2006 (8) TMI 211 - HC - Customs

Court rules against retroactive policy changes impacting valid Letters of Credit

The court ruled in favor of the petitioner, emphasizing that the government cannot retrospectively apply amendments to the Foreign Trade Policy to ... EXIM - Export restriction Issues: Export restriction on lentils, validity of Letter of Credit, power to amend Foreign Trade Policy, retrospective effect of policy amendments.Analysis:1. Export Restriction on Lentils: The petitioner entered into an agreement for the supply of red whole lentils to Bangladesh. The government amended the Foreign Trade Policy in June 2006 to include lentils in the list of items prohibited for export. The customs authorities intercepted consignments covered by eleven shipping bills based on this amendment. However, the petitioner argued that the amendment should not apply to their consignments as they were covered by an irrevocable Letter of Credit established before the imposition of the restriction.2. Validity of Letter of Credit: The Letter of Credit in question was issued on 30th May 2006 and last amended on 22nd June 2006. The government later issued a notification stating that the transitional arrangements under the Foreign Trade Policy would not apply for exports against Letters of Credit opened on or after 22nd June 2006. The petitioner contended that since their Letter of Credit was issued and last amended before this date, the export should be allowed.3. Power to Amend Foreign Trade Policy: The power to formulate and amend the Export and Import Policy is governed by Section 5 of the Foreign Trade (Development and Regulation) Act, 1992. The Act mandates that any amendment to the policy must be done through notification in the Official Gazette. The court emphasized that when a statute prescribes a specific manner for an action, it must be followed accordingly. The government cannot amend the policy with retrospective effect, and exports covered by Letters of Credit opened before the imposition of restrictions must be permitted.4. Retrospective Effect of Policy Amendments: The judgment highlighted that the government's decision to prohibit lentil exports was widely publicized on 22nd June 2006. However, the court ruled that this prohibition should not apply to exports covered by Letters of Credit opened before that date. In this case, as the Letter of Credit was issued and last amended before the imposition of the restriction, the export of lentils should be allowed as per the original terms of the agreement.5. Judicial Precedent: The court referred to a previous judgment in a similar case (W.P. No. 885 of 2006) to support its decision in this writ application. Based on the principles established in the previous judgment, the court allowed the writ application, restraining the respondents from interfering with the export of red whole lentils covered by the petitioner's Letter of Credit, provided the shipment is made within the Letter of Credit's validity period.In conclusion, the court's decision in this case emphasizes the importance of adhering to legal procedures for amending trade policies, ensuring that such amendments do not have a retrospective effect on ongoing transactions covered by valid financial instruments like Letters of Credit.