Foreign Trade Policy limits on domestic sale of rejects and scrap must rest on a rational basis, not unexplained curtailment.

An export oriented unit may sell rejects, scrap, waste and remnants in the domestic tariff area only within the limits set by the Foreign Trade Policy and subject to applicable duties. A restriction curtailing such disposal to 2% was found unjust and arbitrary because it lacked any discernible basis, and the two categories of rejects and scrap/waste/remnants could not be clubbed together for an unreasoned reduction. The impugned decisions were set aside and the matter was remitted for fresh consideration under paras 6.8(d) and 6.8(e) of the Policy.

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Issues: Whether the Board of Approval was justified in restricting the petitioner's permissible disposal of rejects, scrap, waste and remnants in the domestic market to 2% and whether the impugned decisions were arbitrary and contrary to the Foreign Trade Policy.

Analysis: The Foreign Trade Policy permits an export oriented unit to sell rejects and scrap/waste/remnants in the domestic tariff area within the limits prescribed by paras 6.8(d) and 6.8(e), subject to the applicable duties. The earlier permission granted by the Development Commissioner allowed a substantially higher level of disposal, and the subsequent reduction to 2% was made without disclosing any discernible basis or criteria. The two categories, namely rejects on the one hand and scrap/waste/remnants on the other, are distinct under the policy and could not be clubbed together for an unreasoned curtailment. The restriction also imposed a burden on the petitioner's business and was inconsistent with the policy framework that contemplates regulated domestic sale rather than an unexplained near-prohibition.

Conclusion: The restriction of disposal to 2% was held to be unjust and arbitrary, and the impugned decisions were set aside.

Final Conclusion: The matter was remitted to the Board of Approval for fresh consideration in accordance with paras 6.8(d) and 6.8(e) of the Foreign Trade Policy.

Ratio Decidendi: A policy-based restriction on domestic sale by an export oriented unit must be supported by a rational basis and must remain consistent with the governing export policy; an unexplained and disproportionate curtailment is arbitrary and liable to be set aside.

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