2011 (2) TMI 688 - HC - Customs

Court dismisses petitions, upholds retrospective notification, stresses judicial restraint in economic policy matters.

The court dismissed the petitions, holding that the Press Release dated 1st December 2010 was ultra vires the FTDR Act, but the Notification dated 22nd ... Validity of executive press release vis-a -vis statutory notification requirement - Power of Central Government to restrict exports under the Foreign Trade (Development & Regulation) Act - Retrospective operation of export restriction and effect on vested/ accrued rights - Transitional arrangements under the Foreign Trade Policy (para 1.5) and their ouster - Distinction between a Notification issued by the Central Government and policy/circulars issued by the DGFT - Entitlement of exporters holding prior Registration Certificates (EARC) pursuant to transitional clause - Judicial review of economic policy - scope, arbitrariness and reasonablenessValidity of executive press release vis-a -vis statutory notification requirement - Power of Central Government to restrict exports under the Foreign Trade (Development & Regulation) Act - The Press Release dated 1st December 2010 issued by the Ministry of Textiles imposing a ban on export of cotton yarn is ultra vires the FTDR Act - HELD THAT: - The Court applied the principle that a policy change imposing prohibition on export can only be effected by notification in the Official Gazette as mandated by Section 5 read with Section 3(2) of the FTDR Act. Reliance was placed on the earlier decision in Agri Trade India Services (affirmed by the Supreme Court in Union of India v. Asian Food Industries) to hold that an informal announcement or press release cannot substitute for the statutorily required gazette notification and therefore cannot lawfully bring the ban into effect. Consequently the Press Release of 1st December 2010 was held ultra vires. [Paras 42]Press Release dated 1st December 2010 is ultra vires the FTDR Act and ineffective to impose the export ban.Distinction between a Notification issued by the Central Government and policy/circulars issued by the DGFT - Retrospective operation of export restriction and effect on vested/ accrued rights - Transitional arrangements under the Foreign Trade Policy (para 1.5) and their ouster - The Notification dated 22nd December 2010 (as amended) issued by the Department of Commerce is not invalid for being signed by the DGFT and its retrospective effect is not per se unlawful in the facts of these cases - HELD THAT: - The Court distinguished between the issuing authority and the signatory: although the impugned notification was signed by the DGFT, it was issued by the Department of Commerce on behalf of the Central Government, satisfying the statutory requirement under Section 5. The Court examined the retrospective effect challenge in light of the policy, procedure and the transitional arrangements provided by the notification. Unlike the earlier chickpea ban, the present notification (as amended) preserved a transitional clause (3(ii)) allowing exporters who had obtained Registration Certificates on or before 1st December 2010 to export within the issued quantity and validity; further, the substantive policy decision was to cap total exports at 720 million kgs and the ban would operate when that cap was reached. Given prior consultation with the Cotton Yarn Advisory Board, the industry-wide knowledge of the impending cap, and the protective transitional provisions, the Court held that the notification could not be struck down merely because it had retrospective consequences. [Paras 45, 47, 49]Notification No. 14 (RE-2010)/2009-14 dated 22nd December 2010 (as amended) is not invalid on the ground that it was signed by the DGFT or solely because it operates with retrospective effect in the circumstances of the case.Entitlement of exporters holding prior Registration Certificates (EARC) pursuant to transitional clause - Transitional arrangements under the Foreign Trade Policy (para 1.5) and their ouster - Exporters who had obtained Registration Certificates from the Textile Commissioner on or before 1st December 2010 are permitted to export cotton yarn within the quantity and validity of such registered contracts as envisaged by the amended transitional clause - HELD THAT: - The Court construed Clause 3(ii) of the impugned notification (as substituted by the corrigendum dated 29th December 2010) to permit exporters who obtained EARCs on or before 1st December 2010 to export within the limits and validity of their registered contracts. The Court observed that the decisive moment for the applicability of the ban is when the overall cap (720 million kgs) is reached; EARCs issued prior to the cut-off are protected subject to contractual validity and shipment/clearance requirements under Customs. The existence of the transitional arrangement and subsequent clarification reduced the force of arguments based on promissory estoppel or legitimate expectation. [Paras 47, 53]EARCs obtained on or before 1st December 2010 permit export within the registered quantity and validity; unshipped EARCs will stand cancelled as per scheme timings and further allocation criteria will be governed by the respondents.Judicial review of economic policy - scope, arbitrariness and reasonableness - The ban on export of cotton yarn as a policy measure does not warrant interference under Articles 14 and 19(1)(g) absent arbitrariness, mala fide or disproportion that renders it unconstitutional - HELD THAT: - Applying settled principles of restraint in review of economic policy, the Court reviewed the material showing consultation with the Cotton Yarn Advisory Board, the data on supply-demand and price volatility, and the sequence of events which put the industry on notice. The Court held that the Central Government's decision to cap exports was a policy choice rationally connected to the objective of stabilising domestic availability and prices. Although the impact on a 100% EOU (KKTL) may be severe, the Court found no illegality, mala fide or irrationality in the policy itself and declined to substitute its judgment for that of the executive. The Court noted existing avenues for case-by-case relief to EOUs. [Paras 50, 54, 56, 59]The notification and the export restriction do not suffer from arbitrariness or unreasonableness warranting judicial interference; challenges under Articles 14 and 19(1)(g) are rejected.Effect of policy reliefs and subsequent notifications (exemption for yarn from imported raw cotton) - Subsequent notifications and clarifications (including exemption for yarn manufactured exclusively from imported raw cotton) provide additional relief and do not render the main notification arbitrary - HELD THAT: - The Court took note of Notification No. 18 (RE-2010) dated 24th January 2011 exempting yarn manufactured exclusively from imported raw cotton upon certification by Central Excise authorities, and observed that such measures further mitigate the harshness of the restriction. The existence of these follow-up measures and procedural clarifications informed the Court's overall conclusion that the policy-making and implementation process was not arbitrary. [Paras 53, 54]The follow-up notifications and clarifications form part of the administrative response and do not vitiate the validity of the export restriction.Final Conclusion: The Press Release of 1st December 2010 is ultra vires the FTDR Act and ineffective to impose the export ban; the Notification No. 14 (RE-2010)/2009-14 dated 22nd December 2010 (as amended) issued by the Department of Commerce is valid in law, the transitional provision protects EARCs obtained on or before 1st December 2010 subject to quantity and validity, and the policy decision to cap exports does not suffer judicial invalidation for arbitrariness; the writ petitions are dismissed. Issues Involved:1. Validity of the Press Release dated 1st December 2010.2. Validity of the Notification dated 22nd December 2010.3. Retrospective application of the Notification dated 22nd December 2010.4. Impact on 100% Export-Oriented Units (EOUs).5. Allegations of arbitrary and discriminatory issuance of Export Authorization Registration Certificates (EARCs).Detailed Analysis:1. Validity of the Press Release dated 1st December 2010:The challenge was whether the ban on the export of cotton yarn could be imposed by a press release. The court referred to the case of Agri Trade India Services Pvt. Ltd. v. Union of India, where a similar issue was addressed. The court held that a ban on export must be notified in the Official Gazette as per Section 5 of the FTDR Act. The Supreme Court in Union of India v. Asian Food Industries upheld this view, stating that such prohibitory orders can only have prospective effect. Consequently, the court held that the Press Release dated 1st December 2010 was ultra vires the FTDR Act.2. Validity of the Notification dated 22nd December 2010:The petitioners argued that the notification was issued by the DGFT, who had no authority to do so. The court clarified that although the notification was signed by the DGFT, it was issued by the Department of Commerce (DoC) in the Ministry of Commerce and Industry (MoCI), which is in line with the requirements of Section 5 FTDR Act. Therefore, the notification was validly issued by the central government.3. Retrospective Application of the Notification dated 22nd December 2010:The court examined if the notification could retrospectively apply to exports already in the pipeline. The Supreme Court in Asian Food Industries held that prohibitory orders could only be prospective. However, the court noted that the notification dated 22nd December 2010 included a transitional arrangement allowing exports for which EARCs were issued on or before 1st December 2010. The court found that the intention of the central government was to cap exports at 720 million kgs, and once this limit was reached, the ban would apply. The court held that the retrospective application was valid as it was based on the quantity limit rather than the date of the notification.4. Impact on 100% Export-Oriented Units (EOUs):KKTL, a 100% EOU, argued that the ban disproportionately affected it since it could not divert its produce to the local market. The court acknowledged the unique position of EOUs but held that the policy aimed to control domestic prices of cotton yarn, and EOUs were not exempt from this policy. The court referred to the principle that courts generally do not interfere with economic policy decisions unless they are arbitrary or unreasonable. The court found the policy reasonable and dismissed the argument.5. Allegations of Arbitrary and Discriminatory Issuance of EARCs:The petitioners alleged that the Textile Commissioner's office acted with ulterior motives by selectively issuing EARCs. The court noted that the petitioners did not provide concrete evidence to substantiate these allegations. The court also pointed out the significant increase in EARC applications in November 2010, indicating that the industry was aware of the impending ban. The court held that these allegations required investigation into disputed facts, which was not possible under Article 226 jurisdiction.Conclusion:The court dismissed the petitions, holding that the Press Release dated 1st December 2010 was ultra vires the FTDR Act, but the Notification dated 22nd December 2010 was valid. The retrospective application of the notification was upheld, and the court found no merit in the arguments concerning EOUs and allegations of arbitrary issuance of EARCs. The court emphasized the need for judicial restraint in matters of economic policy.