TaxTMI 
TaxTMI 
2020 (10) TMI 645
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....s are in acute shortage all over the globe. 03-The petitioner has further stated that as there was an acute shortage of PPE Kits, Masks, Sanitizer, etc. and as some of the countries were manufacturing more than the demand in their own country, the petitioner wanted to supply the goods to United States of America (USA). 04-The petitioner has further stated that he has negotiated the supply of PPE Kits and other goods with a buyer of United States of America and he has placed an order for purchase of KN95 Masks from a manufacturing Company based in China, meaning thereby, the petitioner wanted to purchase the goods from China and to supply in United States of America by exploiting the system of Merchanting Trade Transactions which involves an Indian Bank as well as Reserve Bank of India. 05-The petitioner has further stated that under the Merchanting Trade Transactions an Indian Citizen facilitates the export of any goods or material from a Company or individual of an export country (other than India) and then import / supply of the said goods to a Company in another country, which is also other than India. Thus, in short their contention is that goods are neither manufactur....
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....er has further stated that the Director General of Foreign Trade, Ministry of Commerce through various notifications issued from January to May 2020 has prohibited export of PPE Kits, Masks, Ventilators, Sanitizer out of India to ensure that they are available to the Citizens, Doctors and Hospitals within our country. It has been stated by the petitioner that restrictions imposed by the Director General of Foreign Trade does not come in way of the petitioner as the petitioner on account of MTT Contract which has been executed with a buyer in America is exporting goods from China to America. There is no export out of India. 11-The petitioner has further stated that on 12/05/2020 the petitioner has wrote several letters to the Ministry of Commerce, Director General of Foreign Trade and requested for grant of exemption and for grant of permission to procure goods manufactured from China to supply to a Company in United States of America. 12-The petitioner has further stated that a request was also made to the banker to seek a clarification from Reserve Bank of India in respect of Clause 2(iii) of the guidelines dated 23/01/2020, however, as Reserve Bank of India has not issued a....
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....ctured by a company in China to a buyer at United States of America, therefore, the subject transaction has no bearing or reasonable connection on the availability of stock of PPE products within the territory of India. It has been further contended that the Hon'ble Supreme Court has laid down the test of reasonableness of restriction and held that laws imposing total prohibition would require close scrutiny in the cases of State of Madras Vs. V.G. Row reported in AIR 1952 SC 196 and Narender Kumar Vs. Union of India reported in AIR 1960 SC 430. 17-Learned counsel for the petitioner has stated that MTT contracts in PPE products such as the present one do not affect the stock or availability of PPE products within India and it does not fall within the prohibition on export of PPE products imposed by respondent No.2. The mischief or intention of the respondent No.2 - Ministry of Commerce, DGFT to prohibit export of PPE products is ensuring adequate quantity and availability of PPE products for Indian citizens, doctors and hospitals. The aforesaid objective or mischief is totally unaffected by a MTT contract entered and executed by an Indian citizen where goods manufactured at ....
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....ar No.20 dated 23.1.2020 issued by Respondent No.1 - Reserve Bank of India as being violative of the Petitioner's fundamental rights under Article 19(1)(g) and 21 of the Constitution of India; OR b. Issue a writ of Certiorari or any other appropriate writ/order/direction to the Respondents directing them to issue a necessary clarification that Clause 2(iii) of the Impugned Guidelines titled : RBI/2019-20/152 A.P. (DIR Series) Circular No.20 dated 23.1.2020 would not be applicable with respect to any MTT contracts that the Petitioner may enter into for PPE products such as Personal Protection Equipment Kits, masks, ventilators and sanitisers; c. Pass any other Order or Order(s) or grant any other relief as this Hon'ble Court deems fit and proper in the facts and circumstances of the present case. 21-The respondent No.1 - Reserve Bank of India has filed a detailed reply in the matter. It has been stated in the return that number of Corona Virus patients in India has crossed 42,04,614 cases and the death toll has crossed 71,642 (at the time the return was filed). India has taken over Brazil to have the second highest case load in the world. It has....
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....y the Reserve Bank of India in exercise of powers under Section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999. The revised guidelines are not new and they have been in force with some variation since 2000. 26-The respondent No.1 has further stated that circular challenged by the petitioner, viz. Clause 2(iii) of Circular No.20, is also not new and has been substantially in force since 2000. This will be clear from a perusal of 'Part B' of the above-mentioned earlier Circular No.9, and the same reads as under: "Authorised dealers may take necessary precautions in handling merchant trade transactions or intermediary trade transactions to ensure that (a) goods involved in the transaction are permitted to be imported into India, (b) such transactions do not involve foreign exchange outlay for a period exceeding three months, and (c) all Rules, Regulations, and Directions applicable to export out of India are complied with by the export leg and all Rules, Regulations, and Directions applicable to import are complied with by the import leg of merchanting trade transactions. Authorised dealers are also required to ensure timely receipt of payment for the export ....
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....change by the entity located in India carrying on the transaction ("the intemediary"), for the purpose of making payment for the goods being purchased overseas. The payment is made by the Indian intermediary by drawing foreign exchange or obtaining a letter of credit in India from its banker, which is a Reserve Bank - authorised dealer of foreign exchange ("authorized dealer bank") also located in India. Thus, there is a clear nexus of the first leg of the transaction to India and the involvement of its foreign exchange reserves. 29-Respondent No.1 has stated that similarly, in a successful trade, the Indian entity so purchasing the goods overseas recovers its money in the second leg of the transaction (termed as the "export leg"), by selling the goods to its buyer, also located overseas, but the money is under the law to be repatriated to India to the credit of the Indian intermediary which is located in India which had engaged in the Merchanting Trade business, within a strict time frame. The Reserve Bank has the statutory authority to regulate the foreign exchange held by or due to an entity located in India. Thus, even though both legs of the Merchanting Trade Transaction ar....
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.... well settled that the Courts do not normally interfere with State policy, particularly in financial matters, unless fraud or lack of bona-fides is alleged and established. In the present case, the petitioner has neither pleaded, nor proved either of such grounds. 31-Learned counsel for the respondent No.1 has placed reliance upon judgment delivered in the case of Kasinka Trading Vs. Union of India, reported in (1995) 1 SCC 274, P.T.R. Exports (Madras) (P) Ltd. Vs. Union of India reported in (1996) 5 SCC 268 and State of Haryana Vs. Mahabir Vegetable Oils (P) Ltd. Reported in (2011) 3 SCC 778 and has prayed for dismissal of the writ petition. 32-The Union of India - respondent No.2 has also filed an application and has adopted the return filed by respondent No.1 Reserve Bank of India. The Union of India in addition to the return which they have adopted has stated that vide notification dated 25/08/2020 an amendment has been made in the Export Policy and the Personal Protective Equipment / Masks i.e. N-95 / FFP2 Mask and N-95 / FFP2 or equivalent had been categorized as "restricted", which were earlier "prohibited" vide notification issued earlier on the subject. The notificat....
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.... from "Prohibited" to "Restricted" category. A monthly export quot of 50 lakh units has been fixed for N-95/FFP2 masks or its equivalent, for issuing export licenses to eligible applicants as per the criteria to be separately issued in a Trade Notice. Sd/- 25/08/2020 (Amit Yadav) Director General of Foreign Trade Ex-Officio Additional Secretary, Government of India E-mail: [email protected] (Issued from File No.01/91/180/21/AM20/EC/E-21933)" The aforesaid notification makes it very clear that all masks except N-95 / FFP2 Masks or its equivalent comes under "restricted" category. The other items mentioned in the notification are now freely exported. The Union of India has also prayed for dismissal of the writ petition. 33-Heard learned counsel for the parties at length and perused the record. The matter is being disposed of at motion hearing stage itself through Video Conferencing finally with the consent of the parties. 34-The petitioner before this Court as stated in the writ petition is a businessman engaged in the business of manufacturing and trading of Pharmaceutical, Herbal, Skin Care and Personal Protective Equipment (....
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....s been prohibited and restrictions have been placed on certain other transactions. IN terms of Rule 4 ibid, the transactions specified in Schedule II to the said Notification required prior approval of the Government of India and in terms of the Rule 5, the transactions specified in Schedule III to the Notification require prior approval of the Reserve Bank. Authorised dealers may follow directions contained in Annexure while dealing with applications relating to import of goods and services into India. Part A : Import of Goods:....... Part B : Merchanting Trade Authorised dealers may take necessary precautions in handling merchant trade transactions or intermediary trade transactions to ensure that (a) goods involved in the transaction are permitted to be imported into India, (b) such transactions do not involve foreign exchange outlay for a period exceeding three months, and (c) all Rules, Regulations, and Directions applicable to export out of India are complied with by the export leg and all Rules, Regulations, and Directions applicable to import are complied with by the import leg of merchanting trade transactions. Authorised dealers are also require....
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....d regulation of foreign trade by facilitating imports and increasing exports. (2) The Central Government may also, by Order published in the Official Gazette, make provision for prohibiting, restricting or otherwise regulating, in all cases or in specified classes of cases and subject to such exceptions, if any, as may be made by or under the Order, the import or export of goods (3) All goods to which any Order under sub-section (2) applies shall be deemed to be goods the import or export of which has been prohibited under section 11 of the Customs Act, 1962 (52 of 1962) and all the provisions of that Act shall have effect accordingly." 37-The Government of India has issued a notification dated 28/07/2020 and later on 25/08/2020 which has already been reproduced earlier and N-95 / FFP2 Mask or its equivalent are under "restricted" category. 38-The Reserve Bank of India has to be adhere to the policy decision taken by the Government of India and in that backdrop the Reserve Bank of India issued executive instructions / circular dated 23/01/2020. Once import of a particular product is barred or export of a particular product is barred, the question of permitti....
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....ntracts. 45-The Foreign Trade Policy is in existence framed by Government of India in exercise of powers conferred under the Foreign Trade (Development & Regulation) Act, 1992 and notifications have been issued by Government of India keeping in view the powers conferred by Section 3 of the Act of 1992. Its purely a policy decision taken by Government of India in larger public interest as there is an acute shortage of the goods which are the subject matter of the present writ petition. 46-The Courts normally do not interfere with the State policy particularly in financial maters unless fraud or lack of bona-fides is alleged and established. In the case of Kasinka Trading v. Union of India, reported in (1995) 1 SCC 274, the Hon'ble Supreme Court has held as under:- "23. [...] The courts, do not interfere with the fiscal policy where the Government acts in "public interest" and neither any fraud or lack of bona fides is alleged much less established. The Government has to be left free to determine the priorities in the matter of utilisation of finances and to act in the public interest while issuing or modifying or withdrawing an exemption notification ...." In a....
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....his Court that the petitioner is now importing goods from South Africa and is exporting it to United States of America and therefore, the petitioner now be permitted to avail the facility of Merchanting Trade Transactions. In the considered opinion of this Court, once import of a particular item is banned in India or its export is banned, such permission can never be granted, even though the item is not touching the Indian soil. 51-If analogy canvassed by Shri Abhinav Malhotra is accepted, then the Reserve Bank of India will have to grant permission for Merchanting Trade Transactions in respect of "Sniper Riffles". The petitioner on the basis of reasoning assigned by Shri Malhotra, even though he is procuring Sniper Riffles from United States of America and is supplying to Pakistan will have to be granted permission by Reserve Bank of India and Government of India and therefore, the analogy and the arguments canvased by Shri Malhotra are illogical and does not have support of statutory provisions. 52-The another example to make things more clear is of "Blood Diamonds" The Blood Diamonds are diamonds mined in a war zone and sold to finance insurgency, invading army's war e....
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....f the citizens thereby against the greater public or social interest sought to be ensured. Implementation of the directive principles contained in Part IV is within the expression of restrictions in the interest of the general public." 56-In the case of Balram Kumawat Vs. Union of India reported in (2003) 7 SCC 628, the apex Court has held that the complete ban on ivory extended even to mammoth ivory. 57-In the case of Kamlesh Vaswani Vs. Union of India reported in (2016) 7 SCC 592, the Hon'ble Supreme Court has approved of a complete prohibition on child pornography. 58-Complete ban on slaughter of cow and its progeny in the State of Gujarat has been upheld by the apex Court in the case of State of Gujarat Vs. Mirzapur Moti Kureshi Kassab Jamat reported in (2005) 8 SCC 534 and in Bihar in the case of Mohd. Hanif Quareshi Vs. State of Bihar reported in AIR 1958 SC 731. Complete prohibition on the sale of eggs within the municipal limits of Haridwar, Rishikesh and Muni-ki-Reti has been found reasonable by the Hon'ble Supreme Court in the case of Om Prakash Vs. State of U.P. reported in (2004) 3 SCC 402. Similarly, in the case of Systopic Laboratories (P) Ltd. Vs. Pr....