By TIOL News Service

NEW DELHI, AUG 24, 2015: BY Notification No.39 (RE-2007)/2004-2009 dated 16.10.2007, the Central Government (respondent in this case) prohibited the import of palm oil through Kochi port in Kerala. It was followed by another Notification No.63 (RE-2007)/2004-2009 dated 24.12.2007 whereby the import of palm oil has been prohibited through all the ports of Kerala. These Notifications were issued by the Central Government in exercise of powers conferred by Section 5 read with Section 3 of The Foreign Trade (Development and Regulation) Act, 1992. All the appellants filed separate writ petitions challenging the validity of these Notifications on the ground that they were ultra vires the provisions of Section 3 of the Act and, in any case, unconstitutional as offending Article 14 of the Constitution of India. The writ petitions filed by them were dismissed by the Kerala High Court and so the matter is before the Supreme Court.

The appellants are engaged in refining and manufacture of edible oils, vanaspathi, bakery shortening, margarine etc. Their registered offices and the factories are in the State of Kerala. The main raw material used in the manufacture of RBD palm oil is crude palm oil. The appellants have been importing this raw material from other countries, primarily from Indonesia and Malaysia. Before the issuance of the above Notifications, this import was through the ports of Kochi and Beypore from where it used to be transported by road to its main factories which are in Kozhikode and Malappuram, in the State of Kerala itself. The impugned Notifications have prevented them from importing crude palm oil through the ports of Kochi and Beypore. Instead, they are forced to import this raw material through the ports outside Kerala. The effect thereof is that distance from the ports of import to the factories of appellants in Kerala stands increased, in contrast with the situation prevailing earlier. It has led to increased transportation cost for the appellants and that is precisely the cause of grievance.

These Notifications were challenged on two grounds, viz.:

(i) The Notifications are issued purportedly in exercise of powers under Section 5 read with Section 3 of the Act, but these provisions do not confer any such power on the Central Government. Therefore, the Notifications are ultra vires the provisions of Section 3(5) of the Act;

(ii) Imposition of selective restriction and confining the prohibition of import of crude palm oil to the ports in Kerala has not only resulted in invidious discrimination, such an action is manifestly arbitrary, irrational and unreasonable as well it is contended that there is no rational objective which is sought to be achieved with such Notifications and, therefore, they offends the equality clause enshrined in Article 14 of the Constitution.

Supreme Court observed,

It is well known that State of Kerala is the largest producer of Coconut and, in turn, there is substantial production of coconut oil as well. It is also a matter of common knowledge that coconut oil as well as palm oil are used for cooking and other common purposes. In that sense, coconut oil and palm oil are competing products. Whereas coconut oil produced from indigenous raw material and for the production of palm oil in India, the raw material i.e. crude palm oil is largely imported. Since the import price of crude palm oil has been much less than the price of coconut oil, the perception of Coconut growers in the State of Kerala was that it was affecting their livelihood. It is a matter of record that there are approximately 35 lakhs farmers in the State of Kerala who sustain their livelihood on Coconut crop. Therefore, it becomes their life sustaining crop. The Coconut crop covers more than 9 lakhs hectares in Kerala and contributes to nearly 35% of the agricultural income of the State which is a sufficient evidence to indicate that it is not only main but important crop of the State. The Coconut growers are predominantly small and marginal with the average size of holding being only half an acre. As already pointed out above, the significant and marked difference between the price of coconut oil and palm oil was manifest the fact that percentage difference between the two stood at 109% in the year 2004, reduced to 50% in December, 2006, to 12% in September 2007 and 0.6% in October 2007. The import of palm oil in one particular year had a cascading downward impact on coconut oil prices in the subsequent years. For example, the huge import of 1,53,513 tonnes of palm oil in 2004-05 had led to a price decline in coconut in 2005-06 and 2006-07. While the average price of coconut oil is Rs.6,155/- per quintal in 2004-05, in 2005-06, it declined sharply to Rs.4,978/- per quintal with further fall in 2006-07 when the price was Rs.4,459/- per quintal. It is more than abundantly clear that the restriction is imposed keeping in view the welfare of 35 lakhs farmers in the State of Kerala. Matter was examined at the highest level.

The Government had two alternatives before it, either to increase the custom duty i.e. duty on the import of crude oil or to issue impugned Notification. Enhancing the import duty would have all India ramification, whereas the problem was Kerala specific. Therefore, instant step was taken. When a particular decision is taken in the interest of the said farmers which are marginalized section of the society, more so for their survival, this policy decision of the Central Government provides a complete rational in support of the decision having nexus with the objective sought to be achieved.

The respondents have been able to demonstrate intelligible basis for issuing the impugned Notifications having rational nexus with the objectives sought to be achieved.

We, thus, reject the arguments based on Article 14 of the Constitution.

Interests of consumers vs farmers : The argument to the effect that interests of consumers is equally important which is not taken into consideration needs an outright rejection for more than one reason. In the first place no such case was made out by the appellants either in the High Court or even in the special leave petition filed in this Court. This argument was raised for the first time during oral hearing. There is, thus, no material produced on record to show how the impugned Notification would affect the interests of the consumers. An argument of this nature cannot be raised in the air without having solid foundation with relevant material. In any case, as we have found that the Notifications were issued in the interests of farmer class in the State of Kerala and, therefore, they are in public interest, this argument is of no avail.

The Supreme Court held that in the present case, there is a sufficient public good sought to be achieved by laying down the exception banning the imports of crude palm oil through ports in Kerala. These appeals are accordingly dismissed.

(See 2015-TIOL-189-SC-CUS)