By TIOL News Service

AHMEDABAD, FEB 24, 2014: THE petitioner has been claiming “deemed export benefits” on various power projects and, therefore, has an interest in the legality and propriety of various powers exercised by the respondent no 2, the Director General of Foreign Trade [DGFT] and its subordinates in connection with the processing and grant of the deemed export benefit. The respondent no.1 is the Union of India, responsible for the formulation of the Foreign Trade Policy [FTP] under which the deemed export benefits are available to the petitioner.

The petitioner prays that Para 2.3 of the FTP may be held as unconstitutional and ultra vires the FTDR Act or the FTP. Para 2.3 reads as:

2.3 [a]. The decision of DGFT shall be final and binding on all matters relating to interpretation of policy, or provision of HBP v1 , HBP v2 or classification of any item for import/export policy in the ITC (HS).

[b]. A Policy Interpretation Committee (PIC) may be constituted to aid and advice DGFT.

The High Court noted:

Section 3 of the FTDR Act empowers the Central Government to make appropriate provisions for development and regulation of foreign trade. Similarly, Section 5 of the FTDR Act gives powers to the Central Government to formulate and announce, by way of notification in the Official Gazette, the export and import policy which may be amended from time to time. Pursuant to such power conferred under Section 5 of the FTDR Act, the FTP is issued by the Central Government generally for five years and the same is revised or amended by means of annual supplement each year. At present, the policy which is in force is FTP 2009-2014.

Section 6 of the FTDR Act empowers the DGFT to advise the Central Government in the formulation of the Export and Import Policy and the said DGFT shall be responsible for carrying out that policy. Section 6 (3) provides that the Central Government may, by Order published in the Official Gazette, direct that any power exercisable by it under the said Act (other than the powers under sections 3, 5, 15, 16 and 19) may also be exercised, in such cases and subject to such conditions, by the DGFT or such other officer subordinate to the DGFT, as may be specified in the Order.

Pursuant to the aforesaid power conferred under Section 6 of the FTDR Act under para 2.3 of the FTP, the DGFT has been empowered to interpret the FTP policy. According to para 2.3 stated above, if any doubt or question arises in respect of interpretation of any provision in the FTP or in the matter of classification of any item in the ITC [HS] or in the HOP, the said question or doubt should be referred to the DGFT, whose decision thereon shall be final and binding.

It appears that the Central Government vide Para 2.4 of the FTP has granted power to the DGFT to specify procedure to be followed for the purpose of implementing provisions of FTDR Act, the Rules and the Order and such procedures or amendments, if any, shall be published by means of public notice.

In exercise of such power conferred under Para 2.4 of the FTP, the DGFT has specified HOP through Public Notice No.1 [RE- 2012]/2009-2014 on 5th June, 2012 which is in the form of an administrative guideline.

According to Para 8.3.1 of the HOP, to claim duty drawback benefits, a claimant has to fill up ANF -8 form and Para 7 of the declaration of ANF -8 form demands an undertaking from the claimant that in case of re-determination and re-verification, the claimant shall refund the amount paid in excess. It further appears that Para 8.3.6 of the HOP provides that subject to the procedures laid down in the HOP, Customs and Central Excise Duty Drawback Rules, 1995 shall apply mutatis mutandis to deemed exports.

In the above context, the advocate appearing on behalf of the petitioner, strenuously contended that the aforesaid provisions, namely, Para 2.3 of the FTP, Para 8.3.6 of the HOP and Para 7 of the ANF -8 form are in gross violation of Article 14 and 19[1] [g] read with Articles 246 and 265 of the Constitution of India and the provisions of FTDR Act.

High Court's Findings:

The Respondent No.2 , namely, DGFT, through Para 8.3.6 of the HOP has incorporated by reference the provisions of Duty Drawback Rules mutatis mutandis to the FTP and HOP. The HOP is nothing but an administrative guideline as would appear from a combined reading of Para 2.4 of the FTP and Section 6 of the FTDR Act. Section 3 of the FTDR Act grants power to the Respondent No.1 to make provisions relating to imports and exports and the Respondent No.1 under Section 5 of the FTDR Act can formulate and announce the foreign trade policy. It further appears from Section 6(3) of the FTDR Act that of the powers conferred upon the Respondent No.1 under the FTDR Act, except those provided in Sections 3,5,15,16 and 19, all others can be delegated to the Respondent No.2 by order published in the Official Gazette. The Respondent No.2 (DGFT) through Para 8.3.6 of the HOP has sought to incorporate the provisions of Duty Drawback Rules to deemed exports mutatis mutandis which is not permissible in view of the fact that no power has been granted to the DGFT under the FTDR Act to legislate either directly or by way of incorporation by reference. It is now a settled law that the separation of power between the legislature and executive forms part of the basic structure of the Constitution of India and any attempts by the executives to legislate without appropriate authority under the law would amount to violation of the basic structure of the Constitution of India. The power to legislate is incorporated under Article 246 of the Constitution of India and such power has been conferred on the Parliament and the State Legislature. Moreover, the power to frame Duty Draw Back Rules under the FTDR Act can be legislated by the Central Government only in exercise of power conferred under Section 19 in the manner prescribed under the FTDR Act and the same cannot be delegated to the DGFT as expressly prohibited by Section 6(3) of the above Act.

Any attempt by the executives to legislate without the authority of law should be branded as a colourable device and therefore, the same is in violation of Article 246 of the Constitution of India.

The power granted to the DGFT under Para 2.4 of the FTP is to lay down the procedure to be followed by an exporter or by any licensing/regional authority or by any other authority for the purposes of implementing provisions of FTDR Act, Rules and the orders made there under and FTP and, therefore, those by necessary implication excludes the “Rule making power” conferred under Section 19 of the FTDR Act inasmuch as the powers conferred under Section 19 cannot be re-delegated to the DGFT as expressly prohibited under Section 6(3) of the Act.

On going through the provisions of the FTDR Act, those do not grant power to the DGFT or its subordinates to re-determine or re-verify the deemed export benefits if such benefits have been approved or granted as per the provisions of the FTDR Act except by way of review as provided in Section 16. In the absence of any power under FTDR Act, the DGFT or its subordinates cannot assume quasi-judicial power for instance, the power to re-determine or re-verify under the administrative guidelines i.e. Para 7 of the ANF -8 Form. Therefore, by virtue of Para 7 of the ANF -8, the DGFT is deriving the quasi-judicial power which is beyond the provisions of FTDR Act. As already pointed out that according to Section 6 of the FTDR Act, the DGFT or the officer subordinate to him cannot usurp the power under Sections 3, 5, 15, 16 and 19 of the FTDR Act. According to Section 3, it is for the Central Government which may, by Order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports. 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 or services or technology. According to sub-section (3) of section 3 all goods to which any Order under subsection (2) of the said section applies should be deemed to be goods the import or export of which has been prohibited under section 11 of the Customs Act, 1962 and all the provisions of that Act shall have effect accordingly. According to section 5, it is for the Central Government which may, from time to time, formulate and announce, by notification in the Official Gazette, the foreign trade policy and may also, in like manner, amend that policy. The proviso to the said section provides that the Central Government may direct that, in respect of the Special Economic Zones, the foreign trade policy shall apply to the goods, services and technology with such exceptions, modifications and adaptations, as may be specified by it by notification in the Official Gazette.

Section 15 of the FTDR Act provides for Appeal and, according to the said section, any person aggrieved by any decision or order made by the Adjudicating Authority may prefer an appeal where the decision or order has been made by the Director General, to the Central Government; or where the decision or order has been made by an officer subordinate to the Director General, to the Director General or to any officer superior to the Adjudicating Authority authorized by the Director General to hear the appeal within a specified period mentioned therein. The said Section, however, gives power to the Appellate Authority to condone the delay in preferring the appeal on sufficient cause being shown. The said section puts certain other restrictions on preferring the appeal.

Section 16, on the other hand, authorizes the Central Government, in the case of any decision or order made by the Director General, or the Director General in the case of any decision or order made by any officer subordinate to him, to act on its own motion or otherwise, by calling for and examining the records of any proceeding for the purpose of satisfying itself or himself, as the case may be, as to the correctness, legality or propriety of such decision or order and make such orders thereon as may be deemed fit. The proviso, however, says that no decision or order shall be varied under section 16 so as to prejudicially affect any person unless such person has, within a period of two years from the date of such decision or order, received a notice to show cause why such decision or order shall not be varied and has been given a reasonable opportunity of making representation and, if he so desires, of being heard in defence.

Section 19 of the Act gives the Central Government the power to make rules for carrying out the provisions of the Act.

Thus, although specifically prohibited under section 6 of the Act, the DGFT has been illegally vested with the power to intervene in the subject-matters coming within the purview of Sections 3, 5, 15, 16 and 19 in clear violation of sub-section 3 of Section 6 of the FTDR Act. In other words, what is specifically prohibited by the FTDR Act, by taking aid of the HOP, the DGFT has assumed such power in colourable exercise of the power conferred upon it.

High Court Held:

On consideration of the entire materials on record, High Court therefore, held that Para 2.3 of the FTP should be read to this effect that the interpretation given by the DGFT as provided therein will not be binding upon the Supreme Court or High Courts while making judicial review of any decision taken by the adjudicating authorities under the FTDR Act and in the absence of any such interpretation by the High Courts or the Supreme Court on a particular point, the same will be binding upon the authorities under the Act.

High Court further held that Para 8.3.6 of the HOP, by which the Customs and Central Excise Duty Draw Back Rules 1995 has been adopted, is ultra vires the provisions of the FTDR Act which has not conferred such power upon the DGFT, but it is only the Central Government which can in exercise of its power under Section 19 of the FTDR Act by issuing appropriate notification in the official Gazette and after complying with the requirement of the said Section 19 make appropriate rules for carrying out the provisions of the above Act and in the process, may make rules similar to the ones indicated in the Customs and Central Excise Duty Draw Back Rules.

Similarly, the High Court also held that the Para 7 of the declaration attached with ANF -8 form read with the provisions of HOP cannot lawfully confer any power upon the DGFT or its subordinates to recall any adjudication under the Act by taking aid of such declaration attached with ANF - form. The right of review, it is needless to mention, is a creature of Statute and according to the FTDR Act, a review can be made only in accordance with the provision contained in Section 16 thereof and in a manner provided therein and not beyond the scope of said Section 16.

The High Court, thus, allowed this writ-application to the extent indicated above.

(See 2014-TIOL-223-HC-AHM-EXIM)