Retrospective Changes Likely To Devastate Entire Sector, Withdrawal Of Merchandise Exports Scheme Shall Apply Prospectively: Delhi High Court

A Division Bench of the Delhi High Court recently ruled that DGFT’s decision to repeal the MEIS scheme with retrospective effect, combined with their refusal to honour claims for the valid period, was arbitrary and indefensible, both in principle and law.

Pithily put, the petitioner, a nodal association dealing with FIBC (Flexible Intermediate Bulk Container) bag manufacturers, had filed the petition challenging notification dated 29.01.2020, whereby DGFT had retrospectively revoked MEIS (Merchandise Exports from India Scheme) benefit w.r.t. FIBC bags w.e.f. 07.03.2019.

The petitioner’s grievance was that the notification had resulted in major financial setbacks for its member-units and adversely impacted the export potential of FIBC bags.

Observing that introduction of MEIS benefits was not a mere act of state generosity or incentive, the court said, “its primary objective was to counterbalance infrastructural inefficiencies and the affiliated expenses associated with Indian exports”.

Considering that DGFT’s issuance of the impugned notification was premised on powers of amendment granted to Central government by the Foreign Trade Policy, the court said that the same could not be taken to mean that amendments can retrospectively “reshape prior understandings or actions”.

“Retrospective application is an exception and can only be permitted if explicitly provided by the parent statute”.

Referring to Supreme Court’s decision in UOI v. Asian Food Industries, where it was clarified that advance publicity of an impending shift in export policy does not legitimize its retrospective implementation, the Bench, comprising the Chief Justice and Justice Sanjeev Narula, rejected respondents’ reliance on the fact that discontinuation of MEIS scheme was widely publicised prior to the actual notification.

“Retrospective withdrawals of benefits and incentives by their nature, risk inflicting irreversible harm, in this case – the Petitioner’s member units. While prospective amendments or alterations are within the Central Government's purview and typically beyond reproach, retrospective changes that could devastate an entire sector raise serious concerns.”

It directed that the impugned notification shall apply prospectively, and that respondents shall forthwith process all bona-fide applications received for MEIS benefit on FIBC bags (classified under HS-ITC 63053200), submitted in terms of its earlier interim order, w.r.t. exports between 07.03.2019 and 29.01.2020.

So far as respondents had contended that the simultaneous availability of both MEIS and RoSCTL (Rebate of State and Central Taxes and Levies) schemes would result in an undue double benefit to petitioner, the court differentiated between the two schemes and said that DGFT’s MEIS serves as an incentive, but Ministry of Textile’s RoSCTL merely rebates state and central embedded taxes and levies.

“RoSCTL, in its very nature, cannot compensate for claims associated with exports executed or committed before the release of the impugned notification, for which the Petitioner was rightfully eligible. The claims under each scheme are distinct, separate, and cannot be juxtaposed or adjusted against one another.”

In addition, it noted that RoSCTL rate for FIBC bags was stipulated as “Nil”, rendering the petitioner’s member units incapable of claiming benefits under either the MEIS or the RoSCTL scheme.

“In attempting to intertwine the RoSCTL scheme—which incidentally offers no benefits to the FIBC sector—into the discourse, the DGFT appears to be deliberately muddying the waters”, the court remarked.

From an Article 14 perspective, it was observed that singling out FIBCs from export incentives retrospectively, while retaining benefits for other products, exhibited arbitrariness and discrimination.

“…selectively withdrawing the scheme with retrospective effect for specific categories not only appears arbitrary but also compounds the deprivation felt by the FIBC sector, which was already excluded from the RoSCTL benefit”.

It was also noted that Ministry of Finance had stipulated for MEIS benefit to be rescinded w.e.f. 01.08.2019, but, DGFT, seemingly influenced by introduction of RoSCTL scheme, opted to repeal it from 07.03.2019.

Mr. Pramod Kumar and Mr. Jayant Kumar, Advocates appeared for petitioner

Mr. Abhinav Dubey, Mr. Harender Singh and Mr. Vineet Malhotra, Advocates appeared for DGFT

Mr. Rakesh Kumar, CGSC with Mr. Sunil Kumar, Advocate appeared for UOI

Case Title: Indian Flexible Intermediate Bulk Container Association v. Director General of Foreign Trade

Citation: 2023 LiveLaw (Del) 1097

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