Case Note & Summary
The case involves appeals by M/s. Nola Ram Dulichand Dal Mills and others against the Union of India and others, challenging a circular dated 21st January 2009 issued by the Directorate General of Foreign Trade. The circular clarified that exports made by 100% Export Oriented Units (EOUs) or through DTA units are not eligible for benefits under the Vishesh Krishi and Gram Udyog Yojana (VKGUY), Focus Market Scheme (FMS), and Focus Product Scheme (FPS) for the period from 1st April 2006 to 31st March 2007. The appellant, a merchant exporter, purchased Guar Gum Powder from M/s. Neelkanth Polymers, a 100% EOU, and exported it, claiming duty credit under VKGUY. The appellant argued that the circular was contrary to the Foreign Trade Policy 2004-2009, which had statutory force under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992, and that the circular amounted to an amendment that required publication in the Official Gazette. The appellant also contended that the scheme only excluded exports 'by' EOUs and SEZ units, not exports 'through' them, and that the distinction between VKGUY and FMS (which expressly excluded DTA units) showed that DTA units were eligible under VKGUY. The respondents argued that the government had the power to amend, modify, or rescind schemes, relying on Director General of Foreign Trade v. Kanak Exports, and that the circular was merely a clarification to prevent circumvention of the exclusion of EOUs. The Supreme Court dismissed the appeals, holding that the circular was a valid clarification, not an amendment, and that the government had reserved the right under Clause 3.8.5 of the scheme to specify ineligible products. The court found that the purpose of the scheme was to deny incentives to EOUs, and allowing purchasers from EOUs to claim benefits would defeat that purpose. The court also noted that the principle of what cannot be done directly cannot be done indirectly applied. The appeals were dismissed with no order as to costs.
Headnote
A) Foreign Trade Policy - Clarification vs. Amendment - Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 - The Central Government has the power to formulate and amend the Foreign Trade Policy by notification in the Official Gazette. A circular that merely clarifies an existing scheme, without modifying or amending it, does not require publication in the Official Gazette. The impugned circular dated 21.01.2009 was held to be a clarification, not an amendment, and therefore valid. (Paras 12-13) B) Export Incentives - VKGUY Scheme - Eligibility of Exports through 100% EOU - Clause 3.8.2.2(c) of the Foreign Trade Policy 2006-07 - Exports made by 100% Export Oriented Units (EOUs) are expressly excluded from duty credit entitlement under the VKGUY scheme. The court held that this exclusion cannot be circumvented by purchasing goods from an EOU and then exporting them; what cannot be done directly cannot be done indirectly. The purpose of the scheme is to deny incentives to EOUs, and granting benefits to purchasers from EOUs would defeat that purpose. (Paras 10, 13) C) Government's Reserved Right - Clause 3.8.5 of the Foreign Trade Policy 2006-07 - The Government reserved the right in public interest to specify from time to time export products not eligible for entitlement. The circular dated 21.01.2009 was issued in exercise of this reserved power and was therefore not illegal. (Para 12) D) Promissory Estoppel - Withdrawal of Incentives - The court relied on Director General of Foreign Trade & Anr. v. Kanak Exports & Anr., (2016) 2 SCC 226, to hold that incentive schemes are in the nature of concessions or privileges that can be withdrawn any time, especially when done in public interest. The doctrine of promissory estoppel cannot be invoked to prevent such withdrawal. (Para 9)
Issue of Consideration
Whether a circular clarifying that exports made through 100% Export Oriented Units are not eligible for benefits under the Vishesh Krishi and Gram Udyog Yojana (VKGUY) is valid and not contrary to the Foreign Trade Policy 2004-2009.
Final Decision
The Supreme Court dismissed all appeals, holding that the Circular dated 21st January 2009 is a valid clarification and not an amendment. The appeals were dismissed with no order as to costs.
Law Points
- Foreign Trade Policy
- statutory force of policy
- executive clarification
- promissory estoppel
- retrospective withdrawal of incentives
- purposive interpretation
