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TMI Blog2005 (7) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities are not relevant but we are concerned with the following facility as incorporated in para 3.7.2.l (clause vi) which reads as follows: ( vi) Duty free import entitlement for status holders having incremental growth of more than 25% in FOB value of exports (in free foreign exchange) subject to a minimum export turnover of ₹ 25 crores ( in free foreign exchange). The duty free entitlement shall be l0% of the incremental growth in exports. Such entitlement can be used for import of capital goods, office equipments and inputs for their own factory or the factory of the associating/ supporting manufacturer/ job worker. The entitlement/ goods shall be transferable . 3. By the Notification No.28 (RE-2003)/ 2002- 2007 dated 28th January 2004 issued by the Central Government in exercise of the power conferred under section 5 of the Foreign Trade (Development and Regulation) Act, l992, hereinafter referred to as the Act , the Central Government amended the provisions of para 3.7.2.l by inserting Note 1 to Note 5 to para 3.7.2.l. Note 1 provides that for the purpose of calculating the value of exports, the exports mentioned therein shall not be taken into account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot in the garb of clarification impose new and fresh conditions for the first time which did not exist at the time when the scheme was announced or at the time when the petitioners had made exports based on the scheme. Further according to them under the scheme the entitlement is contingent upon achieving the incremental growth of more than 25% in the value of export and, therefore, no sooner the prescribed minimum limit is achieved or crossed the right to receive the entitlement is crystallized or vested and such vested right cannot be taken away or whittled down by any subsequent changes or amendments. 7. According to the respondents,on the other hand, the Government received a report that some status holders were trying to increase their turnover by taking credits for the exports of others without putting any significant efforts for increasing the export. Such transactions amounted to misuse of the scheme. Considering this aspect in mind these clarifications were issued by way of the impugned Notifications and Public Notice. According to them by issuing clarifications certain types of exports which are merely paper exports and which do not lead to genuine incremental grow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovides that Merchants as well as Manufacturer Exporters, Service Providers, Export Oriented Units (EOU s) / United Located in Special Economic Zones (SEZ s) / Agri Export Zone (AEZ s) / Electronic Hardware Technology Parks (EHTPs) /Software Technology Parks (STPs) shall be eligible for such recognition. Para 3.7.2.l relevant context of which is already quoted in para 2 of the judgment enumerates several facilities for which the status holders are entitled. For duty free import entitlement the status holders having incremental growth of more than 25% in FOB value of exports (in free foreign exchange) subject to a minimum export turnover of ₹ 25 crores (in free foreign exchange) are eligible. Duty free entitlement shall be l0% of the incremental growth in exports. Such entitlement can be used for import of capital goods, office equipments,inputs for their own industry or industry of the associate/supporting manufacturer / job worker. The entitlement / goods shall not be transferable. l2. Para 4.l provides for duty exemption/ remission schemes. Para 4.4 contains a schemes for diamond and jewelry. Paras 6.l and 6.2(a) deal with exports by EOU/EHTP/STP. Para 6.l0 recognizes exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain products for calculation of entitlement as well as import of certain products was excluded from the purview of the duty free entitlement certificate for status holders. Paras 2 and 3 of the Public Notice which are material for the purpose of this petition read as follows: 2. In terms of Para 3.2.5 of Handbook of Procedure (Volume I), the following items would not be taken into account for computation of entitlement and export performance under Duty Free Credit Entitlement Scheme for Status Holders: a. Rough, uncut and semi polished diamonds. b. Gold, silver in an form including plain jewelry therefore; c. Food grains sourced from central pool maintained by FCI d. Items exported under free shipping bills. 3. In terms of Para 3.25 of Handbook of procedure (Volume I), the following items would not be allowed for imports under duty Free Credit Entitlement Certificate for Status Holders: a. Agricultural products which fall under Chapters l.24 of ITC (HS) Classification of Export and Import items . l5. In exercise of power conferred under section 5 of the Act the Central Government issued the impugned Notifications dated 2lst April 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the export turnover under the scheme. He submits that the amendment seeks to exclude 8 categories of exports and 4 categories of items expressly or by implication. Therefore the amendment cannot be described as merely clarificatory. He submits that merely because benefits accrued upon achieving the prescribed incremental growth is deferred to a future date, it does not mean that there is no vesting of right. The right is vested in a status holder as soon as he achieves the prescribed incremental growth and just because the benefit in the form of duty free certificate is to be issued to the status holder after lst April 2004 as contended by the Government, it does not mean that no right is vested in the status holder to receive the duty free certificate upon achieving the incremental growth. In this connection he relies upon the decision of the Supreme Court in Chairman, Railway Board and ors. vs. C.R.Ranga Damaiah, (l997) 6 SCC 623, Bejgam Veeranna Venkata Narasimloo vs State of Andhra Pradesh, (l998) l SCC 563 and Samtel India Ltd vs Commissioner of Central Excise (2003) l55 ELT l4. Mr. Dada also relies upon the decision of the Madras High Court in Adani Exports Ltd vs Union of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually granted. There is exhaustive procedure laid down for making an application for grant of entitlement certificate. It is only after the application for entitlement is processed and licence is issued, then the right to entitlement is crystallized and accrues as a vested right in favour of an exporter by actual grant of a licence. Reliance is placed upon the decisions of the Supreme Court in PTR Exports (Madras) Pvt Ltd and ors vs Union of India, (l996) 5 SCC 268, S.B.International Ltd and ors vs Asst Director General of Foreign Trade and ors, (l996) 2 SCC 439 and State of Rajasthan and anr vs J K Udaypur Udyog Ltd and anr, 2004 (7) SCC 673. Reliance is also placed upon the observations of the Supreme Court in the case of Trimbak Damodar vs Asaram Hiraman , AIR l966 SC l758 explaining distinction between the existing right and vested right. In any event according to learned Additional Solicitor General the power to amend retrospectively is implicit in section 5 itself and the word amend used in section 5 read with section 3 which confers power upon the Central Government to regulate, is sufficient indication that the Central Government is empowered to make subordinate legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to the basic objective of the scheme as contained in Commerce and Industry Minister s speech on introducing new Exim Policy on 3lst March, 20034 which reads as under: We recognize that the status holders will continue to play a significant and increasing role in boosting exports, particularly from the small scale sector, as most of the small scale units will not be in a position to directly access the international markets. Moreover, it will be our endeavor to facilitate India emerging as a major base for out sourcing products and services for the rest of the world. They are also critical to our strategy for accelerating the rate of incremental growth of export. Therefore, we intend to give a premium to the status holders who achieve high growth rate in their exports. It is proposed to give a duty free entitlement to them for import of capital goods,spares, office equipments and consumables. /This will be available to status holders who achieve a growth rate of 25% or more in the current year with a minimum export performance of ₹ 25 crores.They would be entitled to a duty free entitlement of l0% of the incremental growth in exports during the current financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or getting incentives under the Exim Policy. However, the basic intention of the amended scheme was to encourage the export of products manufactured by small scale units who do not have access to the international market because of lack of required international marketing expertise and optimum resources to have presence in the international marketing arena. The scheme was not intended to encourage the status holder/ export house to pool the exports made by other exporters for the purpose of showing incremental growth in the export. The clarification issued by the impugned Notification in so far as it provides that supplies made by one status holder to another status holder or export performance made by one status holder on behalf of another status holder shall not be eligible for entitlement is in consonance with the basic object of the scheme. The export turnover of the units operating under STZ/EOU/EHTP schemes was also excluded as these units are getting all facilities for import without payment of duty on various types of goods including capital goods required by them for their activities. The intention of the makers of the scheme was not to confer double benefit under para 3.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be covered by the Special Scheme under consideration. l8. Secondly, the misuse of the scheme by mere paper growth in exports is not to be countenanced. Hence, it is but natural that the notification dated 28.l.2004 would apply to the exports made from l.4.2003 onwards. In so far as this court holds that the Notes l and 2 read with Note 4 introduced by the notification dated 28.l.2004 are merely clarificatory, the exports made by the petitioners between l.4.2003 and 27.l.2003 would certainly be covered by the said notes. Two views are possible about the expression incremental growth in exports by 25% and the Government adopted the interpretation as reflected in the notification dated 28.l.2004 which is quite in consonance with the object of the Act, Exim Policy and the incentive scheme rather than the interpretation canvassed by the petitioner.Hence, there is no substance in the challenge to a Notes l and 2 read with note 4. 22. The submission of Mr. Dada that the imopugned Notification is unreasonable and irrational is also without any substance. It is well settled that in complex economic matters every decision is necessarily empiric and it is based on experimentat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no power to impose new conditions under the Act the Central Government has issued Notifications dated 2lst/23rd April 2004 in exercise of power conferred by section 5 of the Scheme to exclude aforesaid four items. Notifications dated 2lst/23rd April 2004 are new and independent notifications issued under section 5 of the Act and cannot have retrospective effect by virtue of Note 4 which was earlier inserted by Notification dated 28th January 2004. 24. It is now well settled that a delegated or subordinate legislation can apply only prospectively and not retrospectively. Unless rule- making authority has been vested with power under a statute to make rules with retrospective effect, rules cannot be given retrospective operation. In Accountant General and anr vs Doraiswamy (supra), a three Judge Bench of the Supreme Court held that unless the statute conferring power to make rules provide for making of the rules with retrospective operation, rule made pursuant to that power could have prospective operation only. Similar is the view taken in State of Bihar and ors vs Krishna Kumar Kabra and anr, Connonnore Spinning and Weaving Mills Ltd vs Collector of Customs and Central Excise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective operation, the rules made pursuant to that power can have prospective operation only. An exception, however, is the proviso to Article 309. In B. S. Vadera v. Union of India this Court held that the rules framed under the proviso to Article 309 of the Constitution could have retrospective operation. The conclusion followed from the circumstance that the power conferred under the proviso to Article 309 was intended to fill a hiatus, that is to say, until Parliament or a State Legislature enacted a law on the subject- matter of Article 309. The rules framed under the proviso to Article 309 were transient in character and were to do duty only until legislation was enacted. As interim substitutes for such legislation it was clearly intended that the rules should have the same range of operation as an Act of Parliament or of the State Legislature. The intent was reinforced by the declaration in the proviso to Article 309 that any rules so made shall have effect subject to the provisions of any such Act . Those features are absent in clause (5) of Article 148. There is nothing in the language of that clause to indicate that the rules framed therein were intended to serve until p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... status holder is eligible for benefits upon achieving the incremental growth of 25% of the FOB value of exports in the current year over the previous year. It therefore follows that no sooner the status holder achieves 25% incremental growth, the status holder would be entitled to the benefits under the scheme. Immediately upon attaining the prescribed incremental growth, the status holder becomes eligible to certificate for duty free import and thereby a right vests in the exporter to receive the same. The Government may have as measure of administrative expediency provided for issue of duty free certificate only from lst April 2004 but that does not mean that no right is already vested. 29. In Bejgam Veeranna Venkata Narasimloo and ors vs State of A.P and ors (supra) the Supreme Court was dealing with a case of fixation of procurement price of rice. The State Govt. by Notification dated 24th February, 1977 while amending the scheme provided that it shall be deemed to have come into force on a date prior thereto which was 7th September, 1976. Despite an express provision in the notification giving it retrospective effect, the High Court negatived the submission that subordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the factory on the basis of the existing Scheme. It is held that the right to credit became absolute when the input was used in the manufacture of the final product. It is held that the incident following thereto must take place in accordance with the Scheme under which the duty had been paid on the manufactured product. It is held that if such a situation is sought to be altered necessarily it follows that right which accrued to a party gets affected. It is held that the Scheme sought to be introduced cannot be made applicable to the goods which had already come into existence in respect of which the earlier Scheme was applicable and under which the assessee had availed of the credit facility for payment of taxes. It is held that the right which accrued to the assessees on the date when they paid the taxes would continue until the facility available thereto gets worked out or until those goods existed. It is held that the amended sub-rule could not be applied to the goods manufactured prior to 16th March, 1995 (date on which sub-rule 4A came into existence). 8. The principles laid down in Eicher Motors case (supra) are fully applicable, here..... 3l. In Adani Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That was not a case where the policy had provided that person exporting goods of a particular value shall be entitled to export licence of a particular value. In fact in S.B International s case in para 8, the Court observed: The situation could have been different if the policy had said that a person exporting goods of a particular value shall be entitled to an import licence of a particular value; in such a case, the export of goods can be said to create a right in the applicant to get an import licence of the specified value. 33. The decision in S.B.International s case thus supports the case of Mr. Dada rather than learned Additional Solicitor General. The judgment in J K Udaipur Udyog is also inapplicable since in that case, the assessee had given an undertaking for claiming exemption subject to the decision of the State Level Screening Committee and hence there was no question of taking away of a vested right. The real question would be as to when the right of the petitioners crystalised under the provisions of the scheme. In our view the status holder would acquire the vested right immediately upon achieving the prescribed incremental growth and any changes mad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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