Supreme Court Clarifies Export Incentive Scheme: Nola Ram Dulichand Dal Mills vs. Union of India (2020)

Date of the Judgment: February 14, 2020
Citation: (2020) INSC 149
Judges: Deepak Gupta, J. and Hemant Gupta, J.
Can a company purchasing goods from a 100% export-oriented unit claim export incentives? The Supreme Court addressed this question in a recent judgment concerning the Vishesh Krishi Upaj Yojna (Special Agricultural Produce Scheme). The court clarified that incentives are not available to purchasers from export-oriented units, upholding the government’s policy intent. This judgment was authored by Hemant Gupta, J., with Deepak Gupta, J., concurring.

Case Background

M/s. Nola Ram Dulichand Dal Mills, the appellant, is engaged in the manufacturing, trading, and selling of Guar Gum and related products. They purchased Guar Gum Powder from M/s. Neelkanth Polymers, a 100% export-oriented unit, and exported it as a merchant exporter. The appellant sought benefits under the Vishesh Krishi Upaj Yojna, a scheme designed to promote the export of agricultural products. The core issue was whether the appellant, by purchasing from a 100% export-oriented unit, could claim benefits under this scheme, which specifically excluded such units from receiving incentives.

Timeline

Course of Proceedings

The High Court of Rajasthan dismissed the writ petition filed by the appellant, M/s. Nola Ram Dulichand Dal Mills, which challenged the circular dated January 21, 2009. The High Court upheld the circular, stating that it was consistent with the policy of excluding 100% export-oriented units from the benefits of the Vishesh Krishi Upaj Yojna. The appellant then appealed to the Supreme Court.

Legal Framework

The case revolves around the interpretation of the Foreign Trade (Development and Regulation) Act, 1992, specifically Section 5 which empowers the Central Government to formulate and amend the Foreign Trade Policy. The relevant provisions are:

“3. Powers to make provisions relating to imports and exports. -(1) The Central Government may, by Order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports.
(2) The Central Government may also, by Order published in the Official Gazette, make provision for prohibiting, restricting or other wise 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 or services or technology:
Provided that the provisions of this sub-section shall be applicable, in case of import or export of services or technology, only when the service or technology provider is availing benefits under the foreign trade policy or is dealing with specified services or specified technologies.
(3) All goods to which any Order under sub-section (2) applies shall be deemed to be goods the import or export of which has been prohibited under section 11 of the Customs Act, 1962 (52 of 1962) and all the provisions of that Act shall have effect accordingly.
(4) Without prejudice to anything contained in any other law, rule, regulation, notification or order, no permit or licence shall be necessary for import or export of any goods, nor any goods shall be prohibited for import or export except, as may be required under this Act, or rules or orders made thereunder.
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5. Foreign Trade Policy —The Central Government may, from time to time, formulate and announce, by notification in the Official Gazette, the foreign trade policy and may also, in like manner amend that policy:
Provided that the Central Government may direct that, in respect of the Special Economic Zones, the foreign trade policy shall apply to the goods, services and technology with such exceptions, modifications and adaptations, as may be specified by it by notification in the Official Gazette.”

The Vishesh Krishi Upaj Yojna (Special Agricultural Produce Scheme) was introduced to promote exports of agricultural products. Initially, certain exports were excluded. The scheme was modified in 2006-2007 to explicitly exclude exports made by Special Economic Zone (SEZ) units and Export Oriented Units (EOU). A circular was issued on January 21, 2009, to clarify that exports made by EOUs were ineligible for benefits under the scheme.

Arguments

The appellant contended that the circular dated January 21, 2009, was contrary to the policy notified on April 7, 2006. The appellant argued that the scheme, notified under the Foreign Trade (Development and Regulation) Act, 1992, has statutory force and cannot be amended or modified by an executive circular.

Specifically, the appellant argued that since the scheme excluded exports by units in the Domestic Tariff Area (DTA) under the Focus Market Scheme (FMS), but not under the Vishesh Krishi Upaj Yojna, the revenue had drawn an incorrect distinction. Further, the appellant argued that the exclusion applied only to exports “by” EOU and SEZ units, not “through” them, and therefore, the appellant should be eligible for the benefit.

The respondents argued that the government has the right to amend or clarify its policies. They cited the judgment in Director General of Foreign Trade & Anr. v. Kanak Exports & Anr. [(2016) 2 SCC 226], which upheld the government’s right to amend, modify, or rescind a scheme. They contended that the circular was merely a clarification to remove ambiguity, not an amendment. The respondents also argued that the purpose of the scheme was to exclude 100% export-oriented units, and this could not be circumvented by allowing purchasers from such units to claim benefits.

The innovativeness of the argument by the appellant lies in drawing a distinction between the exclusion of Domestic Tariff Area (DTA) units in the Focus Market Scheme (FMS) and the absence of such exclusion in the Vishesh Krishi Upaj Yojna, suggesting that the government intended to treat them differently. Additionally, the appellant’s argument that the exclusion applied only to exports “by” EOU and SEZ units and not “through” them was also novel.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section but addressed the following key questions:

• Whether the circular dated January 21, 2009, is contrary to the policy notified on April 7, 2006.
• Whether the government has the right to clarify the existing scheme.
• Whether exports made through an Export Oriented Unit would be entitled to incentives under the scheme.
• Whether the exclusion of DTA units in FMS, but not in Vishesh Krishi Upaj Yojna, implies different treatment.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The court relied on the following authorities:

The Supreme Court relied on Director General of Foreign Trade & Anr. v. Kanak Exports & Anr. [(2016) 2 SCC 226] to support the government’s right to amend, modify, or rescind a scheme. The court also cited Balco Employees’ Union v. Union of India [(2002) 2 SCC 333] to emphasize that laws relating to economic activities should be viewed with greater latitude.

The court held that the circular dated January 21, 2009, did not modify or amend the scheme but clarified that 100% export-oriented units, which were not entitled to seek exemption, could not avail the benefit indirectly through purchasers. The court emphasized that the government reserved the right to specify export products that would not be eligible for calculation of entitlement.

What weighed in the mind of the Court?

The court’s reasoning was primarily driven by the need to uphold the policy intent of excluding 100% export-oriented units from the benefits of the Vishesh Krishi Upaj Yojna. The court emphasized that the government has the right to clarify ambiguities in its policies and that such clarifications do not amount to amendments. The court also highlighted that the purpose of the scheme cannot be defeated by allowing indirect benefits to excluded units.

The sentiment analysis reveals that the court was primarily concerned with upholding the government’s policy intent and ensuring that the scheme was not circumvented. The ratio analysis shows that the court’s decision was primarily driven by legal considerations rather than factual aspects of the case.

The court considered the argument that the scheme excluded exports by units in the Domestic Tariff Area (DTA) under the Focus Market Scheme (FMS), but not under the Vishesh Krishi Upaj Yojna, and rejected it. The court also rejected the argument that the exclusion applied only to exports “by” EOU and SEZ units, and not “through” them.

The court quoted from the judgment:
“The Circular dated 21st January, 2009 does not modify or amend the Scheme notified for the year 2006-07. It only clarifies that 100% export-oriented units which are not entitled to seek exemption cannot avail benefit indirectly through the purchasers from them.”
“The purpose of the Scheme is that 100% Export Oriented Units or units situated in Special Economic Zone are not to be granted incentives. The purpose and object of the Scheme notified cannot be defeated by granting incentives to units which exports though 100% Export Oriented Units.”
“We find that the export-oriented units cannot use the appellant for export under the Scheme and to claim benefit of export when it is not permissible for them directly.”

There were no dissenting opinions. The bench consisted of two judges, both of whom concurred with the judgment.

The court’s reasoning was based on the interpretation of the Foreign Trade (Development and Regulation) Act, 1992, and the specific provisions of the Vishesh Krishi Upaj Yojna. The court applied the principle that the government has the right to clarify its policies and that the purpose of a scheme cannot be circumvented by indirect means.

The implications of this judgment are that purchasers from 100% export-oriented units cannot claim benefits under schemes that specifically exclude such units. This ensures that the policy intent of excluding such units is upheld.

Key Takeaways

• Purchasers from 100% export-oriented units cannot claim benefits under schemes that specifically exclude such units.
• The government has the right to clarify ambiguities in its policies through circulars.
• The purpose of a scheme cannot be defeated by allowing indirect benefits to excluded units.
• This judgment reinforces the government’s power to regulate foreign trade through policy decisions.

Directions

No specific directions were given by the Supreme Court.

Development of Law

The ratio decidendi of the case is that a clarification of a scheme is not an amendment and that a person cannot claim benefits of an export scheme indirectly if the scheme excludes the person directly. There is no change in the previous position of law.

Conclusion

The Supreme Court dismissed the appeals, upholding the High Court’s decision. The court clarified that the circular dated January 21, 2009, was a valid clarification of the Vishesh Krishi Upaj Yojna and that purchasers from 100% export-oriented units cannot claim benefits under the scheme. This judgment reinforces the government’s power to regulate foreign trade and clarifies the scope of export incentive schemes.