Civil Appeal No 3418 of 1986 774 From the Judgment and order dated 222371986 of the Bombay High Court in Appeal No 565 of 1986
AK Ganguli and Sushma Relan for the Appellant
Soli J Sorabjee JB Dadachanji R Narain Mrs AKVerma DNMishra Aditya Narayan and Harish N Salve for the Respondents
The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
This is an application for special leave to appeal against the order of the Division Bench of the Bombay High Court dated 22nd 23rd July 1986 filed on behalf of the Union of India
Ms Godrej Soaps P Limited and a shareholder and Director of the said company Mr AB Godrej who were petitioners went before the Bombay High Court in Writ Petition No 1665 of 1986
The said petitioners who are respondents herein hereinafter described as respondents purchased 544860 Metric Tonnes of Palm Kamel Fatty Acid on high sea basis imported under an additional licence
They challenged the action of the Customs authorities refusing to permit the clearance of the said Palm Karnel Fatty Acid in view of the decision of this Court in Raj Prakash Chemical s case and Indo Afghan Chamber of Commerce s case  It may be mentioned that one Messrs Dimexon a firm carrying on business of importing rough diamonds and exporting cut and polished diamonds were issued Export House Certificate under the import policy for the period 1978 79 and certain additional licences in or about the month of July 1986 covered by the licensing period AM 79
The said licence was claimed to have been issued in compliance with the order of this Court dated 18th April 1985
As the purport of that order was the subject matter of two subsequent decisions of this Court and the genesis of the right of the present respondents was claimed from the said decision it may not be inappropriate to refer to the said decision
The said decision was given in Civil Appeal No 1423 of 1984
This Court held that there was no requirement of diversification of exports as a condition for the grant of Export House Certificates in the Import Policy for the year 1978 79
In that appeal this Court confirmed the High Court s judgment quashing the order whereby the Government had refused Export House Certificates 775 on the ground that the petitioners in those cases had not diversified its export and as such were not entitled to Export House Certificates
The High Court quashed that order
This Court confirmed that direction of the High Court and further directed the Union of India and its employees to issue the necessary Export House Certificates for the year 1978 79 within a period of three months from the date This Court further directed as follows Save and except items which are not specifically banned under the prevalent import policy at the time of import the respondents shall be entitled to import all other items whether canalised or otherwise in accordance with the relevant rules
Appeals are disposed of accordingly with no order as to costs Emphasis supplied in view of the contentions now sought to be raised in these proceedings
This direction was given by a Bench of three learned judges consisting of section Murtaza F Ali A Varadarajan and one of us Sabyasachi Mukharji J According to the petitioners before the Bombay High Court in pursuance of the order of this Court Import Trade Control Authority issued diverse additional licences expressly covered by the licensing period AM 79 where under the description of the goods was as under This licence is valid for import of items permissible to export houses under additional licence category as per para 176 of Import Policy for 1978 79 excluding those items which were banned in the Policy for the period 1978 79 and which have been banned in the Import Export Policy volume 1 1985 88
The additional licence category import shall be subject to the provisions of para 176 of the import policy for 1978 79
 It was the contention of the petitioners before the Bombay High Court that it was absolutely clear that the holders of the said licences would be entitled to import items permissible to export houses under the additional licence category as per para 176 of the Import Policy for 1978 79
It may be mentioned that the said direction of this Court came up for consideration before this Court again in Civil Appeal No 4978 of 1985 Raj Prakash Chemicals Ltd  Anr
vs Union of India  Ors 776 supra This Court clarified the decision in that case which was rendered by a bench of three learned judges consisting of V Tulzapurkar J and both of us RS Pathak and Sabayasachi Mukharji JJ
As this Court has observed in Ms Indo Afghan Chambers of Commerce and another vs Union of India and other supra the order dated 18th April
1985 has been considered by this Court in Raj Prakash Chemicals Ltd and another vs Union of India  others supra to mean that only such items could be imported by diamond exporters under the Additional Licences granted to them as could have been imported under the Import Policy 1978 79 the period during which the diamond exporters had applied for Export House Certificates and had been wrongfully refused and were also importable under the Import Policy prevailing at the time of import which in the present case is the Import Policy 1985 88
These were the items which had not been specifically banned  under the prevalent Import Policy
The items had to pass through two tests
They should have been importable under the Import Policy 1978 79
They should also have been importable under the Import Policy 1985 88 in terms of the order dated April 18 1985
 The Court had no occasion to consider the significance of the words whether canalised or otherwise mentioned in the order dated April 18 1985 because that point did not arise in the case before it The respondents rely on those words in this case in order to justify the import of the commodity under consideration
What did the Court intend by those words We have seen that a diamond exporter can import the items he was entitled to import under the Import Policy 1978 79 provided they are importable also under the Import Policy ruling at the time of import They are items which are open to import by an Export House holding an Additional Licence for sale to eligible Actual Users Industrial
These are items which could be directly imported for example the items enumerated in Part 2 of List 8 of Appendix
Vl of the Import Policy 1985 88
These are items which are not canalised  Canalised  items are those items which are ordinarily open to import only through a public sector agency
Now although generally they are importable through a public 777 sector agency only it is permissible for the Import Policy to provide an exception to that rule and to declare that an importer may import a canalised item directly
For instance paragraph 751 of the Import Policy 1985 88 entitles a Trading House holding an Additional Licence to directly import canalised items in Appendix V Part A to the extent laid down in that Policy
There is nothing to prevent an Import Policy from providing in the future that an Export House holding an Additional Licence can directly import certain canalised items also
In that event in view of the aforesaid discussion an Export House holding an Additional Licence will be entitled to import items open ordinarily to direct import non canalised items as well as items directly importable although on the canalised list
It is in that sense that the Court could have intended to define the entitlement of a diamond exporter
He would be entitled to import items whether canalised or not if the Import Policy prevailing at the time of import permitted him to import items falling under each category
The Court would not know whether in the future certain canalised items could be imported directly by an Export House holding an Additional Licence
The possibility of a policy being framed in the future enabling an Export House holding an Additional Licence to directly import items which are non canalised  and also items which are canalised  cannot be ruled out It is in this light that the Court can be said to have used the words whether canalised or otherwise in its order dated 18th April 1985
The point from a slightly different angle was considered in writ petition No 199 of 1986 in Indo Afghan Chambers of Commerce with Civil Appeal No 664 of 1986 supra dated 15th May 1986 by a bench consisting of both of us RS Pathak  Sabyasachi Mukharji JJ
There Indo Afghan Chambers of Commerce and its President aggrieved by the grant of additional licences to the respondents Ms Rajnikant Brothers and Ms Everest Gems for the import of dry fruits came to this Court
This Court examined some of the contentions This Court reiterated that by the order dated 5th March 1986 this Court has construed its order dated 18th April 1985 referred to hereinbefore to mean that only such items could be imported by diamond exporters under the Additional Licences granted to them as could have been imported under the Import Policy 1978 79 the period during which the diamond exporters had applied for Export House Certificates and had been wrongfully refused and were also importable under the Import Policy prevailing at the time of import which in the present case was the Import Policy 1985 88 i e it meant to say that those importable at the time when licence was refused and must continue to be importable at the time when import is sought ie 1985 88
These were the items 778 which were not specifically banned under the prevalent Import Policy That is the construction
The items had to pass through two tests
These should have been importable under the Import Policy 1978 79
These should have been importable under the Import Policy 1985 88 in terms of the order dated 18th April 1985
The Court examined the facts of that case
Regarding dry fruits this Court observed as follows In our opinion the respondents diamond exporters are not entitled to import dry fruits under the Import Policy 1985 88 under the Additional Licences possessed by them
They are also not entitled to the benefit extended by the judgment of this Court dated 5th March 1986 to those diamond exporters who had imported items under irrevocable letters of credit opened and established before 18th October 1985
It appears from the record before us that the respondents diamond exporters opened and established the irrevocable letters of credit after that date
 Bearing in mind the aforesaid enunciation of law we have to examine this case
It is the case of the respondents Godrej Soaps Co Ltd and its Director that they have purchased 544860 Metric Tonnes of palm karnel fatty acid now called the said acid  on highseas basis from Ms Dimexon
Ms Dimexon had imported the said acid on the strength of an additional licence issued to it pursuant to the order of this Court dated 18th April 1985 in Civil Appeal No 1423 of 1984 Union of India vs Rajnikant Brothers
The Customs authorities according to the said respondents refused to permit clearance of the said acid on the ground that the canalised items could not be imported even under such additional licence
The respondents therefore filed a writ petition in this Court requiring the Union of India and the Customs authorities to permit clearance of the said acid
It may be mentioned the said acid was not a canalised item under the Import Policy 1978 79
It is a canalised item under the current Import Policy 1985 88
As the Government refused to permit clearance of the said goods because the said goods were canalised the learned single judge of the Bombay High Court by its order dated 10th July 1986 permitted the clearance of the goods in question
Aggrieved by the said order Union of India preferred an appeal before the Division Bench of the Bombay High Court
The Division 779 Bench was pleased to by its order dated 23rd July 1986 allow clearance of the goods
It is the submission of the Union of India that this direction was contrary to the directions given in Raj Prakash s case supra and Indo Afghan Chamber s case supra
In respect of Palm Karnel Fatty Acid which is a canalised item listed as item 9v in Appendix V Part of the Import Policy 1985 88 13 there is no provision in that Policy which permits the import of such item by an Export House holding an Additional Licence
Therefore the claim of the diamond exporters or as in this case a purchaser from the diamond exporter must fail because it is not open to import by the diamond exporter under any provision of the Import Policy 1985 88
Therefore we are unable to accept the contentions of the respondents and both on grounds of equity and construction we are of the opinion that this appeal must be allowed and decision of the High Court of Bombay impugned in this appeal must be set aside
As importation of canalised items directly by holders of additional licences are banned it should not be construed to have been permitted by virtue of the order of this Court and the items sought to be imported do not come within List 8 of Part 2 of Appendix 6 of the Import Policy of 1985 88 against additional licences
The goods in question which were sought for by the respondents fall under item 9 Part of Appendix 5 which is the canalised item and such cannot be allowed to be imported against additional licence granted pursuant to the order of this Court dated 18th April 1985
As we have mentioned hereinbefore the respondents were fully aware of the position in law and they purchased goods on 27th June 1986 there is no equity in their favour
In this case no injustice would be done by this order
The goods were purchased by the present petitioners only on 27th June 1986 after they were aware of the judgment of this Court in Raj Prakash s case supra as well as Indo Afghan Chambers of Commerce s case supra
No question of any restitution of rights arises
It was further submitted that in any event under item 1 of Appendix 6 import of items under open General Licence of the Import Policy 1985 88 raw materials components and consumables non iron and steel items other than those included in the Appendices 2 3 Part A S and 8 will be permissible by the actual user industrial
It was submitted that the respondents herein were actual users industrial because these were used by them for their production
This contention cannot be accepted firstly because it comes within specific 780 prohibition of Item 9 in Part B of Appendix S being fatty acid and acid oil which were importable only by the State Trading Corporation of India under open General Licence on the basis of foreign exchange released by the Government in its favour
Secondly the actual importation was not by the petitioners but by somebody else is mentioned hereinbefore being Ms Dimexon Co
In the premises the view of the Bombay High Court cannot be sustained
In that view of the matter special leave is granted
The appeal is allowed
The order of the High Court under challenge is set aside
The appellant is entitled to the costs
APJ Appeal allowed


Summary:
The respondents purchased certain quantity of palm kernel fatty acid on high seas basis from a firm which had imported it on the strength of an additional licence issued to it pursuant to the order of this Court dated 18th April 1985 in CA No 1423 of 1981 Union of India vs Rajnikant Brothers
The Customs authorities refused to permit clearance of the goods on the ground that they were canalised items and could not be imported even under such additional licences
The respondents filed a petition under article 226 challenging the action of the Customs authorities
A Single Judge of the High Court permitted the clearance of the goods which order was affirmed by the Division Bench
In the appeal to this Court on behalf of the appellant Union of India it was contended that the direction given by the High Court was contrary to the directions given by this Court in Raj Prakash s and Indo Afghan Chamber s cases
On behalf of the respondents it was contended 1 that the holders of the additional licences would be entitled to import items permissible to export houses under the additional licence category as per para 176 of the Import Policy for 1378 73 2 that in any event under Item 1 of Appendix 6 import of items under open General Licence of the Import Policy 1985 88 raw materials components and consumables non iron and steel items other than those included in the Appendices 2 3 Part A 5 and 8 will be permissible by the actual user 772 industrial and 3 that the respondents were actual users industrial because these were used by them for their production
Allowing the appeal of the Union of India  HELD 1
A diamond exporter can import the items he was entitled to import under the Import Policy 1978 79 provided they are importable also under the Import Policy ruling at the time of import
They are items which are open to import by an Export House holding an Additional Licence for sale to eligible Actual Users Industrial
These are items which could be directly imported for example the items enumerated in Part 2 of List 8 of Appendix Vl of the Import Policy 1985 88
These are items which are not canalised 
776 F H 2
Canalised  items are those items which are ordinarily open to import only through a public sector agency
Now although generally they are importable through a public sector agency only it is permissible for the Import Policy to provide an exception to that rule and to declare that an importer may import a canalised item directly
776 H 777 A 3
Paragraph 751 of the Import Policy 1985 88 entitles a Trading House holding an Additional Licence to directly import canalised items in Appendix V Part A to the extent laid down in that Policy
There is nothing to prevent an Import Policy from providing in the future that an Export House holding an Additional Licence can directly import certain canalised items also
In that event an Export House holding an Additional Licence will be entitled to import items open ordinarily to direct import non canalised items as well as items directly importable although on the canalised list
It is in that sense that the Court could have intended to define the entitlement of a diamond exporter
He would be entitled to import items whether canalised or not if the Import Policy prevailing at the time of import permitted him to import items falling under each category
The Court would not know whether in the future certain canalised items could be imported directly by an Export House holding an Additional Licence
The possibility of a policy being framed in the future enabling an Export House holding an Additional Licence to directly import items which are non canalised  and also items which are canalised  cannot be ruled out
It is in this light that the Court can be said to have used the words whether canalised or otherwise in its order dated 18th April 1985
777 B E Raj Prakash Chemical s case and Indo Afghan Chamber of Commerce s case   followed
773 4
Only such items could be imported by diamond exporters under the Additional Licences granted to them as could have been imported under the Import Policy 1978 79 the period during which the diamond exporters had applied for Export House Certificates and had been wrongfully refused and were also importable under the Import Policy prevailing at the time of import which is the present case was the Import Policy 1985 88
These were the items which were not specifically banned under the prevalent Import Policy
That is the construction
The items had to pass through two tests
These should have been importable under the Import Policy 1978 79
These should have been importable under the Import Policy 1985 88 in terms of the order dated 18th April 1985
777 G H 778 A B 5
In respect of Palm Kernel Fatty Acid which is a canalised item listed as item 9 v in Appendix V Part of the Import Policy 1985 88 there is no provision in that Policy which permits the import of such item by an Export House holding an Additional Licence
779 B C 6
As importation of canalised items directly by holders of additional licences are banned it should not be construed to have been permitted by virtue of the order of this Court and the items sought to be imported do not come within List 8 of Part 2 of Appendix 6 of the Import Policy of 1985 88 against additional Licences
The goods in question which were sought for by the respondents fall under item 9 Part of Appendix 5 which is the canalised item and such cannot be allowed to be imported against additional licence granted pursuant to the order of this Court dated 18th April 1385
779 D F 7
The goods were purchased by the respondents only on 27th June 1986 after they were aware of the judgment of this Court in Raj Prakash s case as well as Indo Afghan Chambers of Commerce s case
No question of any restitution of rights arises
779 F 8
The acid in question comes within specific prohibition of Item 9 in Part B Appendix 5 being fatty acid and acid oil which were importable only by the State Trading Corporation of India under open General Licence on the basis of foreign exchange released by the Government in its favour
The actual importation was not by the respondents but by somebody else
780 A B