APRIL 10, 2020

By Nupur Maheshwari, Partner and Raghav Khurana, Senior Associate, Lakshmikumaran and Sridharan Attorneys (L&S)

IN a recent Notification ¹ issued by the Ministry of Textiles ("MoT") dated 14.01.2020, the MoT has recommended withdrawal of MEIS ² for Chapters 61, 62 and 63 with retrospective effect from 07.03.2019. This was done as the benefits under RoSCTL ³ have been extended to the exporters of Textile Industry. The withdrawal of MEIS benefit was effected vide Public Notice No. 58/2015-20 dated 29.01.2020 by the Ministry of Commerce ("MoC"). The withdrawal has come as a huge blow to textile exporters, since the industry was of the view that RoSCTL and MEIS would be available simultaneously. The retrospective withdrawal will result in erosion of profit margins substantially for these exporters.

The two schemes i.e. MEIS and RoSCTL were formulated with different objectives. While the MEIS was implemented by the MoC with the objective to "provide rewards to offset infrastructural inefficiencies and associated costs ⁴ and to "promote the manufacture and export of notified goods/ products, the MoT implemented RoSCTL for providing rebate of State and Central Taxes and Levies in accordance with the internationally recognized principle of zero rating of export products." ⁵

Given the different objectives behind each of the schemes and that they were governed by different ministries, different provisions, the trade was (correctly) under the belief that the schemes ran alongside the other and one did not bar the other. An assessee would not have envisaged the sudden withdrawal of MEIS retrospectively. The problem is further exacerbated by a complete lack of indication by the Government that the availment of either of the schemes would result in withdrawal of the benefit under the other.

Cancellation of MEIS benefits for textile exports retrospectively raises several important questions with respect to grant and withdrawal of various export incentives under the Foreign Trade Policy ("FTP") read with the Foreign Trade (Development and Regulation) Act, 1992 ("FTDR Act"). They are:

- Whether the right to import goods is indeed a right?

- Whether the grant of benefits under the various schemes such as advance authorization, EPCG, MEIS and SEIS under the FTP is a right of the applicant/exporter?

- Whether the Central Government has the right to amend the Policy retrospectively

- Whether a vested right can be withdrawn by the Government retrospectively?

Para 2.14 of the FTP provides that no person can claim an Authorisation as a right and the Director General of Foreign Trade ("DGFT") or the Regional Authority ("RA") shall have the power to refuse to grant or renew the same in accordance with provisions of FTDR Act, Rules made thereunder and FTP. Here, it is important to note that Authorization is defined under Para 9.07 of the FTP to mean a permission as included in Section 2(g) of the FTDR Act to import or export as per provisions of FTP. Section 2 (g) of the FTDR Act defines "licence" to mean a licence to import or export and includes a customs clearance permit and any other permission issued or granted under the FTDR Act. A bare perusal of these provisions makes it evident that the right to import goods is merely an authorization granted by the Government and the importer cannot claim it as a 'right' stricto senso.

In the same vein, it is also important to consider whether the benefits granted under the FTP such as Advance Authorization, EPCG, MEIS, SEIS, etc. are a right of the importer/ Applicant.

Reference is made to the decision in S.B. International Ltd. v. Asst. Director General of F.T., 1996 (82) E.L.T. 164 (S.C.), where the Apex Court had to decide whether a vested right had accrued to the importer for issuance of an advance licence as per the value addition norms as on the date of filing of the said applications, and whether any subsequent change in the policy effected before the issuance of the licences is not applicable to such licences.

The Court held that the facility to import under the advance licence scheme was an incentive provided by the Government and there is no right to advance licence apart from the Policy, and no citizen has a fundamental right to import, much less import free of duty. Mere filing of an application does not create any right in favour of the applicant since he has no pre-existing right to such licence. His right is only that which is given by the Policy. Thus, the Court held that a vested right does not accrue to an applicant for issuance of the advance licence on the basis of the norm obtaining on the date of the application.

However, the Court also noted that the situation could have been different if the Policy had said that a person exporting goods of a particular value shall be entitled to an import licence of a particular value; in such a case, the export of goods can be said to create a right in the applicant to get an import licence of the specified value.

Reference is also made to the decision of the Supreme Court in DGFT v. Kanak Exports, 2015 - 2015-TIOL-275-SC-EXIM, where it was held that the correct legal position is that a delegated legislation or subordinate legislation can only be prospective and not retrospective, unless the rule making authority has been vested with specific powers under a statute to make rules with retrospective effect. It was held that Section 5 of the FTDR Act does not empower the Government to make amendments with retrospective effect, thereby taking away the rights which have already accrued in favour of the exporters under the Scheme. Thus, even if the Government has, otherwise, power to amend, modify or withdraw a particular Scheme which gives benefits to a particular category of persons under the said Scheme, if some vested right has accrued in favour of the beneficiaries who achieved the target stipulated in the Scheme and thereby became eligible for grant of duty credit entitlement, that cannot be snatched from such persons/exporters by making an amendment to their detriment, retrospectively.

In the case of textile exporters, once they have exported the goods and have resultantly become eligible to claim benefit, it can be argued that a right has accrued in favour of the exporter. In other words, once the exports have been made during the currency of the scheme and the exports were duly covered under the scheme, it can be said that a vested right has accrued to the exporter. In such cases, where it can be said that a vested right has accrued in favour of the exporter, whether such vested right can be revoked retrospectively warrants examination.

Thus, while it can be said that the importer/ applicant will have no vested right to import or more so import duty free under the Advance Authorization or the pre-import EPCG Scheme, whether the same logic can be extended to the MEIS, SEIS or even post export EPCG authorization is a different question.

Reference is made to Para 1.02 of the FTP which provides that the Central Government reserves the right to amend the FTP, by way of a notification, in exercise of powers under Section 5 of the FTDR Act. However, reference is also drawn to para 3.13 of the FTP which inter alia provides the Government the right to impose restriction/ change the rate/ ceiling on a duty credit scrip issued under Chapter 3. However, the said Section or the said para of the FTP do not provide powers to the Central Government to amend the FTP or the MEIS Scheme retrospectively.

A similar issue had come up before the Court in various cases ⁶ under the Incremental Export Incentivization Scheme ("IEIS"). Similar to the withdrawal of MEIS retrospectively, the Government had sought to cap the benefits granted under the IEIS even when there was no cap/ limit earlier or in any of the surrounding/ contemporaneous documents such as public speeches, policy documents, changes in Handbook of Procedures, etc issued earlier.

The different High Courts agreed with the claim of the exporters and observed although no one can claim any benefit or incentive as an absolute right, a definite policy was announced in the said case and that policy extended an incentive for a demonstrated increase in exports. Its purpose was also clear, viz., to encourage more exports. The policy's terms must, therefore, receive an interpretation as would advance its stated purpose, viz., to promote and encourage exports. The Court also noted that in a beneficent piece of legislation or a policy, the Court will not or cannot read into that policy or legislation anything not already there, the introduction of which would result in the imposition of an unwarranted restriction upon the rights of beneficiaries or a class.

Therefore, while it can be said that no importer can claim authorization as a right, whether that argument can be extended to restrict a vested right in favour of an exporter who has exported the goods were exported during the currency of the scheme and otherwise eligible for the benefit flowing under the Schemes. In view of the same, it can be argued on behalf of exporters who have exported the goods prior to the withdrawal, that their vested rights cannot be withdrawn retrospectively, irrespective of whether they have filed the application for benefits or have received the benefits. The same can be the basis for the textile exporters to question the withdrawal of the MEIS in the near future in a manner known to law. However, it might be difficult to argue for exporters that the RoSCTL and the MEIS should be extended for exports made post withdrawal by the DGFT, since the Central Government reserves the right to amend the FTP.

[The views expressed are strictly personal.]

¹ Ministry of Textiles Notification issued under F. No. 14/26/2016-IT/Vol. II dated 14.01.2020

²Merchandise Exports from India Scheme

³Rebate of State and Central Taxes and Levies

⁴ Para 3.00 of the FTP.

⁵Para 3.03 of the FTP.

⁶ JSW Steel Ltd. v. Union of India, 2016 - 2016-TIOL-157-HC-MUM-CUS; Balkrishna Industries Ltd. v. Union of India, 2019 - 2019-TIOL-650-HC-MUM-CUS; Banarsi Das & Sons v. Union of India, 2017 (351) E.L.T. 243 (Cal.); Welldone Exim Pvt. Ltd. v. DGFT, 2018 - 2018-TIOL-1295-HC-DEL-CUS