Bombay High Court
M/S. Euroflax Industries vs Union Of India on 19 July, 2011
Author: D.Y. Chandrachud
Bench: D.Y. Chandrachud, Anoop V. Mohta
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 885 OF 2011
1 M/s. Euroflax Industries
2 Shri Anuj Mittal .....Petitioners.
Vs.
1 Union of India,
2 The Textile Commissioner
3
Director General of Foreign Trade .....Respondents.
Mr. Haresh Jagtiani, Sr. Advocate with Mr. Anil D'Souza, Mr. Suprabh
Jain and Mr. Abhijeet Shinde for the Petitioners.
Mr. R.V. Desai, Sr. Advocate with Mr. G. Hariharan i/by Dr. T.C.
Kaushik for Respondent Nos. 1 and 2.
Mr. Rui Rodrigues with Mr.M.S. Bhardwaj for Respondent No. 3.
CORAM :- DR. D.Y. CHANDRACHUD AND
ANOOP V. MOHTA, JJ.
DATE :- 19 JULY 2011.
ORAL JUDGMENT (Per Dr. D.Y. Chandrachud, J.):-
Rule, by consent, returnable forthwith. With the consent of Counsel and at their request, the Petition is taken up for hearing and final disposal.
::: Downloaded on - 09/06/2013 17:31:24 :::2 wp885.11.sxw ssm 2 The Petitioners are engaged in the business of export of raw cotton to foreign buyers mainly in Hong Kong and China. On 17 August 2010 the Foreign Trade Policy for 2009-2014 was amended by the Central Government under Section 5 of the Foreign Trade Development and Regulation Act, 1992. By the amendment, the export of cotton was made free and reverted to the Open General Licence (OGL) subject to contracts for the export of cotton being registered with the Textiles Commissioner prior to shipment.
Clearance of cotton consignments by Customs was directed to be made after verifying that the contract had been registered.
Consequent upon the modification, the Government of India in the Ministry of Textiles issued a Memorandum on 7 September 2010. The Memorandum stated that exports of cotton could be made against valid Export Authorization Registration Certificates (EARCs) issued by the Textiles Commissioner, Mumbai. Guidelines for EARCs were issued under the Memorandum. Para 3 of the guidelines required each applicant to submit EARC applications in the form set out in Annexure I 'A', I 'B' or I 'C', as the case may be, accompanied by scanned copies of export contracts. The procedure was to take place online. The guidelines stipulated as follows:-
::: Downloaded on - 09/06/2013 17:31:24 :::3 wp885.11.sxw ssm "On being satisfied that the information furnished in Annexure- I 'A', I 'B' & I 'C' as the case may be, is duly completed in all respects, the Textile Commissioner or his authorized officers (Joint Textile Commissioner/Director/ Deputy Director/ Assistant Director) shall issue Export Authorisation Registration Certificate in prescribed form as at Annexure-II with a validity of shipment period of 45 days. The Export Authorisation Registration Certificate (Annexure-II) duly signed with the Government seal will be issued to the applicant for submission to customs authority prior to shipment"
3The First Petitioner applied for the registration of eleven contracts for export of cotton through the online registration facility of the Textiles Commissioner between 1 October and 10 October 2010. On 30 September 2010, a press note had been issued by the Textiles Commissioner notifying a decision taken by the Group of Ministers to the effect that actual exports would commence from 1 November 2010: the exportable surplus was quantified at 55 lac bales of raw cotton and there would be no registration after the exportable surplus was reached. The press note stated that the Textiles Commissioner would register contracts for the export of raw cotton for an aggregate quantity of 55 lac bales on a first come first served basis with effect from 1 October 2010 and a period of 45 days would be allowed for making shipments which would be reckoned from the date of issue of the EARC or 15 December 2010, whichever was later. The online ::: Downloaded on - 09/06/2013 17:31:24 :::
4 wp885.11.sxw ssm application system was declared closed on 10 October 2010 as, according to the Textiles Commissioner, applications for 55 lac bales were received and no further applications could be accepted for registration.
4 Of the eleven contracts which were registered by the Petitioners for the export of 40,500 Metric Tones (Approximately 2.43 lac bales), the First Petitioner was given physical delivery of three EARCs, for 8000 Metric Tones representing approximately 48,000 bales. While submitting their applications Petitioners had wrongly included two contracts in the name of an alleged sister concern, KKM International.
According to the Petitioners, by an e-mail dated 4 November 2010, they had communicated that the application in respect of these two contracts which were in the name of KKM International should be rejected. There is a serious dispute on whether the communication was received by the Respondents and it has been the case of the Textiles Commissioner that the records of the case do not reflect that any such intimation was received by the office.
5 On 25 November 2010 the Textiles Commissioner issued a notice to show cause to the First Petitioner calling upon it to explain ::: Downloaded on - 09/06/2013 17:31:24 ::: 5 wp885.11.sxw ssm as to why eight of the applications filed should not be rejected. The ground on which this action was proposed was that by seeking EARCs in respect of two export contracts executed by KKM International with foreign buyers, the Petitioners had attempted to secure EARCs by using the contract of another seller which was an abuse of the online system and an attempt to secure a higher quantity of cotton out of the export surplus permitted by the Government for the cotton year 2010-11. Another ground which was mentioned was that there was a discrepancy between the destination stated in the contracts and as stated in the applications.
6 Following the issuance of the notice to show cause, an order was passed on 14 December 2010 by which the applications of the Petitioners for the issuance of EARCs in respect of eight contracts were rejected on the ground of willful mis-declaration. The first order of rejection was set aside by a Division Bench of this Court on 11 February 2011 on the ground that there was a breach of the principles of natural justice. In the meantime, the jurisdiction came to be transferred from the Textiles Commissioner to the DGFT on 16 December 2010 in pursuance of a notification under Section 5 issued by the Government of India. The Division Bench directed that a ::: Downloaded on - 09/06/2013 17:31:24 ::: 6 wp885.11.sxw ssm representation which had been made by the Petitioners on 24 January, 2011 to the Ministry of Textiles would be treated as a representation to the DGFT which was then directed to dispose of the representation.
7 Eventually, the Deputy Director General, Foreign Trade passed the impugned order dated 19 April 2011. The order takes note of the fact that out of eleven applications submitted by the Petitioners to the Textiles Commissioner, the Petitioners were given EARCs in three cases. The Petitioners admitted to have erroneously made two applications using the contracts of their sister concern. Thus, what remained pending was six applications involving a total quantity of 25000 Metric Tones or approximately 1.5 lac bales. The order states that DGFT had allocated the quantity of raw cotton on a pro-rata basis in the month of January 2011. Accordingly, a total quantity of 1.5 lac bales against the six applications of the Petitioners was taken as the quantity applied for by them under the system of pro-rata allocation.
Based on the same ratio on which allocation was made to the other applicants on 10 January 2011, the Petitioners have been allocated 675 bales of cotton for the export of raw cotton against the six applications.
::: Downloaded on - 09/06/2013 17:31:24 :::7 wp885.11.sxw ssm 8 The grievance of the Petitioners is that by the impugned order the DGFT has incorrectly purported to follow a new policy which was announced by the Government of India on 29 December 2010, while according to them, a vested right had accrued under the policy before it was modified. According to the Petitioners, the new policy would indicate that data on exports made from 1 November to 15 December 2010 was being collected and an allocation was to be made of the balance quantity keeping in view the decision of the Union Government to limit the export of raw cotton to 55 lac bales during the cotton year 2010-2011. The new policy requires applicants to submit copies of their export contracts after allocation is made. The submission which has been urged on behalf of the Petitioners is that a vested right had accrued to them under the earlier Memorandum dated 7 September 2010. According to the Petitioners, this vested right is evident from a notification on the web-site of the Textiles Commissioner as of 13 December 2010, in which details have been disclosed of the EARCs issued in respect of raw cotton. The EARCs issued to the Petitioners are reflected at Serial Nos. 619, 835, 837, 949, 951 and 952. As a matter of fact, the list also contains the other three EARCs in respect of which physical delivery was issued to the Petitioners. Hence, the contention of the Petitioners is that they had ::: Downloaded on - 09/06/2013 17:31:24 ::: 8 wp885.11.sxw ssm entered into firm contracts with foreign buyers in terms of the Memorandum dated 7 September 2010 and their entitlement for EARCs was reflected on the web-site of the Textiles Commissioner.
However, physical delivery of the EARCs remained to be effected by the time the show cause notice was issued on 25 November 2010.
According to the Petitioners, the DGFT has improperly treated their applications as fresh applications governed by the new policy, which is impermissible. The fact that 675 bales have been allotted to the Petitioners confirms their eligibility but the pro-rata principle under the new policy has been wrongly made applicable to them. The Textiles Commissioner had put up on the web-site lists of EARC applications received, of applications with deficiencies and those applications in respect of which EARCs were issued. Moreover, a circular was issued by the Commissioner of Customs (Exports) on 3 January 2011 clarifying that the details up-loaded by the Ministry of Textiles of EARCs issued to exporters on the official web-site would be used as an authentic data base for facilitating verification by the Customs authorities as to the genuineness of the EARCs.
9 On behalf of the Respondents, it has been submitted that under the Memorandum dated 7 September 2010, EARCs were required to ::: Downloaded on - 09/06/2013 17:31:24 ::: 9 wp885.11.sxw ssm be issued in the physical form in the prescribed format. In the present case, physical delivery was issued to the Petitioners of only three EARCs in the physical form. Hence, it has been urged that no vested right had accrued to the Petitioners. Moreover, it has been submitted that the Textiles Commissioner in his first order of rejection dated 14 December 2010 noted that the Petitioners made a mis-declaration by attempting to secure an additional allotment of EARCs by relying upon the contracts of a third party seller. Finally it was sought to be urged that what was put up on the web-site of the Textiles Commissioner was a list of the EARCs generated and unless EARCs were issued in the physical form, the Petitioners would acquire no right to carry out the export of raw cotton.
10 The rival submissions now fall for determination.
11 Prior to 17 August 2010 the export of raw cotton was placed in the restricted category by a notification dated 21 May 2010 issued by the Government of India in the Ministry of Commerce. On 17 August 2010 the Union Government issued a notification under Section 5 of the Foreign Trade (Development and Regulation) Act 1992 under which the export of raw cotton reverted to the "free" category, to be ::: Downloaded on - 09/06/2013 17:31:24 ::: 10 wp885.11.sxw ssm governed by the OGL procedure. This was subject to the condition that contracts for the export of cotton were registered with the Textiles Commissioner prior to shipment. Customs authorities were required to grant clearance of cotton consignments after verifying that the contracts were duly registered. The filing of an EARC request or application was to be online. The guidelines which were issued by the Textiles Commissioner under his Press note dated 7 September 2010 stipulated that exporters could view the progress and status of their applications online. The guidelines provided that the office of the Textiles Commissioner would on receipt of an application issue an EARC in the physical form which would then have to be submitted by the exporter to Customs authorities prior to shipment. Under the Memorandum dated 7 September 2010 of the Government of India in the Ministry of Textiles, applications for the grant of EARCs had to be accompanied by copies of export contracts. Hence it is only when an exporter had already entered into an export contract that an application could be moved for the grant of an EARC. The Memorandum stipulated that on being satisfied that the information furnished in Annexure I 'A', I 'B' or I 'C', as the case may be, is duly complete the Textiles Commissioner or the authorized officer, shall issue an EARC in the prescribed form with a shipment period of 45 ::: Downloaded on - 09/06/2013 17:31:24 ::: 11 wp885.11.sxw ssm days. An EARC duly signed and sealed was to be issued to the applicant for submission to the Customs authorities prior to shipment.
At the relevant time, on 30 September 2010, the exportable surplus was notified at 55 lac bales in respect of raw cotton. The Press note stipulated that the aggregate quantity would be allotted on a first come first served basis with effect from 1 October 2010 and the period of shipment of 45 days would be reckoned from the date of issue of the EARC or 15 December 2010 whichever was later.
12 The Textiles Commissioner notified on the official web-site lists of: (i)Applications received for raw cotton; (ii) Deficient applications;
and (iii) EARCs issued in respect of raw cotton. The Respondents have not disputed the authenticity of Exhibit G to the Petition which is a list containing EARCs issued in respect of raw cotton as on 13 December 2010. The contention of the Respondents is that though the official web-site of the Textiles Commissioner contained a list of EARCs issued in respect of raw cotton, no right would accrue to an exporter unless physical delivery of an EARC was made. Now, undoubtedly every exporter was required to submit to the Customs authorities an EARC in the physical form, signed and sealed before effecting export of a consignment of raw cotton. No consignment ::: Downloaded on - 09/06/2013 17:31:24 ::: 12 wp885.11.sxw ssm could be exported in the absence of an EARC in the physical form.
But the contention of the Petitioners is that the authorities having published a list of the EARCs issued what remained to be done by the issuance of EARCs in the physical form was only a ministerial act. A notice to show cause was issued to the Petitioners on 25 November 2010. One of the grounds in the notice to show cause was that the Petitioners had attempted to secure EARCs in respect of the export contract of a third party seller. According to the Petitioners, prior to the issuance of the notice to show cause, they had sent a communication on 4 November 2010 to the Textiles Commissioner requesting him to delete the two contracts from their applications for EARCs since they pertained to a sister concern of the First Petitioner.
Whether that communication was received is a matter seriously in dispute. In the first order of rejection that was passed on 14 December 2010, the Textiles Commissioner recorded that no such intimation was available in his office. It was on this ground inter-alia that the Textiles Commissioner proceeded to hold that there was a willful mis-declaration on the part of the Petitioners in attempting to secure EARCs on the basis of the export contracts of a third party. The order of 14 December 2010 was set aside by a Division Bench on the ground that there was a breach of the principles of natural justice ::: Downloaded on - 09/06/2013 17:31:24 ::: 13 wp885.11.sxw ssm without the Court being required to consider the findings of fact which were recorded on merits. When the proceedings were reconsidered upon remand, the jurisdiction shifted from the Textiles Commissioner to the DGFT. The Deputy Director General, Foreign Trade in his impugned communication dated 19 April, 2011 proceeded to make an allotment of only 675 bales to the Petitioners on the application of the pro-rata principle. By the new policy that was notified on 25 December 2010, allocation was to be done on a pro-rata basis in respect of the balance quantity that had remained for cotton season 2010-2011 after taking into account data for exports made between 1 November 2010 and 15 December 2010, within the over all limit of 55 lac bales of raw cotton.
13 The web-site of the Textiles Commissioner had disclosed separately lists of (i) applications received; (ii) applications which suffered from deficiencies and which were liable to be rejected; and
(iii) applications in respect of which EARCs had been issued. In so far as the Petitioners are concerned, their applications figured in the list of EARCs issued. The disclosure made on the web-site of the Textiles Commissioner was regarded as a valid basis for authenticating EARCs in a Standing Order of the Commissioner of Customs (Exports) dated ::: Downloaded on - 09/06/2013 17:31:24 ::: 14 wp885.11.sxw ssm 3 January 2011. Prior to that Standing Order, the Commissioner of Customs had notified on 24 November 2010 that in order to curb cases of misuse or fraud it had been decided that verification of EARCs would be done by Customs officers by exchange of facsimile communications with the Textiles authorities. Subsequently, on 3 January 2011 that was modified and the Commissioner of Customs notified that the Ministry of Textiles had uploaded details of EARCs issued to exporters on its official web-site for facilitating verification to be carried out by Customs authorities as to the genuineness of EARCs.
As a matter of fact, the Standing Order clarifies that the Textiles Commissioner had requested the Customs authorities to make use of the web-site instead of getting the genuineness of the EARCs verified by facsimile. Since this was the arrangement which was entered into specifically at the behest of the Textiles Commissioner, he cannot be heard now to argue that the website reflected a list of EARCs generated but not issued. Once a notification was published on the official web-site, applicants would legitimately expect that physical delivery of the EARCs would be issued in the normal course.
Undoubtedly, if a publication on the web-site is found to be a result of error or dishonest conduct on the part of an official in the Department or a mis-declaration by or wrongful conduct of an exporter, it would ::: Downloaded on - 09/06/2013 17:31:24 ::: 15 wp885.11.sxw ssm be open to the Department to take necessary steps to set things right by following due process of law. Such an exercise is permissible in the public interest in order to ensure that the object of the policy is not defeated or flouted.
14 In order to enable the Department to explain the basis on which the publication was made on the web-site, this Court had by its order dated 6 July 2011 directed the Textiles Commissioner to file a further affidavit. In the affidavit it has been urged that the status on the web-
site did not amount to a notification which would give a vested right to the applicant. Moreover, it has been submitted that there was a tremendous rush of applicants after the web based computerized system was introduced on 1 October 2010. The Textiles Commissioner states that the information which was generated through the online registration system could not be and was not scrutinized. In the present case, it has been submitted that before EARCs in the physical form could be issued, it came to the knowledge of the issuing authority that the Petitioners had tried to surreptitiously secure benefits by using the contract of another seller to whom EARCs had already been issued in the prescribed format. Once this came to the knowledge of the issuing authority and facts were brought to the ::: Downloaded on - 09/06/2013 17:31:24 ::: 16 wp885.11.sxw ssm notice of the Textiles Commissioner, it became necessary to enquire into the conduct of the Petitioners which was recorded in the order dated 14 December, 2010, and which in turn, necessitated the subsequent cancellation of the generated status displayed on the web-
site in respect of the eight applications of the Petitioners.
15 The show cause notice which was issued to the Petitioners, on 25 November, 2010 contains an allegation of mis-declaration. That was the basis of the first order of rejection dated 14 December 2010.
The fresh order that has been passed by the DGFT on 19 April 2011 is silent on that aspect of the matter. DGFT has proceeded on the erroneous assumption that the Petitioners had made a fresh application for allocation. This is erroneous because the Petitioners had made an application for the allotment of a certain quantity of raw cotton and after the issuance of three EARCs, the Petitioners claimed the issuance of six EARCs which remained in balance. Consequently, the application of the Petitioners could not have been rejected on the basis of a new policy which was brought into force on 29 December 2010. The claim of the Petitioner had to be adjudicated on the basis of the Memorandum dated 7 September 2010. But the issue as to whether the Petitioners were guilty of a mis-declaration, when they ::: Downloaded on - 09/06/2013 17:31:24 ::: 17 wp885.11.sxw ssm applied for the registration of their contracts is a matter which would have to be considered by DGFT. This would turn upon whether the Petitioners are correct in their contention that they had, prior to the issuance of a notice to show cause, sent a communication to the authority that the two contracts involving KKM International, a third party supplier should be deleted from the purview of their application.
This is a significant aspect which has a bearing on the bona fides of the Petitioners' conduct. Whether the Petitioners did make a misdeclaration is an important issue which must be adjudicated upon.
That issue turns on an assessment of fact which must be left to the DGFT to determine. In the circumstances, we are of the view that a fresh decision should be rendered by the DGFT in accordance with law. The issue as to whether the Petitioners were guilty of a mis-
declaration, when they submitted their application for the registration of their contracts is kept open to be adjudicated upon by the DGFT.
The impugned order dated 19 April 2011 is set aside, to facilitate a fresh order on remand.
16 The rule is made absolute in the aforesaid terms. There shall be no order as to costs. The DGFT is directed to take an expeditious decision after furnishing to the Petitioners an opportunity of being ::: Downloaded on - 09/06/2013 17:31:24 ::: 18 wp885.11.sxw ssm heard. A reasoned order shall be passed preferably within a period of four weeks from the date on which an authenticated copy of this order is produced before the authority.
(ANOOP V. MOHTA, J.) (DR. D.Y. CHANDRACHUD, J.) ::: Downloaded on - 09/06/2013 17:31:24 :::