Supreme Court Upholds Denial of Additional License for Processed Iron Ore Exports: Chowgule & Company Limited vs. Assistant Director General of Foreign Trade (04 November 2022)

Date of the Judgment: 04 November 2022
Citation: [Not Available in Source]
Judges: M.R. Shah, J. and Krishna Murari, J.
Can a change in export policy deny an exporter the benefit of an additional license, even if they had made prior commitments under a previous policy? The Supreme Court of India recently addressed this question in a case involving the export of processed iron ore. The core issue was whether an exporter could claim an additional license based on a prior policy, despite a subsequent policy explicitly excluding the exported item from eligibility. The judgment was delivered by a two-judge bench comprising Justice M.R. Shah and Justice Krishna Murari.

Case Background

Chowgule & Company Limited, a recognized trading house, was engaged in the export of processed iron ore. Under the Indian Foreign Trade Policy (Exim Policy) of 1988-1991, trading houses were eligible for an ‘additional license’ based on their exports in the preceding licensing year. However, the policy stated that Net Foreign Exchange (NFE) earnings from the export of items specified in Appendix 12 would not qualify. Initially, Appendix 12 excluded “Minerals and ores – unprocessed”.

In 1990, the Exim Policy was revised to the Exim Policy 1990-93. A key change was made to Appendix 12, which now stated “Minerals and ores” as ineligible, removing the word “unprocessed”.

Chowgule & Company Limited, relying on the 1988-91 policy, entered into a contract on 7th February 1990 with NKK Corporation, Japan, for the export of processed iron ore. They exported processed iron ore between April 1990 and March 1991, earning Rs. 52,00,51,848 in NFE. The company then applied for an additional license worth Rs. 6,08,46,000.

Timeline:

Course of Proceedings

The Assistant Chief Controller of Imports and Exports initially rejected Chowgule & Company Limited’s application for an additional license on 23rd July 1992, citing the lack of provision in the 1992-97 policy. On appeal, the Joint Director General of Foreign Trade remanded the matter, but the Assistant Chief Controller again rejected the application on 30th April 1993, stating that “iron ore processed” was included in Appendix 12 of the 1990-93 policy and was therefore ineligible.

Further appeals by Chowgule & Company Limited were rejected by the Joint Director General of Foreign Trade on 2nd September 1993 and by the Additional Director General of Foreign Trade on 5th October 1994, the latter citing the application as time-barred. The High Court initially remitted the matter to the Additional Director General of Foreign Trade, who again dismissed the appeal.

Chowgule & Company Limited then filed a writ petition before the High Court, which was initially allowed on 30th January 2001, directing the department to pay a premium of Rs. 1,21,69,200. The High Court held that the subsequent policy change in 1992-93 should not deny the benefit of additional license. However, the Supreme Court set aside this order on 4th April 2007, remitting the matter to the High Court to examine the effect of Appendix 12 of the 1990-1993 policy. On remand, the High Court dismissed Chowgule & Company Limited’s writ petition on 26th June 2008, concluding that “processed iron ore” was ineligible for additional license under the 1990-1993 policy.

Legal Framework

The core of the dispute revolves around the interpretation and application of the Exim Policy, specifically the changes in Appendix 12.

The Exim Policy 1988-1991 provided for additional licenses to trading houses based on their export performance. However, Para 212 of the Exim Policy, 1988-1991 stated that exports of items specified in Appendix 12 would not qualify for additional licenses. Appendix 12 initially listed “Minerals and ores – unprocessed” as ineligible.

The Exim Policy 1990-93 amended Appendix 12 to list “Minerals and ores” as ineligible, removing the word “unprocessed”.

The court noted that the benefit of additional license was an incentive available on actual export in the preceding year of eligible items.

Arguments

Appellant’s Arguments (Chowgule & Company Limited):

• The appellant argued that they acted on the Exim Policy 1988-91 and entered into a contract on 7th February 1990 with NKK Corporation, Japan, for the export of processed iron ore, which was not an ineligible item under the 1988-91 policy.

• They contended that they made financial commitments based on the 1988-91 policy, and the subsequent change in policy before the expiry of the three-year period of the 1988-91 policy should not affect their eligibility for additional licenses.

• The appellant relied on the principle of promissory estoppel, arguing that the government should be bound by its promise under the 1988-91 policy, as they had altered their position to their detriment based on that policy.

• They argued that the incentive of additional license was factored into the price negotiations with the importer.

• The appellant also argued that other similarly situated exporters were granted additional licenses, and denying the same to them was discriminatory and violated Article 14 of the Constitution of India.

• They cited the case of Union of India & Others v. Chowgule & Co. Ltd. and Others, (2003) 2 SCC 641, to support their claim that they were entitled to the grant of additional license for export of processed iron ore during the year 1989-90.

• The appellant relied on Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, (1979) 2 SCC 409, Union of India and Others v. Indo-Afghan Agencies Limited, (1968) 2 SCR 366, Union of India & Another v. V.V.F. Limited, (2020) 20 SCC 57, and State of Uttar Pradesh & Another v. Birla Corporation Limited, (2020) 20 SCC 320, to argue that the government cannot withdraw a policy without justification.

Respondent’s Arguments (Assistant Director General of Foreign Trade & Others):

• The respondents argued that the denial of the additional license was in accordance with the Exim Policy 1990-93, which was binding on the appellant.

• They contended that the appellant exported “processed iron ore” during the 1990-93 policy period, where “Minerals and ores” were explicitly listed as ineligible in Appendix 12.

• The respondents stated that the additional licenses were available only on export in the preceding years of eligible items.

• The respondents argued that the benefit of additional license was an incentive and not a right, and the government was free to modify or withdraw it.

• They submitted that the principle of promissory estoppel was not applicable in this case, as it was a policy decision to withdraw the incentive.

• The respondents argued that even if some other exporters were wrongly granted the benefit of additional licenses, the appellant could not claim parity based on negative discrimination.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in a separate section. However, the core issue that the court addressed was:

1. Whether the appellant was entitled to the benefit of additional license on the export of “processed iron ore” made during the period April 1990 to March 1991, considering the changes in the Exim Policy and Appendix 12.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ Union of India & Others v. Chowgule & Co. Ltd. and Others, (2003) 2 SCC 641*: The Supreme Court distinguished this case, noting that it related to exports during 1989-90, not the period in question.

✓ Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, (1979) 2 SCC 409*: The Supreme Court held that the principle of promissory estoppel was not applicable to policy decisions regarding incentives.

✓ Union of India and Others v. Indo-Afghan Agencies Limited, (1968) 2 SCR 366*: The Supreme Court held that the principle of promissory estoppel was not applicable to policy decisions regarding incentives.

✓ Union of India & Another v. V.V.F. Limited, (2020) 20 SCC 57*: The Supreme Court held that the principle of promissory estoppel was not applicable to policy decisions regarding incentives.

✓ State of Uttar Pradesh & Another v. Birla Corporation Limited, (2020) 20 SCC 320*: The Supreme Court held that the principle of promissory estoppel was not applicable to policy decisions regarding incentives.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Applicability of the Exim Policy 1990-93: The Court emphasized that the relevant policy was the one in effect at the time of the export (April 1990 to March 1991), which was the Exim Policy 1990-93. This policy explicitly included “Minerals and Iron Ore” in the list of ineligible items for additional licenses.
• Nature of Additional License as an Incentive: The Court reiterated that the additional license was an incentive, not a right, and the government was free to modify or withdraw it through policy changes.
• Rejection of Promissory Estoppel: The Court held that the doctrine of promissory estoppel was not applicable to policy decisions regarding incentives. The government was not bound by the previous policy when a new policy had been introduced.
• No Negative Discrimination: The Court rejected the argument of discrimination, stating that wrong benefits granted to others could not justify similar benefits to the appellant, and that such a claim would perpetuate illegality.
• Policy Clarity: The Court noted that the policy was clear that the incentive was on actual export in the previous year and that the relevant date was the date of export.

Sentiment Analysis of Supreme Court’s Reasoning

Fact:Law Ratio

The Court’s reasoning was heavily influenced by the legal interpretation of the Exim Policy and the principle that policy decisions regarding incentives are subject to change. The factual aspects of the case, such as the contract date and the appellant’s reliance on the previous policy, were considered, but the legal framework of the new policy was given more weight.

Logical Reasoning

Key Takeaways

• Policy Changes: Exporters must be aware that export policies and incentives can change, and they are bound by the policy in effect at the time of export, not at the time of contract.
• Incentives vs. Rights: Additional licenses and similar incentives are not considered rights and can be modified or withdrawn by the government through policy changes.
• Promissory Estoppel: The doctrine of promissory estoppel does not apply to policy decisions regarding incentives.
• Negative Discrimination: Exporters cannot claim parity based on wrong benefits granted to others.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that exporters are bound by the export policy in effect at the time of export, and incentives like additional licenses are subject to policy changes. The principle of promissory estoppel does not apply to policy decisions regarding incentives. This judgment reinforces the government’s right to modify or withdraw incentives through policy changes, and it clarifies that exporters cannot claim parity based on wrong benefits given to others.

Conclusion

The Supreme Court dismissed the appeal of Chowgule & Company Limited, upholding the High Court’s decision. The Court ruled that the company was not entitled to an additional license for the export of processed iron ore because the export occurred during a period when the Exim Policy explicitly excluded “Minerals and Iron Ore” from eligibility. The judgment clarifies that exporters are bound by the policy in effect at the time of export, and that incentives are not rights and can be changed by the government.