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TMI Blog2011 (2) TMI 688X X X X Extracts X X X X X X X X Extracts X X X X ..... representing to the Respondents that in view of the hardship caused on account of the ban on export of cotton yarn, it should be granted relaxation in the matter of compliance with the export targets and also be permitted to sell its production in the domestic market - Such representation when made will be decided expeditiously by the central government. - W.P. (C) NOS. 8406 TO 8408, 8548, 8590 AND 8627 OF 2010 AND CM NOS. 21556, 21558, 21559, 21665, 21907 AND 21962 OF 2010 - - - Dated:- 17-2-2011 - S. Muralidhar, J. REPRESENTED BY : S/Shri P.H. Parekh, Sr. Advocate with E.R. Kumar, Sameer Parekh, Ms. Pallavi Sharma and Ms. Retika, with Biju Mattam, Anupam Dasgupta, Gaurav Adusumattu and Ms. Namrata Bedi, Advocates, for the Petitioner. S/Shri A.S. Chandhiok, ASGI, Sachin Datta, CGSC with Manikya Khanna, Advocates, for the Respondent. [Judgment]. Introduction : The challenge in this batch of writ petitions by manufacturers of cotton yarn is to a ban on the export of cotton yarn with effect from 1st December 2010, first brought about by a Press Release of the Ministry of Textiles (MoT) of that date and later by a Notification dated 22nd December 2010 issued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed RA within 15 days of the issue of any such restriction or regulation. 5. Para 9.12 of the Handbook of Procedures which inter alia supplements the FTP reads as under : However, wherever the Policy provisions have been modified to the disadvantage of the exporters, the same shall not be applicable to the consignments already handed over to the Customs for examination and subsequent exports up to the date of the Public Notice. Similarly, in such cases where the goods are handed over to the customs authorities before the expiry of the export obligation period but actual Exports take place after expiry of the export obligation period, such exports shall be considered within the export obligation period and taken towards fulfillment of export obligation. 6. In terms of the powers conferred by Section 5 of the FTDR Act read with Para 1.3 and 2.1 of the FTP 2009-14, the central government made the following amendments in Schedule 2, Table B of ITC (HS) Classifications of Export-Import Items by inserting Serial No. 161(B), in Chapter 52 by a Notification dated 9th April 2010. The relevant portion of the said notification showing the inserted entry reads as under : S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d depending upon the terms of payment, copies of the letter of credit ( LC ), the advance payment receipt and the contract copy. A first-time applicant had to also submit the Import Export Code (IEC ), Pan Card, Memorandum and Articles of Association. The application for EARC enclosing a copy of the export contract had to be submitted within 45 days prior to the date of actual shipment . It was made clear that if the export is not effected within the stipulated 45 days, then the Export Authorization Registration issued would stand lapsed. An exporter can however seek extension for making the shipment beyond 45 days upon showing justification. If for some reason the export contract is cancelled the exporter is expected to inform the Textile Commissioner within 21 days from the date of the cancellation and surrender the original EARC. The exporter is expected to submit proof of shipment details annexing the EARC copy, Exchange Control copy of the shipping bill and the commercial invoice. Failure to do so within 21 days from the date of the expiry of the permitted shipment period will result in the Textile Commissioner not entertaining any further application for an EARC till such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral government may, from time to time, formulate and announce, by notification in the Official Gazette, the foreign trade policy and may also, in like manner, amend that policy : Provided that the Central government may direct that, in respect of the Special Economic Zones, the foreign trade policy shall apply to the goods, services and technology with such exceptions, modifications and adaptations, as may be specified by it by notification in the Official Gazette. 11. Relevant to the present petitions is the procedure outlined in the above provisions as to the manner of imposing a ban on import or export of a commodity and the amendment to the FTP. An order prohibiting any export has to mandatorily be published in the Official Gazette in terms of Section 3(2) FTDR Act. Under Section 5 FTDR Act, an amendment to the FTP also requires to be made only by a notification in the Official Gazette. Proceedings of the CYAB 12. On 13th September 2010 a notification was issued by the MoT constituting the Cotton Yarn Advisory Board ( CYAB ) comprising 18 members with the Textile Commissioner as the Chairman and other Members which included the Director General of Foreign Trade ( DGFT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was estimated at 3370 mn. kg. Regarding exports CYAB accepted the suggestion of CITI for export of cotton yarn of 720 mn. Kgs. However APEC/TEA gave the dissenting note asking for continuation of the projected exports of 644 mn kgs as estimated in first meeting of CYAB. 14. Based on the above discussion, the Cotton Yarn Balance Sheet was drawn up. The provisional demand for 2009-10 as estimated by the CYAB on 1st October 2010 was 3300 million kg and for the end of the month, i.e., 29th October 2010, it was projected at 3376 million kg. The corresponding export figures were 644 and 720 million kgs respectively. The minutes further recorded as under : However AEPC, TEA, PDEXCIL did not agree to the figures of exports as well as the deliveries for different sectors. They viewed that it reflect only the supply side position and does not take into consideration the actual demand position. JS informed that cap of 55 lakh bales on export of cotton is considered only policy of the Govt. As of yarn Ministry don t have such a policy. Govt. may come out with this cap if situation demands. Shri Hardeep Singh, Jt. DGFT confirmed that there is no such ceiling on export of cotton yarn. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other petitions, excepting KKTL, are more or less similar. GAEL is a company engaged in the manufacture and export of cotton yarn. It is stated that it has made a total investment to the extent of Rs. 104.17 crores and employs 1000 persons in its yarn factory in Gujarat. GAEL was granted an EPCG licence dated 7th July 2010 in terms of which GAEL has an export obligation of US $ 21.36 million. GAEL also holds an advance licence dated 7th May 2010 issued by the Government of India for import of raw cotton and furnace oil as per SOIN under which the Petitioners imported furnace oil at nil duty. It is stated that in terms of the advance licence the Petitioners have incurred an export obligation of 4274 metric tonnes ( MT ) of cotton yarn at US $ 16.99 million. It is stated that the pending value of Export Packing Credit for textiles availed of by GAEL with the Bank of India and the State Bank of Mysore is around Rs. 21 crores which has to be crystallized by discounting the export bills of cotton yarn, failing which GAEL will be liable to pay the commercial rate of interest to the bank. 18. GAEL stated that it had uploaded 17 export contracts online on 27th November 2010 and 9 contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepts notice for Respondents 1 and 3 and states that he will have to seek instructions. He requests that matter be kept back by one week for that purpose. 5. Notice be issued to the remaining Respondents. 6. List on 23rd December 2010. It is made clear that the application for interim relief will be considered on the next date. Developments subsequent to the filing of the petitions 21. On 23rd December 2010 when the petitions were listed for hearing, the Respondents produced a copy of the following Notification dated 22nd December 2010 issued under Section 5 FTDR Act : Government of India Ministry of Commerce Industry Department of Commerce Udyog Bhawan Notification No. 14 (RE-2010)/2009-14 New Delhi, Dated 22nd December, 2010 Subject : Restriction on export of cotton yarn - Regarding S.O. (E) In exercise of the powers conferred by Section 5 of the Foreign Trade (Development Regulation) Act, 1992 (No. 22 of 1992) read with Para 2.1 of the Foreign Trade Policy, 2009-14, the Central government hereby makes the following amendments in respect of Sl. No. 161B {ITC(HS) Classification} in the Notification No. 38/2009-14 dated 9-4-2010. 2. The existing ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be restricted and will be allowed to be exported under licence. However, Exporters who have obtained Registration Certificate from Textile Commissioner, Mumbai before 1st December, 2010 would be permitted to export Cotton Yarn within the quantity limit for which such registration certificate has been issued and within the validity of such registered contract. The data for the quantity that has already been exported in 2010-11 is being collected. The representations received to review the extent of exportable surplus are also being examined. 3. Exact modalities for submitting applications for grant of export licence would be notified once the quantity of exports already made has been ascertained and the extent of exportable surplus has been reassessed. 4. This issues with the approval of Director General of Foreign Trade. Sd/- Joint Director General of Foreign Trade 23. After noting the above developments in its order dated 23rd December 2010, this Court recorded the submissions of the learned counsel for the Petitioners that they would amend the writ petitions to challenge the said circular. They were permitted to do so. On 24th December 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification No. 15(RE-2010)/2009-14 dated 29-12-2010. 2. The following shall be exempted from the restriction imposed on export of cotton yarn vide above notifications : Export of cotton yarn by manufacturers who manufacture and export cotton yarn exclusively out of imported raw cotton shall be exempted from the restriction imposed on export of cotton yarn vide above notifications, subject to a certificate from the jurisdictional Central Excise Authority certifying that the yarn has been manufactured exclusively out of the imported raw cotton. 3. Export of such consignment should be allowed by the customs after verifying that certificate to the above effect has been issued by the competent jurisdictional Central Excise Authority. 4. The effect of this notification :- The manufacturers who manufacture and export cotton yarn out of the imported raw cotton shall be exempted from the restriction imposed on export of cotton yarn. Submissions of counsel for the Petitioners (other than KKTL) 26. Mr. P.H. Parekh, learned Senior counsel, appearing for the GAEL and four other Petitioners (other than KKTL) submitted that : (i) The Press Release dated 1st December 2010 was u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted by the Petitioners for registration prior to 1st December 2010. The EARCs ought to have been issued within 24 hours of the applications. Reliance is placed on the statement made in the counter affidavit of the Respondents 1 2 that the time lag even during heavy load of applications was only 2-3 days. It is accordingly submitted that the Petitioners should be allowed to export all stocks of cotton yarn covered by the contracts uploaded on the website of the Textile Commissioner for registration prior to 1st December 2010. (vii) There were gross irregularities in the issuance of the EARCs between 20th November 2010 and 1st December 2010. There was no transparency as regards the procedure adopted. While in the counter affidavit it is stated that the said limit of 720 million kgs was reached by 1st December 2010, in the additional affidavit dated 27th January 2011 it is stated that as on 25th January 2011 only 648.973 mn. kgs. had been exported. Inasmuch as the Press Release dated 1st December 2010 is without the authority of law, the protection of Para 3(ii) of the Notification dated 22nd December 2010 should be available till that date, i.e., 22nd December 2010. It is sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anites v. Union of India, 2007 (5) SCALE 587 = 2007 (211) E.L.T. 3 (S.C.). It is submitted that the impugned Notification is disproportionate, unreasonable and arbitrary and violative of Article 14 of the Constitution. Reliance is placed on the decisions in Punjab Communications Ltd. v. Union of India, (1999) 4 SCC 727 and Om Kumar v. Union of India, (2001) 2 SCC 386. It is submitted that the Respondents failed to explore the least restrictive alternate measure vis-a-vis the EOU with a view to achieving the objectives underlying the establishing of an EOU while at the same time ensuring regulation of the domestic cotton yarn market. Reliance is placed on the decisions in East Coast Railways v. Mahadev Appa Rao, (2010) 7 SCC 678 and State of Madras v. V.G. Row, 1952 SCR 597. It is submitted that the restriction vis-a-vis an EOU is in effect a total ban on its production of cotton yarn. This therefore constituted an unreasonable restriction in terms of Article 19(1)(g) read with Article 19(6) of the Constitution. There was no overriding public interest that justified this measure. Learned counsel also relied on the cases cited by Mr. Parekh as regards promissory estoppel and legitima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s receiving around 2000 applications every months. In October 2010 this had increased to around 2800 and in November 2010 to 4359. Despite this the Office of the Textiles Commissioner made efforts to issue EARCs. In any event, there was no question of the EARCs upon the registered quantities reaching the threshold limit of 720 million kgs. Mr. Chandhiok also referred to the additional affidavit which indicated that there was a sharp increase in the price of cotton yarn coinciding with the huge and unprecedented increase in request for issuance of EARCs between the period 1st November 2010 to 1st December 2010. The total quantity for which the EARCs were sought increased from 75602.23 MT in September 2010 to 90424.57 MT in October 2010 and reached a staggering figure of 197606.79 MT in November 2010. It is submitted that if no curb would have been imposed on the exports, it would have been devastating for the domestic industry. 33. As regards the GAEL it is submitted that the number of EARCs sought to be registered by it, increased from a mere 403.03 MT in September 2010 to 970.80 MT in October 2010 and 5470.02 MT in November 2010. On 27th November 2010 alone EARCs for a quantity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss Release dated 1st December 2010 37. The first issue to be considered is whether the ban on export of cotton yarn could have been imposed on 1st December 2010 in the form of a Press Release by the MoT? 38. The facts in Agri Trade India Services Pvt. Ltd. v. Union of India were that a ban was imposed on the export of chickpeas with effect from 22nd June 2006. On that date, the Finance Minister announced the ban to the Press soon after the Cabinet Meeting on Pricing. The electronic media reported the ban on 22nd June 2006 itself. The newspapers of 23rd June 2006 prominently reported the ban. However, the formal notification of the ban on the export of chickpeas was issued under Section 5 FTDR Act only five days later on 27th June 2006. A second notification was issued on 4th July 2006 purporting to amend the earlier Notification dated 22nd June 2006. By the said amendment it was announced that transitional arrangements notified under Para 1.5 of the FTP shall not be applicable for export of pulses against irrevocable LCs opened on or after 22nd June 2006 as the decision of the Government prohibiting the export of pulses was announced and got widely publicized on 22-6-2006 in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consonance with the mandatory requirements of Section 5 FTDR Act was upheld by the Supreme Court. The conclusion that such a notification could only be prospective was also upheld. Para 48 of the decision of the Supreme Court in Asian Food Industries, reads as under (SCC @ p. 554) : The Delhi High Court, however, in our view correctly opined that the notification dated 4-7-2006 could not have been taken into consideration on the basis of the purported publicity made in the proposed change in the export policy in electronic or print media. Prohibition promulgated by a statutory order in terms of Section 5 read with the relevant provisions of the policy decision in the light of Sub-section (2) of Section 3 of the 1992 Act can only have a prospective effect. By reason of a policy, a vested or accrued right cannot be taken away. Such a right, therefore, cannot a fortiori be taken away by an amendment thereof. 42. Therefore, in light of the decision of the Supreme Court in Asian Food Industries, confirming a similar determination by a Division Bench of this Court in Agri Trade India Services Pvt. Ltd., the first issue is answered in favour of the Petitioners. It is held that the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have been made retrospective. It could not apply to exports which were already in the pipeline prior to 22nd December 2010. In other words, it is sought to be urged that where export contracts have already been submitted for grant of EARCs prior to 22nd December 2010, and in certain cases even prior to 1st December 2010, they should be permitted to go through. Reliance is placed on para 48 of the judgment of the Supreme Court in Asian Food Industries upholding the judgment of this Court in Agri Trade India Services Pvt. Ltd., to the extent it held that the ban on export of chickpeas could only be prospective. 47. A perusal of the notifications in Agri Trade India Services Pvt. Ltd., and the Notifications in the present case would show that there are some similarities and differences. The similarity is to extent that the Notification dated 4th July 2006 banning the export of chickpeas in Agri Trade India Services Pvt. Ltd., was made retrospective from 22nd June 2006 and Clause 1.5 of the FTP was made inapplicable to such exports that were in the pipeline prior to that date. In the present case the impugned Notification dated 22nd December 2010 makes Paras 1.4 and 1.5 of the FTP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it is not possible to hold that the impugned Notification dated 22nd December 2010 is bad in law only because it imposes the ban on export of cotton yarn retrospectively. It is necessary to discern the intention of the central government as laid down in the policy as well as in the procedure imposing the ban. Prior to the imposition of the ban, the export of cotton yarn was no doubt free but was subject to two conditions. First, an EARC had to be obtained from the Textiles Commissioner prior to the shipment and second, the Customs Authorities had to clear the consignments after verifying the EARC. The impugned Notification dated 22nd December 2010 imposed an additional requirement that the export had to be within the overall limit of 720 million kgs. Incidentally, this is a further aspect that makes the impugned Notification dated 22nd December 2010 (as amended on 29th December 2010) different from the Notification dated 27th June 2006 in Agri Trade India Services Pvt. Ltd. The decision to place a cap of 720 million kgs on the exports of cotton yarn for the year 2010-2011, i.e. till 31st March 2011 was a policy decision based on prior consultation with the CYAB. The ban would a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... months of 2010 and the corresponding months in the earlier years. The news of the impending ban triggered a panic reaction in the cotton yarn industry leading to a rush to obtain EARCs. Relevant to the case of GAEL, in the counter affidavit of the Respondents it is stated as under : In the Regional Office of Ahmedabad alone, while the average quantities registered between April 2010 till October, 2010 was in the range of 3708 MT, the quantity for registration submitted in the month of November, 2010 was to the tune of 10378.25 MT. Thus there was an almost 300% increase. In the case of the Petitioner (GAEL) alone, while the average quantity of registration sought between April 2010 and October, 2010 was 875 MT, in November-December 2010 alone a quantity of approx. 6000 MT was sought to be registered. It is, therefore, wholly impractical to suggest that irrespective of the quantity of contracts submitted for registration by the various exporters, the office of the Textile Commissioner was obliged to issue the EARC on the very same day. In any event, when the total quantity of registered contracts reached the thresh-hold limit of 720 Mn. Kgs., further issuance of EARC was stopped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the MoT will, for the purposes of making such allotments, consider the pending applications for registration of EARCs in the chronological order in which the said applications have been made. The exact time of the submission of each applications for grant of EARCs would be registered on the computer system. For all of the above reasons, this Court is not persuaded to hold that the impugned Notification dated 22nd December 2010 is arbitrary or unreasonable and, therefore, violative of Articles 14 and 19(1)(g) of the Constitution. 55. As regards the last submission that the Office of the Textile Commissioner acted with ulterior motives in adopting a pick and choose policy to grant EARCs to some exporters and refuse them to others who applied on the same day, no concrete data has been placed on record by the Petitioners to substantiate such charge. It is stated that some of the Petitioners managed to upload their export contracts on the website of the Office of the Textile Commissioner prior to 1st December 2010 while some others failed to upload them due to the system being shutdown. Whether this was on account of any deliberate omission on the part of the Textile Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a given case, it is inevitable that the social philosophy and the scale of values of the judges participating in the decision should play an important part, and the limit to their interference with legislative judgment in such cases can only be dictated by their sense of responsibility and self-restrict and the sobering reflection that the Constitution is meant not only for people of their way of thinking but for all, and that the majority of the elected representatives of the people have, in authorising the imposition of the restrictions, considered them to be reasonable. 58. In the context of economic policy it was explained in P.T.R. Exports (Madras) P. Ltd. v. Union of India (SCC, p.272) : 5 ..When the Government is satisfied that change in the policy was necessary in the public interest, it would be entitled to revise the policy and lay down new policy. The Court, therefore, would prefer to allow free play to the Government to evolve fiscal policy in the public interest and to act upon the same. Equally, the Government is left free to determine priorities in the matters of allocations or allotments or utilisation of its finances in the public interest. It is equally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r unfairness etc. Indeed, arbitrariness, irrationality, perversity and mala fide will render the policy unconstitutional. However, if the policy cannot be faulted on any of these grounds, the mere fact that it would hurt business interests of a party, does not justify invalidating the policy. In tax and economic regulation cases, there are good reasons for judicial restraint, if not judicial deference, to judgment of the executive. The courts are not expected to express their opinion as to whether at a particular point of time or in a particular situation any such policy should have been adopted or not. It is best left to the discretion of the State. (emphasis supplied) 61. The arguments advanced on behalf of KKTL, therefore, do not merit acceptance. However, as stated by learned ASG for the Respondents, this will not preclude KKTL from representing to the Respondents that in view of the hardship caused on account of the ban on export of cotton yarn, it should be granted relaxation in the matter of compliance with the export targets and also be permitted to sell its production in the domestic market. Such representation when made will be decided expeditiously by the centra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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