# DIRECTOR GENERAL OF FOREIGN TRADEANDANR v. M/S. KANAKEXPORTSANDANR

- **Citation:** [2015] 15 S.C.R. 287
- **Court:** Supreme Court of India
- **Decided:** 2015-10-27
- **Case number:** Civil Appeal No. 554 of 2006
- **Bench:** A. K. Sikri, ROHINTON FALi NARIMAN
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/director-general-of-foreign-tradeandanr-v-m-s-kanakexportsandanr-30640
- **Pages:** 141

## Headnote

B
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Incentive scheme for exporters- Misuse C
of- Notifications issued amending the provisions of the EXIM
policy - Some amendments made vide Notification No. 28
dated January ~8, 2004 - On the same day, a Public Notice
also issued in exercise of powers conferred under the
provisions of Para 2. 4 of the said Policy, which was followed D
by Notification No. 38 dated April 21, 2004 and Notification
No. 40 dated April 23, 2004 -
Whether the impugned
Notifications were issued in public interest -
Held: The
scheme in question intended to concentrate on the growth of
certain kinds of products treating the same as "thrust sectors" E
- Six sectors including Gem and jewellery were mentioned
as thrust sectors - Immediately after the introduction of the
scheme, there was unprecedented sharp rise in the export in
Gem and Jewellery articles - It raised certain suspicion in
the mind of the authorities as to whether these were genuine F
exports - The matter was investigated and intelligence was
gathered- It was learnt that there was rampant misuse of the
scheme by certain status holders - In the counter affidavit
filed by the Union of India, details of the modus operandi
used by these exporters were given - A note on misuse of G
the Scheme was also annexed with the counter affidavit -
The Government, thus, demonstrated that based on the
aforesaid exercise undertaken, Notification dated January
28, 2004 as well as Public Noti<;e of the even date were issued
H
287
288
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A - Notwithstanding strenuous efforts made by the writ
petitioners to show that the exports by them were genuine
and there was no misuse, it is clear that the purport behind
the Notifications was bona fide which was actuated with the
conditions of public interest in mind -
Foreign Trade
B (Development and Regulation) Act, 1992 - s. 5.
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Notifications issued amending the
provisions of the EXIM policy - Nature of - Clarificatory or
c amounting to amendment - Whether Notification No. 28
dated January 28, 2004 vide which Notes 1 to 5 to para 3. 7. 2. 1
were inserted in the EXIM Policy 2002-2007 was only
c/arificatory in nature or it amounted to a•mendment of the
provisions of para 3. 7. 2. 1 of the EX/M Policy- Held: On facts,
D the Notification dated January 28, 2004 was clarificatory in
nature and its validity stands upheld - Foreign Trade
(Development and Regulation) Act, 1992- s.5.
E
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Incentive scheme for exporters -
f.{otifications issued amending the provisions of the EXIM
policy -
Effect of the Notifications, prospective or
retrospective - Whether Notification dated April 21, 2004,
read with Notification dated April 28, 2004, seeking to exclude
F the export performance related to class of goods covered by
para 2 of the Public Notice dated April 28, 2004, by way of
Notes 6 to para 3. 7.2. 1 of the EXIM Policy, would relate back
to the date of Public Notice dated January 28, 2004 or is to
be given prospective effect from the date of issuance of
G Notifications on April 21and23, 2004- Held: A delegated or
subordinate legislation can only be prospective and not
retrospective, unless rule making authority has been vested
with power under a statute to make rules with retrospective
effect- In the present case,.s. 5 of the Act does not give any
H
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v.
289
MIS. KANAK EXPORTSANDANR.
such power specifically to the Central Government to make A
rules retrospective - No doubt, this Section confer powers
upon the Central Government to 'amend' the policy which
has been framed under the aforesaid provisions- However,
that by itself would not mean that such a provision empowers
the Government to do so retrospectively - On facts, if the B
Status Holders had achieved 25% incremental growth in
exports, they acquired

## Text

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[2015] 15 S.C.R. 287
DIRECTOR GENERAL OF FOREIGN TRADEANDANR.
A
v.
M/S. KANAKEXPORTSANDANR.
(Civil Appeal No. 554 of 2006)
OCTOBER 27, 2015
[A. K. SIKRI AND ROHINTON FALi NARIMAN, JJ.]
B
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Incentive scheme for exporters- Misuse C
of- Notifications issued amending the provisions of the EXIM
policy - Some amendments made vide Notification No. 28
dated January ~8, 2004 - On the same day, a Public Notice
also issued in exercise of powers conferred under the
provisions of Para 2. 4 of the said Policy, which was followed D
by Notification No. 38 dated April 21, 2004 and Notification
No. 40 dated April 23, 2004 -
Whether the impugned
Notifications were issued in public interest -
Held: The
scheme in question intended to concentrate on the growth of
certain kinds of products treating the same as "thrust sectors" E
- Six sectors including Gem and jewellery were mentioned
as thrust sectors - Immediately after the introduction of the
scheme, there was unprecedented sharp rise in the export in
Gem and Jewellery articles - It raised certain suspicion in
the mind of the authorities as to whether these were genuine F
exports - The matter was investigated and intelligence was
gathered- It was learnt that there was rampant misuse of the
scheme by certain status holders - In the counter affidavit
filed by the Union of India, details of the modus operandi
used by these exporters were given - A note on misuse of G
the Scheme was also annexed with the counter affidavit -
The Government, thus, demonstrated that based on the
aforesaid exercise undertaken, Notification dated January
28, 2004 as well as Public Noti<;e of the even date were issued
H
287
288
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A - Notwithstanding strenuous efforts made by the writ
petitioners to show that the exports by them were genuine
and there was no misuse, it is clear that the purport behind
the Notifications was bona fide which was actuated with the
conditions of public interest in mind -
Foreign Trade
B (Development and Regulation) Act, 1992 - s. 5.
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Notifications issued amending the
provisions of the EXIM policy - Nature of - Clarificatory or
c amounting to amendment - Whether Notification No. 28
dated January 28, 2004 vide which Notes 1 to 5 to para 3. 7. 2. 1
were inserted in the EXIM Policy 2002-2007 was only
c/arificatory in nature or it amounted to a•mendment of the
provisions of para 3. 7. 2. 1 of the EX/M Policy- Held: On facts,
D the Notification dated January 28, 2004 was clarificatory in
nature and its validity stands upheld - Foreign Trade
(Development and Regulation) Act, 1992- s.5.
E
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Incentive scheme for exporters -
f.{otifications issued amending the provisions of the EXIM
policy -
Effect of the Notifications, prospective or
retrospective - Whether Notification dated April 21, 2004,
read with Notification dated April 28, 2004, seeking to exclude
F the export performance related to class of goods covered by
para 2 of the Public Notice dated April 28, 2004, by way of
Notes 6 to para 3. 7.2. 1 of the EXIM Policy, would relate back
to the date of Public Notice dated January 28, 2004 or is to
be given prospective effect from the date of issuance of
G Notifications on April 21and23, 2004- Held: A delegated or
subordinate legislation can only be prospective and not
retrospective, unless rule making authority has been vested
with power under a statute to make rules with retrospective
effect- In the present case,.s. 5 of the Act does not give any
H
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v.
289
MIS. KANAK EXPORTSANDANR.
such power specifically to the Central Government to make A
rules retrospective - No doubt, this Section confer powers
upon the Central Government to 'amend' the policy which
has been framed under the aforesaid provisions- However,
that by itself would not mean that such a provision empowers
the Government to do so retrospectively - On facts, if the B
Status Holders had achieved 25% incremental growth in
exports, they acquired the right to receive the benefit under
the Scheme, which could not be taken away- The question
is as to whether, in the cases of the exporters in question, the
exports shown by them can be treated as actual exports C
entitling them to avail the benefit of the Scheme -An astute
and penetrative examination of the record, with reference to
the results of the investigation, prompted the Central
Government to issue the Notifications- The so-called targets 0
achieved were only on paper through fraudulent means and,
therefore, it cannot be said that any vested right accrued in
favour of the exporters in question- The impugned decision
reflected in the notifications dated April 21 and 23, 2004, did
not take away any vested right of these exporters and E
amendments were necessitated by over-whelming public
interest I considerations to prevent the misuse of the Scheme
- Therefore, even when impugned Notification issued u/s. 5
could not be retrospective in nature, such retrospectivity have
not deprived the writ petitioners/ exporters of their right F
inasmuch as no right had accrued in favour of such persons
under the Scheme - Supreme Court, or for that matter the
High Court in exercise of its writ jurisdiction, cannot come to
the aid of such petitioners/exporters who, without making
actual exports, play with the provisions of the Scheme and G
try to take undue advantage thereof- To this extent, direction
of the High Court granting these exporters benefit of the
Scheme for the past period is set aside - Legislation -
Delegated I Subordinate Legislation -
Foreign Trade
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A
(Development and Regulation) Act, 1992 - s. 5.
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Incentive scheme for exporters- Powers
of DGFT to issue a Public Notice - Vide Public Notice dated
8
January 28, 2004, the Government announced exclusion of
export performance in relation to four classes of goods
mentioned in para 2 thereof from computation of the
entitlement under the Scheme- Whether Public Notice dated
January 28, 2004, issued by the DGFT was without
c jurisdiction - Held: The Public Notice dated January 28, 2004
was published in the Gazette of India in accordance with the
requirement of law- The question, however, is as to whether
by this Public Notice, DGFTwas only carrying out the EXIM
Policy or this Public Notice amounted to change in the said
D EXIM Policy- It is crystal clearthat the Public Notice alters
the provisions of EXIM Policy- It would, therefore, amount
to amending the EXIM Policy, whether C/arificatory or
otherwise - There may be a valid justification and rationale
for exclusion of four items contained therein, as pleaded by
E the Union - However, it had to be done in accordance with
law- When the DGFT had no power in this behalf, he could
not have excluded such items from the purview of EXIM Policy
by means of Public Notice - The power of DGFT is only to
be exercised for procedural purposes and para 3. 2. 6 inserted
F by public notice in the Handbook of Procedures goes beyond
the procedural conditions - In fact, the Government itself
realised the same, namely, the DGFT had no such power- It
is for this reason that what was sought to be achieved by the
said Public Notice, was formalised by the Central
G Government by issuing Notifications dated April 21 and 23,
2004 in exercise of powers conferred on the Central
Government bys. 5 of the Act and the same four items were
excluded - Therefore, the public notice dated January 28,
H 2004 issued by DGFT, so far it excludes the aforesaid four
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v.
291
M/S. KANAK EXPORTS AND ANR.
items, was ultra vires - Foreign Trade (Development and A
Regulation) Act, 1992- s.5.
Export I Import- Export Import (EXIM) Policy- EXIM
Policy 2004-2009 -
Target Plus Scheme (TPS) -
Constitutional validity of Notification No. 4812005 dated B
February 20, 2006 and Notification No. 812006 dated June
12, 2006 by which certain amendments were made in the
EXIM Policy- Held: TPS introduced in EXIM Policy 20042009 on August 31, 2004, adopted some of the features of
the earlier Schemes in the EXIM Policy 2002-2007 and c
introduced the concept of Multi-Entitlement Rates, thus,
allowing higher entitlement rates for higher growth - If the
Government realised afterwards that export of certain items
should not have been given the benefit of TPS and extending
the benefit to now excluded items was an ill-considered move,
D
though the Central Government was free to withdraw it in
respect of such items but it could do so only prospectively,
but was not entitled to do so with effect from the back date,
i.e. April 01, 2005, by taking away the vested right that had
already accrued in favour of exporters of these items -
E
Accordingly, on facts, Notification No. 4812005 dated
February 20, 2006 and Notification No. 812006 dated June
. 12, 2006 cannot be applied retrospectively and they would
be effective only from the dates they were issued - Foreign
Trade (Development and Regulation) Act, 1992- s.5.
F
Export I Import -
Export Import (EXIM) Policy -
Incentive scheme - Held: It is for the Government to take the
decision to grant such a privilege or not - Also such
exemptions, concessions or incentives can be withdrawn any G
time -All these matters are in the domain of policy decisions
of the Government- When there is withdrawal of a incentive
and it is also shown that the same was done in public interest,
the Court would not tinker with these policy decisions -
H
292
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A Administrative Law -Administrative policy- Foreign Trade
(Development and Regulation) Act, 1992.
Administrative Law - Executive action relating to
economic activities- Validity of- Held: In complex economic
8
matters every decision is necessarily empiric and it is based
on experimentation or what one may call trial and error
method and therefore its validity cannot be tested on any
rigid prior considerations or on the application of any straightjacket formula.
c
D
E
F
G
H
State of Madhya Pradesh & Ors. v. Nandla/ Jaiswal
& Ors. (1986) 4 SCC 566 : 1987 (1) SCR 1 Zippers
Karamchari Union v. Union of India & Ors. (2000)
10 sec 619: 1998 (1) Suppl. SCR 379; BAL CO
Employees Union (Regd.) v. Union of India & Ors.
(2002) 2 sec 333 : 2001 (5) Suppl. SCR 511;
Accountant General and Another v. S. Doraiswamy
and Others (1981) 4 SCC 93: 1981 (2) SCR 155;
Kasinka Trading v. Union of India (1995) 1 SCC
274: 1994 (4) Suppl. SCR 448; Malhotra & Sons
v. Union oflndia AIR 1976 J & K 41; Shrijee Sa/es
Corporation v. Union of India (1999) 3 SCC 398;
Union of India & Ors. v. Asian Food Industries
(2006) 13 sec 542: 2006 (8) Suppl. SCR 485;
State of Rajasthan & Ors. v. Basant Agrotech
(India) Ltd. (2013) 15 sec 1 : 2013 (17) SCR
395; Keshavlal Jethalal Shah v. Mohan/a/
Bhagwandas & Anr. (1968) 3 SCR 623;
Commissioner of Income Tax v. Vatika Township
Private Ltd. (2015) 1 SCC 1; Trimbak Damodhar
Rajpurkar v. Assaram Hiraman Patil & Others
(1962) Supp. 1SCR700; Sakuru v. Tanaji (1985)
3 SCC 590: 1985 (2) Suppl. SCR 109; Union of
India v. N.R. Parmar(2012) 13 SCC 340: 2012
(13) SCR 555; Regional Transport Officer, Chittoor
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 293
MIS. KANAK EXPORTSANDANR.
& Ors. v. Associated Transport Madras (P) Ltd. &
A
Ors. (1980) 4 sec 597 : 1981 (1) SCR 627;
Accountant General & Anr. v. S. Doraiswamy &
Ors. (1981) 4 sec 93: 1981 (2) scR 155; A.A.
Calton v. Director of Education &Anr. (1983) 3 SCC
33 : 1983 (2) SCR 598; Chairman, Railway Board
B
& Ors. v. C.R. Rangadhamaiah & Ors. (1997) 6
sec 626 - referred to.
Case Law Reference
1987 (1) SCR 1
referred to
Para47
c
1998 (1) Suppl. SCR 379
referred to
Para48
2001 (5) Suppl. SCR 511
referred to
Para 48
1981 (2) SCR 155
referred to
Para 57
D
1994 (4) Suppl. SCR 448
referred to
Para 102
AIR 1976 J&K41
referred to
Para 102
(1999) 3 sec 398
referred to
Para 103
2006 (8) Suppl. SCR 485 referred to
Para 105(i)
E
2013 (17) SCR 395
referred to
Para 105(ii)
(1968) 3 SCR 623
referred to
Para 105(iii)
(2015) 1 sec 1
referred to
Para 105(iv)
F
(1962) Supp.1SCR700
referred to
Para 105(v)
1985 (2) Suppl. SCR 109 referred to
Para 105(vi)
2012 (13) SCR 555
referred to
Para 105(vii)
1981 (1) SCR 627
referred to
Para 128{i)
G
1981 (2) SCR 155
referred to
Para128(ii)
1983 (2) SCR 598
referred to
Para128(iii)
(1997) 6 sec 626
referred to
Para128(iv)
H
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A
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
554 of2006
From the Judgment and Order dated 04.07.2005 of the
High Court of Judicature at Bombay in Writ Petition No. 2397
B of2004
WITH
C.A. Nos. 1587, 658, 1589 OF 2006
T. C. (C) NOS. 32, 33, 36 OF 2007
C
T. C. (C) NOS. 1, 3 OF 2008
T. C. (C) NO. 49 OF 2009
D
T. C. (C) NO. 107 OF 2015
T. P. (C) NO. 568 OF 2014
W.P. (C) NO. 27 OF 2008
W.P. (C) NO. 343 OF 2009
W.P. (C) NO. 246 OF 2010.
E
Ms. PinkiAnand,ASG, YashankAdhyaru, Sr.Adv., Ajay
Sharma, S. S. Rawat, Ms. Rashmi Malhotra, Ms. Kiran
Bhardwaj, D. S. Mahra, A. Subba Rao, Annam D. N. Rao,
Sudipto Sircar, Ms. Neelam Jain, Ms. Vaishali R., Annam
Venkatesh, Ms.Ankita Chadha, K.L.D.S. Vinober, Tarun Gulati,
F
Kishore Kuna!, Sparsh Bhargava, Manish Rastogi, Praveen
Kumar, Shashi Mathews,Anupam Mishra, Rohan P. Shah,Alok
Yadav, Somnath Shukla, Udit Jain, Praveen Kumar, K. R.
Sasiprabhu, Rohan P. Shah, Vishnu Sharma, Ms. Shilpa
G Balani, Ms. Swati Jain, Ms. Bina Gupta, Manu Nair, Tanuj
Bhushan, (For Mis. SureshA. Shroff & Co.), Kamlendra Mishra,
Shyam Diwan, Sameer Parekh, E. R. Kumar, Nitin Thukral,
Gal av Sharma, Shashaank Bhansali, (For M/s. Parekh & Co.),
V. K. Verma, Advs. for the appearing parties.
H
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v.
295
M/S. KANAK EXPORTSANDANR.
The Judgment of the Court was delivered by
A. K. SIKRI, J.
Civil Appeal No. 554 of 2006
Civil Appeal No. 658 of 2006
Civil Appeal No. 1587 of 2006
Civil Appeal No. 1589 of 2006
Transfer Case (Civil) No. 36 of 2007
Transfer Case (Civil) No. 1 of 2008
Transfer Case (Civil) No. 3 of 2008
Transfer Case (Civil) No. 49 of 2009
Writ Petition (Civil) No. 343 of 2009
Writ Petition (Civil) No. 246 of 2010
1. Export Import (EXIM) Policy 2002-2007 was framed
A
B
c
D
by the Central Government under Section 5 of the Foreign
Trade (Development and Regulation) Act, 1992 (hereinafter
referred to as the 'Act'), which came into force with effect from
E
April 01, 2003. The main purpose and objective of this Policy
was to boost the exports. In furtherance of the same, a Special
Scheme containing the provisions thereof was incorporated
therein which gave certain kind of incentives to the exporters
of some specified items. However, some amendments were
F
made thereto vide Notification No. 28 dated January 28, 2004.
On the same day, Public Notice No. 40(RE-2003)/2002-2007
was also issued in exercise of powers conferred under the
provisions of Para 2.4 of the said Policy, which was followed
G
by Notification No. 38 dated April 21, 2004 and Notification
No. 40 dated April 23, 2004.
2. Vide Notification No. 28 dated January 28, 2004, the
Central Government sought to amend certain provisions of the
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SUPREME COURT REPORTS
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A EXIM Policy by inserting Notes 1 to 5, which was unpalatable
to the exporters of the goods mentioned therein as, according
to them, under the guise of the said Notes, some benefits which
had already accrued to these exporters under the EXIM.Policy
were taken away. Vide Public Notice dated January 28, 2004,
B the Government announced exclusion of export performance
in relation to four classes of goods mentioned in para 2 thereof
from computation of the entitlement under the Scheme and, at
the same time, sought to disallow the import of agricultural
products falling under Chapters I to XXIV of ITC (HS) under
C the said scheme. Thereafter, Notification No. 38 dated April
21, 2004 was published under Section 5 of the Acton the same
lines on which Public Notice dated January 28, 2004 was
issued. The exporters of these goods, naturally, felt aggrieved
0 thereby. There was an innocuous amendment to Notification
No. 38 dated April 21, 2004 wherein in addition to the Director
General of Foreign Trade (for short, 'DGFT') as an Officer to
enforce these Notifications, ex-officio Additional Secretary to
the Government of India was also added. All such exporters
E who were affected thereby filed writ petitions in various High
Courts, particulars whereof shall be taken note of hereinafter
at the appropriate stage.
3. The Bombay High Court in Writ Petition No. 2397 of
2004, decided on July 04, 2005, has given partial relief to the
F exporters/ writ petitioners. The Gujarat High Court has
substantially affirmed the validity of these Notifications while
giving relief on one particular aspect. Insofar as judgments of
Bombay High Court and Gujarat High Court are concerned,
both the Union of India as well as the writ petitioners preferred
G Special Leave Petitions, in which leave was granted, and these
are now converted as Civil Appeal No. 658 of 2006 and Civil
Appeal 554 of 2006 respectively. That apart, the Single Judge
of the Gujarat High Court in one of the cases dismissed the
H writ petition and the LPA was filed by the said petitioner before
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v.
297
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]
the Division Bench of the High Court. Since the issue involved A
in these appeals is the same, which is raised in the LPA in the
Gujarat High Court and still pending in the writ petitions filed in
various High Courts, transfer petitions were filed by the Union
of India seeking transfer of all those cases and to be heard
along with these two appeals. Those transfer petitions were
B
allowed. This is how all these cases are bunched together
and heard simultaneously as the issue is substantially the same
in all these matters.
4. With this background reflecting the nature of these c
cases, we now proceed to discuss the main provision of the
EXIM Policy and how the aforesaid Notifications have
amended the provisions of that Policy. That would give an
indication as to what kind of grievance is raised by these
exporters in challenging the validity of these Notifications.
D
5. The Act was passed 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. The Statement of Objects and
Reasons of this Act stipulates that foreign trade is the driving • E
force of economic activity. Technology, investment and
production are becoming increasingly interdependent upon
each other and foreign trade brings these elements together
and spurs economic growth. The Imports and Exports (Control) F
Act, 1947 was made in different circumstances. Although it
has been amended from time to time, the Act does not provide
an adequate legal framework for the development and
promotion of India's foreign trade. Besides, in July, 1991 and
August, 1991, major changes in trade policy were made by G
the Government of India. The goals of the new trade policy
are to increase productivity and competitiveness and to
achieve a strong export performance. The Exports and Import
Policy is a vital part of trade policy. The basic law governing
H
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[2015] 15 S.C.R.
A
foreign trade must serve as an instrument to create an
environment that will provide a strong impetus to exports,
facilitate imports and render export activity more profitable. It
has, therefore, been considered necessary to enact a new law
repealing the existing law. The Act intends to achieve these
B objectives.
6. In order to achieve the aforesaid objectives, power is
given to the Central Government under Section 3 of the Act to
make provisions relating to imports and exports with primary
c focus on the development and regulation of foreign trade.
Further, Section 5 specifically empowers the Central
Government to formulate and announce the EXIM Policy. It
reads as under:
"5. Export and import policy. - The Central
D
Government may, from time to time, formulate and
announce, by notification in the Official Gazette, the
export and import policy and may also, in the like
manner, amend that policy."
E
7. In order to carry out the purposes of th is Act, DGFT is
• to be appointed by the Central Government as per the
provisions of Section 6 of the Act. In addition to carrying out
the purposes of this Act, DGFT is also supposed to advise the
Central Government in formulation of the EXIM Policy. He is
F also made responsible for carrying out that Policy. However,
sub-section (3) of Section 6 empowers the Central Government
to give the aforesaid functions of the DGFT even to other Officer
subordinate to DGFT, except for powers conferred under
Sections 3, 5, 15, 16 and 19 of the Act.
G
8. As already noted above, Sections 3 and 5 give certain
powers to the Central Government and, therefore, these
powers have to be exercised by the Central Government only
and cannot be delegated to DGFT or an Officer subordinate
H to him. Sections 15 and 16 relate to appeal and revision which
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v.
299
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]
can be filed against the orders passed by the Adjudicating
A
Authority against any person committing contravention of
provisions of the Act, Rules, Orders and EXIM Policy. Appeal
lies to DGFT if the Adjudicating Authority, who passes the order,
is an Officer subordinate to DGFT. In those cases, where the
Adjudicating Officer is DGFT himself, appeal lies to the Central
B
Government. Under Sections 16, revisionary powers are
conferred upon the Central Government. These powers of
appeal and revision also cannot be delegated by virtue of
Section 6(3) of the Act. Section 19 again confers power upon
the Central Government to make Rules for carrying out the C
provisions of the Act generally and in respect of various matters
specifically enumerated in sub-section (2) of Section 19. This
power of the Central Government also cannot be delegated.
9. It may be noted that under Section 5 of the Act, the o
Central Government has been formulating EXIM Policies from
time to time. The Policy with which we are concerned is the
EXIM Policy for the period 2002-2007, which was substituted
by EXIM Policy 2004-2009.
10. EXIM Policy of 2002-2007 was announced and came E
into force from April 01, 2002. Amendment to this Policy was
notified on March 31, 2003 and the revised edition of the Policy
was to come into force from April 01, 2003. Even though the
Central Government is generally entitled and empowered to
F
carry out amendments in this Policy from time to time, in the
EXIM Policy 2002-2007, such a right was specifically reserved
stating that 'however, the Central Government reserves the
right in public interest to make any amendments to this Policy
in exercise of powers conferred by Section 5 of the Act'. It G
was also mentioned that such amendments would be made
by means of a notification published in the Gazette of India.
11. Chapter I of the Policy, which gives 'Introduction', had
made transitional arrangements vide para 1.2 thereof clarifying
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that any notifications made or public notices issued or anything
done under the provisions of EXIM Policy and in force
immediately before the commencement of the said Policy shall
continue to be in force, insofar as those notifications, etc. are
not in consistent with the provisions of the instant Policy. It
B was also clarified that licences/certificates/permissions issued
under the earlier Policy would continue to be followed for the
purpose for which such licences/certificates/permissions were
issued, unless otherwise stipulated. Para 1.4 enshrines the
oDjeCtlves which led to formulation of such a Policy and reads
C asunder:
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"1.4 The principal objectives of this Policy are:
(i) To facilitate sustained growth in exports to attain
a share of at least 1 % of global merchandise trade.
(ii) To stimulate sustained economic growth by
providing access to essential raw materials,
intermediates, components, consumables and
capital goods required for augmenting production
and providing services.
(iii) To enhance the technological strength and
efficiency of Indian agriculture, industry and
services, thereby improving their competitive
strength while generating new employment
opportunities, and to encourage the attainment of
internationally accepted standards of quality.
(iv) To provide consumers with good quality goods
and services at internationally competitive prices
while at the same time creating a level playing field
for the domestic producers."
12. Keeping in mind the aforesaid principal objectives,·
para 2.1 made it clear that exports and imports shall be free,
except in cases where they are regulated by the provisions of
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DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v.
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M/S. KA~AK EXPORTS AND ANR. [A. K. SIKRI, J.]
the said Policy or any other law for the time being in force. As A
per para 2.4, DGFT was authorised to specify the procedure
which needs to be followed by an exporter or importer or by
any licencee or other competent authority for the purposes of
implementing the provisions of the Act, the Rules ·and the
Orders made therein and this Policy. Such a procedure was B
to be stipulated and included in the Handbook (Volume-I},
Handbook (Volume-II), Schedule of DEPB and in ITC (HS) and
published by means of a public notice. It.was permissible to
amend this procedure from time to time.
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13. Another provision of this Policy which needs to be
noticed is para 2.34 that pertains to 'third party exports' and
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reads as under:
"2.34 Third party exports, as defined in paragraph
9.55 shall be allowed under the Policy."
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14. Since the third party exports are to be allowed, as
defined in para 9.55, we reproduce herein the said para as
well:
"'Third-party exports" means exports made by an
exporter or manufacturer on behalf of another
exporter(s). In such cases, shipping bills shall
indicate the name of both the exporter/
manufacturer and exporter(s)."
15. Registration by importer or exporter is needed to
avail the benefits of this Policy and provision in this respect is
contained in para 2.44 mentioning about the Regis!ration-cumMembership Certificate, which reads as under:
"2.44 Any person, applying for (i) a licence/
certificate/permission to import/export, [except
items listed as restricted items in ITC (HS)] or (ii)
any other benefit or concession under this policy
shall be required to furnish Registration-cumE
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Menibership Certificate (RCMC) granted by the
competent authority in accordance with the
procedure specified in the Handbook (Vol.I) unless
specifically exempted under the Policy."
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16. Chapter Ill of the EXIM Policy deals with 'Promotional
Measures' which are to be undertaken to achieve the objective
of the Policy. Apart from various other measures stipulated
therein, with which we are not concerned, this Chapter also
deals with grant of 'Status Certificate'which is to be given to
c various kinds of exporters etc. who are eligible for such
recognition. Categories of the exporters are mentioned therein
depending upon the export performance level achieved by such
export houses. Such status holders are eligible for certain
special facilities which could be availed during the validity
o period of the Policy, i.e. April 01, 2002 to March 31, 2007,
unless otherwise specified. Since all the petitioners who filed
the writ petitions have this Status Certificate, on the strength
of which they are claiming the special facilities, and in their
perspective the impugned notifications adversely affect the
E availment of these facilities, we reproduce verbatim concerned
paras of the Policy touching upon this aspect:
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Status
Certificate
Export
Perfornlalce
Level
l 7. 1
MerchC11t k. Well
as
MC11ufacturer
Exporters,
Service
Providers,
Export
Oriented Urits (EOU's) I Uiits Located in
Special Economic Zones (SEZs) I Agi
Export
Zone
(PE.l's)
I
Electroric
Hard.vare Ta::hnolcgy Parks (EHTPs) I
Solt\i\are Techldogy Parks (STPs) shaD
be eligible for such recognition.
l 7.2
The a~licant is req_iired to aclieve the
prescribed average export performance
level:
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v.
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M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]
Category
Total FOB/FOR dunng the current A
licencing year or during the
preceding 1/2/3 licensing yP,ars
(in Rupees)
Export House
Trading House
45 crores
300 crores
1500 crores
6000 crores
B
Star Trading House
Super Star Trading House
Note:1. Units in Small Scale Industry/Tiny Sector/ C
Cottage Sector/Units registered with KVICs or
KVIBs/Units located in North Eastern States,
Sikkim and J&K/Units exporting handloom,
handicrafts, hand knotted carpets, silk carpets/
exporters holding golden status/exporters exporting D
to countries in Latin America and CIS/ sub Saharan
Africa as listed inAppendix-17C, units having ISO
9000 (series)/WHOGMP/ HACCP/SEI CMM level2.
3.
11 and above status granted by agencies listed in
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Appendix-28A, shall be entitled for export house
status on achieving Rs.15 ·crore FOB/FOR during
the current licencing year or during the preceding
1 /2/3 licensing years. The same threshold limit shall
be applicable to the service exporters and agri
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exporters (other than grains) for obtaining Export
house status.
Export made on re-export basis shall not be counted
for the purpose of recognition.
The exports made by a subsidiary of a limited
company shall be counted towards export
performance of the limited company for the purpose
of recognition. For this purpose, the company shall
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have the majority share holding in the subsidiary
company.
We now advert to the most crucial provision which entitles
these Status Holders to the following benefits:
Special
3. 7 .2.1 The status holders shall be eligible
Strategic
for the following new/special facilities:
Package for
Status Holders
(i) Licence/certificate/permissions and
Customs clearances for both imports
and exports on self-declaration basis;
(ii) Fixation of Input-Output norms on
priority within 60 days;
(iii) Exemption
from
compulsory
negotiation of documents
through
banks. The remittance, however, would
continue to be received through banking
channels;
(iv) 100% retention of foreign exchange
in EEFC account;
(v) Enhancement in normal repatriation
period from 180 days to 360 days;
(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 Rs. 25 crore
(in free foreign exchange). The duty free
entitlement shall· be 10% of the
incremental growth in exports.
Such
entitlement can be used for import of
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v.
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M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]
capital goods, office equipment and · A
inputs for their own factory or the factory
of the associate I
supporting
manufacturer/job worker. The entitlement/
goods shall not be transferable.
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The exporters who gets the Status Certificate are known
as 'Status Holders'. The term 'Status Holder' is defined in para
9.53 and reads as under:
""Status Holder" means an exporter recognised as
"Export House/Trading House by DGFT/ Development C
· Commissioner or Star Trading House/Super Star Trading
House" by the Director General of Foreign Trade."
17. As noted above, the main objective of this EXIM Policy
was to achieve the share of 1 % of global trade and accelerated D
growth in exports. For this purpose, certain sectors, where
such exports were to be given the necessary boost, were
mentioned in para 3.10 describing them as 'Thrust Sector'.
These are as under:
3.10
With a view to achieve the share of 1 %
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of globaltrade and accelerc;lted growth
in exports, the following shall be the
thrust sectors:
a) Electronic hardware
b) Textile including garments
c) Auto components/ancillary
d) Gem & Jewellery
e) Agriculture
f) Service sector
Department of Commerce shall take
concerted efforts to promote exports of
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these sectors by specific sectoral
strategy.
18) It is already noted above in para 3.7.1 that various
kinds of categories are eligible for recognition as stat.us
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holders. These include Export Oriented Units (EOUs),
Electronic Hardware Technology Parks (EHTPs) and Software
Technology Parks (STPs). A separate Chapter, i.e. Chapter
VI, is carved out to deal with the aforesaid categories.
Eligibility thereof is stipulated in para 6.1, which is to the
c following effect:
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Eligibility 6.1 Units undertaking to export their entire
production of goods and services,
except permissible saJes in the OTA, as
per the Policy, may be set up under the
Export Oriented Unit (EOU) Scheme,
Electronic Hardware Technology Park
(EHTP)
Scheme
or Software
Technology Park (STP) Sc~eme for
manufacture of goods, including repair,
re-making,
reconditioning,
reengineering, and rendering of services.
No trading units shall, however, be
permitted.
19. Such EOUs/EHTPs/STPs are permitted to export
goods through status holder, as specifically provided in para
6.10 and we reproduce hereunder:
Export through
Status Holder 6.10 An EOU/EHTP/STP unit may export
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goods manufactured I software
developed by it through a merchant
exporter/status holder recognized under
this Policy or any other EOU/EHTP/STP/
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SEZ unit.
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v.
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M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]
20. Special Economic Zones (SEZs) are also entitled A
for Status Certificate. The provisions concerning these SEZs
are contained in Chapter VII of the EXIM Policy. Their eligibility
is defined in para 7 .1 in the following words:
Eligibility
7.1 (a) Special Economic Zone (SEZ) is a
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specifically delineated duty free enclave
and shall be deemed to be foreign
territory for the purposes of trade
· operations and duties and tariffs.
(b) Goods and services going into the C
SEZ area from DTA shall be treated as
exports and goods coming from the
SEZ area into DTA shall be treated as
if these are being imported.
(c) SEZ units may be set up for
manufacture of goods and rendering of
services.
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21. Para 7.8 deals with DTASales and Supplies which
these SEZ Units ma undertake. These SEZ Units are also
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entitled to export through status holder in terms of para 7.10,
asunder:
Export through
Status Holder 7.10 SEZ unit may also export goods F
manufactured/software developed by it
through a merchant exporter/status
holder recognized under this Policy or
any other EOU/SEZ/EHTP/STP unit.
22. Chapter IX contains definition of various terms which G
are used in the EXIM Policy. We have already noted the
definition of 'Status Holder' as well as 'Third Party Exports'.
Some other definitions which require a mention are as under:
9.5
"Actual User (Industrial)" means a person who
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utilises the imported goods for manufacturing in
his own industrial unit or manufacturing for his
own use in another unit including a jobbing unit.
9.6
"Actual User (Non-Industrial)" means a person
who utilises the imported goods for his own use
in: (i) any commercial establishment carrying
on any business, trade or profession; or (ii) any
laboratory, Scientific or Research and
Development (R&D) institution, university or
other educational institution or hospital; or (iii)
any service industry.
9.10
"Capital Goods" means any plant, machinery,
equipment or accessories required for
manufacture or production, either directly or
indirectly, of goods or for rendering services,
including those required for replacement,
modernisation, technological upgradation or
expansion. Capital goods also include
packaging machinery and equipment,
refractories for initial lining, refrigeration
equipment, power generating sets, machine
tools, catalysts for initial charge, equipment and
instruments for testing, research and
development, quality and pollution control.
Capital goods may be for use in manufacturing,
mining, agriculture, aquaculture, animal
husbandry, floriculture, horticulture, pisciculture,
poultry, sericulture and viticulture as well as for
use in the services sector.
9.31
"Manufacturer Exporter" means a person who
export goods manufactured by him or intends to
export such goods.
9.33
"Merchant Exporter" means a person engaged
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v.
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in trading activity and exporting or intending to A
export goods.
23. To put it in nutshell, EXIM Policy 2002-2007 was
promulgated with the principal objective, inter a/ia, to facilitate
sustained growth in exports to achieve a share of 1 % of global
8
merchandise trade. Therefore, the thrust of this Policy was to
ensure and facilitate growth in exports. Because of this reason,
exports and imports were made free, except in relation to
cases where they were specifically regulated by the provisions
of this Policy or under any law. In order to facilitate the growth c
of these exports, following measures were specifically
provided in the EXIM Policy:
(a) third party exports;
(b) stipulating thrust sector, viz. mentioning those D
products which were having potential in achieving the
target of 1 % of global trade and accelerated growth in
exports. It was, therefore, perceived that in these sectors
there is an ample scope for boosting the exports. Six
such sectors mentioned in para 3 .10 include Gem and
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Jewellery Sector as well;
( c) it was held that growth in exports can be accelerated
through small scale industry sector/mid level export
houses. For this purpose, depending upon the level of
export by the exporters, categories of the exporters were
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carved out, namely, Export Houses, Trading Houses, Star
Trading Houses and Super Star Trading Houses. In order
to encourage these export categories, depending upon
their category, the export incentives were provided for G
them;
(d) in the same direction, certain categories were chosen
for giving recognition as status holders, who could get
such Status Certificate if they come within the purview of
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the definition of 'Status Holder' contained in para 9.55.
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24. The importance that was given to these status holders
was highlighted by the then Commerce Minister while
announcing special strategic package for status holders.
Relevant extract of the said speech contained in para 19 thereof
is noted as under:
"19. The status holders have been a pillar of strength
in increasing exports. There is a feeling among
them that under the Exim Policy, substantive
benefits are no longer available to them since the
earlier benefits such as fast track clearance and
relaxation from certain procedures, are now
universally applicable in the liberalized
environment. 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
outsourcing products and services for the rest of
the world. They are also critical to our strategy for
accelerating the rate of incremental growth of
exports. Therefore, we intend to give a premium
to the status holders who acbieve 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.