2024 (5) TMI 835 - HC - Customs

Export Policy of Non-basmati white rice under HS Code 1006 30 90 is amended from Free to Prohibited - Notification No. 20/2023 - Prospective Or Retrospective effect of the Notification - Non application of mind or arbitrary exercise - Violation of the principles of natural justice - Denial of benefit of the transitional arrangement - FTP 2023 - burden upon the exporter to complete the obligation of fulfilling a complete contract - HELD THAT - The reason for converting the policy for export of Basmati Rice from free to prohibited as per contention of Mr. Deshpande learned DSGI is the domestic food security situation in India which as claimed to be at risk and the need for price stabilization of food items as is indicated from para-3 of the reply of the respondent No. 2 (Pg.138). For this it is contended that there was due consultation with the nodal Departments such as Departments of Agriculture and Farmers Welfare Department of Food and Public Distribution and Department of Consumer Affairs and it is stated that the consultation process had taken into account all data relating to production and export of non-basmati rice. It is however material to note that except for a plain statement in this regard which is contained in Paras-3 and 4 (Pg.138 and 139) of the reply of the respondent No. 2 there is nothing else therein in the nature of what was the form of consultation what data was collected and considered in spite of the fact that by amendment to the petition by inserting ground L (Pg.36-A) a specific plea was raised regarding absence of any such material to indicate any food security threat or any need for price stabilization of food items so as to demonstrate the reasonability of the restriction placed by way of the impugned notification on export of non-basmati rice. The relief which is being sought is for enabling the petitioners to complete the concluded contracts which they have with foreign traders for supply of basmati rice. In this context it would be material to note that in case the petitioners establish concluded contracts for supply of non-basmati rice to foreign traders for which they have established ICLC and the petitioners have already procured the goods this would be an action relatable to the Policy prior to the impugned notification which indicated that the export was free. If this is the case then the petitioners would have legitimate expectation of fulfilling of their contracts which they had entered into on the basis of the free policy with foreign traders. IT is also necessary to note that non-fulfilling the concluded contract would also make the petitioners open to litigation on account of breach of contract and consequently damages. Thus the expectation of fulfilling an existing concluded contract on the basis of the existing policy could be said to be legitimately available to the petitioners. Testing the impugned notification on the anvil of the principle of legitimate expectation vis- -vis Article 14 of the Constitution we find that no reasons are forthcoming from the respondents for denial of the benefit of the transitional arrangements in the FTP 2023 to the petitioners and though the same has been granted in the case of wheat as indicated in a similar circumstance denial of the same in the impugned notification is not justified. Retrospectivity - Though it is contended that it is retrospective in operation the notification does not indicate that is to take effect from any earlier date. However clauses 2 (i) to (iv) in their effect indicate that past transactions which have been entered and concluded but which are yet to be performed are also being taken in its sweep which position is substantiated by the fact that clause 2 of the impugned notification indicates that the transitional arrangement in para-1.05 of the FTP 2023 which saved concluded contracts indicated by an irrevocable ICLC was not applicable. We find that the restriction imposed vide clause 2 of the impugned notification dated 20/07/2023 denying the benefit of para 1.05 of the Foreign Trade Policy 2023 regarding transitional arrangement to the petitioners is clearly not justified in absence of any reasons in that regard forthcoming from the respondents specifically in view of the fact that it is not disputed that the FTP 2023 is applicable to the petitioners. We therefore hold and declare that the impugned notification dated 20/07/2023 insofar as it denies the benefit of the transitional arrangement as contained in para-1.05 of the FTP 2023 is bad-in-law and the benefit of this transitional arrangement would be available to the petitioners in case the requirements as indicated in clause (b) therein are complied by the petitioners. The petition is accordingly allowed in the above terms and to the above extent. Rule is made absolute in the above terms. Thus there shall be no order as to costs.

Summary

Issues Involved:
1. Authority to issue the notification.
2. Retrospective effect of the notification.
3. Violation of fundamental rights and principles of natural justice.
4. Application of transitional arrangements under the Foreign Trade Policy, 2023.

Summary:

1. Authority to Issue the Notification:
The petitioners challenged the authority of the Director General of Foreign Trade (DGFT) to issue the notification dated 20.07.2023. The court observed that the notification was issued by the Central Government exercising powers u/s 3 read with u/s 5 of the Foreign Trade (Development and Regulation) Act, 1992, and para 1.02 and 2.01 of the Foreign Trade Policy, 2023. The DGFT, acting as Ex-Officio Additional Secretary to the Government of India, signed the notification. The court referenced the Supreme Court's decision in "Union of India and Ors. vs. Agricas LLP and Ors." and concluded that the notification was indeed issued by the Central Government, thereby rejecting the petitioners' contention.

2. Retrospective Effect of the Notification:
The petitioners argued that the notification had a retrospective effect, adversely affecting concluded contracts. The court noted that the notification came into immediate effect and did not explicitly state any retrospective application. However, the denial of transitional arrangements for concluded contracts implied a retrospective impact. The court cited the Supreme Court's ruling in "Director General of Foreign Trade and Anr. vs. Kanak Exports and Anr." which held that delegated legislation could not be retrospective unless expressly authorized by statute. The court held that the impugned notification's retrospective application was not justified.

3. Violation of Fundamental Rights and Principles of Natural Justice:
The petitioners contended that the notification violated Articles 14 and 19(1)(g) of the Constitution, was arbitrary, and lacked consultation with stakeholders. The court emphasized that any restriction on the right to trade must be reasonable and backed by cogent material. The court found that the respondents failed to provide sufficient reasons or data justifying the prohibition on non-basmati rice exports. The absence of such material rendered the notification arbitrary and unreasonable, violating the principles of natural justice.

4. Application of Transitional Arrangements under the Foreign Trade Policy, 2023:
The court noted that the Foreign Trade Policy, 2023, provided for transitional arrangements allowing exporters with irrevocable commercial letters of credit (ICLC) to complete their contracts despite policy changes. The impugned notification explicitly excluded these transitional arrangements for non-basmati rice exports. The court found no justification for this exclusion, especially when similar transitional arrangements were allowed for wheat exports. The court held that the denial of transitional arrangements was arbitrary and violated the doctrine of legitimate expectation.

Conclusion:
The court declared that the impugned notification dated 20.07.2023, insofar as it denied the benefit of transitional arrangements u/s 1.05 of the Foreign Trade Policy, 2023, was bad in law. The petitioners were entitled to the benefit of these transitional arrangements if they complied with the specified requirements. The petition was allowed, and the rule was made absolute in these terms, with no order as to costs.