The holding-up of these consignments on procedural grounds, especially owing to confusion between two authorities would be contrary to the object behind issuance of the licences itself by the DDP. Insofar as the defence requirements are concerned, the DDP is well conversant of the same and has duly licensed the imports.

22. Thus, insofar as the said two consignments are concerned, the Petitioner shall file the relevant application along with necessary documents for issuance of license in ‘Form X’ with the DGFT within one week, which shall issue the licence strictly for the purposes for which the licence has been issued by the DDP and the consignments shall be permitted to be cleared by the Petitioner for movement to its own factory.The Petitioner shall utilize the said products strictly in terms of the two licences which have been granted and shall not make commercial sale of these products in any manner whatsoever, without prior permission. For the purposes of commercial sale, the Petitioner shall strictly comply with the Arms Act and Rules framed thereunder.

23. The application shall be made within a period of one week from now to the DGFT along with the requisite fee and the permission under ‘Form X’ shall be issued within a period of two weeks thereafter.

24. Insofar as the remaining five licences are concerned, the Petitioner shall make applications for issuance of licence in ‘Form X’ within a period of one week in respect of the said consignments. The same shall be processed by the DGFT and after processing, the decision in respect of the said licences shall be communicated to the Petitioner within a period of four weeks.

25. It is made clear by the Petitioner that none of the products are meant for commercial sale and the same shall not be sold without obtaining requisite licenses and permissions. An undertaking to this effect shall be recorded by the DGFT at the time of processing the permission.

26. The above arrangement is being made strictly in the facts of this case, as it appears that there was a confusion which was prevalent in the extant regime, which has now been clarified by the circular dated 8th February,

2023. Going forward, it is made clear that DGFT and DDP shall publicise this circular on their website and the online application portal and inform all importers of the requirement of obtaining licences under the FTDR Act from the DDP and licence in ‘Form X’ under the Arms Act from the DGFT.

27. The circular dated 8th February, 2023 is extracted herein below for the sake of ready reference: CIRCULAR DATED 8TH FEBRUARY 2023 “SUBJECT: Issuance of Import Authorization in Form X-Regarding. The Department of Defence Production issues import license/authorization in accordance with the authority delegated by DGFT only under FTDR Act 1992 vide Order No. 01/93/180/41/AM-17/PC-2(B)/[E-3347] dated 28.05.2018.

2. MHA has issued clarification to DDP in respect of applicability of Section 45 (b)(i) of the Arms Act, 1959 and rule 57(4) of the Arms Rules 2016 w.r.t import of arms & ammunition and conveyed that as per the extant provisions of the Arms Act & Rules, the following licences/ permissions are required by a manufacturing and/or proof test arms and ammunition: i.Licence in Form VII to manufacture and/or proof-test ii.Licence in Form I to acquire/possess machinery for manufacturing and/or proof-test. iii.Permission of MHA to commence commercial production and proof-test arms and/or ammunition in terms of rule 54 of the Arms Rules,2016. iv.Licence in Form X of the Arms Rules, 2016 for all imports of arms and ammunition including parts of firearms, and ammunition where a manufacturer is seeking to import. This is also required by a dealer holding a Form VIII licence if he intends to import.

3. Exemption is allowed to such companies/firms under Section 45(b)(i) of the Arms Act, 1959 where MHA has given its approval. Moreover, approval under rule 57(4) is also accorded by MHA.

4. In view of the above for import licence in Form-X application in Form A-10 may be submitted in DGFT. The powers to grant import licence under Arms Act, 2016 has been delegated to DGFT by MHA vide notification dated 01/11/2018.

5. The above instructions are issued for compliance.”

28. The Petitioner is permitted to approach this Court by way of an application if there is any delay in processing of licence in ‘Form X’ or if any other objections are raised by the concerned department.

29. Petition is disposed of in the above terms. All pending applications are also disposed of.

PRATHIBA M. SINGH, J FEBRUARY 27, 2023 Rahul/SK/KT

Werywin Defence Pvt. Ltd. v. Union of India & Ors.

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