Kim Chemicals Ltd. vs Union of India

S.C. Dharmadhikari, J. (Oral)—By this petition under Article 226 of the Constitution of India, the petitioners pray for issuance of a writ of certiorari or any other appropriate writ, order or direction calling for the records and proceedings pertaining to the order dated 11th February, 2014, passed by the respondent No. 2 and after considering the validity and legality thereof, particularly in relation to a condition imposed therein, that condition be quashed and set aside. The prayer in the alternative is that of a mandamus directing the concerned authorities to club two authorisations of July, 2008 and March, 2009 for the purpose of compliance with export obligation. This relief is sought because the authorisation issued in March, 2009 casts certain obligations in relation to this export and as the facts will reveal that has not been discharged.

Then, similar relief of issuance of a writ of certiorari is sought in relation to orders passed on 3rd September, 2014, 9th June, 2015, and prior thereto on 16th April, 2015.

The first petitioner is a public limited company and the second petitioner is an Indian citizen and its Director. The respondents to this writ petition are the authorities under the Foreign Trade (Development and Regulation) Act, 1992 (for short "Foreign Trade Act").

The petitioners complain that they are a small scale industry/unit. They have been in the business of manufacturing and export of pharma products and cosmetics since last 15 years. They are a recognised Export House and that recognition is granted by the Ministry of Commerce, Government of India. They have won several awards for export performance. The petitioners then pointed out that the business is very competitive. They face tough competition from countries like China and Turkey. Therefore, there is a fluctuation in the receipt of export orders. There are lesser margins and sometimes on account of less export orders, the petitioners have suffered losses. The petitioners then invite our attention to the Foreign Trade Act, its object and purpose and submit that in terms of this Act and the Rules framed thereunder, the Central Government is empowered to formulate and announce by Notification in the Official Gazette, the export and import policy. Implied in that power is the power to amend it. In order to liberalise the imports and boost exports, certain policies were introduced and we are concerned here with the Foreign Trade Policy 2004-2009. That enables the Central Government to provide for duty exemption. Thereunder duty free inputs can be imported and these imports can go into the final or finished products meant for export. The duty exemption scheme consists of an advance authorisation and a Duty Free Import Authorisation (for short "DFIA"). The advance authorisation is issued to allow duty free import of inputs which are physically incorporated in the export product and in that regard, reliance is placed on Paragraph 4.1.7 of the Foreign Trade Policy 2004-2009. Reliance is also placed upon the Handbook of Procedures, Volume-I and the appendices thereto.

It is the claim of the petitioners that they applied to respondent No. 4 for advance authorisation on 17th June, 2008, pursuant to which the fourth respondent issued to them an advance authorisation dated 14th July, 2008, having validity of 24 months and export obligation period of 24 months. The quantity of inputs that was allowed to be imported has been set out in Paragraph 4.9 as against which there is an obligation to export a minimum quantity of finished goods. Annexures F and G are copies of the authorisation and a statement disclosing the details of import of inputs and export of finished goods carried out under this authorisation. It is the claim of the petitioners that a pro rata calculation of the imports to the exports would demonstrate that there is no shortfall in terms of the quantity as also in terms of value. In fact, there is an excess export to the extent of 109.636 MT.

Then, in Paragraph 4.11 reference is made to another application for advance authorisation made on 12th March, 2009, pursuant to which similar authorisation was granted with similar stipulations and copies of the relevant documents in relation thereto are annexed as Annexures H, I and J. The validity of the authorisation of March, 2009 was till March, 2011. Then the petitioners realised during the course of the present proceedings that the Director General of Foreign Trade had issued a public notice whereby the export obligation period of advance authorisation was increased from 24 months to 36 months. Yet, it is their complaint, that the 2009 March authorisation stipulates a period of 24 months. The public notice dated 26th February, 2009, is relied upon and based on that it is submitted that on the enquiry in November 2011, the petitioners were informed by the officers that it is an error which can be rectified on an application being made. That is how the petitioners resumed exports under the March 2009 authorisation from 17th November, 2011. Then, amendment of 23rd January, 2012, amending the validity from 24 to 36 months is relied upon and the petitioners'' case is that the validity and export obligation of March, 2009 authorisation was till March, 2012. The petitioners, therefore, claim that due to the error on the part of respondent No. 4, they were unable to take the benefit of exporting goods under this authorisation for about seven months from April, 2011 to October, 2011. In the light of cut-throat competition and stiff business resistance, the petitioner No. 1 was unable to fulfil this export obligation by March, 2012. Thereafter, the petitioners rely upon another public notice dated 13th October, 2011, amending certain clauses of the Handbook of Procedures 2009-2014 and urge that this amendment permits clubbing of the obligations under the advance authorisation which have been issued within 36 months from the date of issue of the earlier authorisation that is sought to be clubbed. Upon such clubbing, certain benefits accrue to these petitioners and in substance their case is that there would be no shortfall if such clubbing was permitted. It is in these circumstances that the petitioners firstly applied for a revalidation/extension of the export obligation on 30th May, 2012. It is their case that there is a Committee and which interprets the policy during the course of its validity and implementation. Therefore, the case of the petitioners is that such Committee approved their request in a meeting held on 4th September, 2012. However, the information regarding approval was communicated on 7th December, 2012, by amendment No. 2. The petitioners were informed that the authorisation was valid till 6th June, 2013 and the export obligation period was till 6th June, 2013.

It is in these circumstances that the petitioners state that during the pendency of the above amendments and authorisations, a demand-cum-show cause notice was issued on 8th October, 2012, calling upon the petitioner No. 1 to submit proof of completing the export obligation pro rata to the duty free imports made under the July, 2008 authorisation and to submit the documents as set out in the notice within 15 days of the receipt of the notice, failing which, the authorities would proceed to take action, more particularly referred therein.

A reply was given by the petitioner No. 1 and they submitted that while its July, 2008 authorisation has expired, it was in the process of carrying out further exports under the other authorisations and thereafter apply for clubbing of the other authorisations with the July, 2008 authorisation.

The petitioners could not obtain the details so as to enable them to undertake this exercise. They also pointed out as to how they lost quite a few of its standing export orders on account of the confusion in the validity of the export obligation period. The petitioners, therefore, furnish some details in Paragraph 4.18. They also rely upon certain obligations under the advance authorisation first issued and the material in that regard is set out in Paragraphs 4.19 and 4.20. They submit that there are two promises made to petitioner No. 1. Firstly, that the exports made under a particular authorisation would be taken into consideration while calculating the fulfilment of the export obligation of that authorisation and that so long as the petitioner No. 1 fulfils the conditions set out in Paragraph 4.20 of the Handbook of Procedures 2009-2014, their application for clubbing of two or more authorisations would be accepted. The petitioners submit that they have fulfilled the necessary conditions set out in this paragraph of the Handbook of Procedures. It is in these circumstances that it is submitted that they acted upon a promise to their detriment and irreversably changed their position. The petitioners rely upon the first application for clubbing filed on 9th March, 2013 and its rejection on 29th November, 2013. Then, it was submitted that such clubbing application was never placed before the Policy Relaxation Committee. It is submitted that there was a general discussion on the clubbing application, but no specific communication in that regard was made. Therefore, a second application was filed on 9th December, 2013, that was taken up on 11th February, 2014. The request for clubbing was allowed, but the condition imposed was that exports made within 48 months from the date of the earliest authorisation up to 31st July, 2012, shall alone be taken into consideration for export obligation fulfilment. This order was passed on 18th March, 2014, and copy of which is Annexure-Q.

The petitioners then submit that this condition could not have been imposed. The result of this condition is that the relaxation granted by the Policy Relaxation Committee was taken away by the second respondent while allowing the application for clubbing. That could not have been the intention of the policy and the authorities. It is in these circumstances the petitioners pray that the relaxation granted by the respondent No. 2 vide an order dated 4th September, 2012, extended the EOP till 6th June, 2013. This is an extension pertaining to the March, 2009 authorisation. That is in all 51 months. However, by the condition imposed only the exports made during the period of the earliest authorisation would be taken into consideration for the purpose of accounting of the export obligation, namely, the exports made till July, 2012. Therefore, the exports made between August, 2012 to April, 2013 would not be taken into consideration. That is how the very purpose of the granting the relaxation is rendered redundant. That is how the petitioners applied for information under the provisions of the Right to Information Act, 2005. They sought information in relation to the similar applications for clubbing made by some other units whose details are set out in Paragraph 4.25 and they prayed for relaxation/waiver of the impugned condition by bringing the other instances to the notice of respondent No. 2. That request was considered on 3rd September, 2014, but it was rejected on the ground that the petitioner''s case and the other cases are not similar. It is in the above circumstances that the refusal order dated 16th April, 2015, came to be communicated and that rejects the request for failure to submit documents showing fulfilment of the export obligation for redemption of the bank guarantee/letter of undertaking in respect of the March, 2009 authorisation. This could not have been done, according to the petitioners, for their request for clubbing was pending. If the refusal order dated 16th April, 2015, is in respect of the July, 2008 authorisation, then, the documents were duly submitted by the petitioners under the cover of the letter dated 15th October, 2012. Yet, without prejudice, they addressed a letter dated 10th July, 2015, requesting the respondent No. 4 to rescind the refusal order. They pointed out that the clubbing application was firstly pending and secondly it was allowed, though conditionally. The petitioners were of the opinion that this conditional clubbing order can be challenged before the appropriate forum. Annexure-W is a copy of this order.

The petitioners submit that the 16th April, 2015 refusal pertains to a show cause notice dated 12th May, 2011, which is in connection with the March, 2009 authorisation, but this show cause notice was never received. They did not participate in the proceedings pursuant to the show cause notice. Yet, such without prejudice contentions were raised.

Thus, the claim of the petitioners is that the earlier two refusal orders have been rescinded or cancelled. The petitioners applied for an advance authorisation on 20th July, 2015. However, they received a deficiency letter dated 23rd July, 2015 (Annexure-Y).

In these circumstances, the impugned orders are challenged and Mr. Mistry, the learned counsel appearing on behalf of the petitioners invited our attention to the grounds of the writ petition and to submit that there is complete non-application of mind on the part of the authorities. They failed to appreciate that the clubbing of two advance authorisations, namely, exports made within 48 months from the date of earliest authorisation up to 31st July 2012, cannot be a condition as there is no provision in the Foreign Trade Policy/Handbook of Procedures which enables or requires the second respondent to impose the impugned condition. Rather, these documents enable granting relaxation taking into account the peculiar facts and circumstances of each case. In two other cases the clubbing was allowed without imposition of the impugned condition. That is why Mr. Mistry would submit that the Handbook of Procedures is a procedural manual. All rules of procedure are the handmaids of justice. Therefore, a liberal interpretation of the procedural rules is permissible. The statutory discretion cannot be controlled and regulated by such rigid adherence and interpretation to procedural rules. For all these reasons he would submit that for the bona fide and genuine attempts by the petitioners to fulfil their export obligations within time, they deserve an unconditional relaxation. In all other cases, that was granted but the petitioner was singled out for such a treatment. The refusal to rescind these orders/conditions was, therefore, unjustified given the fact that the Handbook of Procedures was amended so as to enable the exporters to fulfil their obligation in an extended period.

On the other hand, our attention is invited to the affidavit-in-reply. It is submitted that there is no substance in the arguments that the principles of natural justice were not followed. There was a written representation placed on record, but the complaint that written submissions were also not considered is false. Our attention has been invited to the details of the stipulations and certain paragraphs of the Handbook of Procedures and the Foreign Trade Policy. In paragraph 5 of the affidavit-in-reply, reliance is placed on Paragraph 2.15 of the Foreign Trade Policy 2015-2020 and which contains a similar stipulation as Paragraph 2.11 of the Foreign Trade Policy of 2009-2014. If the authorisation holder violates any condition of such authorisation or fails to fulfil export obligation or fails to deposit the requisite amount within the period specified in the demand notice he shall be liable for action in accordance with the Foreign Trade Act. He can also be held liable under any other law for the time being in force. The power to grant exemption whether absolute or conditional on account of genuine hardships and adverse impact on trade to any person or commission or category of persons is available. That is to be exercised in public interest. While granting the exemption the DGFT has the power to impose conditions as he may deem fit after consulting the Policy Relaxation Committee. The relaxation of policy is not a matter of right. The relaxation is granted on case to case basis and strictly on merits, taking into consideration genuine hardship and adverse impact on trade. As far as the petitioners'' case is concerned, it obtained 13 authorisations during the period of the Foreign Trade Policy 2009-2014 from 1st April, 2009 to 31st March, 2014. On failure to fulfil the stipulated export obligation within the prescribed time against the authorisation dated 13th March, 2001, the petitioner submitted the request before the Policy Relaxation Committee for extension of the export obligation for revalidation of the said authorisation on 30th May, 2012. This was considered on 4th September, 2012, by the Policy Relaxation Committee and it extended the export obligation period by further six months from the date of the endorsement. However, the request for revalidation was rejected. Since the endorsement for export obligation period was taken by the petitioners on 7th December, 2012, the petitioner, as per the prevailing norm, got extension of the export obligation period up to 6th June, 2013, effectively 51 months from the date of issue of authorisation for completing the balance exports. The petitioner again approached the Policy Relaxation Committee in December, 2013, with a new request for clubbing of the advance authorisation dated 14th July, 2008, and advance authorisation dated 13th March, 2009, which request was considered by the Policy Relaxation Committee in its meeting held on 11th February, 2014. It granted the clubbing, subject to the condition that exports made within four months from the date of the earliest authorisation dated 14th July, 2008 up to 31st July, 2012, shall be taken into consideration for export obligation fulfilment as per the prevailing norms. The Policy Relaxation Committee has allowed a clubbing of two authorisations for exports made within 48 months from the date of authorisation for any export beyond this period had to be regularised by petitioner No. 1 by paying the accrued duty plus interest as per Paragraph 4.28 of the Handbook of Procedures 2009-2014. The petitioners applied for relaxation of this condition on 24th February, 2014, by a representation and cited the cases of two other units, but the Committee observed in its decision that these cases are different from that of the petitioners. Hence, the petitioners'' request was rejected.

Thereafter, the petitioners made a request on 22nd May, 2015, for grant of a personal hearing and on 9th June, 2015, that personal hearing was granted. The second petitioner appeared before the Committee and after considering the oral and written submissions, a speaking order was passed on 29th June, 2015, rejecting the request and that decision was communicated on 30th June, 2015. In these circumstances, it is submitted that when the petitioners admitted the default and sought relief in the above manner, it has no vested right and thereafter cannot turn around and challenge the condition that is imposed in larger public interest.

The petitioners filed a rejoinder affidavit but the essential contention therein is based on the Foreign Trade Policy 2009-2014. It is in the above circumstances that there is no provision therein for imposing any condition. The petitioners, therefore, reiterate the contents of the petition and also rely on two decisions of this Court, more particularly referred to at page 162 of the paper-book to submit that principles of natural justice have not been followed.

On the above material, we have heard the learned counsel appearing for the respondent as well and with the assistance of the counsel appearing for both sides, we have perused the writ petition, the annexures thereto and all the affidavits.

We are in agreement with the respondents that the petitioner''s case as set out in the petition cannot be accepted. It is evident from the petition itself that they were aware of the defaults which had occurred. They firstly sought a relaxation from the condition and then made an application for clubbing. The petitioners have gone as far as insisting that their case is similar to other two companies one of which is M/s. Prachi Pharmaceuticals Pvt. Ltd. They had also, in similar circumstances, sought identical relief of clubbing according to the petitioners. However, on the facts and circumstances which are peculiar to the petitioner''s case, the respondents have, in the impugned orders, copies of which are from pages 43 to 48 of the paper-book, duly informed the petitioners that the clubbing of the two advance authorisations as referred particularly by us in the foregoing paragraphs is allowed. This is only for recognition of exports already effected and closure purpose and not for any further exports/imports. Pertinently, such a condition is not challenged. Then condition No. III appearing at page 43 in the order dated 11th February, 2014, reads as under :

"III. Exports made within 48 months from the date of earliest Authorisation i.e. up to 31-7-2012 shall only be taken into consideration for EO fulfilment and clubbing subject to payment of composition fee @ 0.5% on FOB value of export made beyond the stipulated EOP in the earliest authorisation. RA is directed to examine the case in terms of Para 4.1.6 of FTP and ensure value addition of minimum 15%. The 15% value addition for evaluating entitlement is to be applied on the entire FOB and CIF of the authorisations to be clubbed. RA should ensure proper accounting of the duty free inputs with reference to the export product while clubbing the Authorisations."

On a perusal of this condition, we do not find that the petitioners have been treated unfairly and inequitably. A person who has not been able to fulfil the obligations cannot insist on an unconditional relaxation or exemption. The Committee in the elaborate exercise conducted by it and which resulted in passing of the order dated 3rd September, 2014, by the second respondent, found that the relaxation has to be granted on case to case basis taking into consideration genuine hardship and the likely adverse impact on trade. It is empowered to grant an exemption/relaxation of the conditions. One decision of the Policy Relaxation Committee cannot be quoted as a precedent in another case as the extent and genuineness of hardship may vary from case to case. Policy relaxation by its very nature is for relaxing normal policy/procedural provisions and cannot be claimed as of right. The Policy Relaxation Committee has extensively considered the case of the petitioner. It is found that it got 51 months effectively for completing the export obligations, but the commitment made was not honoured. It is in these circumstances that the clubbing applications were considered and the condition was imposed restricting the compliance to 48 months. Thus, exports effected up to 48 months from the date of issuance of the earliest authorisation for clubbing the authorisations came to be imposed. We do not think that such an exercise which by its very nature is a matter of discretion so as to enable the defaulters like the petitioners to fulfil their obligations belatedly, can be challenged on the ground that there is a condition imposed in the relaxation or exemption. The above conclusion of the Committee cannot be said to be perverse or based on no material. We do not think that the Committee has failed to apply its mind to the relevant facts and circumstances of the petitioner''s case. The petitioners cannot go on improving their version as originally projected by relying on some information available to them after an application made under the Right to Information Act, 2005, was invoked by them. By its very nature, the power to relax is exercised on case to case basis. Once relaxation is not a right and nothing accrues in the petitioners'' favour to apply and seek unconditional relaxation, then, all the more we do not think that the exercise undertaken by the experts in the field and in charge of interpretation and implementation of the foreign trade policy should be interfered by us in our equitable and discretionary jurisdiction under Article 226 of the Constitution of India.

We are unable to agree with Mr. Mistry that the additional documents that have been relied upon would enable us to interfere with the impugned conditional exercise. We have, with his assistance, perused the additional documents and compilation which he tendered in that regard. The petitioner''s reliance on the Handbook of Procedures and in particular the paragraphs enabling clubbing of authorisations for granting facility by itself would enable us to conclude that it is a facility. All imports and exports of more than one advance authorisation can be considered provided inputs are common and properly accorded for as per norms. The various sub-clauses of Paragraph 4.38, therefore, would not enable the petitioners to claim an unconditional relaxation.

The judgment of the Hon''ble Supreme Court in the case of Kranti Associates Pvt. Ltd. v. Masood Ahmed Khan reported in 2011 (273) E.L.T. 345 reiterates the salutary principle that there should be a reasoned order so as to enable the Court while scrutinizing the administrative or quasi judicial orders impugned before it to conclude that the exercise of power is not arbitrary. Further that the discretion is exercised on relevant grounds. That also ensures accountability and transparency of public bodies. The principles are salutary and their application cannot be placed in a strait-jacket formula. We do not think that the present exercise and undertaken as projected in the subject petition can be faulted for there are reasons and which are clearly set out. The Policy Relaxation Committee has in its meeting revealed as to how it considered the applications for relaxation. It also considered as to how the exercise of clubbing at the instance of the petitioners firstly enabled the petitioners to prolong the period for fulfilment of the export obligation and secondly, that the petitioners were aware that the first of such authorisation can be taken into consideration for relaxing the period within which the export obligation has to be completed. This enables imposition of a condition while granting relaxation. We do not think, therefore, that the reliance on Paragraph 6 of the judgment in Kranti Associates (supra) and in abstract can be of any assistance to the petitioner.

In the case of Shivsagar Vegetarian Restaurant v. Assistant Commissioner of Income Tax, Mumbai, reported in 2008 (232) E.L.T. 780 : 2009 (13) S.T.R. 11 (Bom.), once again the basic rule of natural justice requiring recording of reasons in support of a conclusion has been considered. For self-same reasons, we do not think that the impugned order is vitiated on account of it being unreasoned or not assigning any reasons at all. It is equally well settled that sufficiency and inadequacy of reasons is not a matter in which this Court can interfere in its writ jurisdiction. Eventually matters of the nature considered in the present case and by the authorities under the Foreign Trade (Development and Regulation) Act, 1992, would require them to apply their mind to the germane and relevant factors and consider each case of hardship and non-fulfilment independently. The procedural rules can be relaxed provided the parties have acted bona fidely and made genuine and sincere attempts to fulfil their obligations. Even if conditional relaxation is granted, that is permissible to subserve larger public interest. Such being the nature of the power, we do not think that the petitioners'' application could have been allowed unconditionally. There is no substance in their grievance that principles of natural justice have not been complied with because the representations in writing were duly considered. They have been rejected by reasoned orders. No personal hearing can be insisted once the nature of the proceedings is noted. Further, no prejudice is demonstrated by the petitioners by the denial of the oral or personal hearing.

As a result of the above discussion, we find no merits in the writ petition. The writ petition fails and it is dismissed.