DELHI HIGH COURT REFUSED TO APPLY RETROSPECTIVE EFFECT TO THE REPEAL OF THE MERCHANDISE EXPORTS FROM INDIA SCHEME

A Division Bench of the High Court of Delhi (High Court) comprising of Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula, passed an Order dated 07-11-2023 in the matter of Indian Flexible Intermediate Bulk Container Association Vs. Director General Of Foreign Trade W.P.(C) 14779/2021 and observed that repealing the Merchandise Exports from India Scheme (MEIS) retrospectively and rejecting valid claims would be arbitrary and indefensible, both in principle and law.

 FACTS:

i) That the aforesaid Writ Petition (W.P.) was filed before the Hon’ble High Court by the Indian Flexible Intermediate Bulk Container Association (Petitioner) against the Director General of Foreign Trade (DGFT) (Respondent), under Article 226 of the Constitution of India, against the Notification in which the DGFT had revoked the benefit under the Merchandise Exports from India Scheme (MEIS) for Flexible Intermediate Bulk Container (FIBC) bags, retrospectively from 07.03.2019. This Notification, issued on 29.01.2020, was being challenged in the W.P.

ii) That the Petitioner-Company, a nodal association in India representing manufacturers of Flexible Intermediate Bulk Containers (FIBC) and leading bulk packaging companies, deals with the production and export of FIBC bags, also known as “Jumbo Bags” or “Big Bags.” These bags are crafted from “Technical Textile,” specifically “Warp and Weft Woven Polypropylene,” designed to carry loads up to 2000 kg, falling under the product classification of ITC-HS 63053200.

iii) Thereafter, DGFT provided benefits under the MEIS by publishing Notifications on 01.04.2015, and on 24.11.2017 and increased the MEIS benefits for FIBC bags from 2% to 4%. In July 2019, there was a proposal to withdraw the additional 2% MEIS rates, effective from 01.08.2019, by DGFT. The Petitioner submitted representations opposing the withdrawal, expressing concerns about the potential negative impacts on the competitive advantage of the FIBC industry.

iv) Despite the absence of an official announcement regarding the withdrawal of MEIS benefits, the DGFT’s proposal prompted manufacturers to continue pricing their export products with the MEIS benefit. Accordingly, efforts were made by the Petitioner, including representations to the Department of Commerce, Plexcouncil, the Prime Minister, the Minister of Textiles, and the Minister of Commerce and Industry, seeking their intervention.

v) On 29.01.2020, a Notification was issued, amending MEIS benefits, discontinuing them for items within Chapters 61, 62, and 63 of ITC-HS 2017, affecting the FIBC sector. The Petitioner made numerous representations advocating for the reinstatement of MEIS benefits, but there was no positive response.

vi) Subsequently, the retrospective implementation of the impugned Notification dated 29.01.2020 caused significant financial harm to FIBC exporters. The Public Notification No. 26/25-2020, set 31.10.2021, as the final date for submitting MEIS applications. However, the DGFT’s portal had barred submissions for the FIBC sector since 01.08.2019.

vii) The inability of the Petitioner’s member units to apply for MEIS benefits for previous periods, as specified in the Notification of 16.09.2021, added to their challenges, placing them in a position of double jeopardy without justifiable rationale.

HIGH COURT OBSERVATION:

The Hon’ble High Court passed an Order dated 17.10.2023, wherein the Petitioner had approached the Court under Article 226 of the Constitution of India, challenging the Notification dated 29.01.2020, published by the Department of Commerce, Ministry of Commerce and Industry, Government of India. The Petitioner argued that retrospective withdrawal of MEIS benefits for the Flexible Intermediate Bulk Containers (FIBC) sector, as per the challenged Notification, is arbitrary and lacks legal justification.

ISSUES:

A) The main issue before the Court pertained to the retrospective withdrawal of benefits under MEIS for the FIBC Sector.

B) The Court was tasked with determining the validity of this retrospective withdrawal and addressing the Petitioner’s specific requests: (i) to apply the Notification prospectively, and (ii) for the immediate processing of MEIS benefit claims submitted by the Petitioner’s member units for the disputed period.

The Court’s analysis considered constitutional principles, statutory provisions, and the impact of the withdrawal on FIBC exporters.

OBSERVATION:

(1) The High Court noted the inherent risk and potentially irreversible harm associated with retrospective withdrawals of benefits. Further, the Court cited legal precedents, emphasizing that power to grant / retract benefits does not necessarily legitimize retrospective withdrawal without clear legislative backing. The Bench concluded that the Foreign Trade (Development and Regulation) Act, 1992, does not permit retrospective changes, and the impugned Notification’s retrospective withdrawal of MEIS benefits for FIBC Sector is arbitrary and indefensible.

(2) The Court addressed the Respondents’ argument regarding the Petitioner’s awareness of the MEIS withdrawal and the introduction of the Remission of Duties and Taxes on Exported Products (RoSCTL) Scheme. Further, the Hon’ble Court rejected the notion that advance publicity legitimizes retrospective implementation and emphasized the distinct nature of MEIS and RoSCTL Schemes. The Court found the Respondents’ attempt to intertwine the two Schemes as lacking substance and highlighted the arbitrary nature of retrospective withdrawal for specific categories.

(3) The Hon’ble High Court acknowledged the challenges faced by the Petitioner’s member units in submitting claims under the MEIS due to the closure of DGFT portal. It granted interim relief, allowing the submission of hard-copy applications. The Court recognized the exporters’ reliance on MEIS benefits in pricing their exports and directed the processing of claims subject to fulfilment of other applicable conditions.

CONCLUSION:

Based on the aforesaid facts, the High Court concluded that the retrospective withdrawal of MEIS benefits for the FIBC Sector, as per the impugned Notification, is arbitrary and lacks legal justification. Emphasizing the principles established in legal precedents, the Court rejected the notion of retrospective amendments without explicit legislative authority. The Court addressed the Respondents’ assertions regarding prior publicity and the RoSCTL Scheme, deeming them unsubstantiated and irrelevant to the case. The blocking of the DGFT portal for MEIS claims was recognized as a practical challenge faced by exporters, leading the Court to grant interim relief.

Hence, the High Court directed the prospective application of the impugned Notification and immediate processing of MEIS benefit claims of the Petitioner and acknowledged the Exporters’ reliance on these MEIS benefits in pricing their exports. This Judgment sought to rectify the arbitrary withdrawal of benefits, thereby upholding principles of fairness and equity in trade policy implementation.

Sakshi Raghuvanshi

Legal Associate

The Indian Lawyer