By TIOL News Service

NEW DELHI, DEC 10, 2014: THE petitioners had exported polyester printed and dyed fabrics. In terms of paragraph 3.15 of the FTP 2009-2014, they were granted Duty Credit Scrips equivalent to 2% of the FOB value of the said products exported by them.

These scrips have been utilized/sold by the petitioners and as such the petitioners have already received the benefit available, with respect to the products exported by them, in terms of the Focus Product Scheme (FPS) under the FTP. The benefit under the FPS was granted to the petitioners as the products exported were considered to be "Technical Textiles" as notified under Appendix 37D of the Handbook of Procedures published by the Government of India.

Vide Circular No.42 (RE-2010)/2009-14 dated 21.10.2011 issued by the DGFT the benefit available under FPS in respect of "Technical Textiles" was curtailed to only 33 items with retrospective effect from 01.04.2011. Inasmuch as the impugned circular excluded, with retrospective effect, the products exported by the petitioners from the definition of “technical textiles” and thus rendered the petitioners ineligible for claiming the incentive under the FPS.

As the benefits that have already been availed and utilized by the petitioners are sought to be recovered, by way of return of the Duty Credit Scrips or refund of the amount of duty along with 15% interest, the petitioners have filed the impugned petitions praying that the said letters of demand dated 16.07.2012 be set aside.

The High Court observed that the principal question to be addressed is whether the Director General of Foreign Trade could issue the impugned circular to recall a benefit provided to the petitioners under the Foreign Trade Policy, with retrospective effect.

Tracing the various provisions of the FTDR Act, 1992 and the provisions of the Foreign Trade Policy, the High Court observed -

++ It is clear that whilst Central Government is empowered to frame the Foreign Trade Policy, the role of DGFT is essentially to specify the procedure to be followed by an importer and exporter for implementing the Foreign Trade Policy and to clarify any question or doubt in respect of interpretation of any provisions contained in Foreign Trade Policy or classification of any item in the ITC (HS) Code or the Handbook of the Procedures.

++ The policy to grant export incentives by way of the FPS is an integral part of the Foreign Trade Policy; the role of DGFT with regard to the same is limited to specifying the procedures to be followed by an importer and exporter for implementing the said scheme and providing any clarification in that regard, where necessary.

++ The Hand Book of Procedures has been framed by the DGFT in exercise of functions entrusted under paragraph 2.4 of the Foreign Trade Policy and as paragraph 3.15.2 of the Foreign Trade Policy refers to export of products notified in Appendix 37D of Handbook-I, DGFT is entrusted with the function of specifying and updating the eligible products in the said Appendix.

Negating the submissions made by the respondent Revenue that the Circular has to be treated as clarificatory and that it was not the legislative intent to include "polyester printed fabrics" as "technical textiles" and it was never intended to include all items as specified under the ITC (HS) Code 5407 but only a few limited items, the High Court observed that the power granted to DGFT for clarifying any question and doubts with regard to entries in the ITC (HS) Code cannot be used to provide a definition where the entry itself is not ambiguous& that impugned circular brought about a substantive change as it restricted the scope of FPS as envisioned under paragraph 3.15.2 of the Foreign Trade Policy.

It was further observed -

++ Although the impugned circular is stated to have been issued pursuant to clarification sought by regional authorities, the import of the circular is clearly in the nature of a substantive amendment. The DGFT decided that textile products covered under the relevant entry must be restricted to products manufactured for non-aesthetic purposes that would include textiles for automotive application, medical textiles, geo textiles, agro textiles etc. Indisputably, this decision does not stem from any ambiguity in the expression "technical textiles – woven fabrics of synthetic filament yarn", but represents a substantive change in policy, i.e. to restrict FPS benefits to textile products for non-aesthetic purposes – 33 specific items as listed in annexure to the impugned circular. Notably, the "new focus products" contained in table 4 were admissible for claiming FPS benefits w.e.f. 27.08.2009; woven fabrics of synthetic filament yarn were granted the benefit of the FPS scheme with effect from the said date. This benefit is sought to be withdrawn w.e.f. 01.04.2011. In other words, there is no dispute that woven fabrics of synthetic filament yarn exported prior to 01.04.2011 would continue to be eligible for export incentive under FPS. In my view, this also indicates that the impugned circular seeks to bring about a substantive change in policy.

To the quintessential question as to whether DGFT would have the power to amend the list of products, export of which are eligible for incentive under the FPS, with retrospective effect, the High Court observed that a bare reading of the provisions of Section 5 of the FTDR Act indicates that a policy cannot be made with retrospective effect. Inasmuch as the expression 'formulate and announce' used in Section 5 clearly meant that the power is to be exercised prospectively [ Asian Food Industries: 2006-TIOL-147-SC-CUS refers].

The High Court added -

++ The power exercised by the Central Government is a power delegated by the Legislation. It is well settled that in absence of an express provision enabling a delegate to make delegated Legislation with retrospective effect, no such power can be inferred. Section 5 of the Act does not empower the Central Government to frame policy with retrospective effect. Thus, the schemes framed under the Foreign Trade Policy cannot be altered or amended with retrospective effect.

++ The DGFT is one step further removed and essentially the functions of DGFT are in the nature of implementing the Foreign Trade Policy. By virtue of Section 6(3) of the Act, DGFT may also exercise such powers as may be specified by an order made by the Central Government. However the powers, which are to be exercised by the Central Government under Section 5 of the Act, cannot be delegated to DGFT as the same are expressly excluded under Section 6(3) of the Act.

Adverting to the decision of Bombay High Court in Noble Resources and Trading India Pvt. Ltd. v. Union of India 2011-TIOL-907-HC-MUM-EXIM wherein it is held that the DEPB benefits could not be withdrawn with retrospective effect; Mahabir Vegetables Oils (P) Ltd. &Anr. v. State of Haryana &Ors.: 2006-TIOL-23-SC-CT, where the Supreme Court held that i t is beyond any cavil that a subordinate legislation can be given a retrospective effect,the High Court concluded thus -

++ The benefit granted to the petitioners under the FPS has already been availed by them in terms of the Foreign Trade Policy as in vogue at the material time. Thus, the effect of the impugned circular is to recall a vested right; this, in my view, would also violate Article 300A of the Constitution of India.

++ Neither the central government, nor DGFT would have the power to amend the Foreign Trade Policy or withdraw any export benefit with retrospective effect.

In fine, the impugned circular inasmuch as it seeks to restrict the list of eligible items under entry 33 of Table 4 of Appendix 37D of the Handbook-I with retrospective effect was set aside and accordingly the letters of demand were also set aside.

The Writ petitions were allowed.

(See 2014-TIOL-2197-HC-DEL-CUS)