2023 (10) TMI 966 - HC - Customs

Conditions of eligibility and procedure for allocation of quota for export of broken rice on humanitarian food security grounds - Conditions restricting the eligibility for securing allocation of quota to only those exporters, who had exported rice to the countries in question (Senegal, Gambia and Indonesia) in the three preceding financial years. Whether restricting the allocation of quota for export of broken rice to only those exporters that had exported rice to the respective countries in question prior to such exports being prohibited, bears a nexus to the object of ensuring capacity and quality ? HELD THAT - The Court is neither required to ascertain the best classification for achieving the objective of such classification nor evaluate the efficacy of the same. The Court is merely required to ascertain whether the classification has any rational nexus with the object sought to be served. It is also well settled that a classification is not required to be scientifically perfect or logically complete - The classification need not be mathematically accurate and cannot be called into question merely because it is disadvantageous to certain individuals or class of persons. However, it is equally well settled that the intelligible differentia to support the classification must be real and substantial . In the present case, there is no material on record, which would even remotely suggest that persons who have exported broken rice to the respective countries would have a higher capacity to export rice or the quality of broken rice to be exported by them would in any way be superior than that which may be exported by rice exporters who had exported to other countries in the past. There is also no material to indicate that the channels of export to the countries in question are different from the channels of export to other countries. The underlying assumption of the classification is that the rice exporters who had exported rice to the countries in question in part have comparatively assured capacity to export broken rice and to ensure their quality. This assumption is not founded on any material or rational basis. In the present case, the export of rice from this country does not entail distribution of rice in the country importing foodgrains. In most cases, the exporter s obligation is discharged on loading the goods in question on a vessel in India (if the export is by sea). There is not even a suggestion that export of rice to the countries in question involves any special procedure or would yield any special experience - The counter affidavit filed by the respondents also does not set out any material to suggest that the rice exporters having a past experience of exporting rice in a particular country, would be better placed to service the export orders from that country in comparison with other exporters with established track record. It is apparent that the policy of canalizing exports of manganese ore had a clear nexus with the object sought to be achieved. Established miners and shippers were also permitted to continue exporting ore to ensure that existing export arrangements were not impacted. In the facts of the present case, the respondent has not produced any material to establish any rational nexus between the restricting the export quote to rice exporters that had exported rice during the three financial years preceding prohibition of export of broken rice, and the object of ensuring capacity and quality. The impugned trade notice set aside - respondents may re-evaluate the criteria for allocation of quota for export of broken rice - application disposed off.

Issues Involved:
1. Validity of Trade Notice No. 08/2023 issued by DGFT.
2. Restriction of eligibility for export quota allocation to exporters with past exports to specified countries.
3. Alleged violation of Article 14 and Article 19(1)(g) of the Constitution of India.

Summary:

Issue 1: Validity of Trade Notice No. 08/2023 issued by DGFT:
The petitioners, engaged in the rice trading business, challenged Trade Notice No. 08/2023 dated 20.06.2023 issued by the Directorate General of Foreign Trade (DGFT). This notice set conditions for eligibility and procedures for allocating quotas for the export of broken rice on humanitarian food security grounds.

Issue 2: Restriction of eligibility for export quota allocation to exporters with past exports to specified countries:
The petitioners were aggrieved by the conditions that restricted eligibility for securing allocation of quotas to only those exporters who had exported rice to Senegal, Gambia, and Indonesia in the three preceding financial years. They argued that they had a verifiable track record of exporting rice and that this restriction was discriminatory.

Issue 3: Alleged violation of Article 14 and Article 19(1)(g) of the Constitution of India:
The petitioners contended that the restriction violated Article 14 (equality before law) and Article 19(1)(g) (freedom to practice any profession) of the Constitution of India. They argued that the restriction had no rational nexus with the objective of ensuring that rice is exported in the given quantities to the specified countries.

Factual Matrix:
The export of broken rice was initially classified as 'free' under the export policy. However, on 08.09.2022, the Central Government prohibited the export of broken rice through Notification No. 31/2015-2020. Exceptions were made for certain consignments, and subsequent notifications extended these exceptions. The DGFT permitted exports to certain countries on an ad-hoc basis based on specific requests from foreign governments.

Submissions:
The petitioners argued that the eligibility condition was unreasonable and discriminatory, favoring only a few exporters. They cited Supreme Court decisions to support their contention that state actions must be reasonable and not arbitrary. The respondents countered that the policy was based on strategic and humanitarian considerations and was not amenable to judicial review. They argued that the classification was rational and aimed at ensuring capacity and quality.

Reasons and Conclusion:
The court examined whether the policy to allocate quotas only to exporters with past exports to the specified countries violated Articles 14 and 19(1)(g). The court noted that the challenge was not to the prohibition of broken rice exports or the limited export permissions but to the eligibility criteria for quota allocation. The court found that the classification of exporters based on past exports to specific countries did not have a rational nexus with the objective of ensuring capacity and quality. The court concluded that the classification was arbitrary and set aside the impugned trade notice.

Judgment:
The impugned trade notice was set aside, and the respondents were directed to re-evaluate the criteria for the allocation of quotas for the export of broken rice. The pending applications were also disposed of.

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