Bombay High Court
M/S. Noble Resources And Trading vs Union Of India And Others on 7 October, 2011
Author: D.Y.Chandrachud
Bench: D.Y. Chandrachud, A.A. Sayed
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGNAL CIVIL JURISDICTION
WRIT PETITION NO.1859 OF 2011
M/s. Noble Resources and Trading
India Pvt. Ltd. ..Petitioner.
versus
Union of India and others ..Respondents.
.....
Mr. Sushanth Murthy with Mr. Vikram Nankani i/b Mr. Madhur R.
Baya for the Petitioner.
Mr. Pradeep S. Jetly with Mrs. S.V. Bharucha for the Respondents.
ig ......
CORAM : DR.D.Y.CHANDRACHUD &
A. A. SAYED, JJ.
7 October 2011.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
1. Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.
2. In these proceedings the challenge is to the validity of a public notice issued on 31 March 2011 by the Director General of Foreign Trade stipulating that the export of cotton shall not be entitled to DEPB benefits with respect to shipments made on or after 21 April 2010. The Petitioner has also questioned the legality of consequential notices of demand seeking to recover DEPB benefits allowed in respect of the export of cotton.
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3. The Petitioner engages in the business of the manufacture and export of cotton bales. The Union Government in exercise of the powers conferred by Section 4 of the Foreign Trade (Development and Regulation) Act 1992 has formulated the Foreign Trade Policy for 2009-2014. Chapter IV of the Policy contains provisions for duty exemption and inter alia covers the Duty Entitlement Passbook (DEPB) scheme. The handbook of procedures, which has been notified by the Director General of Foreign Trade, makes provisions for implementing the DEPB scheme. The basic object of the DEPB scheme is to neutralize the incidence of customs duty on import content of export products. Neutralization is provided by way of a grant of duty credit against the export product. An exporter may apply for a credit at a specified percentage of the FOB value of exports made in freely convertible currency. Credit is made available against such export products and at such rates as may be specified by the Director General of Foreign Trade by way of a public notice. The credit can be utilized for the payment of customs duty on freely importable items and/or restricted items.
4. By a public notice dated 5 November 2008 general instructions were issued by the Director General of Foreign Trade for DEPB rates.
The DEPB schedule prescribes several product groups of which product code 89 relates to the product group textiles. Sr. No.78 at the material time was cotton yarn including Melange yarn. Sr. No. 22D was as follows :
"Export products, covered under Standard Input Output Norms and for which no specific DEPB rates have been notified, packed in ::: Downloaded on - 09/06/2013 17:49:33 ::: PNP 3 WP1859-7.10.sxw any packaging material."
5. In respect of cotton yarn, the DEPB rate was 3.67% whereas the rate against the residuary entry Sr. No.22D was 1.5%. By a public notice dated 21 April 2010 the Director General of Foreign Trade in exercise of powers conferred by paragraph 2.4 of the Policy and paragraph 1.1. of the Handbook of procedures provided that the export of cotton yarn including Melange yarn appearing at DEPB entry 78 of the product group 'textiles' shall not be entitled to DEPB benefit with immediate effect. Subsequently, a policy circular was issued on 29 November 2010 by the Director General of Foreign Trade that the export of cotton yarn shall not be entitled to any DEPB benefit either under entry 78 of the product group 'textiles' or under the residuary entry Sr. No.22D of the product group 'miscellaneous' products of the DEPB rate schedule. On 31 March 2011 the DGFT, in exercise of powers conferred by paragraph 2.4 of the Policy made the following amendment in the schedule of DEPB rates :
"Export of Cotton shall not be entitled for DEPB benefit even under DEPB entry Sl. No.22C and 22D of the Product Group "Miscellaneous", with respect to shipments made on or after 21.4.2010."
The effect of the amendment was explained thus in the circular:
"Benefit under DEPB scheme encourages export of concerned commodity. Hence when the intention of the Government is not to encourage exports of specific commodity, DEPB benefit on such a commodity would be contradictory to its intention. Accordingly, this Public Notice clarifies that DEPB benefit on export of cotton shall not be available. DEPB benefit on export of cotton yarn was withdrawn with effect from 21.4.2010, therefore, DEPB benefit on cotton (the basic raw material for cotton yarn) has been disallowed for exports made from ::: Downloaded on - 09/06/2013 17:49:33 ::: PNP 4 WP1859-7.10.sxw 21.4.2010 onwards."
6. Subsequently on 4 August 2011, the DGFT has issued a further circular by which the export of cotton yarn including Melange yarn appearing at Sr. No.78 of the product group 'textiles' has been made entitled to DEPB benefits on exports made on or after 1 April 2011. Similarly, another public notice came to be issued on 4 August 2011 as regards the extension of DEPB benefits on the exports of cotton, with effect from 1 October 2010 under Sr. No.22D of the schedule of rates of the product group 'miscellaneous products'. Consequently, exports of cotton made on or after 1 October 2010 have been made entitled for the grant of DEPB benefits.
7. The dispute in the present case relates to exports of cotton made after 21 April 2010, but prior to 30 September 2010. As noted earlier, the DEPB benefits on cotton have been restored with effect from 1 October 2010.
8. Counsel appearing on behalf of the Petitioner submitted that the grant of DEPB benefits is governed under the substantive provisions of Chapter IV of the Foreign Trade Policy. The Director General of Foreign Trade under the Handbook of procedures and even statutorily is vested with the power to implement the policy. The Director General of Foreign Trade notifies the product groups and the schedule of rates. The duty credit under the scheme is calculated by taking into account the deemed import contained as per the standard input output norms. The submission of Counsel appearing on behalf of the Petitioner is that it was not open to the ::: Downloaded on - 09/06/2013 17:49:33 ::: PNP 5 WP1859-7.10.sxw Director General of Foreign Trade to withdraw the benefit accruing under the DEPB scheme on the exports of cotton retrospectively with effect from 21 April 2010 by issuing a public notice dated 31 March 2011. Learned counsel submitted that - (i) The Director General of Foreign Trade has no power to issue a public notice so as to retrospectively deprive an exporter of a benefit which has already accrued on the basis of exports effected prior to the date of the notice; (ii) As a matter of fact, where the Government has intended to withdraw the DEPB benefits on exports, it has always done so specifically and prospectively; (iii) The power to make a retrospective alteration can be exercised by the Director General of Foreign Trade only if it is beneficial and not detrimental to the interest of the exporter more so when a right has accrued; and (iv) The Director General of Foreign Trade is estopped from recovering benefits which have already been received.
9. On the other hand, it has been urged on behalf of the Respondents that the Director General of Foreign Trade is vested under paragraph 2.3 of the Policy to resolve any question or doubt in respect of the interpretation of a provision contained in the Policy or a classification of any item or as regards the Handbook of procedures or schedule of rates. In the present case, it was urged that with effect from 21 April 2010, DEPB benefits were withdrawn on the exports of cotton yarn. The reason for keeping cotton yarn under restriction was relatable to domestic concerns more particularly the rising prices of the cotton yarn and non-availability of the quantity at reasonable prices to domestic manufacturers. Consequently, though the benefit under the DEPB scheme came to be withdrawn in respect ::: Downloaded on - 09/06/2013 17:49:33 ::: PNP 6 WP1859-7.10.sxw of cotton yarn, no specific provision was introduced in Sr. No.22D of the schedule of rates clarifying that the benefit would not be available in respect of exports of cotton. Cotton is a raw material in the manufacture of cotton yarn. As a matter of fact, cotton exports were dis-incentivised by virtue of the export tax which was in place until 30 September 2010. After 1 October 2010, the export tax was removed on the exports of cotton and the policy intention of the Union Government was not to place disincentives on the exports of cotton after that cut off date. Hence, it was urged that it was open to the Director General of Foreign Trade to issue a policy circular on 31 March 2011 withdrawing the benefits under the DEPB scheme on the export of cotton with effect from 21 April 2010.
10. The Central Government is empowered to formulate and announce the export and import policy and to amend that policy under Section 5 of the Foreign Trade (Development and Regulation) Act 1992. The Director General of Foreign Trade is under Section 6 vested with the statutory authority to advice the Central Government in the formulation of the exim policy and is made responsible for carrying out the policy. Paragraph 2.3 of the policy is to the following effect :
"2.3 Interpretation of Policy If any question or doubt arises in respect of interpretation of any provision contained in FIP, or classification of any item in ITC (HS) or HBP v1 or HBP v2, or Schedule of DEPB Rates (including content, scope or issue of an authorization there under) said question or doubt shall be referred to DGFT whose decision thereon shall be final and binding."::: Downloaded on - 09/06/2013 17:49:33 :::
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11. The Director General of Foreign Trade is thus empowered to resolve a question or doubt in respect of the interpretation of any provision contained in the policy, a classification of any item or in respect of the Handbook of procedures or schedule of rates. Under paragraph 2.4 the Director General of Foreign Trade may specify the procedure to be followed for an exporter or importer or by any licensing or any other competent authority for the purposes of implementing the provisions of the Act, the Rules and the Orders made thereunder and the Policy. Credit under the Duty Entitlement Passbook scheme is available against such export products and at such rates specified by the Director General of Foreign Trade by way of a public notice. Paragraph 4.3 of the Policy makes a provision in those terms. Under paragraph 4.37 of the handbook of procedures, it has been specified that the duty credit under the scheme shall be calculated by taking into account the deemed import content of the export product as per the stand input output norms. The Director General of Foreign Trade therefore specifies the products and the credit of duty having regard to the standard input output norms.
The DEPB benefits available in respect of cotton yarn were withdrawn by a public notice dated 21 April 2010. However, it is not in dispute that the benefit in respect of the exports of cotton continued to exist until the benefit was withdrawn by a public notice on 31 March 2011. The rationale for the withdrawal of the benefit was that the DEPB scheme encourages exports of a particular commodity and when the intention of the government was not to encourage exports of a specific commodity, the grant of the DEPB benefit would be contrary to its intention. DEPB benefits on cotton yarn exports were withdrawn on 21 April 2010 and on this ground ::: Downloaded on - 09/06/2013 17:49:33 ::: PNP 8 WP1859-7.10.sxw DEPB benefits on cotton which is a basic raw material for cotton yarn were sought to be disallowed for exports. There can be no denying the fact that the Director General of Foreign Trade was entitled to withdraw the benefit which was available in respect of the exports of cotton by the issuance of a public notice. What in our view the Director General of Foreign Trade could not do, however, was to stipulate that the benefits available under the DEPB scheme on the exports of cotton would be withdrawn with retrospective effect from 21 April 2010. Though, the DEPB benefits on cotton yarn were withdrawn on 21 April 2010, no provision was made for the withdrawal of benefits in respect of the exports of cotton until 31 March 2011. There was no specific entry in the schedule of rates pertaining to cotton as there was in regard to cotton yarn including Melange yarn (Sr. No.78 of the product group 'textiles'). Exports of cotton were governed by Sr. No.22D of the miscellaneous product groups. Sr. No.22D as noted earlier was a residuary item relating to export products covered under standard input output norms for which no specific rates were notified, packed in any packaging material. The Petitioner has placed on the record notifications issued by the Director General of Foreign Trade withdrawing with immediate effect DEPB benefits which were hitherto available inter alia in respect of the export of the skim milk products (by a notification dated 17 April 2008) and on exports of Basmati rice (by a notification dated 3 April 2008). This has been pressed in aid to submit that where the DEPB benefit has been withdrawn, it has been withdrawn with prospective effect. Be that as it may, the issue in the present case is really an issue of the existence of authority or power. The Director General of Foreign Trade had no power or jurisdiction as an ::: Downloaded on - 09/06/2013 17:49:33 ::: PNP 9 WP1859-7.10.sxw authority vested with the power of implementing the Foreign Trade Policy to withdraw the DEPB benefits on the export of cotton with retrospective effect from 21 April 2010. The rationale for the withdrawal was that with effect from 21 April 2010 the policy of the Union Government was not to grant incentives on the export of cotton or cotton yarn as was reflected in the notice dated 21 April 2010 withdrawing DEPB benefits on cotton yarn. Moreover, it was urged that there was an export tax which was withdrawn only on 1 April 2010. Whatever be the motive, the exercise of powers has to be in a manner which is consistent with the statute. The public notice issued by the Director General of Foreign Trade is clearly not clarificatory nor does it constitute an interpretation of the policy. The public notice specifies that DEPB benefits shall not be available in respect of a particular item viz. cotton. This exercise is not in the nature of interpretation nor is it an exercise in clarification, but is of a substantive nature. For these reasons, we are of the view that the Director General of Foreign Trade was within his powers in issuing the public notice dated 31 March 2011, stating that DEPB benefits shall not be available on the exports of cotton, but he could not have done so with retrospective effect from 21 April 2010. The modification would therefore take effect from the date of the public notice which was 31 March 2011. As we have noted earlier, as a result of the subsequent developments, the Director General of Foreign Trade has now allowed benefits on the exports of cotton with effect from 1 October 2010 by and as a result of a subsequent notice dated 4 August 2011. The restoration of a benefit can always take place with effect from an anterior date.
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12. For these reasons, we are of the view that the Petitioners are entitled to succeed. We accordingly dispose of the Petition in the following terms :
(i) The public notice issued by the Director General of Foreign Trade on 31 March 2011 stating that the export of cotton shall not be entitled for DEPB benefits even under DEPB entry Sr. No.22C and 22D of the product group 'miscellaneous' with respect to shipments made on or after 21 April 2010 shall have only prospective effect and shall stand set aside to the extent to which it operates for the period from 21 April 2010 prior to the date of the issuance of the notice;
(ii) The recoveries which are sought to be effected from the Petitioner on the basis of the notice in respect of shipments which took place prior to the date of the notice are accordingly quashed and set aside.
Rule is made absolute in the aforesaid terms.
There shall be no order as to costs.
(Dr. D.Y. Chandrachud, J.) (A. A. Sayed, J.) ::: Downloaded on - 09/06/2013 17:49:33 :::