2025 (12) TMI 838 - HC - Customs

No retrospective benefit under FTDR Act Ss.3 and 5; TMA chilli export incentives only from 09.09.2021

HC held that notifications issued under Ss. 3 and 5 of the FTDR Act cannot operate retrospectively, reiterating the SC ruling in Kanak Exports. The ... Retrospective operation of notification dated 25.03.2022 - eligibility of chilli exporters, who effected the exports between 09.09.2021 and 24.03.2022, to claim incentive under the notification dated 09.09.2021 for this period alone - foreclosure of the Scheme which had operated by dint of the notification dated 09.09.2021 from 01.04.2021 till 31.03.2022 - invocation of principle of legitimate expectation - HELD THAT:- The said issue, in our considered opinion, is no more res integra. Hon’ble Supreme Court in Kanak Exports [2015 (11) TMI 80 - SUPREME COURT] has unambiguously held, after considering the provisions contained in Section 3 and 5 of the FTDR Act, that a delegated or subordinate legislation can have only prospective and not retrospective effect unless the rule making authority has been vested with power under the statute permitting it to make the rules with retrospective effect. In Kanak Exports, the Apex Court has clearly held that Section 5 of the FTDR Act does not give any such power specifically to the Central Government to make rules retrospectively. It has further been observed that though power is available to the Central Government to amend the policy, however, that in itself would not mean that Section 5 of the FTDR Act empowers the Government to amend the policy retrospectively. While making the aforesaid observations and clearly returning a finding that the Central Government has not been vested with any power under Section 5 of the FTDR Act to make any notification retrospectively, the Hon’ble Supreme Court has, inter alia, considered that there is no denial that the Government has a right to amend, modify or even rescind a particular Scheme and further that in complex economic matters every decision is necessarily empiric which is based on experimentation or trial and error method and therefore, its validity cannot be tested on any rigid prior considerations - Noticing the said legal principle about the scope of interference by a Court in exercise of its power of judicial review in such matters, the Hon’ble Supreme Court has further posed a question which was, “as to whether such alteration, amendment, modification or recession of a Scheme can be done retrospectively thereby taking away some right that had accrued in favour of some other persons?” These observations have been made in paragraph 109 of the report in Kanak Exports (supra), which has been quoted herein above. This question posed has been replied in paragraph 113. Any order made by the Central Government under Section 3 of the FTDR Act, being a piece of subordinate legislation, cannot have retrospective effect - it is concluded that Central Government lacks any power or authority available to it under Section 3 and Section 5 of the FTDR Act to either make an order or notification having retrospective effect. Whether any right can be said to have vested in or accrued to chilli exporters in respect of the exports effected by them between 01.04.2021 to 08.09.2021? - HELD THAT:- It is clear that the TMA Scheme was first introduced by way of the notification dated 27.02.2019 read with the notification dated 29.03.2019 and the incentive under the said Scheme was admissible to the chilli exporters for exports effected from 01.03.2019 to 31.03.2020. Before the expiry of the period for which the TMA Scheme was effected in terms of the notification dated 27.02.2019 read with notification dated 29.03.2019, a notification on 17.03.2020 was issued making the said Scheme applicable and effective till 31.03.2021. Accordingly, so far as the applicability of the Scheme and the incentive admissible therein between the period 01.09.2019 till 31.03.2021 are concerned, there is no dispute and in fact, there cannot be any dispute. Once it is settled legal position that no notification under Section 5 or an order under Section 3 of the FTDR Act can be issued or made having retrospective effect, applying the notification dated 09.09.2021 before its issuance, i.e. for the period from 01.04.2021 to 08.09.2021, in our opinion, will be absolutely impermissible. The notification dated 09.09.2021 shall operate prospectively and therefore, if any exporter is found to have exported the chillies on and after 09.09.2021 till 24.03.2022, such an exporter shall be eligible to claim incentive under the TMA Scheme for this period alone, if he is otherwise entitled and eligible for claiming incentive. The chilli exporters, who effected the exports between 09.09.2021 and 24.03.2022 are eligible to claim incentive under the notification dated 09.09.2021 for this period alone, if such exporters are otherwise eligible to claim the incentive. In this view, it is declared that the notification of foreclosure of the Scheme, dated 25.03.2022, shall have no application so far as the claims of incentive for the exports effected between 01.04.2021 and 08.09.2021 are concerned. The writ petition is, thus, partly allowed and the respondents are directed to process the claims of those chilli exporters under the TMA Scheme issued vide notification dated 09.09.2021, who are found to have affected the exports only between 09.09.2021 and 24.03.2022. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the Central Government is empowered under Sections 3 and 5 of the Foreign Trade (Development and Regulation) Act, 1992 to issue orders/notifications having retrospective effect, including to foreclose or modify export incentive schemes. (2) Whether any vested or accrued right to incentive under the Transport and Marketing Assistance (TMA) Scheme arose in favour of chilli exporters for exports effected between 01.04.2021 and 08.09.2021. (3) What is the legal effect of the notification dated 25.03.2022 foreclosing the revised TMA Scheme notified on 09.09.2021, and for which period, if any, exporters remain entitled to claim incentives under the Scheme. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Power of Central Government to issue retrospective notifications under Sections 3 and 5 of the FTDR Act Legal framework - The Court examined Sections 3 and 5 of the Foreign Trade (Development and Regulation) Act, 1992, and the nature of notifications/orders issued thereunder as delegated/subordinate legislation. - The Court relied extensively on the decision of the Supreme Court in Director General of Foreign Trade v. Kanak Exports, which held that delegated legislation under Section 5 of the FTDR Act cannot be made retrospective in the absence of express statutory authorization. Interpretation and reasoning - The Court noted the categorical pronouncement in Kanak Exports that a delegated or subordinate legislation 'can only be prospective and not retrospective, unless the rule-making authority has been vested with power under a statute to make rules with retrospective effect,' and that Section 5 of the FTDR Act contains no such power. - It accepted the principle that although the Government has a wide right to amend, modify or rescind schemes and enjoys latitude in economic policy matters, such power does not extend to making retrospective amendments in the absence of explicit statutory authority. - The Court emphasised that this limitation applies equally to orders under Section 3 and notifications under Section 5, both being forms of subordinate legislation. - It rejected the respondents' contention that the Central Government could, in public interest, issue retrospective notifications under Section 3 or 5, holding that this argument stood answered and negated by Kanak Exports. Conclusions - The Court held that neither Section 3 nor Section 5 of the FTDR Act empowers the Central Government to issue any order or notification with retrospective effect. - Any notification or order under Sections 3 or 5 can operate only prospectively; the Central Government 'lacks any power or authority' under these provisions to make orders/notifications having retrospective effect. Issue (2): Accrual of any vested right to TMA incentives for exports between 01.04.2021 and 08.09.2021 Legal framework - The TMA Scheme was initially introduced by notifications dated 27.02.2019 and 29.03.2019, applicable for exports between 01.03.2019 and 31.03.2020, and extended till 31.03.2021 by notification dated 17.03.2020. - A revised TMA Scheme was notified on 09.09.2021, purporting to cover exports between 01.04.2021 and 31.03.2022, i.e. with retrospective effect for the period 01.04.2021-08.09.2021. Interpretation and reasoning - The Court observed that from 01.04.2021 to 08.09.2021, no TMA Scheme was actually in existence; the previous extension had expired on 31.03.2021 and the next notification was issued only on 09.09.2021. - In light of its finding under Issue (1) that retrospective notifications under Sections 3 and 5 are impermissible, the Court reasoned that the notification dated 09.09.2021 could not validly operate retrospectively to confer benefits for exports made before its issuance. - The Court held that chilli exporters could not legitimately have envisaged, at the time of exports made between 01.04.2021 and 08.09.2021, that a future notification would retrospectively grant incentives for that period, particularly when the prior Scheme had already lapsed on 31.03.2021. - It expressly applied the petitioner's own legal contention-that no retrospective notification could be made under Sections 3 or 5-to the notification dated 09.09.2021 itself, concluding that its purported retrospective coverage was legally untenable. Conclusions - The Court held that the notification dated 09.09.2021 must be treated as operating prospectively only. - No vested or accrued right to TMA incentives can be said to have arisen in favour of chilli exporters for exports effected between 01.04.2021 and 08.09.2021, since no valid incentive scheme was in force during that period. - Even if exporters actually made exports during 01.04.2021-08.09.2021, they acquired no enforceable right to incentives under the TMA Scheme for that period. Issue (3): Effect of notification dated 25.03.2022 foreclosing the revised TMA Scheme and entitlement to incentives for exports between 09.09.2021 and 24.03.2022 Legal framework - The revised TMA Scheme was notified on 09.09.2021 to operate (in form) for exports between 01.04.2021 and 31.03.2022. - The notification dated 25.03.2022 foreclosed the Scheme and withdrew the notification dated 09.09.2021, stating that this was to revamp, redesign and refocus the Scheme for better outcomes. Interpretation and reasoning - Having held that the notification dated 09.09.2021 could only operate prospectively, the Court determined that a valid incentive scheme was in force from 09.09.2021 until the date immediately prior to the foreclosure notification, i.e. 24.03.2022. - For this period (09.09.2021-24.03.2022), exporters who effected exports did so during the subsistence of a validly operative incentive scheme, and the denial of benefits could not be justified by giving retrospective effect to the foreclosure notification dated 25.03.2022. - Given its conclusion that retrospective operation of notifications under Sections 3 and 5 is impermissible, the Court held that the foreclosure notification dated 25.03.2022 could not validly operate to deprive exporters of incentives in respect of exports already effected while the Scheme was in force. Conclusions - The Court held that chilli exporters who effected exports between 09.09.2021 and 24.03.2022 are eligible to claim incentives under the TMA Scheme notified on 09.09.2021, provided they are otherwise entitled and eligible. - The notification dated 25.03.2022 foreclosing the Scheme cannot be applied so as to deny incentives for exports effected during 09.09.2021-24.03.2022. - Since no legally enforceable right to incentives existed for exports between 01.04.2021 and 08.09.2021, the foreclosure notification has no practical application to claims for that period; no benefits are payable for that retrospective segment in any event. - The writ petition was partly allowed: the respondents were directed to process claims under the TMA Scheme for members of the petitioner association who effected exports between 09.09.2021 and 24.03.2022, subject to their filing claims within the stipulated time and satisfying eligibility conditions.