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Director General of Foreign Trade v. M/s Kanak Exports

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 554 of 2006)Decided 27 Oct 2015
Civil Appeal No. 554 of 2006
Justice A.K. Sikri · Justice Rohinton Fali Nariman

Background

The government's EXIM Policies of 2002-07 and 2004-09 gave exporters duty-credit entitlements to boost exports. After suspected large-scale misuse of these schemes, particularly in gems and jewellery exports, the government issued notices and notifications in 2004 that excluded certain goods from the scheme and tightened its rules, some with effect from earlier dates. Exporters, including M/s Kanak Exports, challenged these changes in several High Courts, and the cases were brought together in the Supreme Court.

Decision Breakdown

The Court held that the DGFT's public notice of 28 January 2004, which excluded four items, was ultra vires, because such a change could only be made by the Central Government through a notification under Section 5 of the Foreign Trade Act. The April 2004 notifications were not treated as taking away any vested right, because the exporters who had misused the scheme had not actually achieved the export growth needed to earn the benefit; the Court upheld the Gujarat High Court's decision on different grounds and dismissed the exporters' appeals against it on this point. By contrast, the amendments to the later Target Plus Scheme (Notifications No. 48/2005 and No. 8/2006) could not operate retrospectively, because exporters who had already met the growth targets had acquired vested rights, so the writ petitions challenging them were allowed. A fee imposed through a public notice was also set aside, because it required a notification under Section 5.

Lesson Learnt

The government can change an incentive scheme, but only through the correct legal power and not by a mere public notice. Even then, changes that cut back benefits that people have already earned under the rules are generally not allowed to apply backwards.

Official source (sci.gov.in)View Judgment (PDF)

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