2018 (12) TMI 34 - HC - Customs

Entitlement/right to export - Crude Oil- Permissions/approvals/authorisations for direct export or permission/facilitation for canalised export through the third respondent - self-sufficiency - Held that - It is apparent that the right to export crude oil, if it may be termed so, arises in two situations one when self-sufficiency is declared and the deemed option conditions exist (clause 18.4) or when payment terms are infringed (Articles 18.5-18.6). No other situation of any contractor possessing a right to export can, in the opinion of the court, arise, on an overall consideration of the material terms of the contract. This is further reinforced by the fact that under Article 27 title to Petroleum underlying the Contract Area and shall remain the sole owner of Petroleum produced pursuant to the provisions of this Contract . Therefore, the right to export, contemplated under Article 18.7 is only where the UOI has elected not to purchase pursuant to this Article 18. It visualizes a situation where the consequence of declaration of sufficiency leads to the exercise of conscious option by the UOI (under Article 18.4) pursuant to its choice whether or not it intends to exercise its said option to purchase, in writing, not later than ninety days 90 prior to the commencement of the year in respect of which the sale is to be made. Thus, if the UOI, upon declaration of self-sufficiency of crude oil, elects not to purchase it, the contractor can be said to have an entitlement to export it. That eventuality did not arise in the facts of this case. On this count, the petitioner/appellants argument is insubstantial and has to fail. Whether under the FTP, the appellant could legitimately claim the entitlement they sought to enforce through writ proceedings? - Held that - There is no right to export crude oil, per se. What the FTP enables is that if a case for export of crude oil is to be made, the canalizing agency, the IOL has to give the no objection certificate. The appellant s position therefore, that 'crude oil' is mentioned as STE Export through IOL, supports that no entitlement for anyone else to export crude oil is created. The relevant chapter in FTP provides that if STE itself wants to export/import, it can do so and if 'any other person' intends to import/export, it will have to apply to the STE, which can enable exports. The court is of opinion that the reasons given by the Central Government cannot be characterized as arbitrary or unreasonable. Since the appellant was permitted to sell quantities of crude oil to private refineries in India by the decision of the Empowered Committee of Secretaries, dated 17.08.2009, subject to certain conditions, it is evident that unutilised crude oil would be sold to domestic private refineries. No particular domestic refinery was named. A further condition that crude oil would be sold at international price, was also imposed. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Entitlement to export crude oil.
2. Interpretation of the Production Sharing Contract (PSC).
3. Application of the Foreign Trade Policy (FTP).
4. National policy on energy security and self-sufficiency.
5. Arbitrary or unreasonable denial of export permission.

Detailed Analysis:

Entitlement to Export Crude Oil:
The appellants, Vedanta Ltd., sought permission to export crude oil extracted from the Rajasthan Block, arguing that the Central Government's Foreign Trade Policy permits canalized export through Indian Oil Corporation Limited (IOL) or direct export with the approval of the Director General, Foreign Trade (DGFT). They claimed that the inability of the Union and its nominated Public Sector Undertakings (PSUs) to lift the entire production justified their request for export permission.

Interpretation of the Production Sharing Contract (PSC):
The PSC, executed between the Union, ONGC, and Shell India, stipulated that until India attains self-sufficiency, the contractor must sell all crude oil to the government or its nominee. Self-sufficiency is defined as the volume of crude oil exported equaling or exceeding the volume imported. The contract provided that if self-sufficiency is declared, the contractor can lift and export its share of crude oil, subject to the government's option to purchase. The court found that self-sufficiency had not been declared, and thus, the appellants could not claim an entitlement to export under the PSC.

Application of the Foreign Trade Policy (FTP):
The appellants argued that the FTP and the Indian Trade Classification (ITC) based on the Harmonized System of Coding permit the export of crude oil through a canalizing agent, IOL. The court noted that while the FTP does not prohibit the export of crude oil, it requires a no-objection certificate from the canalizing agency, IOL. The DGFT, after consulting the EXIM Facilitation Committee, rejected the appellants' request based on the Ministry of Petroleum and Natural Gas's denial of a no-objection certificate, citing national energy security concerns.

National Policy on Energy Security and Self-Sufficiency:
The Union argued that exporting crude oil would be detrimental to India's energy security, given the significant gap between domestic production and consumption. The Empowered Committee of Secretaries concluded that until India becomes self-sufficient, exporting domestically produced crude oil would violate the PSC and compromise national energy security. The court upheld this reasoning, emphasizing that the government's decision to prioritize domestic consumption over export was neither arbitrary nor unreasonable.

Arbitrary or Unreasonable Denial of Export Permission:
The appellants contended that the denial of export permission was arbitrary and violated their fundamental rights under Articles 14 and 19(1)(g) of the Constitution. They argued that the domestic market's limited capacity to process the Rajasthan Block Crude Oil resulted in substantial financial losses. The court, however, held that the right to trade does not guarantee the right to earn profit and that the government's decision was in the national interest. The court also noted that the appellants had the option to sell crude oil to domestic private refineries at international prices, as per the Empowered Committee's decision.

Conclusion:
The court dismissed the appeal, concluding that the appellants had no entitlement to export crude oil under the PSC or the FTP. The government's decision to deny export permission was justified based on national energy security concerns and the contractual obligations under the PSC. The court emphasized that the right to trade does not include the right to earn profit and that the appellants' fundamental rights were not violated by the government's decision.