Neither the Central Government nor the DGFT have the power to amend Foreign Trade Policy or withdraw any export benefit with retrospective effect

Malik Tanning Industries Vs. Union of India And Ors; Kavish Impex Pvt Ltd Vs. Union of India And Ors [2014-TIOL-2197-HC-DEL-CUS]

Malik Tanning Industries and Kavish Impex Pvt. Ltd. (the Petitioners) exported polyester printed and dyed fabrics (impugned goods) and therefore were granted an incentive under the Focus Product Scheme (FPS) by way of Duty Credit Scrips (Scrips) in terms of paragraph 3.15 of the Foreign Trade Policy 2009-2014 (FTP). These Scrips were utilized/ sold by the Petitioners. This incentive was granted to the Petitioners as impugned goods exported were considered to be ‘Technical Textiles’, notified under Appendix 37D of the Handbook of Procedures (Appendix).

Later on, vide Circular No. 42 (RE-2010)/2009-14 dated October 21, 2011 (the Impugned Circular) issued by the Director General of Foreign Trade (DGFT), the benefit available under FPS in respect of ‘Technical Textiles’ was curtailed to only 33 items with retrospective effect from April 1, 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. Accordingly, the demand letters were raised on the Petitioners. Being aggrieved, the Petitioners filed a Writ petition before the Hon’ble High Court of Delhi raising an issue as to whether the DGFT could issue the Impugned Circular to recall a benefit provided to the Petitioners under the FTP, with retrospective effect.

The Hon’ble High Court of Delhi observed that:

  • The policy to grant export incentives by way of the FPS is an integral part of the FTP; 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;
  • A bare reading of the provisions of Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (the FTDR Act) indicates that a policy cannot be made with retrospective effect. Inasmuch as the expression ‘formulate and announce’ used in Section 5 of the FTDR Act clearly meant that the power is to be exercised prospectively;
  • 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;
  • By virtue of Section 6(3) of the FTDR Act, DGFT may also exercise such powers as may be specified by an Order made by the Central Government but the said Section expressly excluded the powers, which are to be exercised by the Central Government under Section 5 thereof. Hence DGFT cannot alter or amend with retrospective effect the schemes framed under the FTP;

Therefore, the Hon’ble High Court decided the matter in favour of the Petitioners and held that neither the Central Government, nor the DGFT would have the power to amend the FTP or withdraw any export benefit with retrospective effect. It was further held that since, the Petitioners have already availed incentives under FPS, the effect of the Impugned Circular to recall a vested right would violate Article 300A of the Constitution of India.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: [email protected])

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October 2021