2015 (11) TMI 80 - SC - Customs

Export promotion scheme misuse notifications upheld but retrospective application rejected by Supreme Court

The SC upheld the validity of notifications issued to prevent misuse of the export promotion scheme after authorities discovered rampant abuse by status ... Delegated legislation and limits of delegated power - clarificatory amendment versus substantive amendment - retrospective effect of subordinate legislation - public interest as justification for withdrawal of governmental concessions - vesting of entitlement under an incentive scheme - ultra vires exercise of delegated power - misuse of export incentive schemes and remedy by executive actionClarificatory amendment versus substantive amendment - vesting of entitlement under an incentive scheme - Validity and legal character of Notification No.28 dated 28.01.2004 inserting Notes 1-5 in para 3.7.2.1 of the EXIM Policy - HELD THAT: - The Court held that the additions in Notification No.28 (Notes 1-5) were, insofar as materially challenged sub clauses (ii), (v), (vi) and (vii) are concerned, clarificatory in character and consistent with the core object of the Special Strategic Package for status holders. The amendments merely defined how 'incremental growth' was to be computed so as to prevent paper or artificial growth (for example, clubbing of third party exports, transfers within groups, or double benefits where EOUs/SEZ/EOU type units already enjoy duty free imports). Because the clarifications served to give effect to the Policy's object of promoting genuine export growth and to plug misuse revealed by investigations, Notification No.28 was upheld as valid in that respect. The Court nonetheless distinguished clarificatory amendments from substantive changes that must be made by the Central Government under Section 5, and treated the scope of the Notification accordingly.Notification No.28/28.01.2004 insofar as it inserted clarificatory Notes defining computation of incremental growth is valid.Ultra vires exercise of delegated power - delegated legislation and limits of delegated power - Validity of Public Notice No.40 (RE 2003) dated 28.01.2004 issued by DGFT excluding specified classes of goods from the scheme - HELD THAT: - The Court found that the DGFT's power under para 2.4 of the Policy is confined to prescribing procedures and other supplementary matters in the Handbook (Vol. I) by public notice; it does not permit the DGFT to amend the statutory EXIM Policy itself by excluding categories of exports from entitlement. The Public Notice operated to exclude four classes of items from the scheme and thereby went beyond procedural clarification into substantive amendment of the Policy. Since power to amend the Policy vests with the Central Government under Section 5, DGFT's Public Notice effecting such exclusions was ultra vires.Public Notice No.40 dated 28.01.2004, insofar as it excluded specified goods from entitlement, is ultra vires and set aside.Retrospective effect of subordinate legislation - delegated legislation and limits of delegated power - public interest as justification for withdrawal of governmental concessions - Validity and temporal operation of Notifications dated 21.04.2004 and 23.04.2004 (insertion of Note 6 / Note 7) issued by the Central Government under Section 5 - HELD THAT: - The Court recognised that the Central Government has power under Section 5 to amend the EXIM Policy but emphasised that delegated/subordinate legislation is not to be given retrospective effect unless clearly authorised. The Notifications of April 2004 altering the Policy to exclude certain exports were legislative amendments properly issued by the Central Government; they could not be given effect retrospectively beyond the power conferred. The Court also considered the State's public interest justification (misuse of the scheme) and concluded that because the investigated practices showed that claimed export growth was largely artificial, the April 2004 amendments did not unlawfully divest any vested rights of the affected exporters. The Court therefore upheld the Government's amendments but held that the Public Notice (DGFT) basis was ultra vires and the statutory Notifications must be treated with appropriate temporal operation.Notifications of April 2004 amending the EXIM Policy were validly made by the Central Government; they are not to be read as creating impermissible retrospective rights stripping where no vested right had in fact accrued; DGFT's earlier Public Notice cannot supply retrospective effect.Vesting of entitlement under an incentive scheme - misuse of export incentive schemes and remedy by executive action - public interest as justification for withdrawal of governmental concessions - Whether the writ petitioners had acquired vested rights to duty free entitlements for export performance of 2003-04 under the Scheme - HELD THAT: - The Court applied the material produced by the Government concerning investigative findings (including patterns of circular trading, re export/re transshipment, over invoicing, supplies from non eligible suppliers and exports of items unusual to domestic production) and concluded that the extraordinary export surges relied upon by certain petitioners were paper or sham growth. In that factual backdrop no legitimate vested right to the special entitlement had crystallised. The Court reiterated that while the State may not ordinarily take away vested rights by retrospective subordinate legislation, where entitlement is shown to be procured by misuse or fraud and the Government acts in bona fide public interest to prevent that misuse, the claimed rights cannot be upheld. Accordingly, directions of the Bombay High Court granting retrospective benefit for the earlier period were set aside insofar as based on artificial exports.The petitioners did not possess vested rights to the entitlements in issue because the export performance relied on was, on the record, attributable to misuse; therefore those retrospective claims were rejected.Ultra vires exercise of delegated power - Validity of Public Notice No.18 dated 24.07.2003 insofar as it purported to impose a fee - HELD THAT: - The Court held that imposition of a fee could not be effected by a mere Public Notice under the Handbook procedure; such a levy required exercise of the Central Government's power under Section 5 by notification. Consequently the portion of the Public Notice attempting to impose a fee was invalid.Public Notice No.18/24.07.2003 insofar as it imposed a fee is set aside.Retrospective effect of subordinate legislation - vesting of entitlement under an incentive scheme - Validity and temporal effect of amendments to the Target Plus Scheme (TPS) - Notifications dated 20.02.2006 and 12.06.2006 - HELD THAT: - The Court observed that though the Government has the power to amend or withdraw incentives, subordinate amendments cannot be given retrospective effect so as to divest vested entitlements unless statute so permits. In the TPS context, exporters who had met the eligibility and quantum growth thresholds acquired vested entitlements at the higher multi rate levels; the Government could not lawfully reduce those entitlements retrospectively to a lower uniform rate or exclude specified commodities with retrospective effect. Consequently the Notifications of February and June 2006 cannot be applied with retrospective effect to take away entitlements already accrued; they are effective only prospectively from their issuance dates. For the transferred writ (Welspun) the High Court's allowance was confirmed accordingly.Notifications 48/2005 (20.02.2006) and 8/2006 (12.06.2006) insofar as applied retrospectively are impermissible; they operate prospectively only.Final Conclusion: The Court upheld Notification No.28/28.01.2004 as a valid clarificatory measure defining computation of incremental export growth to prevent artificial claims, set aside DGFT's Public Notice No.40/28.01.2004 to the extent it substantively excluded classes of goods (ultra vires), and validated the Central Government's April 2004 Notifications as lawful amendments exercisable in public interest; where however exporters had not acquired genuine vested entitlements because their claimed export growth was shown to be sham or abusive, retrospective withdrawal did not unlawfully divest rights. The Court also set aside the Public Notice imposing a fee and held that amendments to the Target Plus Scheme reducing entitlements or excluding items could not be applied retrospectively and operate only from their dates of issuance. Issues Involved:1. Validity of Notifications and Public Notices amending the EXIM Policy.2. Jurisdiction of DGFT in issuing Public Notices.3. Retrospective effect of Notifications and Public Notices.4. Doctrine of Promissory Estoppel.5. Vested rights of exporters under the EXIM Policy.Detailed Analysis:1. Validity of Notifications and Public Notices Amending the EXIM Policy:The EXIM Policy 2002-2007 was amended by Notification No. 28 dated January 28, 2004, and Public Notice No. 40 of the same date. The amendments included Notes 1 to 5 to para 3.7.2.1 of the Policy. The primary contention was whether these amendments were clarificatory or constituted substantive changes. The court concluded that the amendments were clarificatory, aimed at preventing misuse of the scheme by exporters who were inflating their export performance through dubious means. The amendments were justified as they aligned with the original intent of the Policy to boost genuine export growth.2. Jurisdiction of DGFT in Issuing Public Notices:Public Notice No. 40 dated January 28, 2004, issued by the DGFT, sought to exclude certain export products from the incentive scheme. The court held that DGFT did not have the jurisdiction to amend the EXIM Policy, which is a statutory policy formulated under Section 5 of the Act. The power to amend the Policy rests solely with the Central Government. Consequently, the Public Notice was deemed ultra vires.3. Retrospective Effect of Notifications and Public Notices:The Notifications dated April 21 and 23, 2004, which sought to exclude certain products from the duty-free entitlement scheme, were challenged on the ground of retrospectivity. The court held that while the Government has the power to amend the Policy, such amendments cannot have retrospective effect unless explicitly provided by the statute. The court found that Section 5 of the Act did not confer any such power to make retrospective amendments. Therefore, the Notifications could not apply retrospectively to exports made before their issuance.4. Doctrine of Promissory Estoppel:Exporters argued that they had a legitimate expectation based on the original EXIM Policy and had altered their position accordingly. The court, however, held that the doctrine of promissory estoppel could not be invoked to prevent the Government from amending the Policy in public interest, especially to prevent misuse and fraud. The court emphasized that economic policies are subject to change, and the Government must be allowed to rectify policies to address public interest concerns.5. Vested Rights of Exporters Under the EXIM Policy:Exporters claimed that they had acquired vested rights to the benefits under the original Policy upon achieving the stipulated export targets. The court distinguished between existing rights and vested rights, holding that no vested right had accrued to the exporters as the benefits were contingent on compliance with the Policy as amended. The court noted that the amendments were necessary to prevent misuse and ensure that the benefits were granted only for genuine incremental growth in exports.Conclusion:The Supreme Court upheld the validity of the Notification dated January 28, 2004, as clarificatory. It declared the Public Notice dated January 28, 2004, issued by the DGFT, as ultra vires. The court held that the Notifications dated April 21 and 23, 2004, could not be applied retrospectively. The doctrine of promissory estoppel did not prevent the Government from amending the Policy in public interest. The court concluded that no vested rights had accrued to the exporters under the original Policy, as the amendments were necessary to prevent misuse and ensure genuine export growth.