DGFT Has No Authority To Violate The Foreign Trade Policy, Power Lies Only With Central Govt: Karnataka High court

The Karnataka High Court has held that only the Central Government can make provision for prohibiting, restricting, or regulating the import or export of goods or services, or technology and not the Director General of Foreign Trade (DGFT).

The single bench of Justice S.R. Krishna Kumar has observed that only the Central Government can formulate and announce the Foreign Trade Policy by ‘Notification’ in the Official Gazette and may also, in like manner, amend that policy. The power of the Central Government to formulate and amend the Foreign Trade Policy cannot be exercised by DGFT. As per Section 3(2) of Foreign Trade (Regulation and Development Act), 1992 (FTDR Act), only the Central Government can by Order published in the Official Gazette make provisions for prohibiting, restricting, or regulating the import or export of goods or services or technology and the power of the Central Government cannot be exercised by the DGFT.

The petitioner/assessee is engaged in the business of solvent extraction, refining of oils, manufacture of soya food products, and import, export, and trading of agricultural commodities.

The petitioner had entered into a contract with its foreign supplier viz. Aston Agro-Industrial SA, Switzerland for import of the subject goods, Crude Sunflower Seed Oil of Edible Grade in Bulk. The foreign supplier supplied 6000 MTs of the subject goods. The subject goods were shipped with a port of discharge Mangalore Port, India.

The Director General of Foreign Trade (DGFT), in the exercise of his powers under paragraphs 1.03 and 2.04 of the Foreign Trade Policy (FTP), issued a Public Notice dated 24.05.2022, by which Tariff Rate Quota (TRQ) was allocated for the financial years 2022-23 and 2023-24. The Public Notice amended paragraphs 2.60 and 2.61 of the Handbook of Procedures by laying down procedural conditions for Crude Soya-bean oil, whether or not degummed and Crude Sunflower seed oil.

The Duty structure in regard to the goods is Basic Customs Duty at the rate of 0% plus 5% Agriculture Infrastructure and Development Cess (AIDC) plus 10% Social Welfare Surcharge (SWS) plus 5% IGST.

Since the goods were urgently needed, the petitioner had no option but to clear the goods without tendering a TRQ license for the clearance. Petitioner had accordingly filed Ex-Bond Bills of Entry seeking clearance of 500 MTs and 1000 MTs respectively of the goods for home consumption. The Bills of Entry were processed by the department and payment of applicable duty out of charge was given.

The petitioner contended that the ‘condition x’ in the Public notice dated 14.06.2022 issued by the DGFT was illegal, arbitrary, and without jurisdiction or authority of law. It is contrary to Clause 2.13 of the FTP and has the effect of altering and amending the FTP which is impermissible in law since it lies within the exclusive domain of the Central Government and not the DGFT.

The petitioner contended that the FTP is framed by the Central Government under the FTDR Act and it provides for the DGFT to issue a Handbook of Procedure by way of a Public Notice and also amend/vary/alter the Handbook of Procedure by way of a Public Notice. The DGFT is empowered or authorized only to issue a public notice as aforesaid to regulate the procedure and not change/alter/modify the FTP which can be done only by the Central Government.

The department contended that the DGFT functions not only as the Director General of Foreign Trade but he is also as the Ex- Officio Additional Secretary to the Government of India. Consequently, both the Public Notices having been issued after due approval from the Ministry of Commerce and Industry are deemed to have been issued by the Central Government only. The DGFT is an authority constituted under the FTDR Act and is entitled to issue public notices prescribing the procedure.

The court held that mere reference to the DGFT in the judgments cannot be made the basis to come to the conclusion that the DGFT has the power and jurisdiction to amend the FTP as contended by the respondents.

The court directed the department to refund the entire excess duty paid by the petitioner as expeditiously as possible back to the petitioner and at any rate, within a period of one month.

Case Title: M/S Patanjali Foods Limited Versus Union Of India

Case No.: Writ Petition No.14963 Of 2022

Citation: 2023 LiveLaw (Kar) 133

Date: 16.02.2023

Counsel For Petitioner: Rajesh Rawal

Counsel For Respondent: V.C.Jagannathan

Click Here To Read The Order