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CASE NO.:

Writ Petition (civil) 4695 of 2006

PETITIONER:

Union of India & Ors.

RESPONDENT:

M/s. Asian Food Industries

DATE OF JUDGMENT: 07/11/2006

BENCH:

S.B. Sinha & Markandey Katju

JUDGMENT:

J U D G M E N T

[Arising out of S.L.P. (Civil) No. 17008 of 2006]

WITH

CIVIL APPEAL NO. 4696 OF 2006

[Arising out of S.L.P. (Civil) No. 17558 of 2006]

S.B. SINHA, J :

Leave granted.

Both the appeals involving common questions of law and fact were

taken up for hearing together and are being disposed of by this common

judgment.

We would, however, notice the fact involved in both the matters

separately.

FACT RE: M/S. ASIAN FOOD INDUSTRIES

Respondent herein is exporter of various kinds of pulses and grains. It

received orders for supply of 20331 MT of pulses from the Overseas

Importers of Middle East wherefor several contracts were entered into. The

said contracts were executed between 22.4.2006 and 2.05.2006. It received

US $294942 being approximately 20% of the contract amount by way of

advance towards the said supply from the importers on 9.5.2006. Shipment

of 20 containers out of the 107 containers consisting of 415 MT took place

during the period between 22.06.2006 and 24.06.2006. The remaining 87

containers were cleared and Let Export Orders dated 23.06.2006, 24.06.2006

and 26.06.2006 were issued by the custom authorities at Kandla Port. Bills

of lading were also issued therefor.

In the meanwhile, a purported decision was taken by the Central

Government to ban export of pulses on 22.06.2006. The said decision is

said to have been widely reported in the electronic media and print media,

but the notification banning the export of pulses was issued by the Central

Government only on 27.06.2006 in purported exercise of its power under

Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (for

short "the 1992 Act") wherein the Central Government prohibited export of

various goods mentioned therein for a period of six months from the said

date, the relevant portion whereof reads as under:

"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 1.3 and Para 2.1 of the Foreign Trade

Policy, 2004-2009, the Central Government hereby makes the

following amendments in the ITC(HS) Classifications of the

Export and Import items, 2004-2009 as amended from time to

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time.

2. With immediate effect the following new entry may be

inserted after entry at Sl. No. 44 in Chapter 7 of Table B under

Schedule 2 of ITC(HS):

Sl.

No.

Tariff

Item

HS Code

Unit

Item Description

Export

Policy

Nature of

Restriction

44

A

***

***

***

07131000

Kg.

Peas (Pisum

sativum)

Prohibited

Not permitted to

be exported.

07132000

Kg.

Chickpeas

(garbanzos) Beans

(Vigna spp.,

Phaseolus spp.):

Prohibited

Not permitted to

be exported.

***

3. The above amendment shall remain in force for a period of

six months from the date of its issue and shall not apply to

imports already effected against Advance

Licences/Authorisations issued prior to the date of issue of this

notification.

4. This issues in Public Interest."

Superintendent (Customs) on or about 28.6.2006 directed the Kandla

Port Trust that no further consignment be allowed to be shipped which has

passed out of the charge of the customs. However, the Assistant Traffic

Manager in a communication made to M/s. Intermark Shipping Agency Pvt.

Ltd. dated 29.06.2006 informed that even if goods have been cleared by

issuance of Let Export Orders, the same should not be loaded on the

shipping vessels in view of the said prohibition.

Another notification was issued by the Central Government on

4.07.2006 purported to be under Section 5 of the 1992 Act permitting export

of pulses against irrevocable letter of credit opened prior to 22.06.2006, the

relevant portion whereof reads as under:

"S.O.(E) In exercise of the powers conferred by

Section 5 of the Foreign Trade (Development &

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Regulation) Act, 1992 (No. 22 of 1992) read with

Para 1.3 and Para 2.1 of the Foreign Trade Policy,

2004-2009, the Central Government hereby makes

the amendment in para 3 of Notification No 15

dated 27th June 2006, to include the following

sentence, at the end of the said para:

Further the transitional arrangements notified

under para 1.5 of the Foreign Trade Policy, 2006

shall not be applicable for export of pulses against

irrevocable Letters of Credit opened on or after

22.6.2006 as the decision of the Government

prohibiting the export of pulses was announced

and got widely publicised on 22.6.2006 in the

electronic and print media.

2. This issues in Public Interest."

The respondents, however, addressed various correspondences with

the authorities to grant permission to shift the 87 containers of vessels in

view of the notification dated 4.07.2006 but the same was refused. A writ

petition questioning the said action on the part of the authorities filed by

them in the Gujarat High Court has been allowed by reason of the impugned

judgment.

FACT RE: M/S. AGRI TRADE INDIA SERVICES P. LTD.

M/s. Agri Trade India Services P. Ltd., Respondent No. 1 herein was

awarded a contract by Trade Corporation of Pakistan for supply of 3000 MT

of chick peas. An irrevocable letter of credit was opened in favour of the

respondent on 24.06.2006. On 27.06.2006, the respondent filed shipping

invoices and bill with customs authorities for export of chick peas. In view

of notification dated 27.06.2006, the Kandla Port Trust issued instructions

that loading of chick peas would not be permitted. Thereafter, a notification

dated 4.7.2006 was also issued purported to be under Section 5 of the 1992

Act permitting export of pulses against irrevocable letter of credit opened

prior to 22.06.2006.

Inter alia questioning the validity of notification dated 4.07.2006, the

respondents filed a writ petition before the Delhi High Court which was

marked as W.P. (C) No. 11691-11692 of 2006. By reason of the impugned

judgment dated 18.08.2006, the said writ petition has been allowed.

STATUTORY PROVISIONS

Before adverting to the questions raised in these appeals, we may

notice the statutory provisions operating in the field.

The Parliament enacted the Customs Act, 1962 (for short "the 1962

Act") to consolidate and amend the law relating to customs. Section 11 of

the 1962 Act empowers the Central Government to prohibit importation and

exportation of goods. Section 16 provides for date for determination of rate

of duty and tariff valuation of export goods in the following terms:

"16. Date for determination of rate of duty and

tariff valuation of export goods.--

(1) The rate of duty and tariff valuation, if any,

applicable to any export goods, shall be the rate

and valuation in force,\027

(a) in the case of goods entered for export under

section 50, on the date on which the proper officer

makes an order permitting clearance and loading

of the goods for exportation under section 51 ;

(b) in the case of any other goods, on the date of

payment of duty.

(2) The provisions of this section shall not apply to

baggage and goods exported by post."

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Section 39 of the 1962 Act prohibits the master of a vessel not to

permit loading of any export goods other than baggage and mail bags, until

an order has been given by the proper officer granting entry-outwards to

such vessel.

Chapter VII of the 1962 Act inter alia provides for the procedures for

clearance of export of goods. Section 50 postulates that the exporter of any

goods shall make entry thereof by presenting to the proper officer in the case

of goods to be exported in a vessel or aircraft, a shipping bill and, while

presenting, shall at the foot thereof make and subscribe to a declaration as to

the truth of its contents. Section 51 provides for clearance of goods for

exportation in the following terms:

"51. Clearance of goods for exportation.--

Where the proper officer is satisfied that any goods

entered for export are not prohibited goods and the

exporter has paid the duty, if any, assessed thereon

and any charges payable under this Act in respect

of the same, the proper officer may make an order

permitting clearance and loading of the goods for

exportation."

The Parliament also enacted the 1992 Act to provide for the

development and regulation of foreign trade by facilitating imports into and

augmenting exports from India and for matters connected therewith or

incidental thereto.

"Export" has been defined to mean taking out of India any goods by

land, sea or air. Section 3 of the 1992 Act empowers the Central

Government to make provisions by order published in the Official Gazette

for the development and regulation of foreign trade by facilitating imports

and increasing exports. Sub-section (2) of Section 3 thereof empowers the

Central Government to make provisions for prohibiting, restricting or

otherwise regulating in all cases or in specified classes of cases and subject

to such exceptions, if any, as may be made by or under the order, the import

or export of goods. Sub-section (3) of Section 3 provides that all goods to

which an order under Sub-section (2) applies would be deemed to be the

goods of import or export of which has been prohibited under Section 11 of

the 1962 Act and all the provisions of that Act shall have effect accordingly.

Section 5 of the 1992 Act provides that the Central Government may

from time to time formulate and announce, by notification in the Official

Gazette, the export and import policy and in the like manner amend that

policy.

POLICY

The Central Government announced its Foreign Trade Policy in

exercise of its power conferred upon it under Section 5 of the 1992 Act by a

notification dated 7th April, 2006. The said policy was issued in public

interest.

Chapter 1A of the said policy also provides for legal framework.

Clause 1.5 thereof reads as under:

"1.5 In case an export or import that is permitted

freely under this Policy is subsequently subjected

to any restriction or regulation, such export or

import will ordinarily be permitted

notwithstanding such restriction or regulation,

unless otherwise stipulated, provided that the

shipment of the export or import is made within

the original validity of an irrevocable letter of

credit established before the date of imposition of

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such restriction."

Clause 2.4 of the policy empowers the Director General of Foreign

Trade to specify the procedures required to be followed by an exporter in

any case or class of cases for the purpose of implementing the provisions of

the 1992 Act, the Rules and the Orders made thereunder and the said policy.

Such procedures were to be included in the Handbook which would be

published by means of a public notice and such procedures may in the like

manner be amended from time to time. It was stated:

"The Handbook (Vol.1) is a supplement to the

Foreign Trade Policy and contains relevant

procedures and other details. The procedure of

availing benefits under various schemes of the

Policy are given in the Handbook (Vol.1)"

The Handbook of Procedures which inter alia supplements the

Foreign Trade Policy was also issued on 7th April, 2006 upon giving a public

notice therefor. It contains nine chapters. Chapter 9 comprises of

miscellaneous matters. Paragraph 9.12 lays down the manner in which date

of shipment/ dispatch of exports would be reckoned. It inter alia provides:

"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 upto 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."

HIGH COURT JUDGMENTS

Whereas the Gujarat High Court invoking Paragraph 9.12 of the

Handbook and having regard to the fact that the customs authorities cleared

and permitted the loading of the goods and moreover the bill of lading had

also been filed, opined that the respondents were entitled to export the goods

in terms of the policy decision despite the said notification dated 27.06.2006,

the Delhi High Court declared the notification dated 4.07.2006 as ultra vires.

SUBMISSIONS

Mr. Vikas Singh, learned Additional Solicitor General for Union of

India, has raised the following contentions:

(i) Clause 1.5 of the Foreign Trade Policy would not apply to a case

where the export of goods are totally being prohibited and not merely

regulated or restricted.

(ii) Having regard to the definition of export and in particular the

provision of Section 51 of the 1962 Act, the procedures laid down

thereunder as envisaged under Sections 16 and 39 must be complied

and they having not been complied with, the impugned judgment of

Gujarat High Court cannot be sustained.

(iii) Although the notification dated 4.07.2006 was wrongly worded but as

thereby benefit was sought to be conferred on those who were not

aware of the ban before 22.06.2006 and had opened letters of credit

prior thereto were exempted from operation of the said notification,

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the order of prohibition shall be effective even if a concluded contract

had been arrived at for export of goods.

The learned counsel for the respondents, on the other hand, submitted:

(i) In view of the Foreign Trade Policy issued by the Central Government

under Section 5 of the 1992 Act, the amendments carried out therein

shall only have a prospective effect and not a retrospective effect.

(ii) As the Handbook of Procedures lays down supplemental provisions to

the Foreign Trade Policy issued by the Director General of Foreign

Trade in exercise of its power under the 1992 Act, the purported

prohibition issued under the notification dated 27.06.2006 would not

apply to a case where the formalities contained in Section 51 of the

1962 Act had been complied with.

(iii) Clause 1.5 of the Foreign Trade Policy having provided for protection

to those who were holders of letter of credit, the retrospective effect

purported to have been given in terms of the notification dated

4.07.2006 was unconstitutional being hit by Article 14 of the

Constitution of India.

ANALYSIS

Would the terms 'restriction' and 'regulation' used in Clause 1.5 of

the Foreign Trade Policy include prohibition also, is one of the principal

questions involved herein.

A citizen of India has a fundamental right to carry out the business of

export, subject, of course to the reasonable restrictions which may be

imposed by law. Such a reasonable restriction was imposed in terms of the

1992 Act.

The purport and object for which the 1992 Act was enacted was to

make provision for the development and regulation of foreign trade inter alia

by augmenting exports from India. While laying down a policy therefor, the

Central Government, however, had been empowered to make provision for

prohibiting, restricting or otherwise regulating export of goods.

Section 11 of the 1962 Act also provides for prohibition. When an

order is issued under Sub-section (3) of Section 3 of the 1992 Act, the export

of goods would be deemed to be prohibited also under Section 11 of the

1962 Act and in relation thereto the provisions thereof shall also apply.

Indisputably, the power under Section 3 of the 1992 Act is required to

be exercised in the manner provided for under Section 5 of the 1992 Act.

The Central Government in exercise of the said power announced its Foreign

Trade Policy for the years 2004-2009. It also exercised its power of

amendment by issuing the notification dated 27.06.2006. Export of all

commodities which were not earlier prohibited, therefore, was permissible

till the said date.

The implementation of the said policy was to be made in terms of the

procedures laid down in the Handbook. The provisions of the 1992 Act, the

Foreign Trade Policy and the procedures laid down thereunder, thus, provide

for a composite scheme. In implementing the said provisions of the scheme,

in the event an order of prohibition, restriction or regulation is passed, the

provisions of the 1962 Act mutatis mutandis would apply.

Section 50 of the 1962 Act provides for entry of goods for

exportation. It enjoins a duty upon an exporter to make entry thereof by

presenting a shipping bill to the proper officer in a vessel or aircraft. On

receipt of the shipping bill, the proper officer has to arrive at its satisfaction

that (i) the export of goods is not prohibited; (ii) the exporter has paid the

duty assessed thereon and charges payable thereunder in respect of the said

goods.

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Once he arrives at the said satisfaction, he will make an order

permitting clearance and loading of the goods for exportation.

The scheme of the Foreign Trade Policy postulates that when the

policy provisions are amended which are disadvantageous to the exporters,

the modification would not be attracted.

It furthermore lays down that although actual export had not taken

place but in the event goods are handed over to the custom authorities before

expiry of the export obligation period but actual export takes place after

expiry thereof, the same shall be considered within the export obligation and

taken towards fulfillment of such obligation.

Section 51 of the 1962 Act, therefore, does not say that unless and

until the shipment crosses the international border, the notification imposing

prohibition shall be attracted.

Different stages for the purpose of the said Act would, therefore, be

different. For interpretation of the provisions of the 1992 Act and the policy

laid down as also the procedures framed thereunder vis-`-vis the provisions

of the 1962 Act, the rate of custom duty has no relevance. What would be

relevant for the said purpose would be actual permission of the proper

officer granting clearance and loading of the goods for exportation. As soon

as such permission is granted, the procedures laid down for export must be

held to have been complied with.

Strong reliance has been placed by the learned Additional Solicitor

General upon a decision of this Court in Principal Appraiser (Exports),

Collectorate of Customs and Central Excise and Others v. Esajee Tayabally

Kapasi, Calicut [(1995) 6 SCC 536] wherein this Court was concerned with

the change in the rate of duty and in that context the construction of Sections

16(1), 39 and 51 of the 1962 Act fell for its consideration. In relation to the

rate of duty it was held that the date of "entry outwards" would be the

relevant date with reference to which the rate of custom duty on the exported

duty is to be worked out.

In that case, the goods were cleared for a vessel known as S.S. Neils

Maersk. However, for want of space therein goods were shut out.

Necessary space for exporting those were secured in another vessel named

S.S. P'Xilas wherefor fresh shipping bill was filed on 9.08.1996. It was in

the peculiar fact of that case, this Court opined that the rate of export duty

prevalent as on 9.08.1996 would be leviable stating:

"...It becomes thus clear that the shipping bill as

well as the ultimate entry outwards for the goods

concerned sought to be exported must have

reference to the vessel through which such goods

are to be exported. Therefore, before any goods are

exported out of Indian territorial waters which

vessel is to be utilised for exporting them, becomes

a relevant consideration. The shipping bill

concerned has to be lodged with reference to a

given vessel which is to carry these goods out of

the Indian territorial waters and in connection with

such a vessel the entry outwards has to be obtained

and only thereafter the master of the vessel should

allow the loading of the goods for being exported

out of India. The rate of duty payable on such

exported goods would, therefore, be the rate of

duty that was prevalent at the time when entry

outwards through a given vessel is obtained. There

cannot be an entry outwards in connection with a

vessel which does not actually carry such goods

for the purpose of export. In the facts of the

present case, therefore, conclusion is inevitable

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that earlier entry outwards for the vessel S.S. Neils

Maersk was an ineffective entry outwards for the

purpose of computing the rate of customs duty of

export on the goods in question. Only the

subsequent entry outwards for vessel S.S. PXilas

which actually carried these goods out of Indian

territorial waters and effected the export of these

goods was the only relevant and operative entry

outwards and the rate of duty prevalent on the date

of the said entry outwards for vessel S.S. PXilas

was the only effective rate of duty payable on the

export of these goods. Consequently it must be

held that the respondent has made out no case for

refund of Rs 4444.96 for which he lodged the

claim."

We may notice that a Constitution Bench of this Court in Gangadhar

Narsingdas Agarwal v. P.S. Thrivikraman and Another [(1972) 3 SCC 475]

opined that Section 16 of the 1962 Act speaks of the fictional date only in

relation to the order of date of entry outwards of the vessel, but the issue

with which we are concerned did not arise therein. The fundamental and

statutory right of an exporter, in that case, were not sought to be taken away.

Esajee Tayabally Kapasi (supra), therefore, has no application in the

instant case.

Reliance has also been placed on Union of India and Others v. M/s. C.

Damani & Co. and Others [1980 (Supp) SCC 707] wherein the vires of

Exports (Control) Fifteenth Amendment Order, 1979 prohibiting pre-ban

commitments was in question. It was held that there was no ground to

discredit the policy. The question raised therein, viz., the effect of failure to

honour foreign contracts owing to change in law imposing ban on goods

covered thereby whether would attract the plea of frustration of contract was

not decided stating:

"...This contention may have to be considered here

or elsewhere, but, if we may anticipate our

conclusion even here, this question is being skirted

by us because the kismet of this case can be settled

on other principles. The discipline of the judicial

process forbids decisional adventures not

necessary, even if desirable."

We may, however, notice that M/s. C. Damani (supra) was explained

by this Court in State Trading Corporation of India Ltd. v. Union of India

and Others [1994 Supp (3) SCC 40]. It is not necessary for us to advert

thereto as the said judgment has no application in the instant case.

We are, however, not oblivious of the fact that in certain

circumstances regulation may amount to prohibition. But, ordinarily the

word "regulate" would mean to control or to adjust by rule or to subject to

governing principles [See U.P. Cooperative Cane Unions Federations v.

West U.P. Sugar Mills Association and Others [(2004) 5 SCC 430] whereas

the word "prohibit" would mean to forbid by authority or command. The

expressions "regulate" and "prohibit" inhere in them elements of restriction

but it varies in degree. The element of restriction is inherent both in

regulative measures as well as in prohibitive or preventive measures.

We may, however, notice that this Court in State of U.P. and Others v.

M/s. Hindustan Aluminium Corpn. and others [AIR 1979 SC 1459] stated

the law thus:

"It appears that a distinction between regulation

and restriction or prohibition has always been

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drawn, ever since Municipal Corporation of the

City of Toronto v. Virgo. Regulation promotes the

freedom or the facility which is required to be

regulated in the interest of all concerned, whereas

prohibition obstructs or shuts off, or denies it to

those to whom it is applied. The Oxford English

Dictionary does not define regulate to include

prohibition so that if it had been the intention to

prohibit the supply, distribution, consumption or

use of energy, the legislature would not have

contended itself with the use of the word

regulating without using the word prohibiting or

some such word, to bring out that effect."

However, in Talcher Municipality v. Talcher Regulated Market

Committee and Another [(2004) 6 SCC 178], it was opined that regulation is

a term which is capable of being interpreted broadly and it may amount to

prohibition. [See also K. Ramanathan v. State of Tamil Nadu and another,

AIR 1985 SC 660]

The terms, however, indisputably would be construed having regard

to the text and context in which they have been used. Section 3(2) of the

1992 Act uses prohibition, restriction and regulation. They are, thus, meant

to be applied differently. Section 51 of the 1962 Act also speaks of

prohibition. Thus, in terms of the 1992 Act as also the policy and the

procedure laid down thereunder, the terms are required to be applied in

different situations wherefor different orders have to be made or different

provisions in the same order are required therefor.

We, however, need not dilate on the said question as in the case of

Agri Trade India Services (P) Ltd., the requirements of Section 51 of the

1962 Act had not been complied with whereas in the case of Asian Foods

Industries, it was done.

The Delhi High Court, however, in our view correctly opined that the

notification dated 4.07.2006 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.

In construing such a prohibitory order, whereas the rule of strict

construction must be followed, the interpretation which subserves the

intention of the Central Government as laid down in the policy as well as in

the procedure should be given effect to. A statute as is well known may

have to be construed in the light of the subordinate legislations framed

thereunder. When subordinate legislation has been framed by the same

authority which exercises the power under the policy, the intention of such

policy maker must be found out from the words used therein albeit having

regard to the rights of the exporters which are sought to be protected

thereby.

We, therefore, are of the opinion that whereas the judgment of the

Gujarat High Court must be upheld, that of the Delhi High Court, albeit for

different reasons, cannot be sustained.

For the reasons aforementioned, whereas Civil Appeal arising out of

SLP (C) No. 17008 of 2006 is dismissed with costs and counsel's fee

assessed at Rs. 1,00,000/-, Civil Appeal arising out of SLP (C) No. 17558 of

2006 is allowed and the parties shall pay and bear their own costs.