-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION Writ Petition No. 2397 of 2004 M/s Kanak Exports a partnership firm registered under the Indian Partnership Act l932 having its principal place of business at l27 Maker Chambers lll, Nariman Point Mumbai .40002l ..Petitioners vs l. Union of India through the Joint Secretary Ministry of Law and Justice Aayakar Bhavan, M K Road Churchgate, Mumbai .400020 2. The Director General of Foreign Trade, Udyog Bhavan New Delhi 3. Jt Director General of Foreign Trade, New C.G.O Building New Marine Lines Churchgate, Mumbai 400020... Respondents -2- Mr R.A.Dada, Sr Counsel with Mr Vikram Nankani, Mr.Chetan Kapadia and mr.I J Nankani i/b M/s Nankani and Associates for petitioners. Mr. B.A.Desai, Additional Solicitor General with Mr A.M.Sethna and Mr. Suresh S Pakale for respondents. CORAM: A.P.SHAH & S.J.VAZIFDAR JJ. CORAM: A.P.SHAH & S.J.VAZIFDAR JJ. CORAM: A.P.SHAH & S.J.VAZIFDAR JJ. Dated 4.7.2005 Dated 4.7.2005 Dated 4.7.2005 Oral Judgment ( Per A.P.Shah J.): . On 3lst March 2003, the Central Government announced "Special Strategic Package for Status Holders", hereinafter for brevity’s sake referred to as "the scheme" under the Exim Policy 2002-2007.The term "Status Holder" is defined by para 9.53 of the amended policy to mean an exporter recognized as Export House/ Trading House by the Director General of Foreign Trade (DGFT)/ Development Commissioner or Star Trading House/ Super Star Trading House recognized by the DGFT. 2. The scheme provides certain special facilities for status holders. For the purpose of the present -3- petition the other facilities are not relevant but we are concerned with the following facility as incorporated in para 3.7.2.l (clause vi) which reads as follows: "(vi) Duty free import entitlement for status holders having incremental growth of more than 25% in FOB value of exports (in free foreign exchange) subject to a minimum export turnover of Rs.25 crores ( in free foreign exchange). The duty free entitlement shall be l0% of the incremental growth in exports. Such entitlement can be used for import of capital goods, office equipments and inputs for their own factory or the factory of the associating/ supporting manufacturer/ job worker. The entitlement/ goods shall be transferable". 3. By the Notification No.28 (RE-2003)/ 2002- 2007 dated 28th January 2004 issued by the Central Government in exercise of the power conferred under section 5 of the Foreign Trade (Development and Regulation) Act, l992, hereinafter referred to as -4- "the Act", the Central Government amended the provisions of para 3.7.2.l by inserting Note 1 to Note 5 to para 3.7.2.l. Note 1 provides that for the purpose of calculating the value of exports, the exports mentioned therein shall not be taken into account. Note 2 bars transfer of incremental growth of exports by an exporter directly or indirectly to any other exporter.Under Note 3 the Government reserved the right in public interest to specify the export of product which shall not be eligible for calculation of incremental growth/ entitlement or notify means of growth which shall not be allowed for under the scheme. Note 4 provides that the guidelines contained in Notes l to 5 will be applicable to the exports made on or after lst April 2003 . On the same day the DGFT issued Public Notice No.40 (RE-2003) / 2003-2007 in exercise of his power conferred under the provisions of para 2.4 of the policy by inserting para 3.2.6(A) to add conditions for the eligibility and entitlement under the said scheme. The Public Notice sought to exclude export performance in relation to four classes of goods mentioned in para 2 thereof from computation of entitlement under the scheme and at the same time sought to disallow the import of agricultural products falling under Chapter l to 24 -5- of ITC (HS) under the said scheme. 4. By Notification No.38(RE-2003)/ 2003- 2007 dated 2lst April 2004 read with Notification No. 40 (RE-2003)/2002-2007 dated 23rd April 2004, the Central Government sought to exclude the export performance related to class of goods covered by para 2 of the Public Notice dated 28th January 2004 by way of Note 6 to para 3.7.2.l of the scheme and likewise it prohibited the import of agricultural products under the scheme by way of Note 7 to para 3.7.2.l as was sought to be done by para 3 of the Public Notice dated 28th January 2004. 5. The validity of the aforesaid Notifications and Public Notice is the primary issue in this petition. 6. According to the petitioners pursuant to the said scheme as contained in Exim Policy during the period lst April 2003 to 3lst April 2004 the petitioners undertook export of various items to the tune of Rs.l070 crores which included export to the extent of Rs.735.82 crores till 27th January 2004. It is the petitioners’ case that the impugned Notifications which are in the nature of subordinate /delegated legislation cannot have retrospective -6- effect in the absence of power conferred by Parliament to do so. Therefore the impugned Notifications which are made applicable to the exports made on or after lst April 2003 are ultravires. According to them the Central Government cannot in the garb of clarification impose new and fresh conditions for the first time which did not exist at the time when the scheme was announced or at the time when the petitioners had made exports based on the scheme. Further according to them under the scheme the entitlement is contingent upon achieving the incremental growth of more than 25% in the value of export and, therefore, no sooner the prescribed minimum limit is achieved or crossed the right to receive the entitlement is crystallized or vested and such vested right cannot be taken away or whittled down by any subsequent changes or amendments. 7. According to the respondents,on the other hand, the Government received a report that some status holders were trying to increase their turnover by taking credits for the exports of others without putting any significant efforts for increasing the export. Such transactions amounted to misuse of the scheme. Considering this aspect in mind these -7- clarifications were issued by way of the impugned Notifications and Public Notice. According to them by issuing clarifications certain types of exports which are merely paper exports and which do not lead to genuine incremental growth have been kept outside the purview of the scheme. This has been done in public interest and in exercise of power conferred under section 5 of the Act. 8. Mr.Dada, learned Senior Counsel appearing for the petitioners and Mr. B.A.Desai, learned Additional Solicitor General advanced extensive oral submissions before us and referred to number of decisions of the Supreme Court and High Courts.The oral submissions were also supplemented by written submissions . Before adverting to the submissions made by the learned counsel, it is necessary to notice certain relevant provisions of the Exim Policy. 9. In exercise of power conferred by section 5 of the Act, the Central Government notified the Export and Import Policy for the period 2002-2007. This policy was brought into force with effect from lst April 2002 and is to remain in force upto 3lst March 2007 and will be co-terminus with Tenth Five Year -8- Plan (2002- 2007).However, the Central Government has reserved the right in public interest to make any amendment to the policy in exercise of the power conferred by section 5 of the Act. Such amendment shall be made by means of a notification published in the Gazette of India. Para l.4 of the policy lays down the principal objective as under: "l.4 The principal objective of this policy are: (i) To facilitate sustained growth in exports to attain a share of at least l% of global merchandise trade. (ii)To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services. (iii)......" l0. Para 2.4 of the policy provides that: "The Director General of Foreign Trade may, in any case or class of cases, specify the procedure to be followed by -9- an exporter or importer or by any licensing or any other competent authority for the purpose of implementing the provisions of the Act, the Rules and the Orders made thereunder and this policy. Such procedure shall be included in the Handbook (Vol.l), Handbook (Vol.2) Schedule of DEPB Rate and in ITC (HS) and published by means of a Public Notice. Such procedure may, in like manner, be amended from time to time". ll. Para 2.34 provides that 3rd party exports, as defined in para 9.55 shall be allowed under the policy. Para 4.7.l deals with the status certificate and provides that Merchants as well as Manufacturer Exporters, Service Providers, Export Oriented Units (EOU’s) / United Located in Special Economic Zones (SEZ’s) / Agri Export Zone (AEZ’s) / Electronic Hardware Technology Parks (EHTPs) /Software Technology Parks (STPs) shall be eligible for such recognition. Para 3.7.2.l relevant context of which is already quoted in para 2 of the judgment enumerates several facilities for which the status holders are entitled. For duty free import entitlement the status holders having incremental -10- growth of more than 25% in FOB value of exports (in free foreign exchange) subject to a minimum export turnover of Rs. 25 crores (in free foreign exchange) are eligible. Duty free entitlement shall be l0% of the incremental growth in exports. Such entitlement can be used for import of capital goods, office equipments,inputs for their own industry or industry of the associate/supporting manufacturer / job worker. The entitlement / goods shall not be transferable. l2. Para 4.l provides for duty exemption/ remission schemes. Para 4.4 contains a schemes for diamond and jewelry. Paras 6.l and 6.2(a) deal with exports by EOU/EHTP/STP. Para 6.l0 recognizes exports by EOU/EHTP/STP through the status holders. Part 7.8(a) deals with export by SEZ units and para 7.l0 recognizes exports by SEZ Units through the status holders. The term "status holder" is defined in para 9.53 which is already referred to earlier. Para 9.55 states that third party exports means exports made by an exporter or manufacturer on behalf of another exporter(s). In such cases, shipping bills shall indicate the name of both the exporter/manufacturer and exporter(s). Para 3.25 prescribes procedure for duty free credit -11- entitlement for status holders. The application for duty free credit certificate shall be made in Appendix l7D. The duty free entitlement certificate shall be valid for a period of l2 months. The status holder shall within one month of the expiry of the validity of duty free entitlement submit a certificate of import made under the certificate as per Appendix l7A to the Jurisdictional Regional Licensing Authority. l3. By the impugned Notification dated 28th January 2004, clause (vi) of para 3.7.2.l is retained in the same terms but Notes l to 5 are added to the same.The challenge in the present petition is restricted to Note 1 clauses (ii), (v) (vi) and (vii) and Note 4 which read as follows: "Note 1: For the purpose of calculating the value of exports, the following exports shall not be taken into account namely. (i)...... (ii) Export turnover of units operating under SEZ/EOU/EHTP/STP schemes or produces manufactured by them and exported through DTA units. -12- (iii)..... (iv)....... (v) Supplies made by one status holder to another status holder (vi)Export performance made by one status holder on behalf of other status holder will not be eligible for entitlement under the scheme. (vii) Supplies made or export performance effected by a non-status holder (Merchant exporter/ Manufacturer with any export performance in 2003-2004) to a status holder if the applicant as well as the non status holder have less than 25 percent incremental growth over their respective previous years direct export turnover. Note 2..... Note 3....... Note 4- These guidelines will be applicable to the exports made on or after l.4.2003". l4. By Public Notice No.40 dated 28th January 2004 issued by the DGFT in exercise of power conferred under para 2.4 of the policy, export of certain -13- products for calculation of entitlement as well as import of certain products was excluded from the purview of the duty free entitlement certificate for status holders. Paras 2 and 3 of the Public Notice which are material for the purpose of this petition read as follows: "2. In terms of Para 3.2.5 of Handbook of Procedure (Volume I), the following items would not be taken into account for computation of entitlement and export performance under Duty Free Credit Entitlement Scheme for Status Holders: a. Rough, uncut and semi polished diamonds. b. Gold, silver in an form including plain jewelry therefore; c. Food grains sourced from central pool maintained by FCI d. Items exported under free shipping bills. 3. In terms of Para 3.25 of Handbook of procedure (Volume I), the following items would not be allowed for imports under duty Free Credit Entitlement -14- Certificate for Status Holders: a. Agricultural products which fall under Chapters l.24 of ITC (HS) Classification of Export and Import items". l5. In exercise of power conferred under section 5 of the Act the Central Government issued the impugned Notifications dated 2lst April 2004 & 23rd April 2004 to exclude export performance related to classes of goods covered by para 2 above of the Public Notice dated 28th January 2004 by way of Note 6 to para 3.7.2.l of the scheme and likewise it prohibited import of agricultural products under the scheme by way of Note 7 to para 3.7.2.l as was sought to be done by para 3 of the Public Notice dated 28th January 2004. l6. Mr Dada, learned Senior Counsel appearing for the petitioners submits that a delegated or subordinate legislation can operate only prospectively and not retrospectively. He submits that unless a statute conferring power to make rules provides to make rules with retrospective operation, the rules made pursuant to that power can have prospective operation only. Therefore according to -15- him, Note 4 giving retrospective effect to the amendments vide Notifications dated 28th January 2004 read with Notification dated 2lst and 23rd April 2004 is ultravires section 5 of the Act. In support of his submission he relies upon the decisions of the Supreme Court in State of Bihar vs Krishna Kumar Kabra (l997) 9 SCC 763, The Cannannore Spinning and Weaving Mills Ltd vs Collector of Customs and Central Excise, Cochin and ors (l969) 3 SCC ll2, The Income Tax Officer,Alleppy vs M C Ponnoose and ors, AIR l970 SC 385 and State Bank of India vs S.Vijaya Kumar, (l990) 4 SCC 48. He submits that the Supreme Court in Accountant General vs S.Doraiswamy, (l98l) 4 SCC 93 held so even in the context of clause (v) of Article l48 of the Constitution of India. It is submitted that the Public Notice issued by the DGFT is wholly without jurisdiction as the DGFT does not have power to put conditions, which do not exist in the policy or restrict or control export or import of goods. Mr Dada submits that the salient features of the scheme are clear, simple and unambiguous. The expression "incremental growth" is defined and well understood. The definition of "status holder" covers a merchant, manufacturer and EOU/SEZ. The Circular No. l6 dated 24th December 2002 issued by the respondents -16- also clearly states that third party exports are eligible for the export promotion schemes. It would, therefore, mean that the scheme covers exports by a merchant, manufacturer and EOU/SEZ. According to Mr Dada all those exports which qualify for obtaining status certificate also qualify for determining the incremental growth in the export turnover under the scheme. He submits that the amendment seeks to exclude 8 categories of exports and 4 categories of items expressly or by implication. Therefore the amendment cannot be described as merely clarificatory. He submits that merely because benefits accrued upon achieving the prescribed incremental growth is deferred to a future date, it does not mean that there is no vesting of right. The right is vested in a status holder as soon as he achieves the prescribed incremental growth and just because the benefit in the form of duty free certificate is to be issued to the status holder after lst April 2004 as contended by the Government, it does not mean that no right is vested in the status holder to receive the duty free certificate upon achieving the incremental growth. In this connection he relies upon the decision of the Supreme Court in Chairman, Railway Board and ors. vs. C.R.Ranga Damaiah, (l997) 6 SCC 623, -17- Bejgam Veeranna Venkata Narasimloo vs State of Andhra Pradesh, (l998) l SCC 563 and Samtel India Ltd vs Commissioner of Central Excise (2003) l55 ELT l4. Mr. Dada also relies upon the decision of the Madras High Court in Adani Exports Ltd vs Union of India, (2003) l5l ELT 520 and a decision of the Division Bench of this court in Arviva Industries (I) Ltd vs Union of India, (2004) l67 ELT l35. Mr. Dada submits that the amendments are even otherwise arbitrary, unreasonable and violative of Article l4 of the Constitution. Lastly he submits that relying upon the representation made by the Central Government exports were effected by the petitioners. The Central Government is therefore bound by the doctrine of promissory estoppel and cannot be permitted to take away the benefits after the exports have been completed. He places reliance upon the decision of the Supreme Court in State of Punjab vs. Nestle India Ltd ,(2004) 6 SCC 465. l7. On the other hand, learned Additional Solicitor General contends that there is express conferment of power on the Central Government under section 5 of the Act, inter alia, empowering the Government to make amendment to the policy by issuing notifications from time to time. This power is to -18- be exercised by the Central Government in public interest as is also evident from the preamble of the Export and Import Policy of 2002- 2007. The learned Additional Solicitor General submits that the scheme was not intended to encourage the status holder - export house to pool the exports made by the other exporters for the purpose of showing incremental growth in the exports. He submits that reports were received by the Department of Revenue that the status holders were purchasing exports made by other parties at a premium with a view to show incremental growth in the exports without having actually achieved such growth. Therefore the impugned Notifications and Public Notice have been issued with a view to clarify the aspect as to how the incremental growth in export should be reckoned. According to him the Notifications are merely clarificatory. Therefore the question of giving any retrospective operation to the Notifications would not arise. Learned Additional Solicitor General heavily relies upon an unreported decision of the Division Bench of the Gujarat High Court in Adani Exports Ltd vs. Union of India ( Special Civil Application No. l676 of 2004 decided on 23rd July 2004) where the Division Bench while construing these very Notifications held that the amendment -19- made vide Notes l to 5 is only clarificatory. It is submitted that no right is vested in the petitioners until a licence is actually granted. There is exhaustive procedure laid down for making an application for grant of entitlement certificate. It is only after the application for entitlement is processed and licence is issued, then the right to entitlement is crystallized and accrues as a vested right in favour of an exporter by actual grant of a licence. Reliance is placed upon the decisions of the Supreme Court in PTR Exports (Madras) Pvt Ltd and ors vs Union of India, (l996) 5 SCC 268, S.B.International Ltd and ors vs Asst Director General of Foreign Trade and ors, (l996) 2 SCC 439 and State of Rajasthan and anr vs J K Udaypur Udyog Ltd and anr, 2004 (7) SCC 673. Reliance is also placed upon the observations of the Supreme Court in the case of Trimbak Damodar vs Asaram Hiraman , AIR l966 SC l758 explaining distinction between the existing right and vested right. In any event according to learned Additional Solicitor General the power to amend retrospectively is implicit in section 5 itself and the word "amend" used in section 5 read with section 3 which confers power upon the Central Government to regulate, is sufficient indication that the Central Government is -20- empowered to make subordinate legislation retrospectively. In this connection he refers to the decision of the Supreme Court in H C Suman and ors vs Rehabilitation Ministry Employees Cooperative House Building Society Ltd New Delhi and ors (l99l) 4 SCC 485 and State of Tamil Nadu vs Hindstone and ors (l98l) 2 SCC 88. He submits that the retrospective operation given to the Notifications is also sustainable under sections l4 and 2l of the General Clauses Act. Learned Additional Solicitor General submits that there is nothing arbitrary or irrational in the impugned notifications and Public Notice and same have been issued in public interest. As regards the doctrine of promissory estoppel, learned Additional Solicitor General relying upon the decision of the Supreme Court in Kasinka and anr vs Union of India and anr (l995) l SCC 274 and The Sales Tax Officer and anr vs Shree Durga Oil Mills and anr (l998) l SCC 572 contends that the doctrine of promissory estoppel will not be applicable if the change in the stand taken by the Government is on account of a public policy and in case there is supervening public equity, the Government can change its stand and withdraw the representation made by it, even if such a change or withdrawal would affect certain persons. He contends that in the present -21- case there is no promise because the Exim Policy and section 5 of the Act clearly says that the policy can be amended at any time. l8. In the light of the submissions made at the Bar, the first issue which falls for our consideration is whether the Notification No.28 dated 28th January 2004 is invalid on the ground that same has been issued by the Central Government seeking to amend the policy with retrospective effect. According to Mr.Dada the impugned Notification dated 28th January 2004 is not clarificatory but amounts to taking a fresh look of the matter in the light of some doubts having arisen and same cannot be permitted to be applied in the garb of clarification with retrospective effect whereas according to learned Additional Solicitor General the notification has been issued merely to clarify the scope of the scheme with a view to stop its abuse by certain exporters. The question therefore is whether the Notification of 28th January 2004 has the effect of introducing a new condition or term or it is merely in the nature of clarification to the existing policy. At this stage it is necessary to refer to the basic objective of the scheme as contained in Commerce and Industry -22- Minister’s speech on introducing new Exim Policy on 3lst March, 20034 which reads as under: "We recognize that the status holders will continue to play a significant and increasing role in boosting exports, particularly from the small scale sector, as most of the small scale units will not be in a position to directly access the international markets. Moreover, it will be our endeavor to facilitate India emerging as a major base for out sourcing products and services for the rest of the world. They are also critical to our strategy for accelerating the rate of incremental growth of export. Therefore, we intend to give a premium to the status holders who achieve high growth rate in their exports. It is proposed to give a duty free entitlement to them for import of capital goods,spares, office equipments and consumables. /This will be available to status holders who achieve a growth rate of 25% or more in the current year with a minimum export performance of Rs.25