NEW DELHI, NOV 11: Law Minister Ram Jethmalani has given his assent for a huge Rs 500 crore bonanza for the cash-strapped Essar group, over-ruling the dissent of his ministry's bureaucrats and legal advisors. A final decision on the controversial matter of refunding import duties paid by Essar Steel in 1992-93 will be taken by Finance Minister Yashwant Sinha when he returns from Germany - the duty refund, and the huge interest for 6 years, will have to be paid by the Finance Ministry. Jethmalani's ruling also opens the doors for several such requests by other importers, and could result in a duty refund worth a few thousand crore.What makes the decision controversial is that it has been rejected twice before by this very ministry. Once in 1997 by P Chidambaram when he was Finance Minister and then again by R K Kumar when he was the minister of state in 1998. In February, the proposal was revived again (see The Indian Express, Feb 14), but was shelved due to adverse publicity.Industry sources are, however, confident Sinha will okay the proposal when the file is sent to the finance ministry - though he may wish to delay the actual payment due to a funds crunch - for a variety of reasons. For one, Jethmalani's legal acumen is legendary, and it was Sinha's own ministry which sent the file to Jethmalani a few months ago. And since Essar has not been able to honour several of its loan repayment conditions, several financial institutions are also reportedly backing this proposal to give funds to the company.Briefly, the case pertains to 1992-93, when Essar Steel imported equipment for their steel plant and was asked to pay Rs 300 crore as import duty. Some months prior to this, in November 1993, however, Maruti Udyog had been granted an ad hoc exemption from paying import duty on its capital goods - in return, Maruti agreed to undertake to make exports equal to 7 times the amount of duty over a period of 5 years. After Maruti was given this concession, on November 11, Essar's representatives asked that they be given this as well. This was, however, turned down by the government which argued that such a concession could be considered only for imports that were yet to be contracted, and not those which, like Essar's had been ordered much before.Later, in 1995, the government announced a formal Export Promotion Capital Goods Scheme (EPCG) - export obligations in lieu of import duties - Essar Steel started pushing for its proposal afresh and asking for a duty refund. Each time, it was rejected, with the finance ministry arguing that no refunds could be given since the actual imports were contracted before the policy changed.This time around also, the legal advisor in the law ministry as well as the law secretary recommended rejecting the proposal, on precisely the same grounds. They also pointed out that while the government had, in a press note issued on Nov 5, 1993 said that it would consider requests for similar ad hoc exemptions, this did not mean that it would be automatic, or that every proposal would be given such concessions.Jethmalani has, however, pointed out that the Essar request is in line with the Maruti case. He has also argued that the government's press note had effectively created a `right' for Essar, and since Essar had a `right' to this exports-for-duties scheme, this should be granted. According to Jethmalani, under Article 14 of the constitution, there could be no discrimination in the treatment given to, in this case, Maruti and others.Interestingly, Jethmalani's ruling, if accepted, will open up the doors for various other companies for refunds.
