Judgment

B. P. JEEVAN REDDY, J.:- The appeal is preferred against the judgment of the Delhi High Court allowing the writ petition filed by the second respondent M/s. Ferro Alloys Corporation Ltd. The writ petition was directed against the judgment and order of the Government of India, Ministry of Finance, dated September 19, 1973 in an appeal preferred under paragraph (9) of the Tax Credit Certificate (Exports) Scheme, 1965.

2. The second respondent is the manufacturer-exporter of ferro-manganese and chrome-concentrates. During the year 1964-65 (from February 28, 1965 to June 5, 1965) the second respondent entered into a number of agreements with the foreign buyers for the sale of the aforesaid two commodities. The export was routed through the M.M.T.C. the appellant herein, to bring it within the system of private barter introduced by the Government of India with a view to encourage exports. It would be appropriate to notice the essential features of the barter system in vogue during the relevant period at this stage. The main objective behind the system was to provide a mechanism which would result in increased export of particular commodities which were ordinarily difficult to sell abroad and to destinations, in which the selling countries were not able to get a foot-hold. This objective was sought to be achieved by linking them to imports of an equivalent or lesser value of essential commodities, which, in any event, the country had to import. All barter proposals were scrutinised in the first instance by the M.M.T.C. and then by the Barter Committee. The essential stipulations were :

"(i) All imports made under barter deals were subject to such sale price and distribution control as were laid down by the Government, and

(ii) All barter deals were to be routed through S.T.C./M.M.T.C. unless otherwise decided upon by Barter Committee."

As and when approval was given by the Government of India, a Letter of indent used to be issued by the M.M.T.C. to the bartering firm or the local supplier, as the case may be. (In this case, there was no bartering firm. Ferro Alloys was directly sending the goods). As far as purchase and sale contracts were concerned, the M.M.T.C. insisted that there should be one contract of sale between the local supplier and the M.M.T.C. and another contract of sale by the M.M.T.C. to the foreign buyer on principal to principal basis. The foreign exchange so generated under this arrangement was the basis for issue of import licences, which were issued in the name of M.M.T.C, with the letter of authority in favour of the bartering firm or the local supplier, as the case may be. This enabled the bartering firm/local supplier to import the approved commodity under its approval barter and thus be in a position to recoup the losses incurred by it in arranging the supply - or in supplying, as the case may be - of export commodities to the M.,M.T.C. It was agreed and understood that the Ferro-alloys should intimate the foreign buyer to enter into a direct contract with the M.M.T.C. treating it as the seller. It was also agreed that G.R.I. Form prescribed by the Reserve Bank of India under the Rules framed under the Foreign Exchange Regulation Act (for accounting the receipt of foreign exchange) was to be signed by the M.M.T.C. showing it as the exporter and seller vis-a-vis the foreign buyer. Letters of credit was also to be opened in the name of Ferro-alloys, which was to be assigned to the Ferro-alloys. This was done with a view to enable the Ferro-alloys to receive the payment directly for the goods supplied to M.M.T.C. The Shipping Bill, which is a document prescribed under the Customs Act, was also to be made out showing M.M.T.C. as the exporter.

3. The transactions were gone through. Dispute arose between the parties when the question of issuance of a Tax Credit Certificate under S. 280(z)(c) of the Income-tax Act arose. Sub-section (i) of S. 280(z)(c), as in force at the relevant time, read as follows:

"Tax Cre