2025 (10) TMI 401 - HC - Customs

Sections 3 and 5, FTP paras 1.02 and 2.01 uphold government's power to reclassify roasted areca nuts, impose import prohibition

Shri. Indu Shekhar and Tabani Javed Versus Union of India & Anr.

HC held the DGFT notification reclassifying roasted areca nuts and imposing import prohibition was issued under powers conferred by Sections 3 and 5 of ... Power of DGFT to change the classification of the goods - Seeking a declaration that N/N. 02/2025-26 dated 2nd April 2025 is ultra vires Article 14 and 19 of the Constitution of India - classification of Roasted Areca Nuts from Chapter Heading 20081920 to Chapter Heading 08028090 - Imposing prohibition on import of goods - HELD THAT:- The notification issued by the DGFT is by invoking the powers under Section 3 read with Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 read with paragraphs 1.02 and 2.01 of the Foreign Trade Policy (FTP) 2015-20, as amended from time to time. Paragraph 1.02 of the FTP, 2023 stipulates that the Central Government, in exercise of powers conferred by Section 3 and Section 5 of the Foreign Trade (Development and Regulation) Act, 1992, as amended from time to time, reserves the right to make any amendment to the FTP, by means of a notification, in public interest. Paragraph 2.01 is the policy regarding import/exports of goods and stipulates that exports and imports shall be “Free” except when regulated by way of “Prohibition”, “Restriction” or “Exclusive trading through State Trading Enterprises (STEs)” as laid down in the Indian Trade Classification (Harmonized System) of exports and imports. The Petitioner has made out a strong prima facie case for grant of ad-interim relief - the matter is placed on 13th November 2025 under the caption for “ad-interim reliefs”. ISSUES PRESENTED AND CONSIDERED 1. Whether a notification issued by the Director General of Foreign Trade (DGFT) that changes the customs classification of a commodity from one Chapter Heading to another is intra vires the powers conferred under the Foreign Trade (Development and Regulation) Act, 1992 and the Foreign Trade Policy, or whether such reclassification falls within the exclusive competence of the Central Government under Section 11A of the Customs Tariff Act, 1975. 2. Whether the impugned DGFT notification, insofar as it effects a change in Chapter Heading classification of the commodity, offends Articles 14 and 19 of the Constitution (as contended by the petitioners) - considered at the prima facie stage for grant of ad-interim relief. 3. Whether ad-interim relief in the form of a stay on the operation of the impugned DGFT notification and provisional release of perishable imported goods on furnishing a bond is appropriate pending final adjudication. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework for amendment/reclassification of First Schedule and competence to alter Chapter Headings Legal framework: Section 11A, Customs Tariff Act, 1975 empowers the Central Government to amend the First Schedule by notification in the Official Gazette where satisfied that it is necessary in the public interest; proviso disallows alteration of rates specified in the Schedule; every notification under s.11A must be laid before both Houses of Parliament for specified scrutiny. The Foreign Trade (Development and Regulation) Act, 1992 (Sections 3 and 5) and the Foreign Trade Policy (FTP) permit the Central Government/DGFT to make amendments to FTP and to regulate imports/exports by prohibition, restriction or exclusive trading through State Trading Enterprises; paragraphs of FTP govern imposition of prohibitions/restrictions via DGFT notifications. Precedent treatment: No judicial precedents were relied upon in the decision to delineate the boundaries between s.11A and the FTP/DGFT powers; the Court proceeded on statutory text and scheme. Interpretation and reasoning: The Court construed s.11A as vesting the power to amend the First Schedule (which includes classification as between Chapters) exclusively with the Central Government, subject to Parliamentary oversight. The FTP/DGFT powers (under Sections 3 and 5 of the FT Act and relevant FTP paragraphs) were construed as authorising regulation of imports/exports by way of prohibition, restriction or exclusivity but not as permitting the DGFT to alter the customs classification by shifting goods from one Chapter Heading to another. The Court treated the power to change Chapter classification as a substantive amendment to the First Schedule which must follow the s.11A mechanism and cannot be effected by DGFT notification under the FTP. Ratio vs. Obiter: Ratio - Prima facie, the power to change Chapter Headings (i.e., reclassify goods between chapters of the tariff schedule) is an exclusionary function of the Central Government under s.11A and cannot be exercised by the DGFT via FTP notifications. Obiter - Observations as to the scope of paragraph provisions of the FTP and precise limits of DGFT notifications beyond the prima facie finding (e.g., finer delineation of borderline cases) are ancillary. Conclusions: At least prima facie, the DGFT lacked power under the FT Act/FTP to change the customs classification of the commodity from one Chapter Heading to another; such change falls within s.11A of the Customs Tariff Act and the procedure prescribed therein. Issue 2 - Constitutional challenge under Articles 14 and 19 evaluated at prima facie/ad-interim stage Legal framework: Article 14 (equality before the law) and Article 19 (freedom of trade, business and profession) protect against arbitrary or discriminatory executive action affecting trade; judicial relief at interim stage requires a prima facie case, balance of convenience and irreparable injury. Precedent treatment: No specific precedents applying Articles 14/19 to identical facts were cited; the Court evaluated the constitutional challenge on the basis of prima facie legal competence to reclassify and the statutory allocation of power. Interpretation and reasoning: The Court concluded that if a notification purports to reclassify goods by altering their Chapter Heading without invoking s.11A procedure, it raises substantial questions regarding arbitrariness and unauthorized interference with trade that engage Articles 14 and 19. Given that s.11A provides a distinct statutory process and parliamentary oversight for amendments to the First Schedule, bypassing that mechanism yields a strong prima facie case of ultra vires executive action and potential infringement of trade freedoms. Ratio vs. Obiter: Ratio - There exists a strong prima facie constitutional grievance where an administrative notification effects a substantive tariff classification change without the statutory process mandated by s.11A; such action prima facie engages Articles 14 and 19. Obiter - Final determination on proportionality or detailed Article 14/19 analysis is reserved for final adjudication. Conclusions: The petitioners established a strong prima facie case that the DGFT notification, insofar as it reclassified the commodity, was ultra vires and engaged Articles 14 and 19, warranting interim relief. Issue 3 - Appropriateness of interim relief and provisional release of perishable goods Legal framework: Principles governing interim relief require demonstration of prima facie case, balance of convenience and irreparable harm; courts may grant stays and require bonds/security for provisional release of goods pending final adjudication, especially where goods are perishable. Precedent treatment: No distinct precedents cited; the Court applied established equitable/interim principles to perishable imports. Interpretation and reasoning: On finding a strong prima facie case and noting the perishable nature of the goods, the Court considered it equitable to stay the operation of the impugned notification pending final disposal and to permit provisional release of imported consignments on furnishing a bond in the Customs Department's prescribed format. The Court limited conditions - expressly disallowing additional conditions beyond the bond - and directed that Bills of Entry remain provisional until final disposal. The Court recorded that the Customs Department was not present but justified expedited relief to prevent spoilage. Ratio vs. Obiter: Ratio - Interim stay of the DGFT notification and provisional release on bond are appropriate remedies where there is a strong prima facie ultra vires case and perishable goods are involved. Obiter - Specific procedural directions (e.g., form of bond, procedural interaction between DGFT, Customs and parliamentary laying) are pragmatic directions tailored to the interim context. Conclusions: Ad-interim stay of the impugned DGFT notification was granted; provisional release of perishable imports on furnishing the prescribed bond was ordered; Bills of Entry to remain provisional until final adjudication. The matter was listed for hearing on a specified date for further consideration and possible final disposal. Ancillary procedural determinations Legal framework and reasoning: The Court permitted joinder of the Customs Department as a necessary party given its role in implementing customs classification and enforcement; it directed filing of affidavit-in-reply by the DGFT/Union and service of amended pleadings within specified timelines to ensure parity of representation and opportunity to address merits on returnable date. Ratio vs. Obiter: Ratio - Proper impleading of the Customs Department is appropriate where classification changes affect customs administration. Obiter - Timing directions and electronic signature protocol are procedural accommodations for expedition and were issued in the circumstances. Conclusions: The Customs Department was directed to be joined as a party; affidavit(s) to be filed and served by a specified date; parties put on notice that the Court may dispose of the petitions at the next hearing on merits or interim reliefs.