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

348 SUPREME COURT REPORTS [2015] 15 S.C.R.

A exclusion of these items was unjustified and unreasonable. With great respect to the learned Judges we are unable to agree with the view that the amendment is merely retroactive. Once it is shown that the Central Government does not have B the power to give retrospective effect to the amendment which is introduced in exercise of power conferred by sec. 5 of the Foreign Trade Act then whether the said amendment is retro-active or retrospective is rather immaterial. The c amendment has clearly an impact on the rights which are already crystallized. We have therefore no hesitation to hold that the Notifications dated 21st and 23rd April 2004 would have prospective operation only." D OUR ANALYSIS AND CONCLUSIONS

58Copy pinpoint58. The factual matrix, coupled with the arguments advanced before us by both sides, makes it clear that the issues remain the same which were canvassed before the High E Courts. Even the position taken by the parties on either side is predicated on identical legal edifice. Before adverting to the analytical discussion and deciding the validity of impugned Notifications and public notice, keeping in mind the legal principles, we would like to first discuss the background in which they came to be issued. We feel that argument of the Union that these were issued in public interest has to be considered first as that would provide the raison d'etre behind such a move on the part of the Government. Therefore, the first question is: Whether Notifications were issued in public interest?

59Copy pinpoint59. The main objective of the scheme was to achieve the share of 1% of global trade and accelerated growth in

DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 349 M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

exports. For this purpose, the scheme intended to concentrate on the growth of certain kinds of products treating the same as "thrust sectors". In para 3.10, six such sectors are mentioned as thrust sectors, viz., Electronic hardware, Textile including garments, Auto components/ancillary, Gem and jewellery, Agriculture and service sector. It would be significant to point out that except one, all other writ petitioners belong to Gem and jewellery sector. One writ petitioner has export in Textile/ Garments. What is highlighted is that no thrust sector was affected or prejudiced by the impugned Notification and which was primarily Gem and Jewellery exporters who got the hit. C

60Copy pinpoint60. As a matter of fact, immediately after the introductior:i of the scheme, it was found that 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 o these were genuine exports. The matter was investigated and on the basis of intelligence gathered by the Central Government, it was learnt that there was rampant misuse of the scheme by certain status holders. On October 13,.2003, the then Joint Secretary, Government of India, Cent.ral Board E of Excise and Customs addressed a letter to the then DGFT stating as follows: "It has been reliably learnt that some status holders are trying to show growth in exports so as to avail F the benefit of the aforesaid scheme. Such status holders are purchasing exports made by other parties at a premium with a view to show incremental growth of 25% or more in exports without having actually achieved such growth. G Similarly some corporate groups having more than one exporting units are reportedly shifting exports in the name of any one status holder group company so as to artificially achieve incremental H.

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A growth of 25% in exports. You would agree that the objective of DFCEC Scheme is to encourage status holders to achieve substantial growth in exports so that there is corresponding increase in the foreign exchange earnings of the country. It is, B therefore, necessary to put suitable safeguards in DFCEC Scheme for Status Holders so that third party exports are not counted for the purpose of calculating the incremental growth in exports. Similarly, in case of corporate houses having more c than one exporting companies, incremental growth may be calculated by taking into account the overall exports made by all the companies of that group. You may also like to provide for any other safeguards in DFCEC Scheme for Status Holders D to ensure that the benefits of DFCEC Scheme is made available only to those status holders who actually achieve incremental growth of 25% or more in FOB value of exports during the financial year 2003-04 vis-a-vis to financial year 2002-03. One E way to disallow DFCEC Scheme benefit to such artificial growth may be to define the term "incremental growth in exports" used in para

3. 7 .2.1 (vi) of the EXIM Policy."

61Copy pinpoint61. The said letter dated 14.10.2003 was forwarded to the Office of the Commissioner of Customs, Export Promotions to various Commissioners of Customs and the Commissioner of Customs, Mumbai on 05.11.2003 responded that: "The Customs House at Mumbai has noticed G exports of sugar by State Trading Corporation of India Ltd. showing account of Adani Export Ltd., Private Merchant Exporter. The invoice is that of State Trading Corporation of India Ltd. Mate H

DIRECTOR GENERAL OF FOREIGNTRADEANDANR. v. 351 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

Receipt shows receipts of goods from State A Trading Corporation of India Ltd. As also the Bill of Lading shows the shipper as State Trading Corporation of India Ltd. However, the bank certificate of export and realization has been filed by Adani Exports Ltd. In which the exporter is shown B asAdani Exports Ltd. Adani House, Navrangpura, AhmedabadA/c State Trading Corporation of India Ltd. Photocopies of the set of documents is enclosed herewith. It is also to be pointed out.that the DEPB benefit available on sugar is only 4% c but under the incentive scheme the exporter is entitled to benefitof4% plus additional 10%. If purchase of exports from third parties or shifting of exports from one company to the other in the group is inconsistent with the intention and objective of the scheme, then the flaw in the scheme is to be removed. The flaw is that third party exports are being permitted under the Foreign Trade as w~ll as Customs Regulations. The flaw can be removed by amending para 3. 7 .2.1 of that Policy and the relevant customs notifications to provide that third party exports shall not be taken into a<;:count by the DGFT in computing the incremental growth and the FOB value qualifying for grant of Duty Fe.e Credit F Entitlement Certificate. The scheme may be more precisely stated in the EXIM Policy and the Customs Notifications in accordance with the objectives and intentions of G the Government so that what is plainly permitted by the scheme is not regarded subsequently as misuse or abuse of the scheme.

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A It is also brought to the notice that it is open to the exporters to export under free Shipping Bill where as per the current instructions there is no scrutiny of Shipping Bills or physical examination of the goods. This would enable the unscrupulous B exporters to inflate the FOB Value and get incremental growth and the additional benefit of 10% under DFCEC."

62Copy pinpoint62. In a meeting held with the Officials of the DGFTand c the Customs it was suggested as under: "For calculation of incremental value the following should be excluded:- - Value of goods exported on re-export basis. D - Since the exports made by a subsidiary of a limited company are counted towards export performance of the limited company for the purpose of recognition, the value of export made by subsidiary company and its limited company shall be taken together to determine the incremental exports . .- In case of EOU/SEZ/STP/EHTP units, this facility shall not be available as such units are already eligible for duty free import of capital goods/raw materials/office equipments etc. Further the status holder which also has a DTA unit along with EOU/ SEZ/STP/EHTP unit should be excluded for the purpose of determining of third party export. G - Value of third party export. - In case of doubt regarding valuation of goods by · Customs authorities, the value of goods as determined by Customs authority should be taken H

DIRECTORGENERALOFFOREIGNTRADEANDANR. v. 353 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

for determining incremental export instead of value A declared by exporter. - Value of exports made in terms of fulfillment of any export obligation under any export promotion scheme such as EPCG, Advance License etc. B Further to plug the loopholes, there is need to incorporate the following safeguards in the scheme. - It is essential to incorporate a provision in the scheme providing that the status holder availing the benefit of above said scheme and importing raw c material shall not avail export incentive by way of drawback/DEPB on foods manufactured using such duty free inputs and their subsequent export. - The possibility of excluding gems and jewellery exports may also be examined as the duty incidence on gold (less than 2%) silver (5% ), rough diamond (0%), rough gemstones (0%), broken or semi-finished cut and polished diamonds (0% ), cut and polished diamonds (15%) is low. In addition to low duty, several other incentives such as replenishment licence of 1% FOB Value of export for duty free import vide notification No.41/99- Customs, dated 28-4-2003 are also available. · F In addition, we have several schemes such as: - Exemption to gold/silver/platinum, alloys, findings, and mounting of gold/silver/platinum and plain semi- fi n is he d gold/silver/platinum Jewellery by nominated agencies, status holders or exporters G of standing under the scheme for export against supply by foreign buyer (notification No. 56/2000- Customs dated 5-5-2000)

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A - Scheme for providing replenishment license issued order under or in accordance with paragraph 4.4.1 of the EXIM Policy; and Gem Replenishment License issued under in accordance with paragraph 4.4.13 of the EXIM Policy-under these B schemes, raw pearls, natural or cultures, and precious or semi-precious stones (other than rough diamonds), uns~t and uncut are allowed to be imported duty free. c In addition to above, this sector has large potential to manipulate the value of goods and do the circular trading of goods by doing over-invoicing and under-invoicing. The receipt cases of large scale manipulation of value of rough diamonds is a D clear example of this. - There is need to clearly express in the scheme that value of only physical exports be taken into consideration and not the value of deemed exports. E - The Scheme is open ended and it does not have any linkage with foreign exchange realised. This aspect also needs careful re-examination."

63Copy pinpoint63. On 19.11.2003, the Officer on Special Duty, Government of India, Ministry of Finance, Department of F Revenue issued a Circular No. 98/2003 stating that: "Commissioner of Customs (Export), ACC, Sahar had raised an issue whether under DFCEC Scheme, import of all capital goods including G professional equipments could be allowed. This doubt has also been created on account of usage of the words "capital goods" in condition (3) of Customs Notification No. 54/2003. This issue has been examined in consultation with DGFT/MOC. H

DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 355 M/S. KANAKEXPORTSANDANR. [A. K. SIKRI, J.]

DGFT have confirmed that the objective of DFCEC A Scheme for Services Providers is to permit import of aforesaid goods with a view to increase the capability of the services providers so as to enable him to render a better and efficient service. With this in mind import of professional equipments B which are required in the profession of the service providers has been allowed. However, insofar as capital goods are concerned, its import to service provider has already been allowed through EPCG route. Therefore, insofar as DFCEC Scheme is c concerned, under the category of professional equipments, import of only those equipments would be permissible under DFCEC Scheme, which are professional equipments required by the Service D Provider for the purpose of rendering service & earning free foreign exchange. It is reiterated that import of capital goods which are other than professional equipment or bffice equipment shall not be allowed under DFCEC Scheme for Service E Providers. In order to remove doubts, the words "capital goods" used in condition (3) of 54/2003- Cus dated 1.4.2003 has also been corrected to read as "Professional equipment" by issue of corrigendum. F Suitable Public Notice for Trade and Standing Order for the guidance of customs field may ~e issued."

64Copy pinpoint64. In furtherance to the communications between the G Department of Revenue and the Customs, a meeting was held in the Office of the DGFT on October 21, 2003 which was attended by ADG(SB), JS(SSR), JDG(MCJ), OSD(RKT) and DDGTM in the Chamber of DGFT under the Chairmanship of DGFT and with regard to the Duty Free Credit Entitlement H

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A Scheme a tentative decision was taken on the following lines to safeguard, avoid any fraud or misuse of the Scheme: (a) The BRC and Shipping Bill and the GR Form should bear the name of the merchant exporter and the associate/supporting manufacturer in case of third party .B export. (b) There should be a minimum growth of 25% in the exports of both supporting/associate manufacturers in case of third party export. c (c) For group companies, it was suggested that the export of different companies under a group may be clubbed so as to check the possibility of inter-company transfers within a group for showing artificial growth. However, the matter may be further examined to arrive D at a solution. (d) It was also decided to go through the other additional issues, if any, in the matter so that the proper guidelines can be issued as early as possible. E

65Copy pinpoint65. With regard to the import of capital goods under the Duty Free Credit Entitlement Scheme the matter was deliberated upon and it was decided not to allow all capital goods other than the professional equipment and office F equipment mentioned in paragraph 3.8 of EXIM Policy against DFCE to service providers.

66Copy pinpoint66. On December 11, 2003, the Additional Director General, Directorate of Revenue Intelligence addressed a letter to the Joint Secretary, (Draw back), Ministry of Finance G reiterating the suggestions made in the meeting held with the Officers of the DGFT and the Customs as stated herein above.

67Copy pinpoint67. On December 23, 2003, the Office of the Chief Commissioner of Customs, Bangalore Zone, addressed a H

DIRECTORGENERALOFFOREIGNTRADEANDANR. v. 357 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

Communication to the Joint Secretary (Drawback), Ministry of A Finance, Department of Revenue, Central Board of Excise and Customs inter a/ia indicating: (i) In order to prevent misuse of the scheme, it is desirable to incorporate the following conditions in paras 3.7.2 and B

3. 7 .2.1 of the EXIM Policy 2002-2007 while issuing the duty free import entitlement certificate. (ii) White computing the incremental growth in FOB value of exports, only the value of exports, which have been made directly by the status holder as involved in the export C documents and for which the export proceeds have been realized in the name of the status holders shall be taken into account.

68Copy pinpoint68. Thereafter, on December 12, 2003, the Chief D Commissioner of Customs, Mumbai addressed a communication to the Joint Secretary (Drawback), Ministry of Finance, Department of Revenue indicating that: ''The status holders as well as status holder corporate groups are showing artificial incremental E growth of 25% in Exports(.) Even a Govt. of India undertaking, such as S.T.C. Limited have also sold their exports to another st9tus holder(.) It is felt that the incentive scheme under DFCEC F for 25% incremental growth in Exports during 2003- 04 vis-a-vis 2002-03 has spurred this "artificial clubbing of exports"(.) However, the DGFTS clarificatory policy circular of 16/2002 dated 2.12.2002 envisages that allowing third party export G is a conscious decision of the Government(.) It appears that in the face of the current policy provisions, the benefits allowed to third party exports cannot be legally denied(.) Hence it is H

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A proposed that Ministry may consider prevailing upon the Ministry of Commerce/DGFT to amend the EXIM Policy provisions, so as to incorporate Para 3.7.2.1 (g) that for the purpose of calculating the incremental growth of 25% in exports in 2003- B 04, vis-a-vis 2002-03 the exports made on behalf of third parties will not be counted(.) It is further submitted that in order to show 25% incremental growth in the exports during the current c financial year 2003-04 vis-a-vis exports made in 2002-03, unscrupulous elements may also resort to over invoicing of free shipping bill by inflating the FOB value in such exports as the same are not subject to rigours of customs assessment and o physical examination(.) It may therefore be suggested to the Ministry of Commerce and DGFT that the ,value of the exports made under Free Shipping Bill may not be counted for the purpose of calculating 25% incremental growth in export E under the DFCEC Scheme(.) Alternatively, the exporters claiming for incremental growth against free shipping Bills with the benefit of DFCEC Scheme should declare it in all such Shipping Bills, so that such exports could be put to rigors of · F customs scrutiny including valuation and physical examination(.)"

69Copy pinpoint69. Based on these Reports an exercise was initiated for carrying out amendments in the Handbook of Procedure G (Volume-I) with series of meetings and Open Houses with the Apex Chambers of Commerce and Industry, Export Promotion Councils, Trade Associations, Commodity Boards. Based on these interfaces the lists of suggestions were compiled and the same discussed threadbare during internal deliberations. H

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 359 M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

70Copy pinpoint70. There were a series of interactions with the other A Ministries involving changes in the procedural aspects of the EXIM Policy as reflected in the Handbook of Procedures (Volume-1 ).

71Copy pinpoint71. The individual divisions were allocated the task of amending the procedural aspects of the EXIM Policy. Inputs 8 were received from the EPCG division headed by Addi. DGFT (MLB) which carried out changes in Chapter 5 of the Handbook of Procedures (Volume-1 ), PC II Division carried out changes in the Deemed export chapter and DES IV Division suggested C changes in Chapter IV of the Handbook of Procedures (Volume-1 ).

72Copy pinpoint72. Meetings were held with the (Drawback) Directorates on January 09, 2004 and January 21, 2004 culminating into a presentation to the Hon'ble Prime Minister on January 27, D 2004 in the presence of the Commerce and Industry Minister, Finance Minister, Secretary Finance, Secretary Revenue, Secretary DGFT, Additional DGFT (Policy), Joint Secretary etc. wherein it was decided that salient changes should be brought in the Handbook of Procedure (Volume-1) to the following effect: "the duty free entitlement for status holders has been fine tuned to obviate any possible misuse such as mandating the insertion of the exporter and third party's name on the export documents, need to have nexus for import under the certificate vis-a- vis the exports made etc."

73Copy pinpoint73. In the counter affidavit filed by the Union of India, details of the modus operandi used by these exporters ~re given on the basis of which it is projected that these exporters indulged in inflating their exports by achieving a growth rate · from 300% to 3800% when during the same period i.e. 2003- 2004, the national growth of export was merely 18%. It is demonstrated by tabulating figures as follows: H

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A Turnover Turnover % S.No. Firm crores- crores- Growth 2002-03 2003-04 1 Adani· Exports 377 4657 1135 B Limited, Ahmedabad 2 Rajesh Exports, 112 2372 2017 Bangalore

c 3 Kanak Exports, 27 1070 3816 Mumbai 4 Survanshi 1007 5495 335 Exports, Hyderabad D 5 Vishal Exports, 318 1495 370 Ahmedabad

"It is submitted that in case of M/s. Kanak Exports and M/s. Rajesh Exports, their export growth E exceeded a growth rate of 2000% and their entire export comprises of gold coins and plain Jewellery. The relevant turnover of these companies· tor the year 2002-2003 and 2003-2004 is as under: F Share of Gold Turnover Turnover % coins and Firm 2002-03 2003-04 Growth Plain jewellery in total Exports Rajesh 112 2.372 2017 100 G Exports, Bangalore Kanak 27 1070 3816 100 Exports, Mumbai H

DIRECTOR GENERAL OF FOREIGN TRADE ANDANR. v. 361 .MIS. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

That in case of M/s. Adani Exports, the Petitioner A herein, their exports have grown by nearly 1135% and over 80% of their exports came from diamonds and supply taken from other status holders not meeting the minimum turn over of growth criteria. The said fact is clear from the following chart: B

Adani Exports Limited, Ahmedabad Exports (crores) Total exports for the year 2003-04 4657 of which c

1 Rough, and re-exported polished 2475 diamonds - 2 Supplies taken from status holders 1316 D not meeting the minimum turnover and growth criteria Share of the above 2 categories 81.4% in the total exports E Export surge of 1135% for M/s. Adani Exports came in 2003-04 while for the past 6 years their exports were declining.

F Cxpon furnovt:r of r.l/s f\dani f:.xports (in r;ror~s)

~ ~l. '.)O·:'' -~ '.OQG I " '

~997- i998- 1:_.1.1:i. 21JC1. 2001· 2002- 2003- µ3 99 <)G 02 0:? 03 Oil

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A The above said growth rate of the companies who have challenged the Notifications and the Public Notices, has been achieved on account of the following: I-Purchase of exports B Purchase of the exports of other firms (who were not eligible to get the benefit of the scheme) by M/s.Adani Exports Ltd. to inflate their turnover.· For this contracts were signed between the c petitioners and other exporters. II-Export of rough diamonds Export of rough diamonds by M/s. Adani Exports Ltd. Even through India is not a rough diamond producing country. These exports stopped the moment DFCE benefits were disallowed. a Export of such rough diamonds earlier never been part of the normal commercial operations and has taken place just to take advantage of the Scheme. a According to Gems and Jewellery export promotion council, "India is not a rough exporting country. Rough diamonds which are unsustainable for cutting in India are re-exported." Such exports stopped the moment benefit was explicitly withdrawn. G In the present cas~ also the respondent herein M/sAdani Exports Limited had stopped exporting the rough diamonds the moment the Notification was issued in January, 2004 and according to Gems and Jewellery export promotion council, H

DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 363 M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

"Party has not exported rough diamonds during Jan/ A March 2004." Ill-Export of gold coins, Jewellery-Circular trading and Exports to related companies Most notorious misuse of the scheme was B carried out by few firms who exported Gold medallion and studded jewellery. Key firms included M/s. Kanak Exports, M/s. Rajesh Exports Ltd. And M/s. Adani Exports Limited. Petitioners exported to their own counterparts in c Dubai and Sharjah. Since the jewellery attracted 5% import duty at Dubai, the consignments which were declared as jewellery in India were declared as scrap in Dubai to avoid the import duty. D The export goods have been declared as "Studded gold jewellery/CE Bangles" at the Indian port, whereas at the port of destination they were cleared as gold scrap. E In few consignments belonging to M/s Adani Exports Ltd. and produced by M/s Rajesh Exports as supporting manufacturer, the export products declared as 'Bangles' were nothing but strips of gold formed into the shape of bangle and studded with cheap imitation stone. That as it was difficult for them to achieve the value addition prescribed by the Policy through craftsmanship, they added extra gold to get the value addition. However, in this process strangely enough per unit price of the gold exported was less than per unit price of gold imported. Thereby implying/demonstrating that there is a collusion between M/s. Adani Exports, Petitioner H

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A herein and M/s. Rajesh Exports, appellant before the Karnataka High Court in order to misuse the policy. With the exports taking place within a day of the imports, gold can be circulated more than 100 B times in a year. That means that an unscrupulous exporter can expect to earn Rs.1500 for every Rs.100 invested. As these are not commercial operations and export and import takes place c between related parties, the illegitimate earnings are at the expense of the country. IV-Export of cut and polished diamonds- Circular trading and Exports to related companies D According to reliable information the same sets of diamonds were rotating and these never entered the Indian domestic territory or to the end consumers abroad. The value of such exports in the past three years may exceed Rs.15,000 crores. Government has detailed report of the modus operandi of the firms involved. Exports of cut and polished diamonds took place from small rooms of 1OX12 feet where manufacturing activity was not allowed. Firms like M/s. Adani Exports imported their consignments on re-export basis with artificial value addition and to buyers related to them. G Page 51 of Annual report 2001-02 of M/s. Adani Exports mentions the name of M/s. Gudami International of Singapore as the related party and associate entity. M/s. Adani Exports exported cut and polished diamonds to this entity. This indicates H

DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 365 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

that_ the suppliers, exporters and importers were linked and hence the possibility of manipulating value addition. According to one estimate the same set of diamonds were rotating and these never entered the Indian domestic territory or to the end consumers abroad."

74Copy pinpoint74. It is also stated in the counter affidavit that the misuse of the scheme had also come to the notice of DRI and other intelligence officials who had gathered the necessary information and collected supported documents. Based on the intelligence gathered, a note on the misuse of Duty From Credit Entitlement (DFCE) and Target Plus Scheme was prepared which is annexed with the counter affidavit. At the time of arguments, Mr. Adhyaru, learned senior counsel extensively read and profusely relied upon this note with his passionate plea thc;it all these writ petitioners have indulged in sharp practices in trying to take undue advantage of the scheme and, therefore, they should not be held entitled to the benefit of the scheme. It was also submitted that this material would clearly support the plea of the Government that the Notifications were issued to curb the misuse and were clearly in public interest. Exact summary and details of misuse as mentioned in the said note are as under: F "Executive Summary The following note is based on the intelligence gathered by the government. If needed copies of supporting documents may be produced. G Since the Scheme was based on growth of individual exports, many unscrupulous exporters resorted to inflating their export turnover mainly by following type of activities. H

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A M/s. Adani Exports and few other exporters purchased the exports of other firms to inflate their turnover. Contracts have been signed between the petitioners and other exporters that petitioner will provide marketing and other services and act as B third party exporter. According to the Department of Revenue, Status Holders were purchasing exports made by other parties by paying money with a view to show incremental growth of 25% or more in their own exports. Claiming other firm's c exports through such mechanism would mean that the country's export turnover would remain constant while applicant firm's turnover will skyrocket. Export of rough diamonds even though India is not a rough diamond producing country. These exports stopped the moment DFCE benefits were disallowed. Few firms who exported Gold medallion and studded jewellery indulged in the most notorious misuse of the Policy. Key firms included M/s. Kanak Exports, M/s. Rajesh Exports Overseas and Mis. Adani Exports Limited. According to ORI reports many of these exporters exported to their own counterparts in Dubai and Sharjah. Since the jewellery attracted 5% import duty at Dubai, the consignments which were declared as jewellery in India were declared as scrap in Dubai to avoid the import duty. Since these companies were producing shoddy products in a 12 hour operation, it was difficult for them to achieve the value addition prescribed by the Policy through craftsmanship and hence they added extra gold to get the value addition. However, in this process strangely enough H

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 367 M/S. KANAKEXPORTSANDANR. [A. K. SIKRI, J.]

per unit price of the gold exported was less than A per unit price of gold imported. Government has secured key documents from UAE Customs. Cut and polished diamonds were imported, stored inside a bond and re-exported with artificial value addition. Few large firms led by M/s. Adani B Exports Ltd. exported these products to buyers related to them. According to one estimate the same set of diamonds were rotating and these never entered the Indian domestic territory or to the end consumers abroad. The value of such exports c in the year 2003-04 and 2004-05 may exceed Rs. 15,000 crores. This report contains observations of DRI, which describes the modus operandi and the firms involved in graphic details. D DETAILS OF THE MISUSE OF DUTY FREE CREDIT ENTITLEMENT (DFCE) & TARGET PLUS SCHEME BY THE PETITIONERS Background of Policy changes E Intent of the Government has been to accelerate India's exports and towards this intent DFCE scheme was launched. The scheme envisaged rewarding genuine export growth with the specific objective of accelerating the incremental growth in F exports and to facilitate India emerging as a major base for different source of products and services for the rest of the world. The reward was supposed to motivate and spur exporters in increasing their export turnover. G However, the scheme could not have envisaged at the time of its launch that certain exporters would employ non-commercial and unlawful tactics in a manner that would be injurious to the revenue H

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A interest and to derive undeserved benefits without actually having positive effect on the overall export effort of the country. DGFT started getting the reports of misuse of the Scheme predominantly on account of buying of B exports from the parties who would otherwise not be eligible under the Scheme. To plug the misuse and also to provide clarification on the details of the Scheme, Notification 28 and Public Notice 40 c were issued on 28.1.2004. I-Purchase of exports One of the major misuses reported was that many Status holders were entering into contracts with various exporters for arrangements showing themselves as third party exporters. Such contracts were executed on stamp paper. Ostensibly such status holders indicated themselves as third party exporters helping the other party in obtaining export orders, production of goods as per international standards etc. This legal contract has been entered merely as paper arrangement so as to claim the benefit of duty free import entitlement on the export of others. M/s. Adani Exports Limited was one of the parties in many such contracts. According to the Department of Revenue Status Holders were purchasing exports made by other parties at a premium with a view to show incremental growth of 25% or more in exports without having actually achieved such growth. . 973 crores worth of exports of M/s. Adani Exports Limited came from the supplies from large exporters (status holders). Status holders are large H

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 369 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

sized exporters who export their goods directly. In A this case the benefits of DFEC Scheme were not applicable to all status holders but only to those status holders who were meeting the incremental growth and turnover criteria. It is anybody guess that ifthe status holders were not meeting the growth B criteria they would not have got any benefit under the Scheme. The petitioners channeled such supplies to gain benefit under the Scheme. Claiming other firm's exports through such mechanism would mean that the country's export c turnover would remain constant while applicant firm's turnover will skyrocket. If the firm had focused on increasing their exports, both the firm and the country would have gained in terms of export D turnover, however, the firms chose to focus on people who were already exporting (but were not entitled for this benefit). Thus, the firm's turnover in the past year grew at astronomical rate whereas country's export growth was just average." E The Government has, thus, demonstrated that based on the aforesaid exercise undertaken, Notification dated January 28, 2004 as well as Public Notice of the even date were issued.

75Copy pinpoint75. Notwithstanding strenuous efforts made by learned counsel for the wit petitioners to show that the exports by them were genuine and there was no misuse, we have no hesitation in accepting the plea of the Union that the purport behind Notifications was bona fide which was actuated with the conditions of public interest in mind. We answer the question in the affirmative.

76Copy pinpoint76. Let us now discuss the validity of the Notification dated January 28, 2004. The issue that arises for determination H

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A is as to: 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 clarificatory in nature or it amounted 8 to amendment of the provisions of para 3.7.2.1 of the EXIM Policy?

77Copy pinpoint77. In order to discuss this question in proper perspective, it would be necessary to take note of those portions of the provisions contained in the original Scheme which are relevant for our purposes. Here, we are concerned with para 3.7.2.1 of the Scheme, which we reproduce again for ready reference: ".3.7.2.1 The status holders shall be eligible for the following new/ special facilities: (i) Licence/certificate/permissions and Customs clearances for both imports and exports on self- declaration basis; E (ii) Fixation of Input-Output norms on priority within 60days; (iii) Exemption from compulsory negotiation of documents through banks. The remittance, F however, would continue to be received through banking channels; (iv) 100% retention of foreign exchange in EEFC account; G (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 H

DIRECTOR GENERAL OF FOREIGNTRADEANDANR. v. 371 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

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 capital goods, office equipment and inputs for their own factory or the factory of the associate/supporting manufacturer/job worker. The entitlement/goods shall not be transferable." c

78Copy pinpoint78. Vide Notification dated January 28, 2004, 5 Notes were added to the aforesaid para. We are concerned with Note 1 which contained 8 sub-notes, and it reads as under: "Note 1 - For the purpose of calculating the value of exports, the following exports shall not be taken D into account, namely:- (i) re-export of imported goods or exports made through transshipment; (ii) export turnover of units operating under SEZ/ E EOU/EHTP/STPI Schemes or products manufactured by them and exported through DTA units; (iii) deemed exports (even when payments are received in Free Foreign Exchange) and payment from EEFC account; (iv) service exports; (v) supplies made by one status holder to another status holder; (vi) export performance made by one status holder on behalf of other status holder will not be eligible for entitlement under the scheme; H

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A (vii) Supplies made or export performance effected by a non-status holder (Merchant exporter/ Manufacturer with any export performance in 2003- 2004) to a status holder if the applicant as well as the non status holder have less than 25 per cent B incremental growth over their respective previous • years direct export turnover; (viii) the exports made by an applicant within a group and the group to which it belongs has individually c less than 25 per cent incremental growth of export."

79Copy pinpoint79. There was no serious challenge to sub-notes (i), (iii), (iv) and (viii). Before we discuss the effect and impact of the aforesaid sub-notes of Note 1, let us find out as to how the Bombay High Court and Gujarat High Court in their respective judgments have dealt with this issue.

80Copy pinpoint80. So far as the Bombay High Court is concerned, after specifically posing the question as to whether Notification dated January 28, 2004 has the effect of introducing a new condition or term or it is merely in the nature of clarification to the existing policy. The High Court referred to the basic objective of the scheme as contained in Commerce and Industry Minister's speech on introducing new EXIM Policy 2002-2007. It reads as under: F "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. G Moreover, it will be our endeavor to facilitate India emerging as a major base for out sourcing products and services for the rest of the world. They are also critical to our strategy for accelerating the rate of incremental growth of export. Therefore, we H

DIRECTOR GENERAL OF FOREIGN TRADEANDANR.v. 373 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

intend to give a premium to the status holders who achieve 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. This will be available to status holders who achieve a growth rate of 25% or more in the current year with a minimum export performance of Rs.25 crores. They would be entitled to a duty free entitlement of 10% of the incremental growth in exports during the current financial year. This entitlement would be subject to c actual user condition which can be passed on to associate manufactures".

81Copy pinpoint81. The High Court thereafter pointed out that after the aforesaid Scheme was initiated, the Central Government o learnt, on the basis of intelligence gathered, that there was a rampant misuse of the scheme by entering into contacts with various exporters showing themselves as third party exporters. These contracts were executed on stamp papers ostensibly showing such status holders as third party exporters helping other parties in obtaining the orders. It was found that these were merely paper arrangement with a view to claim benefits of duty free credit entitlement on the export of others. Insofar as case of writ petitioner Kanak Exports is concerned, the High Court noticed that in the year 2002-2003, the export of this petitioner was hardly Rs.27 crores which took a big leap and quantum jump in the year 2003-2004 when the exports of this petitioner catapulted to more than Rs.1000 crores. The national export growth rate was only 22% over the last year whereas exports of Kanak Exports grew at more than 3800%. G According to the High Court, it was merely a paper growth and not incremental growth within the meaning of the scheme and the scheme was not to encourage the status holder/export house to pool the exports made by other exporters for the H

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A purpose of showing incremental growth. On that basis, the High Court held that the Notification dated January 28, 2004 was merely clarificatory and cannot be treated as amendment to the scheme and backed this conclusion with the following reasons: B " .... However, the basic intention of the amended scheme was to encourage the export of products manufactured-by small scale units who do not have access to the international market because of lack c of required international marketing expertise and optimum resources to have presence in the international marketing arena. The scheme was not intended to. encourage the status holder/export house to pool the exports made by other exporters for the purpose of showing incremental growth in the export. The clarification issued by the impugned Notification in so far as it provides that supplies made by one status holder to another status holder or export performance made by one status holder on behalf of another status holder shall not be eligible for entitlement is in consonance with the basic object of the scheme. The export turnover of the units operating under STZ/EOU/EHTP schemes was also excluded as these units are getting all facilities for import without payment of duty on various types of goods including capital goods required by them for their activities. The intention of the makers of the scheme was not to confer double benefit under para 3. 7 .2.1. Further an exporter is required to export himself and not benefit from export capabilities of STZ/EOU/EHTP etc. This would be only paper growth and amount to abuse of scheme. Reliance placed by the petitioners on Circular No. 16 dated 24th December H

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 375 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

2002 is also of no assistance as the said Circular A stating that 3'd party exports are eligible for all the export promotion schemes was issued long before the special incentive scheme was announced on 1 31" March 2003. In our opinion, the provisions contained in the impugned Notification dated 28th 8 January 2004 are merely clarificatory and cannot be treated as amendment to the scheme."

82Copy pinpoint82. The Gujarat High Court, likewise, had come to the same conclusion in the writ petition of Adani Exports Limited. c In fact, paras 17 and 18 of the judgment of the Gujarat High Court is repr~uced by the Bombay High Court in its judgment which reflects the mind of the Gujarat High Court in coming to the same conclusion. These paras read as under: "17. Under the policy in force prior to the impugned notifications and even thereafter the third party exports are permitted. What was legal earlier is not made illegal at all. For instance, exports of goods manufactured by units in EOU/SEZ zones through status holder are not prohibited but such exports even made between 1.4.2003 and 27 .1.2004 are excluded because the benefit of duty free import was already availed for the export of such goods. Chapter 6 of the EXIM policy relates to Export Oriented Units (EOUs). Electronics Hardware Technology Parks (EHTPs), and Software Technology Parks (STPs). As provided in paras 6.1 and 6.8 of the EXIM Policy, these units undertake to export their entire production of goods and services, except permissible sales in the Domestic Tariff Area as per the EXIM Policy. Para 6.2(b) of the EXIM policy provides that "an EOU/ EHTP/STP unit may import without payment of duty all types of goods, including capital !;!Oods, as H

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A defined in the policy, required by it for its activities as mentioned in para 6.1 ... " Para 6.10 reads as under: "6.10 As EOU/EHTP/STP unit may export goods manufactured/software developed by it through a B merchant export/status holder recognized under this policy any other EOU/EHTP/SEZ unit". The amendments do not impinge upon the right of any party to export its goods in accordance with c the EXIM policy. The clarification only excludes exports which were never intended in the first place to be covered by the Special Scheme under consideration.

18. Secondly, the misuse of the scheme by mere paper growth in exports is not to be countenanced. Hence, it is but natural that the notification dated 28.1.2004 would apply to the exports made from 1.4.2003 onwards. In so far as this court holds that the Notes 1 and 2 read with Note 4 introduced by the notification dated 28.1.2004 are merely clarificatory, the exports made by the petitioners between 1.4.2003 and 27.1.2003 would certainly be covered by the said notes. Two views are possible about the expression "incremental growth in exports by 25%" and the Government adopted the interpretation as reflected in the notification dated 28.1.2004 which is quite in consonance with the object of the Act, EXIM policy and the incentive scheme rather than the interpretation canvassed by the petitioner. Hence, there is no substance in the challenge to a Notes 1 and 2 read with note 4."

83Copy pinpoint83. Sub-note (ii) of Note 1 now provides that export turnover of units pertaining to SEZ/EOU/EHTP/STP or products

DIRECTOR GENERAL OF FOREIGNTRADEANDANR. v. 377 M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

manufactured by them and exported through OTA units are not to be included and taken into account for the purpose of calculating the value of exports. Both the High Courts in the impugned judgments have held it to be clarificatory on the ground that such export turnover was excluded as these units, namely, those pertaining to SEZ/EOU/EHTP/STP schemes are getting all facilities for import without payment of duty on various types of goods including capital goods required by them for their activities and there was no intention in the original scheme also to confer double benefit under para 3. 7 .2.1. This question by the writ petitioners by referring to paras 6._10, 7 .1 C and 7 .8 of the EXIM Policy which permitted, inter alia, export through status holders. On that basis, it was argued by the learned counsel appearing for these writ petitioners that sub- note (ii) of Note 1 which stipulated that such exports would not 0 be counted for the purpose of entitlement was not clarificatory but an amendment to the scheme. It is difficult to accept the aforesaid submission. No doubt, such EOU/EHTP/STP schemes are allowed to export goods manufactured by them through a merchant exporter/status holder recognised under the EXIM Policy. Likewise, SEZ is also authorised to export its goods through a status holder. The permission to make exports through status holder is one thing. Taking into account these exports by the status holders for the purpose of calculating the value of exports for availing the benefits of the entitlement given under the scheme is altogether different thing. The counsel for the petitioners could not refute or deny that such SEZ/EOU//EHTP/STP are getting the benefit of the exports made by them in_ the form of facilities for import without 1 payment of duty on various types of goods including capital goods required by them for their activities. Therefore, exactly the same benefit which is sought to be given to the status holders for achieving incremental growth as provided in the scheme was already conferred upon. Obviously, purpose of H

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A the scheme was not to give double benefit for same exports. In fact, if that is allowed, it would be a clear case of misuse of the scheme inasmuch as for the same expqrt turnover units operating under SEZ/EOU/EHTP/STP would get the certain incentives and the status holders also manage to extract the B same benefits exploiting the scheme by exporting the goods manufactured by these STZ/EOU etc. On considering the issue in this hue, we agree with the opinion of the High Court that such a sub-note (ii) was merely ctarificatory in nature. c 84. Sub-note (v) to Note 1 stipulates that if the supply were made by one status holder to another status holder, these shall also be excluded while calculating the value of exports. Likewise, sub-note (vi) of Note 1 excludes the export performance made by one status holder on behalf of other D status holder. High Courts have treated it as clarificatory on the ground that the Scheme was not intended to encourage the status holders/export house to pool the exports made by other exporters for the purpose of showing incremental growth in the exports and, therefore, the addition of sub-note (v) to E Note 1 was in consonance with the basic objective of the scheme as originally envisaged. Having regard to the nature of this sub-note (v) and when we keep in mind the fact that the two status-holders if they carry out the exports and made the target as per the Scheme were entitled to the benefit of the F Scheme, we agree with the High Courts that even insertion of these clauses is clarificatory in nature inasmuch as it only states that the supply made by one status-holder to another status- holder will not be counted. This clarification was issued, as rightly pointed out by the High Courts, to ensure that two status- G holders belonging to the same group may not start pooling and try to take undue advantage.

85Copy pinpoint85. Insofar as sub-note (vii) of Note 1 is concerned, it stipulates that supplies made or export performance affected H

DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 379 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

by a non status holder to a status holder will not be taken into account for the purpose of calculating the value of exports, if the applicant as well as the non status holder have less than 25% incremental growth over their respective previous years. This appears to be clearly clarificatory in nature inasmuch as the purpose of the Scheme was to give benefit to those who are able to achieve incremental growth of 25%. Thus, each such status holder has to independently attain the growth target stipulated in the scheme to avail the benefit. Obviously, if it has not been able to achieve 25% incremental growth, such export house cannot take the advantage by including exports of a non status holders to show that it has achieved 25% incremental growth. Aforesaid discussion leads us to conclude that the Notification dated January 28, 2004 was clarificatory in nature o and its validity stands upheld.

86Copy pinpoint86. Next issue relates to the validity of the Public Notice dated January 28, 2004. The question that is posed for determination on this issue is as to: E Whether Public Notice dated January 28, 2004, issued by the DGFT, which sought to exclude the export performance related to class of goods, is without jurisdiction?

87Copy pinpoint87. The main submission of the petitioners, which was before the High Courts as well and reiterated before us, was that Public Notice dated January 28, 2004 seeks to amend the EXIM Policy and DGFT does not have any such power inasmuch as this EXIM Policy is statutory which is issued under Section 5 of the Act by the Central Government and, therefore, it is only the Central Government which has the power to make amendments to the EXIM Policy. Therefore, the Public Notice issued by DGFT dated January 28, 2004 was without jurisdiction. An additional ground of retrospectivity was also H

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A taken to challenge the Public Notice. It was also ~rgued that DGFT by the said Public Notice was seeking to impose additional conditions, not forming part of the original policy which was again impermissible.

88Copy pinpoint88. Mr. Adhyaru, learned senior counsel appearing for 8 the Union of India, on the other hand, submitted that the paramount consideration in issuing the Public Notice was to check unscrupulous exporters including the writ petitioners for inflating their export turnover by adopting dubious methods. c He emphasized the rational for inclusion of four items by this Public Notice which has already been taken note of. His endeavour was to demonstrate that issuance of the Public Notice in question became paramount to cluck unscrupulous methodology adopted by certain exporters with the objective o to wrongfully acquire the benefits of the Schemes that could not be countenanced and had to be checked. We are not delving with tt:iose alleged malpractices and hold back the same at this juncture. They will be spelled out while discussing the validity of the Notification dated April 21, 2004 as the subject E matter thereof is same. Here, we are concerned with the powers of DGFT to issue such a Public Notice.

89Copy pinpoint89. In order to answer this question, we have to first determine as to whether this Public Notice dated January 28, F 2004 is only an amendment to Handbook of Procedure or it tinkers with the EXIM Policy. To answer this question, we may first go into the Scheme of the Act. For this purpose, Section 5 as well as Section 6 of the Act are to be taken note of in the first instance and read as under: G "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: . · H

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 381 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

Provided that the Central Government may direct A 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.] B

6. Appointment of Director General and his functions.-(1) The Central Government may appoint any person to be the Director-General of Foreign Trade for the purposes of this Act. c (2) The Director-General shall advise the Central Government in the formulation of the [foreign trade policy] and shall be responsible for carrying out that policy. D (3) The Central Government may, by Order published in the Official Gazette, direct that any power exercisable by it under this Act (other than the powers under sections 3, 5, 15, 16 arid 19) may also be exercised, in such cases and subject to such conditions, by the Director-General or such other officer subordinate to the Director General, as may be specified in the Order."

90Copy pinpoint90. From the aforesaid, it is clear that Section 5 provides that the Central Government may, from time to time, formulate and announce, the EXIM Policy. This has to be done by issuing/ announcing this Policy by way of notification in the Official Gazette. The Central Government also has the power to amend the Policy so announced by adopting the same procedure i.e. by issuing notification in the Official Gazette. It G is not in dispute that EXIM Policy in question was issued by notification in exercise of powers conferred under Section 5 of the Act. This Policy, thus, is infested with statutory flavour. H

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91Copy pinpoint91. For the purpose of carrying out the objectives of the Act which includes implementation of the Policy, Central Government is authorised to appoint DGFT as per Section 6 of the Act. Main functions of the DGFT are advising the Central Government in formulation of the Policy and he is also responsible for carrying out the said Policy. Sub-section (3) of Section 6 provides that Central Government may delegate its power exercisable under the Act. However, powers under Sections 3, 5, 15, 16 and 19 are specifically excluded which means these powers cannot be de.legated. Thus, power to announce the Policy and to amend the same remains with the Central Government. Likewise, power to make rules under Section 19 which vests with the Central Government, cannot be delegated.

92Copy pinpoint92. Keeping in mind the aforesaid lf!gal position, we reproduce certain portion of the EXIM Policy announced vide Notification No.1 dated March 31, 2003 which have bearing on the issue at hand. These are: Para 1.1 of the Export and Import Policy provided that: E "In exercise of the powers conferred under Section 5 of The Foreign Trade (Development and Regulation Act), 1992 (No.22 of 1992), the Central Government hereby notifies the Export and Import F Policy for the period 2002-2007. This Policy shall come into force with effect from April 01, 2002 and shall remain in force upto March 31, 2007 and will be co-terminus with the Tenth Five Year Plan (2002- 2007). G However, the Central Government reserves the right in public interest to make any amendments to this Policy in exercise of the powers conferred by -- Section 5 of the Act. Such amendment shall be H

DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 383 M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

made means of a Notification published in the A Gazette of India". Para 1.2 of the said Policy provides that: "Any Notifications made or Public Notices issued or anything done under the previous Export/Import B Policies, and in force immediately before the commencement of this Policy shall, insofar as they are not inconsistent with the provisions of this Policy, continue to be in force and shall be deemed to have been made, issued or done under this Policy. c License/Certificate/ Permissions issued before the commencement of this Policy shall continue to be valid for the purpose for which such licence/ Certificate/permission was issued unless otherwise stipulated". D Para 2.4 of the Import and.Export Policy dealing with the Procedure provides that: ,,......_ "The Director General of Foreign Trade may, in any case or class of cases, specify the procedure to E be followed by an exporter or importer or by any licensing or any other competent authority for the purpose of implementing the provisions of the Act, the Rules and the Order made thereunder and this Policy. Such procedures shall be included in the F Handbook (Vol. 1), Handbook (VoL2), Schedule of DEPB Rate and in ITC (HS) and published by means of a Public Notice. Such procedures may, in like manner, be amended from time to time. G The Handbook (Vol.1) is a supplement to the EXIM 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 )". H

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93Copy pinpoint93. It is explained by the learned counsel for the Union of India that a Notification issued under Section 5 of the Act or any change brought about by the DGFT in exercise of the powers under Para 2.4 of the Import and Export Policy in the Handbook Procedure, by way of a Public Notice the same are B Gazetted and Notified in the Gazette of India. It is also pointed out that the Notification/ Public Notices issued relating to Non- Statutory Rules, Regulations, Order and Resolutions issued by the Ministries of Government of India, (other than the Defence Ministry) and by the Supreme Court of India are C published under Part 1 Section 1 of the Gazette of India. On the other hand, Notifications issued by the Ministries of Government of India (other than the Defence Ministry) are • published under Part 2 Section 3 and sub-section 2 of the D Gazette of India. On that basis, justification is sought to be given that the Notification No.28(RE-2003)/2002-2007 dated January 28, 2004, Notification No.38/(RE-2003) 2002-2007 dated April 21, 2004 were published in the Gazette of India under Part 2 and 3(1J ), while Public Notice No.40 dated January E 28, 2004 was published in the Gazette of India under Part 1 Section 1 of the Gazette of India and as such, as both the Notifications as well as the Public Notices are officially gazetted in the Gazette of India. Thus, there is no distinction between the two as the same carry the same impact and effect.

94Copy pinpoint94. From the aforesaid explanation, we take it that 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, DGFT was only carrying out the EXIM Policy or this Public G Notice amounted to change in the said EXIM Policy. It is crystal clear that the Public Notice alters the provisions of EXIM Policy. It would, therefore, amount to amending the EXIM Policy, whether clarificatory or otherwise. There may be a valid H justification and rational for exclusion of four items contained

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 385 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

therein, as pleaded by the Union. However, it had to be done ·A 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 both the High Courts have rightly remarked that para 3.2.6 inserted by B public notice goes beyond the procedural conditions.

95Copy pinpoint95. 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, c was formalised by the Central Government by issuing Notifications dated April 21 and 23, 2004 in exercise of powers conferred on the Central Government by Section 5 of the Act and the same four items were excluded.

96Copy pinpoint96. Therefore, we hold that public notice dated January D 28, 2004 issued by DGFT, so far it excludes the aforesaid four items, is ultra vires.

97Copy pinpoint97. Now, we advert to the issue pertaining to Notification dated April 28, 2004. The question here is as to: E Whether subsequent Notification dated April 21, 2004, read with Notification dated April 28, 2004, seeking to exclude the export performance related to class of goods covered by para 2 of the Public Notice dated April 28, F 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 G issuance of Notifications on April 21 and 23, 2004.

98Copy pinpoint98. It is no doubt that the Central Government has the power to amend the Policy and, therefore, it could do so vide H

386 SUPREME COURT REPORTS [2015] 15 S.C.R.

A Notifications dated April 21 and 23, 2004. The only question is as to whether these Notifications are bad in law on the ground that they seek to apply retrospectively.

99Copy pinpoint99. We start with the premise that there was complete justification for excluding the four items insofar as grant of 8 benefit under scheme is concerned. The Union of India has been able to demonstrate the same in full measure. This aspect has already been discussed in detail at the outset itself.

100Copy pinpoint100. However, at the same time, as already been pornted out above, this Notification is not clarificatory in nature unlike Notification dated January 28, 2004. Therefore, the issue of retrospectivity becomes important. The contention of Mr. Adhyaru is that the Notification is not retrospective but retroactive in nature. In the alternative, it is submitted that even it is treated as retrospective, the Government has right to do so under the given circumstances inasmuch as grant of concession or incentive is the privilege of the Central Government which can always be withdrawn and in the present case, it is withdrawn for justifiable reasons and in public interest which is the paramount consideration and over rights all private considerations. Therefore, it is argued, the question of retrospectivity of Policy by the impugned Notification does not arise at all. Mr. Adhyaru also argued that there was an implied power vested with the Central Government to amend the Policy retrospectively.

101Copy pinpoint101. We may state, at the outset, that the incentive scheme in question, as promulgated by the Government, is in the nature of concession or incentive which is a privilege of the Central Government. It is for the Government to take the decision to grant such a privilege or not. It is also trite law that such exemptions, concessions or incentives can be withdrawn any time. All these are matters which are in the domain of policy decisions of the Government. When there is withdrawal H

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 387 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

of such incentive and it is also shown that the same was done A in public interest, the Court would not tinker with these policy decisions. This is so laid down by eaten a of judgments of this Court and is now treated as established and well grounded principle of law. In such circumstances, even the Doctrine of Promissory Estoppel cannot be ignored. B

102Copy pinpoint102. We may suitably refer to the judgment of this Court in Kasinka Trading v. Union of lndia 6 . In that case, Government of India had issued Notification under Section 25(1) of the Customs Act, 1962 in 'public interest' granting c exemption from whole of the customs duty on import of PVC resin. This Notification was to remain in force till March 31",

1981. However, even before the said date, by another Notification dated October 16, 1980, the full exemption from custom duty was withdrawn and it was reduced to the D exemption from custom duty as is in excess of 40% ad valorem. The importer had contended that relying on the exemption notification dated March 15, 1979, it had placed orders for the import of PVC resins on the understanding that the commodity was totally exempt from customs duty, the E Government must be held bound by the representations contained in the notification dated March 15, 1979 and the Government was estopped on the basis of promissory estoppel to go back on its promise. }he Government justified the withdrawal of exemption on the ground that the Government F had issued notification dated March 15, 1979 with a view to equalizing sale prices of the indigenous and the imported material and to make the commodity available to the consumer at a uniform price, keeping in view the trends in the supply of the material. Subsequently, it was realized that the international G prices of the product were falling and consequently the import prices had become lower than the ex-factory prices of the

• (1995) 1 sec 274 H

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A indigenous material. Hence, it was decided in "public intere"sf' to withdraw the exemption notification. This Court held that, "the reasons given by the Union of India justifying withdrawal of the exemption notification, in our opinion, are not irrelevant to the exercise of the power in public 8 interest nor are the same shown to be insufficient to support the exercise of that power". The Court also observed that, the power to grant exemption from payment of duty flows from the provisions of Section 25( 1) of the Customs Act. The power to c exempt includes the power to modify or withdraw the same. Such an exemption by its very nature is susceptible of being revoked or modified or subjected to other conditions. The supersession or revocation of an exemption notification in the public interest is an exercise of the statutory power of the State o under the law itself as is obvious not merely from the language of Section 25 of the act, but also from the General Clauses Act under which the authority which has the power to issue a notification has the undoubted power to rescind or modify the notification in the like manner. The Court also examined the E case of the appellant-petitioners that relying upon the notification dated March 15, 1979, they had acted and the Government could not be permitted to go back on its assurance otherwise they would be put to huge loss. The Court dealt with this contention in the following words: F "The Courts have to balance equities between the parties and indeed the Courts would bind the Government by its promise to prevent manifest injustice or fraud". · G The Court also quoted with approval the following observations from Malhotra &Sons v. Union of /ndia 7 : "The Courts will only bind the Government by its promises to prevent manifest injustice or fraud and H 7 AIR1976J&K41

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 389 M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

will not make the Government a slave of its policy for all times to come when the Government acts in its Governmental, public or sovereign capacity."

103Copy pinpoint103. The above decision was followed by this Court in Shrijee Sales Corporation v. Union of lndia 6 where also the same notifications were considered. In that case also, the appellants-petitioners had alleged that they would not have imported the PVC resin without the exemption as that would have been unviable and uneconomical and further that many persons took full advantage of the exemption. The Court held that the facts of the economic situation explained in the judgment rendered in Kasinka Trading's case were not contravened nor was it alleged that public interest did not call for supersession of the exemption notification. The Court also examined the question whether the fact that the notification dated 15.03.1979 mentioned the period during which it was to remain in force would make any difference to the situation. The Court then held that - 'once public interest is accepted as the superior equity which can override individual equity, the principles should be applicable even in cases where a period has been indicated'.

104Copy pinpoint104. Therefore, it cannot be denied that the Government has a right to amend, modify or even rescind a particular Scheme. It is well settled that in complex economic 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 straight-jacket formula. In Ba/co Employees Union (regd.) v. Union of India and Ors. 9 , the Supreme Court held that Laws, -including executive action relating to economic activities should be viewed with greater latitude than laws touching civil rights such • (1999) 3 sec 398 • {2000) 2 sec 333 H

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A as freedom of speech, religion etc., that the legislature should be allowed some play in the joints because it has to deal with complex problems which do not admit of solution through any doctrine or straightjacket formula and this is particularly true in case of legislation dealing with economic matters, where B having regard to the nature of the problems greater latitude require to be allowed to the legislature. The question, however, is as to whether it can be done retrospectively, thereby taking away some right that had accrued in favour of another person? c 105. The case of the exporters is that by achieving the target contained in the Scheme in respect of incremer:ital exports, these exporters had right accrued in their favour to claim the benefits provided for achieving this target. It was submitted in this behalf that the Scheme came into force w.e. f. D April 01, 2003 and from April 01, 2003 to March 31, 2004 i.e. during these 12 months, the status holders were entitled to make the exports and once the targets as set out in the clause 3.2.7.1 (vi) were achieved, the exporters became entitled to get duty free import to the extent of 10% of the incremental E growth in exports. According to them, the moment a particular exporter fulfilled the target of incremental growth of more than 25% of FOB value in exports with minimum export value turnover of 25 crore, said exporter got right to have duty free entitlement equivalent to 10% of incremental growth in exports. F The only condition was that this entitlement was to be used w.e.f. April 01, 2004 for import of items specified in the said clause. On that basis, it was argued that the effect of the impugned Notification was to take away this vested right accrued away in their favour and it amount to giving retrospective operation to the said circular which was not permissible. Following judgments were cited in support of the plea that there was no such power to make provision with retrospective effect in exercise of power of delegated legislation:

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 391 M/S. KANAKEXPORTSANDANR. [A. K. SIKRI, J.]

(i) Union of India & Ors. v. Asian Food lndustries 10 A "48. The Delhi High Court, however, in our view correctly opined that the Notification dated 4-7-2006 could not have been taken into consideration on the basis of the purported publicity made in the proposed B 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 c 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." (ii) State of Rajasthan & Ors. v. Basant Agrotech (India) Ltd. 11 D "21. There is no dispute over the fact that the legislature can make a law retrospectively or prospectively subject to justifiability and acceptability within the constitutional E parameters. A subordinate legislation can be given retrospective effect if a power in this behalf is contained in the principal Act. In this regard we may refer with profit to the decision in Mahabir Vegetable Oils (P) Ltd. v. State of ·F Haryana (2006) 3 SCC 620, wherein it has been held that: "41. We may at this stage consider the effect of omission of the said note. It is beyond any cavil G that a subordinate legislation can be given a retrospective effect and retroactive operation, if any power in this behalf is contained in the main 1 • (2006) 13 sec 542 11 (2013) 15 sec 1 H

392 SUPREME COURT REPORTS [2015] 15S.C.R.

A Act. The rule-making power is a species of delegated legislation. A delegatee therefore can make rules only within the four corners thereof.

42. It is a fundamental rule of law that no statute shall be construed to have a retrospective B operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication." (iii) Keshavla/ Jethala/ Shah v. Mohan/al C Bhagwandas &Anr. 12 "13. Counsel for the respondent also submitted that Section 29(2) as amended was intended to have retrospective operation, because the Amending Act was in the nature of explanatory ·D legislation. There is nothing in the language of Section 29(2) as amended, which may indicate that it was intended to be retrospective in operation. Section 29(2) as amended in terms E confers jurisdiction upon the High Court to call for the record of a case for the purpose of satisfying itself that the decision in appeal was according to law, which the High Court did not possess before the date of the Amending Act. F The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived G from Section 115 Code of Civil Procedure, and the legislature has by the Amending Act attempted to explain the meaning of that provision. An explanatory Act is generally passed

H 12 (1968) 3 SCR 623

DIRECTOR GENERAL OF FOREIGN TRADEAND ANR. v. 393 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. Section 29(2) before it was enacted, was precise in its implication as well as in its expression: the meaning of the words used was not in doubt, and there was no_ omission in its phraseology which was required to be supplied by the amendment." (iv) Commissioner of Income Taxv. Vatika Township Private Ltd. 13 c "28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his . affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. A~ was observed in Phillips vs. Eyre 14 , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the

1 • c201 s) 1 sec 1 14 (1870) LR 6 QB 1 H

394 SUPREME COURT REPORTS [2015] 15 S.C.R.

A character of past transactions carried on upon the faith of the then existing law.

29. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was B observed in the decision reported in L'Office Cherifien des Phosphates v. Yamashita- Shinnihon Steamship Co. Ltd. 15 Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach c a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. xx xx xx

33. A Constitution Bench of this Court in Kesha via/ F Jetha/al Shah v. Mohan/al Bhagwandas & Anr. 16 , while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: G "The amending clause does not seek to explain any pre-existing legislation which was ambiguous or

15 (1994)1AC486 H 1 • (1968) 3 SCR 623

DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 395 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

defective. The power of the High Court to entertain a A petition for exercising revisional jurisdiction was before the amendment derived from s. 115, Code of Civil Procedure, and the legislature has by the amending Act attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an B obvious omission or to clear up doubts as to the meaning of the previous Act." (v) Trimbak Damodhar Rajpurkar v. Assaram Hiraman Patil & Others17 c "8.-Besides, it is necessary to bear in mind that the right of the appellant to eject the respondents would arise only on the termination of the tenancy, and in the present case it would have been available to him on March 31, 1953 if the statutory provision had not in the meanwhile extended the life of the tenancy. It is true that the appellant gave notice to the respondents on March 11 , 1952 as he was then no doubt entitled to do; but his right as a landlord to. obtain possession did not accrue merely on the giving of the notice, it accrued in his favour on the date when the lease expired. It is only after the period specified in the notice is over and the tenancy ·has in fact expired that the landlord gets a right to eject the tenant and obtain possession of the land. F Considered from this-point of view, before the right accrued to the appellant to eject the respondents amending Act 33 of 1952 stepped in and deprived him of that right by requiring him to comply with the statutory requirement as to a valid notice which has G to be given for ejecting tenants.

9. In this connection it is relevant to distinguish between an existing right and a vested_ right. Where 17 (1962) Supp. 1 SCR 700 H

396 SUPREME COURT REPORTS [2015) 15 S.C.R.

A a statute operates in future it cannot be said to be retrospective merely because within the sweep of its operation all existing rights are included. As observed by Buckley, L.J. in West v. Gwynne retrospective operation is one matter and B interference with existing rights is another. "If an Act provides that as at a past date the law shall be taken to have been that which it was not, that Act I understand to be retrospective. That is not this case. The question here is whether a certain provision c as to the contents of leases is addressed to the case of all leases or only of some, namely, leases executed after the passing of the Act. The question is as to the ambit and scope of the Act, and not as to the date as from which the new law, as enacted D by the Act, is to be taken to have been the law." These observations were made in dealing with the question as to· the retrospective construction of Section 3 of the Conveyancing and Law of Property Act, 1892 (55 & 56 Viet. c. 13). In substance Section E 3 provided that in all leases containing a covenant, condition or agreement against assigning, underletting, or parting with the possession, or disposing of the land or property leased without licence or consent, such covenant, condition or agreement shall, unless the lease contains an expressed provision to the contrary, be deemed to be subject to a proviso to the effect that no fine or sum of money in the nature of a fine shall be payable for or in respect of such licence or consent. It was held that the provisions of the said section applied to all leases whether executed before or after the commencement of the Act; and, according to

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 397 M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.)

Buckley, L.J., this construction did not make the Act A retrospective in operation; it merely affected in future existing rights under all leases whether executed before or after the date of the Act. The position in regard to the operation of Section 5( 1) of the amending Act with which we are concerned B appears to us to be substantially similar.

10. A similar question had been raised for the decision of this Court in Jivabhai Purshottam v. Chhagan Karson- Civil Appeal No 153 of 1958 c decided on 27-3-1961 in regard to the retrospective operation of Section 34(2)(a) of the said amending Act 33 of 1952 and this Court has approved of the decision of the Full Bench of the Bombay High Court on that point in Durlabbhai Fakirbhaiv. Jhaverbhai D Bhikabhai (1956) 58 BLR 85. It was held in Durlabbhai case that the relevant provision of the amending Act would apply to all proceedings where the period of notice had expired after the amending Act had come into force and that the effect of the amending Act was no more than this that it imposed a new and additional limitation on the right of the landlord to obtain possession from his tenant. It was observed in that judgment that "a notice under Section 34(1) is merely a declaration to the tenant of the intention of the landlord to terminate the tenancy; but it is always open to the landlord not to carry out his intention. Therefore, for the application of the restriction under sub-section 2(a) on the right of the landlord to terminate the tenancy, the crucial date is not the date of notice but the date on which the right to terminate matures; that is the date on which the tenancy stands terminated".

398 SUPREME COURT REPORTS [2015] 15 S.C.R.

A (vi) Sakuru v. Tanaji18

"4. Our attention was drawn to the fact that subsequent to the decision of the High Court, the State Legislature has enacted theAndhra Pradesh B Tenancy Laws (Amendment) Act, 1979-Act 2 of 1979, whereby Section 93 of the Act has been amended and the provisions of Section 5 of the Limitation Act, 1963 have now been expressly made applicable to appeals and revisions preferred c under Sections 90 and 91 of the Act. We see no force in the contention advanced on behalf of the appellant that the said amendment is clarificatory in nature. The provisions of Section 93 as they stood prior to this amendment were free from any D ambiguity and called for no clarification. The Legislature has also not given any indication of any intention to clarify but, on the other hand, what has been done by it is ·to amend the section with only prospective effect. The amended provisions of. E Section 93 are, therefore, of no assistance to the appellant in this case which is governed by the section as it was originally enacted." (vii) Union of India v. N.R. Parmar19 F "35 .. Having examined the matter thus far, it is necessary to refer to the Ministry of Finance, Department of Revenue's Letter dated 11-5-2004 (hereinafter referred to as "the Letter dated 11-5- G 2004"). The aforesaid letter is being reproduced below:

,. (1985) 3 sec 590 H 1 • c2012) 13 sec 340

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 399 M/S. KANAKEXPORTSANDANR. [A. K. SIKRI, J.]

" New Delhi, A 11-5-2004 To, The Chief Commissioner of Income Tax (CCA), Chandigarh · B Subject: Fixation of inter se seniority of DR and promotee l~come Tax Inspectors in view of clarification given by DoP&T in r/o OM dated 3-7- 1986 c Sir, I am directed to refer to your Letter F.No.CC/ CHD/~003-04/935 dated 4-12-2003 on the above subject and to say that the matter has been examined in consultation with DoP& T and D necessary clarification in tbe mater is given as under:

Point/query raised Clarification E Whether direct recruit 'It is clarified by DoP&T Inspectors should be that direct recruits' given seniority of the seniority via-a-vis the year in which selection promotees is reckoned process initiated or from the year in which they vacancy occurred or are actually recruited. otherwise. DRs cannot claim seniority of the year in which the vacancies had arisen. The question of grant of seniority to DRs of the period when they were not even in service does not arise.'

400 SUPREME COURT REPORTS [2015] 15 S.C.R.

A 3. The representations may please be disposed of accordingly. Yours faithfully, sci/- Under-Secretary to the Government of India" . B

36. A perusal of the Letter dated 11-5-2004 reveals that it adopts a position in clear conflict with the one expressed in the OMs dated 7-2-1986 and 3- 7-1986, as well as, in the OMs dated 20-12-1999 c and 2-2-2000. In the aforesaid Letter dated 11-5- 2004 it was sought to be "clarified", that the seniority of direct recruits vis-a-vis promotees, would be determined with reference to the year in which the direct recruits are appointed. And further, that direct recruits cannot claim seniority with reference to the year in which the vacancies against which they are appointed had arisen. In our considered view reliance on the Letter dated 11-5-2004, for the determination of the present controversy, is liable to outright rejection. This is so because, the Letter dated 11-5-2004 has been styled as a "clarification" (see heading in right hand column). One of the essential ingredients of a clarification is, that it "clarifies" an unclear, doubtful, inexplicit or ambiguous aspect of an instrument. A "clarification" cannot be in conflict with the instrument sought to be clarified. The Letter dated 11-5-2004 breaches both the essential ingredients of a "clarification" referred to above. That apart, the Letter dated 11-5-2004 is liable to be ignored in view of two subsequent Letters of the Ministry of Finance, Department of Revenue dated 27-7-2004 and 8-9-2004. H

DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 401 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

37. The Letter dated 27-7-2004 is reproduced A hereunder: " New Delhi, 27-7 -2004 To, The Chief Commissioner of Income Tax (CCA), B Chandigarh Subject: Fixation of inter se seniority of DR and promotee Income Tax Inspectors in view of clarification given by DoP&Tin r/o OM dated 3-7- c 1986. Sir, I am directed to refer to the Board's letter of even number dated 11-5-2004 on the above subject and D to request that the application of this clarification may be kept in abeyance till further orders. Yours faithfully, sd/- E Under-Secretary to the Government of India A perusal of the Letter dated 27-7-2004 reveals that the allegedly clarificatory Letter dated 11-5-2004 had been kept in abeyance. xx xx xx F

41. Before examining the merits of the controversy on the basis of the OM dated 3-3-2008, it is necessary to examine one related submission advanced on behalf of the direct recruits. It was G the contention of the learned counsel, that the OM dated 3-3-2008 being an executive order issued by the Department of Personnel and Training, would apply only prospectively. In this behalf it was pointed H

402 SUPREME COURT REPORTS [2015] 15 S.C.R.

A out, that the disputed seniority between rival parties before this Court was based on the appointment to the cadre of Income Tax Inspectors, well before the OM dated 3-3-2008 was issued. As such, it was pointed out, that the same would not affect the B merits of controversy before this Court. We have considered the instant submission. It is not possible for us to accept the aforesaid contention advanced at the hands of the learned counsel. If the OM dated 3-3-2008 was in the nature of an amendment, there c may well have been merit in the submission. The OM dated 3-3-2008 is in the nature of a "clarification". Essentially, a clarification does not introduce anything new, to the already existing position. A clarification, only explains the true D purport of an existing instrument. As such, a clarification always relates back to the date of the instrument which is sought to be clarified."

106Copy pinpoint106. In nutshell, it was submitted that once there is a E vested right and not merely existing right, taking away that right amounts to giving retrospective effect to the Notification which was impermissible. In the same breath, it was argued that it cannot be treated as retroactive operation of the Notification.

107Copy pinpoint107. Learned sen'iorcounsel appearing forthe Revenue, on the other hand, argued that no such right got crystallized in favour of the exporters as entitlement for export was to take effect from April 01, 2004. It was submitted that at the most with achieving of the export targets, they became eligible to G avail the benefit of the Scheme but before this benefit could be availed of, for which the effective date was April 01, 2004, impugned Notification was issued on January28, 2004. On this basis, it was argued that the Notification given only retroactive effect and not retrospective effect. H

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 403 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

108Copy pinpoint108. We may, in the first instance, make this legal A position clearthat 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, Section 5 of the Act does not give any such power specifically to the B Central Government to make 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 retrospective. C This legal position is rightly discussed by the Bombay High Court in the impugned judgment in the following words: "We are unable to accept the submis~ions of learned Additional Solicitor General. The word D "amend" does not give power to make amendment retrospectively if it is used in relation to the power to make a piece of delegated legislation. The connotation of the word "amend" when it is used for the exercise of power E by a legislature cannot be pressed to construe the word "amend" in relation to the power to make delegated legislation. In this regard the following observations of the Supreme Court in Accountant General and another v. F Doraiswamy (1981) 4 SCC 93 are pertinent: "The next question is whether clause (5) of Article 148 permits the enactment of rules having retrospective operation. It is settled law that G unless a statute conferring the power to make rules provides for the making of rules with retrospective operation, the rules made pursuant to that power can have prospective operation only. An exception, however, is the proviso to H

404 SUPREME COURT REPORTS (2015] 15 S.C.R.

A Article 309. In 8.S. Vadera v. Union of India AIR 1969 SC 118, this Court held that the rules framed under the proviso to Article 309 of the Constitution could have retrospective operation. The conclusion followed from the circumstance B that the power conferred under the proviso to Article 309 was intended to fill a hiatus, that is to say, until Parliament or a State Legislature enacted a law on the subject-matter of Article

309. The rules framed under the proviso to c Article 309 were transient in character and were to do duty only until legislation was enacted. As interim substitutes for such legislation it was clearly intended that the rules should have the same range of operation as an Act of Parliament D .or of the State Legislature. The .intent was reinforced by the declaration in the proviso to Article 309 that "any rules so made shall have effect subject to the provisions of any such Act". Those features are absent in clause (5) of Article E

148. There is nothing in the language of that clause to indicate that the rules framed therein were intended to serve until parliamentary legislation was enacted. All that the clause says· F is that the rules framed would be subject to the provisions of the Constitution and of any law made by Parliament. We are satisfied that clause (5) of Article 148 confers power on the President to frame rules operating prospectively G only. Clearly then, the Rules of 1974 cannot have retrospective operation, and therefore sub-rule (2) of Rule 1, which declares that they will be deemed to have come into force on July 27, 1956 must be held ultra vires." H

DIRECTOR GENERAL OF FOREIGNTRADEANDANR. v. 405 M/S. KANAKEXPORTSANDANR. [A. K. SIKRI, J.]

The reliance placed on the power to regulate under Section 3 of the Act is equally misconceived. Section 5 gives express power to formulate the policy and to amend it. This is specific power. The power to regulate therefore cannot be read as a power to amend when a specific power to amend is given. If the power to regulate does not include the power to amend retrospectively such a power cannot be read into Section 3 of the Act. Section 21 of the General Clauses Acton which reliance is placed by learned Additional Solicitor c General is also of no assistance to sustain the retrospective operation of the notification. Section · 21 of the General Clauses Act embodies a rule of construction, nature and extent of application of D which must inevitably be governed by the relevant provisions of the statute which confers power to issue the notification. The said power must be exercised within the limits prescribed by the provisions conferring the said power. (See E Gopichandv. Delhi Administration, AIR 1959 SC 609, Lachmi Narayan and Ors. v. Union of India and Ors. ( 1976) 2 SCC 953 and State of Kera/a and Ors. v. KG Madhavan Pillai and Ors. (1988) 4 SCC 669. The ratio in H.C. Suman's case also cannot be applied because in that case it was found that Section 88 of the Delhi Cooperative Societies Act, 1972 contained the power to exempt and if the provisions of Section 12 of the said Act were to. be exempted the provisions which provided that byelaws are effective from the date of registration. The notification issued under Section 88 would exempt it and Section 88 would contain the power to exempt retrospectively. Similarly, Section 14 of the General Clauses Act has no application as it H

406 SUPREME COURT REPORTS [2015] 15 S.C.R.

A merely provides that where any power is conferred on the Government, then that power can be exercised from time to time as occasion requires. Under that Scheme the status holder is eligible for benefits upon achieving the incremental growth B of 25% of the FOB value of exports in the current year over the previous year. It therefore follows that no sooner the status holder achieves 25% incremental growth, the status holder would be entitled to the benefits under the Scheme. c Immediately upon attaining the prescribed incremental growth, the status holder becomes eligible to certificate for duty free import and thereby a right vests in the exporter to receive the same."

109Copy pinpoint109. So far so good. The effect of the aforesaid discussion would be that if the 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 pertinent and crucial question is as to whether these exporters/writ petitioners acquired any such right? Let us sharpen this question before we answer the same by formulating it in the following words: Whether, in the cases of these exporters, the exports shown by them can be treated as actual exports entitling them to avail the benefit of the Scheme?

110Copy pinpoint110. This issue would be inter-twined with other related issue, namely, whether the notification has retroactive operation or it is retrospective in nature. Both these aspects are to be dealt with simultaneously in order to provide suitable and right answer to the question posed. The case of the exporters, as noticed above, is that since they had already fulfilled the requirement of 'incremental growth in exports' which they were require to fulfill between April 01, 2003 to March 31, 2004, a

DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 407 M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

vested right accrued in their favour to get the special incentive in terms of the scheme which, of course, was to be availed from April 01, 2004. The case of the Government, on the other hand, is that the benefit was to accrue to these exporters only_. from April 01, 2004 and beforethat it was withdrawn and, thus, no vested right accrued in their favour. It was also argued that in the policy, which provides special incentives to status holder, the term "incremental growth in export" was not defined/clarified at the time when the policy was issued. By the impugned notification, the blanks/gaps were filled and the term incremental growth in export was defined and it was clarified as to how the incremental growth in export is to be actually worked out. This was also done before the question of actual working out of the incremental growth in exports arose and hence, no retrospective effect. D

111Copy pinpoint111. An astute and penetrative examination of the record, with reference to the results of the investigation, which had prompted the Central Government to issue these Notifications, provides a very tidy answer to the question posed above is that the so-called targets achieved were only on paper through E fraudulent means and, therefore, it cannot be said that any vested right accrued in favour of these exporters.