2026 (1) TMI 906 - HC - Customs

Woven synthetic filament yarn fabrics (HS 5407) eligible for FPS duty-credit benefits; DGFT circular cannot restrict-appeal dismissed.

Dominant issue: whether an executive Policy Circular by DGFT could narrow Serial No.33, Table 4, Appendix 37D ('woven fabrics of synthetic filament yarn' ... Classification of products - Serial No. 33 of Table 4 in Appendix 37D entitles “Technical Textiles – Woven Fabrics of Synthetic Filament Yarn”, classifiable under ITC (HS) 5407, to the benefit of the FPS - Legality of administrative clarification restricting scope of an export incentive scheme - Interpretation of Foreign Trade Policy (FTP) and Handbook of Procedures (HBP) - Doctrine against retrospective amendment of vested rights by executive circular - Role and powers of Directorate General of Foreign Trade in issuing clarifications - Focus Product Scheme / Duty Credit eligibility under Appendix 37D - ITC (HS) Classification Heading 5407 - HELD THAT:- The restriction of FPS benefits to exports of 33 items which were enlisted in the table annexed to the Policy Circular dated 21 October 2011 hurt the respondents as, the fabric exported by them does not, admittedly, fall within the said entries. The respondents contended that their product fell within the description of “woven fabrics of synthetics filament yarn”, which were entitled to FPS benefits, as per S. No. 33 of Table 4 in Appendix 37D to the HBP. That benefit, according to the respondents, could not have been restricted by the Policy Circular dated 21 October 2011 issued by the DGFT. While any reiteration thereof would amount to an exercise in repetition, we may only note that the DGFT in the garb of a clarification could not have restricted the number of items, which were entitled to FPS benefit as per Appendix 37 D to the HBP v1, and that no occasion arose for any clarification from the DGFT, as Serial No. 33 in Table 4 in Appendix 37D was clear and categorical. Though the learned Single Judge has, has interpreted the dash (–) between the words “technical textiles” and “woven fabrics of synthetics filament yarn”, we do not think it is necessary to enter into any such syntactical exercise. It is clear to us that the use of the words “woven fabrics of synthetics filament yarn” is deliberate. In fact, the manner in which the DGFT Policy Circular dated 21 October 2011, as well as Mr. Beriwal before us, seeks to interpret S. No. 33 in Table 4 in Appendix 37D to the HBP, would render the words “woven fabrics of synthetics filament yarn” entirely redundant and would result in re-writing the entry as reading “technical textiles” alone. This is not an exercise that DGFT, or for that matter, even this Court can undertake. It is perfectly clear to us that “woven fabrics of synthetics filament yarn” which fall within ITC (HS) Classification 5407 are fully entitled to the benefit of the FPS in terms of S. No. 33 in Table 4 in Appendix 37D to the HBP. There is no dispute about the fact that the fabrics exported by the respondents fell within the broad description “woven fabrics of synthetics filament yarn”. To our mind, the matter should have ended there, and this has been an entirely unnecessary exercise. Once the respondents’ export products fell within the description of “woven fabrics of synthetics filament yarn”, they were entitled ipso facto to the benefit of the FPS in terms of S. No. 33 in Table 4 in Appendix 37D to the HBP. Restriction of the items, the export of which would entitle the exporter to incentive, is certainly permissible. That, however, has to be by amendment of the HOP, and not by way of a clarificatory Policy Circular. Further, any such amendment could not be permitted to operate retrospectively, in view of Asian Food Industries [2006 (11) TMI 10 - SUPREME COURT] on which the learned Single Judge has rightly placed reliance. No case to interfere with the impugned judgment of the learned Single Judge. Appeals are accordingly dismissed, albeit without costs. Issues: Whether DGFT Policy Circular No.42 (RE-2010)/2009-14 dated 21 October 2011, which restricted eligibility for Focus Product Scheme (FPS) benefits to a list of 33 items and made that restriction effective from 1 April 2011, was legally valid; and whether DGFT could, by way of a clarificatory circular, curtail the scope of products entitled to FPS benefits under Serial No.33, Table 4, Appendix 37D to the HBP and make such curtailment retrospective.Analysis: The Foreign Trade Policy (FTP) and Handbook of Procedures (HBP) together determine eligibility for export incentives such as the FPS. Para 3.15.2 of the FTP refers to products notified in Appendix 37D to the HBP as entitled to FPS benefits; para 2.3 and para 2.4 of the FTP and the HBP empower DGFT to specify procedures and clarify doubts but do not permit DGFT to amend or curtail substantive eligibility created by the FTP/HBP. The impugned Policy Circular proceeded not merely to clarify but to narrow the scope of Serial No.33 by excising the express description 'woven fabrics of synthetics filament yarn' and limiting benefits to 33 enumerated items. Such a restriction constitutes a substantive change in eligibility and, if to have effect, must be made by amendment to the HBP/FTP by competent authority, not by a clarificatory circular. Further, retrospective application of a change affecting vested or accrued expectations is impermissible in the absence of clear statutory power to make such changes retrospective, as reflected in authorities addressing prospective operation of trade policy changes.Conclusion: The DGFT Policy Circular No.42 (RE-2010)/2009-14 dated 21 October 2011 is invalid to the extent it restricts FPS entitlement under Serial No.33, Table 4, Appendix 37D to the HBP to the 33 items listed in its annexure and to the extent it seeks retrospective application from 1 April 2011. Products falling within the description 'woven fabrics of synthetics filament yarn' under ITC (HS) 5407 remain entitled to FPS benefits under Serial No.33 of Table 4, Appendix 37D to the HBP.