http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 10

CASE NO.:

Transfer Case (civil) 165 of 2006

PETITIONER:

M/s Hindustan Granites

RESPONDENT:

Union of India & Ors

DATE OF JUDGMENT: 03/04/2007

BENCH:

DR. ARIJIT PASAYAT & S.H. KAPADIA

JUDGMENT:

J U D G M E N T

I.A. Nos. 1 & 2

in

T.C.(C) No. 165/2006

with

I.A.Nos.2,4,5,6,7, & 10 in TP(C) No.579 of 2006

T.P.(C) No.1067 of 2006

I.A.No.1 & 2 in T.C.(C) No.168 of 2006

SLP (C) No.13670 of 2006

SLP (C) No.13671 of 2006

C.A. No. of 2007 arising out of S.L.P)\005\005\005\005\005 (CC

NO.9879 of 2006)

C.A. No. of 2007 arising out of S.L.P)\005\005\005\005\005 (CC

No.9880 of 20006)

C.A. No. of 2007 arising out of S.L.P)\005\005\005\005\005 (CC

NO.9881 of 2006)

T.C. (C) No.166 of 2006

W.P.(C) No.600 of 2006

T.C.(C) NO.167 of 2006

T.C.(C) 1 of 2007

W.P.(C) No.22 of 2007

SLP (C) No.5376 of 2007

KAPADIA, J.

In this batch of matters, the central question which we

are called upon to decide is regarding the validity of Policy

Circular dated 30.8.05 and Notification No.24 dated 31.8.05

which has the effect of amending para 6.8(a) and para 6.8(h) of

the Foreign Trade Policy 2004-2009.

This judgment is confined to Domestic Tariff Area sales

(DTA sales) by 100% Export Oriented Unit (EOU).

Leave granted in special leave petitions filed by Union of

India against various EOUs.

The basic issue which we need to decide in this batch of

cases is: whether DTA sales by 100% EOUs form an integral

part of EOU Scheme?

For the sake of convenience we reproduce hereinbelow

the facts as reproduced in the case of Union of India & others

v. M/s. Abhishek Exports [Civil Appeal No\005\005\005\005\005\005of

2007 arising out of S.L.P. (C) No\005\005\005\005(CC9879 of 2006)].

The concept of EOU was introduced in 1980 in the EXIM

Policy. The EOU Scheme was framed in order to boost the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 10

Indian exports. Under the said Scheme, EOU could be located

at any place. In 1992, statutory recognition was given to

EXIM Policy vide Section 5 of the Foreign Trade (Development

and Regulation) Act, 1992. In 1991, EOU was permitted to

sell rejects upto 5% and goods in the DTA after obtaining

permission from the Export Commissioner. In 1997, under

EXIM Policy 1997-2002, EOU was permitted to sell rejects as

well as goods upto 50% of the FOB Value of exports subject to

payment of duty and fulfillment of minimum Net Foreign

Exchange Earnings (NFE). Over and above this limit, EOU

could sell finished products which were freely importable

against payment of full duty.

On 24.3.2000 M/s. Abhishek Exports was granted the

Letter of Permission (LOP) by the Development Commissioner,

NOIDA, to manufacture and export marble tiles and finished

marble blocks. In the LOP it was stipulated that M/s.

Abhishek Exports had to maintain NFE percentage and they

were required to achieve minimum Export Obligations. In the

said LOP it was further stipulated that M/s. Abhishek Exports

cold make domestic sales as per the provisions of EXIM Policy

1997-2002.

M/s. Abhishek Exports started exporting finished marble

made out of rough imported marble and rough indigenous

marble. The rough marble so imported was duty-free. Under

the LOP, M/s. Abhishek Exports had the right to make sales

in DTA, subject to payment of concessional and full duty as

the case may be.

On 1.4.04 FTP 2004-2009 came into force. We quote

herein below paras 6.1, 6.5, 6.8(a), 6.8(b), 6.8(d), 6.8(e), 6.8(g)

and 6.8(h) of the FTP 2004-2009 which read as under:

"CHAPTER- 6

EXPORT ORIENTED UNITS (EOUs), ELECTRONICS HARDWARE

TECHNOLOGY PARKS (EHTPs), SOFTWARE TECHNOLOGY PARKS (STPs)

AND BIO-TECHNOLOGY PARKS (BTPs)

Eligibility

6.1

Units undertaking to export their entire production of goods and services

(except permissible sales in the DTA), may be set up under the Export

Oriented Unit (EOU) Scheme, Electronic Hardware Technology Park (EHTP)

Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park

(BTP) scheme for manufacture of goods, including repair, re-making,

reconditioning, re-engineering, and rendering of services. Trading units,

however, are not covered under these schemes.

Net Foreign

Exchange Earnings

(NFE)

6.5

EOU/EHTP/STP/BTP unit shall be a positive net foreign exchange earner.

Net Foreign Exchange Earnings (NFE) shall be calculated cumulatively in

blocks of five years, starting from the commencement of production.

DTA Sale of

Finished Products/

Rejects Waste/

Scrap/ Remnants

and By-products

6.8

The entire production of EOU/EHTP/STP/BTP units shall be exported subject

to the following:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 10

(a)

Units, other than gems and jewellery units, may sell goods upto

50% of FOB value of exports subject to fulfillment of positive

NFE on payment of concessional duties . Within the entitlement

of DTA sale, the unit may sell in DTA its products similar to the

goods which are exported or expected to be exported from the

units. No DTA sale at concessional duty shall be permissible in

respect of motor cars, alcoholic liquors, books and tea (except

instant tea) or by a packaging/ labeling /segregation/

refrigeration unit/

compacting/micronisation/pulverization/granulation /conversion

of mono-hydrate form of chemical to anhydrous form or vice-

versa and such other items as may be notified from time to time.

Sales made to a unit in SEZ shall also be taken into account for

the purpose of arriving at FOB value of export by EOU

provided payment for such sales are made from EEFC Account.

Sale to DTA would also be subject to mandatory requirement of

registration of pharmaceutical products (including bulk drugs).

(b)

For services, including software units, sale in the DTA in any

mode, including on line data communication shall also be

permissible up to 50% of FOB value of exports and /or 50% of

foreign exchange earned, where payment of such services is

received in foreign exchange.

(d)

Unless specifically prohibited in the LOP, rejects may be sold in

the Domestic Tariff Area (DTA) on payment of duties as

applicable to sale under paragraph 6.8(a) on prior intimation to

the Customs authorities. Such sales shall be counted against

DTA sale entitlement. Sale of rejects upto 5% of FOB value of

exports shall not be subject to achievement of NFE.

(e)

Scrap/ waste/ remnants arising out of production process or in

connection therewith may be sold in the DTA as per the

Standard Input-Output norms notified under the Duty

Exemption Scheme on payment of concessional duties as

applicable within the overall ceiling of 50% of FOB value of

exports. Such sales shall not, however, be subject to

achievement of positive NFE. In respect of items not covered by

the norms, the Development Commissioner may fix ad-hoc

norms on the basis of data for a period of six months and within

this period, he shall get the norms fixed by the BOA. Sale of

waste/scrap/remnants by units not entitled to DTA sale or sales

beyond the DTA sale entitlement, shall be on payment of full

duties. The scrap/waste/remnants may also be exported.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 10

(g)

By-products included in the LOP may also be sold in the DTA

subject to achievement of positive NFE on payment of

applicable duties within the overall entitlement of paragraph

6.8(a). Sale of by-products by units not entitled to DTA sales or

beyond the entitlements of paragraph 6.8 (a) shall also be

permissible on payment of full duties.

(h)

EOU/ EHTP/ STP/BTP units may sell finished products, which

are freely importable under the Policy in the DTA under

intimation to the Development Commissioner against payment

of full duties provided they have achieved the positive NFE."

To sum up, para 6.8(a) of the FTP provided that goods,

upto 50% of FOB Value of exports, could be sold on payment

of concessional rate of duty in the DTA subject to fulfillment of

positive NFE. The ceiling, therefore, included sale of rejects

under para 6.8(d) as well as sale of waste under para 6.8(e)

and by-products under para 6.8(g). Under para 6.8(h), sale of

finished products could be made in DTA against payment of

full duty, provided the said good was freely importable under

the Policy. Further, under para 6.8(h) sale of by-products and

sale of waste beyond the entitlement of para 6.8 was

permissible on payment of full duty. The above quoted

paragraphs are relevant extracts of FTP 2004-2009 in respect

of EOU.

On 16.12.04, the Development Commissioner, NOIDA,

approved the Renewal Application made by M/s. Abhishek

Exports for next five year that is from 2005-2006 to 2009-

2010, under LOP dated 24.3.2000.

The approval dated 16.12.04 stipulated that M/s.

Abhishek Exports should have NFE of Rs.9.90 crores in the

next five years. Under the LOP, the exporter was required to

maintain positive NFE.

On 31.8.05 the impugned Notification was issued

amending para 6.8(a) and para 6.8(h) of FTP 2004-2009. By

the impugned Notification the EOUs were prevented from

making DTA sales of the finished marble from imported rough

marble, with immediate effect. It is this Notification which is

the subject-matter of challenge.

According to M/s. Abhishek Exports, an investment of

Rs.300 lakhs had been made; that, it had taken a loan from

State Bank of Bikaner & Jaipur to the tune of Rs.2.30 lakhs

on the basis of the Policy of Government of India and that by

making the above investments it had changed its position

substantially. According to M/s. Abhishek Exports, on

account of the impugned Notification, the quantity of marble

sold by it in the DTA stood reduced. According to M/s.

Abhishek Exports such an amendment to the FTP 2004-2009

by the impugned Notification was devoid of any element of

public interest. According to M/s. Abhishek Exports, the

impugned Notification was against the basic feature of the

EOU Scheme.

The Notification was challenged before the Rajasthan

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 10

High Court. Vide Order dated 29.09.06 the writ petition filed

by M/s. Abhishek Exports in the Rajasthan High Court stands

transferred to this Court vide Transfer Case (C) No.165 of

2006.

According to M/s. Abhishek Exports, by the impugned

Circular dated 30.8.2005 the quantity which could be

imported by Special Import License Units (SIL Units) was

arbitrarily increased from 80,000 MT to 1.30 Lakh MT. The

Circular dated 30.8.05 has been challenged on the ground

that it discriminates unreasonably between 100% EOUs and

SIL Units; that, the impugned Circular gives benefit to selected

importers; that, the effect of the impugned Circular was to

increase the availability of imported rough marble blocks for

use in the domestic market and that for no reason the right to

import has been unreasonably limited only to SIL Units by the

impugned Notification dated 31.8.05. According to M/s.

Abhishek Exports, by reason of the impugned

Circular/Notification the quantity of marble sold by the EOUs

in the domestic area has been reduced and the quantity of

marble sold by SIL Units from the same imported rough

marble stood significantly increased which has resulted in the

loss to the EOUs. According to M/s. Abhishek Exports, the

impugned Circular/Notification was against public interest

since the SIL Units had no Export Obligations, they were not

Foreign Exchange Earners; they were required to pay lesser

rate of duty and consequently according to M/s. Abhishek

Exports the impugned Circular/Notification was not in public

interest. Further, according to M/s. Abhishek Exports, DTA

sales constituted essential feature of the EOU Scheme since

vide para 6.1, 100% EOUs undertook to export their entire

production of goods, except permissible sale in the DTA, under

the EOU Scheme and, therefore, the DTA sales constituted an

integral part of EOU Scheme. It was submitted that the DTA

sales were permitted only if the EOU fulfilled its Export

Obligations and achieved positive NFE and, therefore, the

intention was to grant benefit to the EOU on achieving positive

NFE and it had no co-relation with the imported raw material

out of which the exports are made. According to M/s.

Abhishek Exports, in the absence of DTA sales, an EOU would

be compelled to sell its entire production in the export market.

According to M/s. Abhishek Exports, on account of total

restriction on DTA sales their inventory of marble tiles is likely

to get accumulated in the factory blocking the working capital

and funds, which otherwise would have been disposed of in

the local market. According to M/s. Abhishek Exports, the

unamended Policy had provided an insulation/hedge against

the fall in the export business in the international market.

According to M/s. Abhishek Exports, an EOU could sell the

marble tiles in the domestic market in the slump season so

that production and business activity of an EOU was not

adversely affected. According to M/s. Abhishek Exports on

account of impugned Circular/Notification an idle capacity

during the slump season would accrue. Further, under the

unamended Policy, in case of loss, an EOU could make good

the loss by DTA sales and, therefore, such sales constituted an

essential feature of the EOU Scheme. According to M/s.

Abhishek Exports, DTA sales were essential to run the plant at

maximum capacity, to minimize the cost of production in the

competitive export market, to deal with export surplus and to

provide for disposal of export products on cancellation of

export orders. According to M/s. Abhishek Exports, the

impugned Circular/Notification has been published with the

view to protect the SIL Units at the cost of 100% EOUs.

According to M/s. Abhishek Exports, the impugned

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 10

amendments would disrupt the business of EOUs and it would

flood the domestic market with 1.30 lakhs MT of finished

marble product made from imported rough marble which

would not serve the public interest. According to M/s.

Abhishek Exports, the impugned Circular/Notification has

been issued to protect the marble industry of Gujarat which is

the primary beneficiary of the SIL based import policy of

marble. M/s. Abhishek Exports further submitted that Article

14 of the Constitution of India is violated in the present case

since the impugned Circular/Notification has been issued to

give concession to SIL importers at the cost of EOUs.

On 10.1.07 when the above matters came for hearing

before this Court, the following order was passed:

"Ban on DTA sales by 100% EOU under OGL

licence and limiting the issuance of licences to

those applicants who have imported crude marble

between 1999-2001 under SIL scheme vide

impugned policy circulars Nos. 24 dated

30.8.2005, No. 34 dated 30.11.2005 and

notification Nos. 23 and 24 dated 31.8.2005

(hereinafter referred to as the impugned new

policy) was the subject matter of challenge vide

writ petitions filed in various High Courts.

By order dated 29.9.2006, the said writ

petitions stood transferred to this Court.

Having regard to the arguments advanced

before us and in view of the fact that the

entitlement of Domestic Users for financial year

2005-06 is going to lapse on 31.3.2007 the

following interim order is passed.

DGFT would be entitled to grant licences to

the applicants who are so entitled under policy

circular No. 24 dated 30.8.2005. To that extent

our order dated 29.9.2006 stands vacated.

In T.P. (C) No. 579/06 filed by the Director

General of Foreign Trade it has been inter alia

stated that on account of representations received

from the traders and the material (including

complaints) gathered by DGFT, the impugned new

policy came to be enacted. This was after detailed

discussions with the Trade. The broad features of

the new policy and the reasons for enacting the

policy are given in paragraphs 15, 16 and 17 of

T.P. (C) No. 579/06. However, it appears that the

requisite material was not supplied to the affected

100% EOUs. who have complained before us that

the changes have been made in FTP vide the

impugned policy without giving any opportunity to

the affected Units. At this stage we may point out

that learned Solicitor General of India stated

before us that the impugned policy decision is

taken on certain material (including complaints/

representations received) which he is prepared to

disclose to the concerned EOUs. Accordingly, we

direct DGFT to supply the material in its

possession to the affected EOUs., who have filed

the writ petitions, on or before 15.1.2007. The said

petitioners (EOUs.) who have filed writ petitions in

the High Court shall thereafter make

representations to the DGFT within 10 days on

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 10

and from the receipt of the material (including

complaints) from DGFT. Thereafter, DGFT will

decide the matter in accordance with law. We

make it clear that it will be open to DGFT to

equitably work out the matter, if possible. One

point, however, needs to be mentioned. It is stated

on behalf of M/s Hindustan Granites that they

have accumulated wastes which they are entitled

to sell in DTA under the unamended policy. It is

contended on behalf of M/s Hindustan Granites

that they have fulfilled the benchmark of Net

Foreign Exchange earnings and, therefore, they

were entitled to sell the accumulated wastes in the

domestic market (DTA) under para 6.8 (h) on

payment of full duty. On this point, M/s

Hindustan Granites can also make the

representation giving facts and figures regarding

the quantity of waste which has accumulated and

it will be open to DGFT if possible to decide the

question regarding sale of the said waste in the

DTA.

The question as to whether the impugned

circulars/notifications constitutes a change in the

policy or whether it is a matter of detail within the

existing policy is the question which will be

decided on the next date of hearing when we will

examine the merits of the case.

On receiving the report from DGFT, we shall

hear the matter on merits on the next occasion. In

the meantime, the ban on EOU Units undertaking

DTA sales shall continue to remain in operation.

Consequently, interim order of the Rajasthan High

Court dated 26.10.2005 in DB Civil Writ Petition

No. 5811/05 shall remain stayed.

Stand over to 31.1.2007."

On 7.2.07, the Director General of Foreign Trade after

hearing the parties and after considering their representations

passed an order rejecting the various representations made by

M/s. Hindustan Granites Ltd., M/s. Abhishek Exports,

M/s. Pacific Industries Limited, M/s. Jain Grani Marmo

Pvt. Limited, M/s. Marble Art (all 100% EOUs). The said

order is also under challenge before us.

The said order has re-affirmed the decision taken on

31.8.05 qua 100% EOUs and qua SIL Units without any

change. In this connection, it is submitted on behalf of M/s.

Abhishek Exports that the Director General had erred in

holding that the EOUs were misusing the DTA facility by

making finished products from indigenous marble and

exporting the said finished products rather than making

finished products from the imported marble and exporting the

same. According to M/s. Abhishek Exports, FTP 2004-2009

specifically allow EOUs to sell finished products made from

imported marble in the DTA, upto 50% of FOB value on

payment of concessional rate of duty vide para 6.8(a). That,

the said Policy permitted EOUs to sell anything above 50% of

the FOB value of exports in the DTA on payment of full duty

[para 6.8(h)] subject to the EOUs maintaining a positive NFE.

According to M/s. Abhishek Exports, the above system

operated for seven years. According to M/s. Abhishek

Exports, the above system is allowed in the Hand Book of

Procedure under which there was no requirement to co-relate

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 10

every import consignment with exports. According to M/s.

Abhishek Exports, for last seven years the Implementing

Authority has not objected to the manufacture of finished

goods from indigenous marble and that the said Authority has

never objected to such finished goods being exported as

breach or misuse of the Policy. According to M/s. Abhishek

Exports, the Director General had erred in holding that the

impugned amendment was to protect the domestic marble

industry. According to M/s. Abhishek Exports, on account of

change in Policy the EOUs which were previously buying

rough marble from the domestic market to make finished

products and exporting the same would not be now able to do

so. That, under the amended Policy the EOUs are now

required to export finished products made from imported

marble. According to M/s. Abhishek Exports, on account of

change in Policy qua SIL Units permitting them imports of

marble to the order of 1.30 Lakhs MT as compared 68,000 MT

would effect the domestic mining industry. According to M/s.

Abhishek Exports, the Director General had erred in holding

that there was diversion of the imported rough marble in DTA

which defeated the very purpose of putting marble as under

the restricted category. In this connection, M/s. Abhishek

Exports contend that there was no diversion because DTA

sales was specifically permitted under paras 6.8(a) and 6.8(h)

of FTP 2004-2009 prior to its amendment on 31.8.05 and,

therefore, there was no misuse as found by the Director

General of Foreign Trade.

We find no merit in the challenge to the impugned

Circular/Notification for the following reasons. Firstly, it is

important to note that under para 6.1 of the unamended FTP

2004-2009, 100% EOUs undertook to export their entire

production except permissible sales in DTA. Therefore, DTA

sales constituted an exception or an incidental facility. DTA

sales were not an integral part of the EOU Scheme. Under

para 6.1, EOUs were allowed to be set up on the condition that

they would export their entire production. It is on this

condition that 100% EOUs could avail of various benefits

under Customs and Excise Act. The said DTA sales or sales of

rejects were exceptions. DTA sales were not an integral part of

the EOU Scheme in the sense that if for reasonable reasons if

these exceptions are eliminated, as in this case, the Scheme

would become unworkable. In fact, M/s. Hindustan Granites

even today after the impugned amendment works without use

of domestic raw material. Hence, DTA sales is not an integral

part of the EOU Scheme. Secondly, it is important to note

that 100% EOUs have been importing rough marble blocks

from which they are producing marble tiles/slabs and what

they are exporting is the said marble tiles/slabs. However, the

Director General found, in the course of last seven years, that

the entire export of marble tiles/slabs is made out of the poor

quality indigenous rough marble blocks. On the other hand, it

is found that the entire sale of marble tiles/slabs in DTA is

from rich good quality imported rough marble blocks.

Therefore, the DTA sales by 100% EOUs are now disallowed

under the impugned Circular/Notification. Thirdly, on

account of the above practice, the Director General has found

that four to five 100% EOUs have been importing rough

marble ostensibly for export but in effect after slight polishing

the same are sold in DTA. Marble is a restricted item. On

account of the above practice, the Director General has found

circumvention of the Restricted Import Policy of marble during

100% EOU Scheme (unamended). As stated above, the

concept of Net Foreign Exchange earning is very important.

On account of the price differential, under the impugned

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 10

practice, there is substitution of imported inputs by domestic

inputs. The rational behind allowing imports of rough marble

blocks by 100% EOUs was that the raw material would be

used for export production and that it will not be diverted in

DTA defeating the very purpose of putting marble in the

restricted category. The object behind the EOU Scheme is

consumption of imported raw material for manufacture of

finished products which are to be exported. If that facility

leads to substitution of imported inputs by domestically

procured inputs then the facility has to be discontinued. This

discontinuation has been done by the impugned

Circular/Notification. Fourthly, as stated above, marble is an

item under restricted category. It is put in the restricted

category since it is not treated as only revenue-generating

resource. It is put in the restricted category because the

mining industry depends on that resource. It generates

employment. Mining generates employment. Marble is an

input required in the mining industry. As a result of

impugned substitution, the Indian market gets flooded by the

imported goods resulting in unemployment in the mining

industry. Fifthly, by the impugned Circular/Notification, the

Government has stopped procurement of domestic rough

marble blocks for achieving NFE earnings. This is the major

object behind the impugned Circular/Notification. It is true

that the unamended Policy had no co-relation between the

input imported and the finished product exported. That was

the loophole. To stop the procurement of domestic rough

marble blocks for achieving NFE, the DTA sales had to be

prohibited. By the amended Policy 100% EOUs are now

required to produce marble tiles/slabs (finished products) out

of imported rough marble blocks and thereby the amended

Policy stops the procurement of domestic rough marble blocks

for achieving NFE by these 100% EOUs. Lastly, there are 20

to 25 SIL Units (found to be eligible) vis-`-vis 4 to 5 100%

EOUs and, therefore, the volume has been increased from

68,000 MT to 1,30 Lakhs MT.

Before concluding, we would like to refer to the authority

cited on behalf of 100% EOUs.

In the case of Bannari Amman Sugars Ltd. v.

Commercial Tax Officer and Others \026 (2005) 1 SCC 625,

the Division Bench of this Court speaking through one of us,

Pasayat, J., has held that exemption from purchase tax on

sugarcane granted in favour of sugar mills established in

public sector whose production exceeded Rs.300 lakhs was

entitled to tax benefit and that the Government was not right

in withdrawing that benefit, particularly, when the industry

stood established on basis of representation made by the

Government. While explaining the doctrine of promissory

estoppel it has been observed vide paras '16' and '17' that if

the State acts within the bounds of reasonableness to be

decided in an objective manner and from the stand point of

public interest then the restriction cannot be said to be

unreasonable, merely because it operates harshly. In our

view, on the facts of the present case, we are satisfied that the

impugned amendment fulfills the test of public interest and it

also fulfills the test of reasonableness qua the restrictions

imposed on 100% EOUs.

Similarly, in the case of Union of India and Another v.

International Trading Co. and Another - (2003) 5 SCC 437,

the Division Bench of this Court speaking through one of us,

Pasayat, J., has held that if State acts reasonably keeping in

mind national priority and good trade policies then it cannot

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 10

be said that the restrictions imposed in economic interest are

unreasonable even though they operate harshly [See: paras

'22' and '23'].

In the case of Union of India & ors. V. M/s. Asian Food

Industries - (2006) 12 Scale 105, on which reliance is

placed by counsel for M/s. Abhishek Exports, the Division

Bench of this Court has held that Foreign Trade Policy under

Foreign Trade (Development and Regulation) Act, 1992 along

with the Hand Book of Procedure constituted a composite

Scheme. We do not dispute with this proposition. Hand Book

of Procedure merely implements the policy. It does not

prevent the Central Government from changing the policy.

Vide paras '29' and '30' of the said judgment it has been held

specifically that the Central Government can, in exercise of its

powers under Section 5 of the 1992 Act, prohibit exports. In

that case, this Court was concerned with the question of

banning of exports. It is not so in this case. In the matter

before us there was an incidental. Facility given to 100%

EOUs to hedge the losses which may arise on account of

changes in foreign exchange rates which facility is removed.

In our view, nothing prevents the Central Government, in

public interest, to plug the loophole by tinkering with the

existing policy as is done in the present case. Disallowing DTA

sales by 100% EOUs for above reasons cannot be compared

with total ban on export of pulses which was the case in the

matter of M/s. Asian Food Industries (supra). As held

hereinabove, DTA sales did not constitute an integral part of

the EOU Scheme, hence the above judgment has no

application.

For the above reasons, we do not see any merit in the

challenge to the impugned Circular dated 30.8.05 and the

Notification dated 31.8.05 by the above 100% EOUs.

Accordingly, we uphold the validity of the Circular dated

30.8.05 and the Notification dated 31.8.05. Interlocutory

Applications, civil appeals, transfer petition and transfer cases

are disposed of accordingly with no order as to costs.

As stated above, this judgment is confined to the

challenge to the impugned Circular/Notification by 100%

EOUs and has nothing to do with the challenge by SIL Units

who have instituted separate petitions which will be heard in

normal course.