1 hvn IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 2221 OF 2007 1. Jindal Drugs Limited, a company incorporated and registered under the provisions of the Companies Act, 1956 having its registered office at Bhaktawar, 6, Floor, B & C, 229, Nariman Point, Mumbai 400 021. 2. Shri. Krishan Jindal, of Mumbai Inhabitant having his office at Bhaktawar, 6, Floor B & C, 229, Nariman Point, Mumbai 400 021. ... Petitioners Versus 1. The Union of India 2. The Joint Director General of Foreign Trade having his office at New C.G.O. Building, New Marine Lines, Churchgate, Mumbai 400 020. 3. The Deputy Director General of Foreign Trade having his office at New C.G.O. Building, New Marine Lines, Churchgate, Mumbai 400 020. 4. The Foreign Trade Development Officer, having his office at New C.G.O. Building, New Marine Lines, Churchgate, Mumbai 400 020. ... Respondents Mr. Prakash Shah i/by M/s. PDS Legal for Petitioner. Mr. G.N. Srinivasan with Mr. G. Hariharan and Mr. A.S. Rao for Respondents. 2 WITH WRIT PETITION NO. 1665 OF 2006 1. Jindal Drugs Limited, a company incorporated and registered under the provisions of the Companies Act, 1956 having its registered office at Bhaktawar, 6, Floor, B & C, 229, Nariman Point, Mumbai 400 021. 2. Shri. Vijay Jindal, of Mumbai Inhabitant having his office at Bhaktawar, 6, Floor B & C, 229, Nariman Point, Mumbai 400 021. ... Petitioners Versus 1. The Union of India 2. The Joint Director General of Foreign Trade having his office at New C.G.O. Building, New Marine Lines, Churchgate, Mumbai 400 020. 3. The Deputy Director General of Foreign Trade having his office at New C.G.O. Building, New Marine Lines, Churchgate, Mumbai 400 020. 4. The Foreign Trade Development Officer, having his office at New C.G.O. Building, New Marine Lines, Churchgate, Mumbai 400 020. ... Respondents Dr. Virendra Tulzapurkar, Sr. Counsel with Mr. Nikhil Sakhardande i/by M/s. DSK Legal for Petitioners. Mr. G.N. Srinivasan with Mr. G. Hariharan and Mr. A.S. Rao for Respondents. WITH WRIT PETITION NO. 1175 OF 2007 1. Everest Flavours Limited, 3 a company incorporated and registered under the provisions of the Companies Act, 1956, with its Office at 104, Mahtre Pen Building, "C" Wing, 1st Floor, Senapati Bapat Marg, Dadar (West), Mumbai 400 028. .. Petitioner Versus 1. The Union of India 2. The Joint Director General of Foreign Trade having his office at New C.G.O. Building, New Marine Lines, Churchgate, Mumbai 400 020. 3. The Deputy Director General of Foreign Trade having his office at New C.G.O. Building, New Marine Lines, Churchgate, Mumbai 400 020. 4. The Foreign Trade Development Officer, having his office at New C.G.O. Building, New Marine Lines, Churchgate, Mumbai 400 020. ... Respondents Mr. Prakash Shah i/by M/s. PDS Legal for Petitioners. Mr. P.S. Jetly for Respondents. CORAM : V.C. DAGA & R.M. SAVANT,JJ. DATED : SEPTEMBER 15, 2010 ORAL JUDGMENT : (Per R.M. Savant,J.) Rule in all the petitions made returnable forthwith and heard with the consent of the parties. 4 2. By way of the above writ petitions, filed under Article 226 of the Constitution of India, Petitioners inter alia lay a challenge to the policy circular dated 28.2.2006 issued by Respondent No. 3 by way of a clarification to "Vishesh Krushi Upaj Yojana" scheme (hereinafter referred to "VKUY scheme). Petitioner in W.P. No. 1665 of 2006 also challenge the rejection letter issued to them rejecting their application for the benefit of the said scheme. In so far as the said Writ Petition No. 1665 of 2006 is concerned, the rejection letter is dated 27.3.2006 whereas in Writ Petition No. 2221 of 2007, the petitioners have claimed that their 19 applications for issue of duty free credit entitlement script should be allowed. In so far as Writ Petition No. 1175 of 2007 is concerned, apart from the challenge to the said circular dated 28.2.2006 the Petitioners have in the said writ petition challenged the show cause notices dated 3rd April, 2007, 10th May, 2007 and order dated 25th April, 2007. The Petitions therefore, raise a common challenge and are therefore, heard together. W.P. No. 1665 of 2006 is treated as the lead matter. 3. Shorn of unnecessary details, the facts necessary for adjudication of the above writ petitions, can be stated thus : The Respondents announced the foreign trade policy for the period 2004-09 which came into effect on 1.4.2004. In terms of Para 3.8 of the said policy, the scheme known as "Vishesh Krushi Upaj Yojana" was formulated 5 mainly with an object of promotion of export of fruits, vegetables, flowers, minor Forest produce, Dairy, Poultry and their value added products and Gram Udyog products, by incentivising exporters of such products. The exporters of such items as are given in Appendix 37 of the said policy were to qualify for export benefits as per paragraph 3.8.2 of the VKUY scheme. The exporters were also to be entitled to duty credit scrip equivalent to 5% of the F.O.B., value of such exports for each licencing year commencing from 1st April, 2004. 4. The Petitioners were granted certificate of being a three Star export house bearing registration No. 014115 by the Joint Director General of Foreign Trade which was valid upto 31st March, 2009. 5. From the point of view of the present petition, it would be relevant to note that the Petitioners effected exports of Menthol Crystals being a value added product of Mentha arvensis) between the period April, 2004 and March, 2005. The said product Mentha Avrvensis is listed in the Appendix 37A. It is the case of the Petitioners that the Mentha Arvensis is the plant and is never exported as a plant and is exported in the form of Oil. The oil is extracted by the farmers according to Petitioners, is not commercially viable to export. Such oil is purchased by the Petitioners and subjected to steam distillation followed by partial removal of menthol by refrigeration and fractional distillation resulting in (i) menthol crystals which contain a higher concentration of menthol and (ii) mentha oil in a refined form, for which an export market 6 exists. 6. The Respondents vide circular dated 28th February, 2006 which is purported to be in the nature of a clarification to the said VKUY scheme, sought to clarify that only value added variants listed in Appendix 37-A were eligible under the VKUY scheme. The Petitioners oblivious of the said circular have in terms of the said VKUY scheme applied for duty credit scrip entitlement under the said scheme for an amount of Rs.4,29,13,221/- after payment of the sum of Rs.2,14,600 as application fees. The said application was made by the petitioners on 27th March, 2006 and was submitted to Respondent No. 2 complete in all respects so as to avail of the benefit of the said scheme. The respondents rejected the said application of the Petitioners vide their communication dated 22.5.2006 on the ground that the Petitioners were not entitled for duty credit scrip in view of the said circular dated 28.2.2006. As indicated above, it is the said order dated 27.3.2006 and the circular dated 28.2.2006 which is impugned in the present petitions. 7. In so far as order dated 27.3.2006 is concerned, it would be advantageous to reproduce the same hereunder : "Your Application has been rejected due to following reasons : Your application for vishesh krishi upaj Yojana is rejected in terms of policy circular No. 51/2004-9 dt.28.2.2006. As per policy circular No. 4 dated 7 27.4.2005 appendix 37/A the item is covered under minor forest product i.e. Mentha whereas the item shown in the shipping bills as Menthol BP/USP. Your case stands closed." 8. As can be seen from the said order, the application of the petitioners was solely rejected on the ground of the said policy circular dated 28.2.2006 as according to respondents, the item covered under Appendix 37A under minor forest produce is Menthol BP/USP. 9. On behalf of Respondents, an affidavit in reply has been filed by one Mr. Vijay N. Shewale, Joint Director General of Foreign Trade dealing with the claims and contentions raised in the Petition. Though the order as extracted above, in a very cryptic manner mentions the reasons for rejection of the Petitioners' application. By the said affidavit the respondents have now sought to justify the action by mentioning elaborate reasons for the said rejection. The respondents have by their affidavit as well as written submissions sought to demonstrate as to how the product exported by the Petitioners is distinct from the product which is mentioned in Appendix 37A. 10. We have heard the learned senior counsel for the petitioners and the learned counsel for Respondents. On behalf of the Petitioners, the learned Senior Counsel Dr. Tulzapurkar whilst assailing the action of the respondents of rejecting the application made the following submissions. That the impugned action of rejection of the Petitioner's application is contrary to the 8 VKUY scheme in as much as the scheme contemplates grant of incentives to exporters on specified products and also on the value added products. The learned senior counsel has placed reliance on the objectives of the scheme. The learned Senior counsel further submitted that the listing of items under the hearing "extracts" does not and cannot lead to inference that the export of only those value added products under that heading are qualified for grant of incentives. If it is so construed, the learned senior counsel submitted that the expression "their value added products" appearing in Clause 3.8.1 read with 3.8.2. would be rendered nugatory. Such interpretation would also lead to absurdity as according to the learned counsel, Bramhi and Ashoka trees cannot be exported but their value added products one of which is Brahmi Oil is exported. Such interpretation according to the learned counsel would also defeat the very object of the scheme. The learned senior counsel further submitted that the circular cannot have an effect of amending the policy which can be amended only as per the procedure prescribed under Section 5 of the Foreign Trade Development and Regulation Act, 1992. The learned senior counsel further submitted that the circular is only an administrative instruction or guideline and being contrary to the parent scheme cannot prevail over the parent scheme. The learned senior counsel lastly submitted that the order dated 27.3.2006 is passed in breach of principles of natural justice in as much as the Petitioners have not been heard in the matter which was necessary as the Petitioners have acted upon the said scheme. In support of his contention, the 9 learned counsel for the Petitioners relied on the judgment of the Division Bench of this Court in the matter of Hira Exports Versus Union of India Versus Union of India reported in 2008 (227) ELT 196 . 11. Though various grounds have been urged to assail the impugned action of the respondents and for challenging the circular dated 28.2.2006, in our view it is not necessary to deal with each of the said grounds as we are of the view that since the Petitioners have not been heard, the action of the Respondents suffers from an infirmity and the petitioners would succeed on the said ground. 12. As contended by the learned senior counsel for the Petitioners, the respondents were obliged considering the civil consequences that the action of the respondents would have, to at least grant hearing to the Petitioners before passing the impugned orders. This submission of the learned senior counsel for the Petitioners commends to us. The action of the respondents undoubtedly has the effect of visiting the petitioners with civil consequences and therefore, in our view the least that was expected of the respondents was to follow a modicum of procedure and thereafter pass orders on their application seeking benefit of the said VKUY scheme. Having not done so, in our view, the said action of the respondents suffers from an infirmity and is therefore, vitiated and is accordingly required to be set aside. The learned counsel appearing for 10 the Respondents fairly concedes to the said position. 13. Another aspect to be considered is that the Petitioners have on the basis of the representation made under the scheme, have acted pursuant to it and when the Petitioners sought to seek benefit of the said scheme, the applications of the Petitioners have been rejected on the basis of circular dated 28.2.2006. Though we find merit in the submission advanced on behalf of the Petitioners that the scheme cannot be modified by circular issued by the respondents, it is not necessary for us to go into the said aspect as we are required to set aside the order dated 27.3.2006 on the ground of violation of principles of natural justice in view of the fact that the Petitioners were not heard prior to the said order being passed. A useful reference can be made to the judgment of the Division Bench of this Court in the matter of Hira Exports (supra). In the said case the name of the Petitioner was entered in what is described as the "Denied Entities List". The Division Bench of this court has held that entering the name in the "Denied entities list" results in civil consequences and this would require an opportunity to the parties likely to be affected before passing the order. In our view the principle enunciated in the said judgment would also be applicable on the facts of the present petitions. Since the petitioners applications have been rejected on the basis of the said circular dated 28.2.2006, we are required to relegate the said issue also to the Director General of Foreign Trade before whom the Petitioners would be entitled to make submissions as regards the 11 applicability of the said circular to them. 14. In so far as Writ Petition No. 1175 of 2007 is concerned, one of the issues that arises in the said petition is as regards the applicability of the circular dated 28.2.2006 to the Petitioners. The said issue is already relegated to Director General of Foreign Trade by virtue of the instant order. However, in so far as the challenge to the show cause notices is concerned, the said challenge of the Petitioners would have to be kept in abeyance and the Petitioners in the said petition would be entitled to revive the said challenge depending upon the outcome of the hearing before the Director General of Foreign Trade in respect of the applicability of the said Circular dated 28.2.2006. 15. We accordingly set aside the impugned orders passed in Writ Petition No. 1665 of 2006 and Writ Petition No. 2221 of 2007 and issue the following directions in all the petitions : (1) The Director General of Foreign Trade shall hear the Petitioners in all the above petitions on the applicability of the circular dated 28.2.2006. (2) The Director General of Foreign Trade would also hear the Petitioners on the applications of the Petitioner made for the benefit of VKUY scheme and especially the entitlement for duty credit scrip. The Petitioners shall appear 12 before the Director General of Foreign Trade, New Delhi on 11th October, 2010. (3) The petitioners would be entitled to file their written submissions before the Director General of Foreign Trade within the time that would be stipulated by him. The Director General of Foreign Trade shall thereafter hear the Petitioners and pass appropriate orders on the applicability of the said circular dated 28.2.2006 as also on the applications of the petitioners for entitlement of VKYU scheme. The Director General of Foreign Trade to pass final orders within a period of three months from 11.10.2010. (4) In so far as Writ Petition No. 1175 of 2007 is concerned, though the issue as regards the applicability of the circular to the Petitioner is relegated to the Director General of Foreign Trade, however, in so far as challenge to the show cause notices is concerned, the said challenge of the Petitioners is kept open for being raised, if found necessary upon the outcome of the hearing before the Director General of Foreign Trade in respect of the Circular dated 28.2.2006. (5) Needless to state that all the contentions of the respective parties are kept open for being urged before he Director General of Foreign Trade. Rule accordingly made absolute in the aforesaid terms. 13 Parties to bear their respective costs. (R.M. SAVANT,J.) (V.C. DAGAJ.)