Holding

The Court upheld the validity of Notification 28 as a clarificatory amendment, declared the DGFT’s public notice ultra vires, held the Apr 21/23 notifications to be prospective only, found no vested right for the exporters, and ruled that the government may not amend the policy retrospectively.

Summary

The case concerned the validity of several amendments to the Export-Import (EXIM) Policy 2002-2007 made by Notification No. 28 (Jan 28, 2004) and subsequent public notices and notifications (Jan 28 2004 Public Notice, Apr 21 & 23 2004 Notifications). Exporters alleged that these changes were retrospective, ultra vires, and violated their vested rights and the doctrine of promissory estoppel. The Supreme Court held that Notification 28 was merely clarificatory and valid, the DGFT’s public notice was ultra vires, and the Apr 21/23 notifications could only have prospective effect and did not deprive the exporters of any vested right. The Court further ruled that the government may amend the policy in public interest but cannot do so retrospectively to take away accrued rights, and the same principle applied to later amendments to the Target‑Plus Scheme. Consequently, the exporters' appeals were dismissed while the Union’s appeals were allowed, and the impugned public notice was set aside.

Issues considered

Whether Notification No. 28 dated Jan 28, 2004 is merely clarificatory or an amendment of the EXIM Policy.
Whether the DGFT’s Public Notice dated Jan 28, 2004 exceeds its jurisdiction under the FT Act.
Whether the Notifications dated Apr 21 and Apr 23, 2004 are retrospective or prospective in operation.
Whether the exporters had a vested right to the duty‑free entitlement and whether promissory estoppel applies.
Whether the government can amend the EXIM Policy or the Target‑Plus Scheme retrospectively under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992.

Legislation cited

Customs Act, 1962s. 25(1)
Foreign Trade (Development and Regulation) Act, 1992s. 15, s. 16, s. 19, s. 3, s. 5, s. 6
General Clauses Act, 1897s. 21

Subjects

Export‑Import PolicyForeign Trade ActDelegated legislationRetrospective amendmentVested rightPromissory estoppelPublic interestDGFT jurisdictionTarget Plus SchemeDuty‑free entitlement

Judgment

[2015] 15 S.C.R. 287

DIRECTOR GENERAL OF FOREIGN TRADEANDANR. A
v.
M/S. KANAKEXPORTSANDANR.
(Civil Appeal No. 554 of 2006)
B
OCTOBER 27, 2015
[A. K. SIKRI AND ROHINTON FALi NARIMAN, JJ.]
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Incentive scheme for exporters- Misuse C
of- Notifications issued amending the provisions of the EXIM
policy - Some amendments made vide Notification No. 28
dated January ~8, 2004 - On the same day, a Public Notice
also issued in exercise of powers conferred under the
provisions of Para 2. 4 of the said Policy, which was followed D
by Notification No. 38 dated April 21, 2004 and Notification
No. 40 dated April 23, 2004 - Whether the impugned
Notifications were issued in public interest - Held: The
scheme in question intended to concentrate on the growth of
certain kinds of products treating the same as "thrust sectors" E
- Six sectors including Gem and jewellery were mentioned
as thrust sectors - Immediately after the introduction of the
scheme, 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 these were genuine F
exports - The matter was investigated and intelligence was
gathered- It was learnt that there was rampant misuse of the
scheme by certain status holders - In the counter affidavit
filed by the Union of India, details of the modus operandi
used by these exporters were given - A note on misuse of G
the Scheme was also annexed with the counter affidavit -
The Government, thus, demonstrated that based on the
aforesaid exercise undertaken, Notification dated January
28, 2004 as well as Public Noti<;e of the even date were issued
H
287
288 SUPREME COURT REPORTS [2015] 15 S.C.R.

A - Notwithstanding strenuous efforts made by the writ
petitioners to show that the exports by them were genuine
and there was no misuse, it is clear that the purport behind
the Notifications was bona fide which was actuated with the
conditions of public interest in mind - Foreign Trade
B (Development and Regulation) Act, 1992 - s. 5.
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Notifications issued amending the
provisions of the EXIM policy - Nature of - Clarificatory or
c amounting to amendment - 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
c/arificatory in nature or it amounted to a•mendment of the
provisions of para 3. 7. 2. 1 of the EX/M Policy- Held: On facts,
D the Notification dated January 28, 2004 was clarificatory in
nature and its validity stands upheld - Foreign Trade
(Development and Regulation) Act, 1992- s.5.
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Incentive scheme for exporters -
E f.{otifications issued amending the provisions of the EXIM
policy - Effect of the Notifications, prospective or
retrospective - Whether Notification dated April 21, 2004,
read with Notification dated April 28, 2004, seeking to exclude
F the export performance related to class of goods covered by
para 2 of the Public Notice dated April 28, 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 issuance of
G Notifications on April 21and23, 2004- Held: 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,.s. 5 of the Act does not give any
H
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 289
MIS. KANAK EXPORTSANDANR.

such power specifically to the Central Government to make A
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 retrospectively - On facts, if the B
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 question
is as to whether, in the cases of the exporters in question, the
exports shown by them can be treated as actual exports C
entitling them to avail the benefit of the Scheme -An astute
and penetrative examination of the record, with reference to
the results of the investigation, prompted the Central
Government to issue the Notifications- The so-called targets
0
achieved were only on paper through fraudulent means and,
therefore, it cannot be said that any vested right accrued in
favour of the exporters in question- The impugned decision
reflected in the notifications dated April 21 and 23, 2004, did
not take away any vested right of these exporters and E
amendments were necessitated by over-whelming public
interest I considerations to prevent the misuse of the Scheme
- Therefore, even when impugned Notification issued u/s. 5
could not be retrospective in nature, such retrospectivity have
not deprived the writ petitioners/ exporters of their right F
inasmuch as no right had accrued in favour of such persons
under the Scheme - Supreme Court, or for that matter the
High Court in exercise of its writ jurisdiction, cannot come to
the aid of such petitioners/exporters who, without making
actual exports, play with the provisions of the Scheme and G
try to take undue advantage thereof- To this extent, direction
of the High Court granting these exporters benefit of the
Scheme for the past period is set aside - Legislation -
Delegated I Subordinate Legislation - Foreign Trade
H
290 SUPREME COURT REPORTS [2015] 15 S.C.R.

A (Development and Regulation) Act, 1992 - s. 5.
Export I Import - Export Import (EXIM) Policy- EXIM
Policy 2002-2007 - Incentive scheme for exporters- Powers
of DGFT to issue a Public Notice - Vide Public Notice dated
January 28, 2004, the Government announced exclusion of
8
export performance in relation to four classes of goods
mentioned in para 2 thereof from computation of the
entitlement under the Scheme- Whether Public Notice dated
January 28, 2004, issued by the DGFT was without
c jurisdiction - Held: 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, DGFTwas only carrying out the EXIM
Policy or this Public Notice amounted to change in the said
D EXIM Policy- It is crystal clearthat the Public Notice alters
the provisions of EXIM Policy- It would, therefore, amount
to amending the EXIM Policy, whether C/arificatory or
otherwise - There may be a valid justification and rationale
for exclusion of four items contained therein, as pleaded by
E the Union - However, it had to be done 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 para 3. 2. 6 inserted
F by public notice in the Handbook of Procedures goes beyond
the procedural conditions - 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, was formalised by the Central
G Government by issuing Notifications dated April 21 and 23,
2004 in exercise of powers conferred on the Central
Government bys. 5 of the Act and the same four items were
excluded - Therefore, the public notice dated January 28,
H 2004 issued by DGFT, so far it excludes the aforesaid four
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 291
M/S. KANAK EXPORTS AND ANR.

items, was ultra vires - Foreign Trade (Development and A
Regulation) Act, 1992- s.5.
Export I Import- Export Import (EXIM) Policy- EXIM
Policy 2004-2009 - Target Plus Scheme (TPS) -
Constitutional validity of Notification No. 4812005 dated B
February 20, 2006 and Notification No. 812006 dated June
12, 2006 by which certain amendments were made in the
EXIM Policy- Held: TPS introduced in EXIM Policy 2004-
2009 on August 31, 2004, adopted some of the features of
the earlier Schemes in the EXIM Policy 2002-2007 and c
introduced the concept of Multi-Entitlement Rates, thus,
allowing higher entitlement rates for higher growth - If the
Government realised afterwards that export of certain items
should not have been given the benefit of TPS and extending
the benefit to now excluded items was an ill-considered move, D
though the Central Government was free to withdraw it in
respect of such items but it could do so only prospectively,
but was not entitled to do so with effect from the back date,
i.e. April 01, 2005, by taking away the vested right that had
already accrued in favour of exporters of these items - E
Accordingly, on facts, Notification No. 4812005 dated
February 20, 2006 and Notification No. 812006 dated June
. 12, 2006 cannot be applied retrospectively and they would
be effective only from the dates they were issued - Foreign
Trade (Development and Regulation) Act, 1992- s.5. F
Export I Import - Export Import (EXIM) Policy -
Incentive scheme - Held: It is for the Government to take the
decision to grant such a privilege or not - Also such
exemptions, concessions or incentives can be withdrawn any G
time -All these matters are in the domain of policy decisions
of the Government- When there is withdrawal of a incentive
and it is also shown that the same was done in public interest,
the Court would not tinker with these policy decisions -
H
292 SUPREME COURT REPORTS [2015] 15 S.C.R.

A Administrative Law -Administrative policy- Foreign Trade
(Development and Regulation) Act, 1992.
Administrative Law - Executive action relating to
economic activities- Validity of- Held: In complex economic
matters every decision is necessarily empiric and it is based
8
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.
c State of Madhya Pradesh & Ors. v. Nandla/ Jaiswal
& Ors. (1986) 4 SCC 566 : 1987 (1) SCR 1 Zippers
Karamchari Union v. Union of India & Ors. (2000)
10 sec 619: 1998 (1) Suppl. SCR 379; BAL CO
Employees Union (Regd.) v. Union of India & Ors.
D (2002) 2 sec 333 : 2001 (5) Suppl. SCR 511;
Accountant General and Another v. S. Doraiswamy
and Others (1981) 4 SCC 93: 1981 (2) SCR 155;
Kasinka Trading v. Union of India (1995) 1 SCC
274: 1994 (4) Suppl. SCR 448; Malhotra & Sons
E v. Union oflndia AIR 1976 J & K 41; Shrijee Sa/es
Corporation v. Union of India (1999) 3 SCC 398;
Union of India & Ors. v. Asian Food Industries
(2006) 13 sec 542: 2006 (8) Suppl. SCR 485;
State of Rajasthan & Ors. v. Basant Agrotech
F
(India) Ltd. (2013) 15 sec 1 : 2013 (17) SCR
395; Keshavlal Jethalal Shah v. Mohan/a/
Bhagwandas & Anr. (1968) 3 SCR 623;
Commissioner of Income Tax v. Vatika Township
G Private Ltd. (2015) 1 SCC 1; Trimbak Damodhar
Rajpurkar v. Assaram Hiraman Patil & Others
(1962) Supp. 1SCR700; Sakuru v. Tanaji (1985)
3 SCC 590: 1985 (2) Suppl. SCR 109; Union of
India v. N.R. Parmar(2012) 13 SCC 340: 2012
H (13) SCR 555; Regional Transport Officer, Chittoor
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 293
MIS. KANAK EXPORTSANDANR.

& Ors. v. Associated Transport Madras (P) Ltd. & A
Ors. (1980) 4 sec 597 : 1981 (1) SCR 627;
Accountant General & Anr. v. S. Doraiswamy &
Ors. (1981) 4 sec 93: 1981 (2) scR 155; A.A.
Calton v. Director of Education &Anr. (1983) 3 SCC
33 : 1983 (2) SCR 598; Chairman, Railway Board B
& Ors. v. C.R. Rangadhamaiah & Ors. (1997) 6
sec 626 - referred to.
Case Law Reference
1987 (1) SCR 1 referred to Para47 c
1998 (1) Suppl. SCR 379 referred to Para48
2001 (5) Suppl. SCR 511 referred to Para 48
1981 (2) SCR 155 referred to Para 57
D
1994 (4) Suppl. SCR 448 referred to Para 102
AIR 1976 J&K41 referred to Para 102
(1999) 3 sec 398 referred to Para 103
2006 (8) Suppl. SCR 485 referred to Para 105(i) E
2013 (17) SCR 395 referred to Para 105(ii)
(1968) 3 SCR 623 referred to Para 105(iii)
(2015) 1 sec 1 referred to Para 105(iv)
F
(1962) Supp.1SCR700 referred to Para 105(v)
1985 (2) Suppl. SCR 109 referred to Para 105(vi)
2012 (13) SCR 555 referred to Para 105(vii)
1981 (1) SCR 627 referred to Para 128{i) G
1981 (2) SCR 155 referred to Para128(ii)
1983 (2) SCR 598 referred to Para128(iii)
(1997) 6 sec 626 referred to Para128(iv)
H
294 SUPREME COURT REPORTS [2015] 15 S.C.R.

A CIVIL APPELLATE JURISDICTION: Civil Appeal No.
554 of2006
From the Judgment and Order dated 04.07.2005 of the
High Court of Judicature at Bombay in Writ Petition No. 2397
B of2004
WITH
C.A. Nos. 1587, 658, 1589 OF 2006
T. C. (C) NOS. 32, 33, 36 OF 2007
C T. C. (C) NOS. 1, 3 OF 2008
T. C. (C) NO. 49 OF 2009
T. C. (C) NO. 107 OF 2015
T. P. (C) NO. 568 OF 2014
D
W.P. (C) NO. 27 OF 2008
W.P. (C) NO. 343 OF 2009
W.P. (C) NO. 246 OF 2010.
E Ms. PinkiAnand,ASG, YashankAdhyaru, Sr.Adv., Ajay
Sharma, S. S. Rawat, Ms. Rashmi Malhotra, Ms. Kiran
Bhardwaj, D. S. Mahra, A. Subba Rao, Annam D. N. Rao,
Sudipto Sircar, Ms. Neelam Jain, Ms. Vaishali R., Annam
Venkatesh, Ms.Ankita Chadha, K.L.D.S. Vinober, Tarun Gulati,
F Kishore Kuna!, Sparsh Bhargava, Manish Rastogi, Praveen
Kumar, Shashi Mathews,Anupam Mishra, Rohan P. Shah,Alok
Yadav, Somnath Shukla, Udit Jain, Praveen Kumar, K. R.
Sasiprabhu, Rohan P. Shah, Vishnu Sharma, Ms. Shilpa
G Balani, Ms. Swati Jain, Ms. Bina Gupta, Manu Nair, Tanuj
Bhushan, (For Mis. SureshA. Shroff &Co.), Kamlendra Mishra,
Shyam Diwan, Sameer Parekh, E. R. Kumar, Nitin Thukral,
Gal av Sharma, Shashaank Bhansali, (For M/s. Parekh & Co.),
V. K. Verma, Advs. for the appearing parties.
H
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 295
M/S. KANAK EXPORTSANDANR.

The Judgment of the Court was delivered by A
A. K. SIKRI, J.
Civil Appeal No. 554 of 2006
Civil Appeal No. 658 of 2006
B
Civil Appeal No. 1587 of 2006
Civil Appeal No. 1589 of 2006
Transfer Case (Civil) No. 36 of 2007
Transfer Case (Civil) No. 1 of 2008 c
Transfer Case (Civil) No. 3 of 2008
Transfer Case (Civil) No. 49 of 2009
Writ Petition (Civil) No. 343 of 2009
D
Writ Petition (Civil) No. 246 of 2010
1. Export Import (EXIM) Policy 2002-2007 was framed
by the Central Government under Section 5 of the Foreign
Trade (Development and Regulation) Act, 1992 (hereinafter
referred to as the 'Act'), which came into force with effect from E
April 01, 2003. The main purpose and objective of this Policy
was to boost the exports. In furtherance of the same, a Special
Scheme containing the provisions thereof was incorporated
therein which gave certain kind of incentives to the exporters
of some specified items. However, some amendments were F
made thereto vide Notification No. 28 dated January 28, 2004.
On the same day, Public Notice No. 40(RE-2003)/2002-2007
was also issued in exercise of powers conferred under the
provisions of Para 2.4 of the said Policy, which was followed G
by Notification No. 38 dated April 21, 2004 and Notification
No. 40 dated April 23, 2004.
2. Vide Notification No. 28 dated January 28, 2004, the
Central Government sought to amend certain provisions of the
H
296 SUPREME COURT REPORTS [2015] 15 S.C.R.

A EXIM Policy by inserting Notes 1 to 5, which was unpalatable
to the exporters of the goods mentioned therein as, according
to them, under the guise of the said Notes, some benefits which
had already accrued to these exporters under the EXIM.Policy
were taken away. Vide Public Notice dated January 28, 2004,
B the Government announced exclusion of export performance
in relation to four classes of goods mentioned in para 2 thereof
from computation of the entitlement under the Scheme and, at
the same time, sought to disallow the import of agricultural
products falling under Chapters I to XXIV of ITC (HS) under
C the said scheme. Thereafter, Notification No. 38 dated April
21, 2004 was published under Section 5 of the Acton the same
lines on which Public Notice dated January 28, 2004 was
issued. The exporters of these goods, naturally, felt aggrieved
thereby. There was an innocuous amendment to Notification
0
No. 38 dated April 21, 2004 wherein in addition to the Director
General of Foreign Trade (for short, 'DGFT') as an Officer to
enforce these Notifications, ex-officio Additional Secretary to
the Government of India was also added. All such exporters
E who were affected thereby filed writ petitions in various High
Courts, particulars whereof shall be taken note of hereinafter
at the appropriate stage.
3. The Bombay High Court in Writ Petition No. 2397 of
2004, decided on July 04, 2005, has given partial relief to the
F exporters/ writ petitioners. The Gujarat High Court has
substantially affirmed the validity of these Notifications while
giving relief on one particular aspect. Insofar as judgments of
Bombay High Court and Gujarat High Court are concerned,
both the Union of India as well as the writ petitioners preferred
G Special Leave Petitions, in which leave was granted, and these
are now converted as Civil Appeal No. 658 of 2006 and Civil
Appeal 554 of 2006 respectively. That apart, the Single Judge
of the Gujarat High Court in one of the cases dismissed the
H writ petition and the LPA was filed by the said petitioner before
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 297
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

the Division Bench of the High Court. Since the issue involved A
in these appeals is the same, which is raised in the LPA in the
Gujarat High Court and still pending in the writ petitions filed in
various High Courts, transfer petitions were filed by the Union
of India seeking transfer of all those cases and to be heard
along with these two appeals. Those transfer petitions were B
allowed. This is how all these cases are bunched together
and heard simultaneously as the issue is substantially the same
in all these matters.
4. With this background reflecting the nature of these c
cases, we now proceed to discuss the main provision of the
EXIM Policy and how the aforesaid Notifications have
amended the provisions of that Policy. That would give an
indication as to what kind of grievance is raised by these
exporters in challenging the validity of these Notifications. D
5. The Act was passed to provide for the development
and regulation of foreign trade by facilitating imports into, and
augmenting exports from India and for matters connected
therewith or incidental thereto. The Statement of Objects and
Reasons of this Act stipulates that foreign trade is the driving • E
force of economic activity. Technology, investment and
production are becoming increasingly interdependent upon
each other and foreign trade brings these elements together
and spurs economic growth. The Imports and Exports (Control) F
Act, 1947 was made in different circumstances. Although it
has been amended from time to time, the Act does not provide
an adequate legal framework for the development and
promotion of India's foreign trade. Besides, in July, 1991 and
August, 1991, major changes in trade policy were made by G
the Government of India. The goals of the new trade policy
are to increase productivity and competitiveness and to
achieve a strong export performance. The Exports and Import
Policy is a vital part of trade policy. The basic law governing
H
298 SUPREME COURT REPORTS [2015] 15 S.C.R.

A foreign trade must serve as an instrument to create an
environment that will provide a strong impetus to exports,
facilitate imports and render export activity more profitable. It
has, therefore, been considered necessary to enact a new law
repealing the existing law. The Act intends to achieve these
B objectives.
6. In order to achieve the aforesaid objectives, power is
given to the Central Government under Section 3 of the Act to
make provisions relating to imports and exports with primary
c focus on the development and regulation of foreign trade.
Further, Section 5 specifically empowers the Central
Government to formulate and announce the EXIM Policy. It
reads as under:
"5. Export and import policy. - The Central
D Government may, from time to time, formulate and
announce, by notification in the Official Gazette, the
export and import policy and may also, in the like
manner, amend that policy."
E 7. In order to carry out the purposes of th is Act, DGFT is
• to be appointed by the Central Government as per the
provisions of Section 6 of the Act. In addition to carrying out
the purposes of this Act, DGFT is also supposed to advise the
Central Government in formulation of the EXIM Policy. He is
F also made responsible for carrying out that Policy. However,
sub-section (3) of Section 6 empowers the Central Government
to give the aforesaid functions of the DGFT even to other Officer
subordinate to DGFT, except for powers conferred under
Sections 3, 5, 15, 16 and 19 of the Act.
G
8. As already noted above, Sections 3 and 5 give certain
powers to the Central Government and, therefore, these
powers have to be exercised by the Central Government only
and cannot be delegated to DGFT or an Officer subordinate
H to him. Sections 15 and 16 relate to appeal and revision which
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 299
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

can be filed against the orders passed by the Adjudicating A
Authority against any person committing contravention of
provisions of the Act, Rules, Orders and EXIM Policy. Appeal
lies to DGFT if the Adjudicating Authority, who passes the order,
is an Officer subordinate to DGFT. In those cases, where the
Adjudicating Officer is DGFT himself, appeal lies to the Central B
Government. Under Sections 16, revisionary powers are
conferred upon the Central Government. These powers of
appeal and revision also cannot be delegated by virtue of
Section 6(3) of the Act. Section 19 again confers power upon
the Central Government to make Rules for carrying out the C
provisions of the Act generally and in respect of various matters
specifically enumerated in sub-section (2) of Section 19. This
power of the Central Government also cannot be delegated.
9. It may be noted that under Section 5 of the Act, the o
Central Government has been formulating EXIM Policies from
time to time. The Policy with which we are concerned is the
EXIM Policy for the period 2002-2007, which was substituted
by EXIM Policy 2004-2009.
10. EXIM Policy of 2002-2007 was announced and came E
into force from April 01, 2002. Amendment to this Policy was
notified on March 31, 2003 and the revised edition of the Policy
was to come into force from April 01, 2003. Even though the
Central Government is generally entitled and empowered to F
carry out amendments in this Policy from time to time, in the
EXIM Policy 2002-2007, such a right was specifically reserved
stating that 'however, the Central Government reserves the
right in public interest to make any amendments to this Policy
in exercise of powers conferred by Section 5 of the Act'. It G
was also mentioned that such amendments would be made
by means of a notification published in the Gazette of India.
11. Chapter I of the Policy, which gives 'Introduction', had
made transitional arrangements vide para 1.2 thereof clarifying
H
300 SUPREME COURT REPORTS [2015] 15S.C.R.

A that any notifications made or public notices issued or anything
done under the provisions of EXIM Policy and in force
immediately before the commencement of the said Policy shall
continue to be in force, insofar as those notifications, etc. are
not in consistent with the provisions of the instant Policy. It
B was also clarified that licences/certificates/permissions issued
under the earlier Policy would continue to be followed for the
purpose for which such licences/certificates/permissions were
issued, unless otherwise stipulated. Para 1.4 enshrines the
oDjeCtlves which led to formulation of such a Policy and reads
C asunder:
"1.4 The principal objectives of this Policy are:
(i) To facilitate sustained growth in exports to attain
a share of at least 1% of global merchandise trade.
(ii) To stimulate sustained economic growth by
providing access to essential raw materials,
intermediates, components, consumables and
capital goods required for augmenting production
E and providing services.
(iii) To enhance the technological strength and
efficiency of Indian agriculture, industry and
services, thereby improving their competitive
strength while generating new employment
F opportunities, and to encourage the attainment of
internationally accepted standards of quality.
(iv) To provide consumers with good quality goods
and services at internationally competitive prices
G while at the same time creating a level playing field
for the domestic producers."
12. Keeping in mind the aforesaid principal objectives,·
para 2.1 made it clear that exports and imports shall be free,
except in cases where they are regulated by the provisions of
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 301
M/S. KA~AK EXPORTS AND ANR. [A. K. SIKRI, J.]

the said Policy or any other law for the time being in force. As A
per para 2.4, DGFT was authorised to specify the procedure
which needs to be followed by an exporter or importer or by
any licencee or other competent authority for the purposes of
implementing the provisions of the Act, the Rules ·and the
Orders made therein and this Policy. Such a procedure was B
to be stipulated and included in the Handbook (Volume-I},
Handbook (Volume-II), Schedule of DEPB and in ITC (HS) and
published by means of a public notice. It.was permissible to
amend this procedure from time to time.
c
13. Another provision of this Policy which needs to be
noticed is para 2.34 that pertains to 'third party exports' and
r
reads as under:
"2.34 Third party exports, as defined in paragraph
9.55 shall be allowed under the Policy." D
14. Since the third party exports are to be allowed, as
defined in para 9.55, we reproduce herein the said para as
well:
"'Third-party exports" means exports made by an E
exporter or manufacturer on behalf of another
exporter(s). In such cases, shipping bills shall
indicate the name of both the exporter/
manufacturer and exporter(s)."
F
15. Registration by importer or exporter is needed to
avail the benefits of this Policy and provision in this respect is
contained in para 2.44 mentioning about the Regis!ration-cum-
Membership Certificate, which reads as under:
"2.44 Any person, applying for (i) a licence/ G
certificate/permission to import/export, [except
items listed as restricted items in ITC (HS)] or (ii)
any other benefit or concession under this policy
shall be required to furnish Registration-cum-
H
302 SUPREME COURT REPORTS [2015] 15 S.C.R.

A Menibership Certificate (RCMC) granted by the
competent authority in accordance with the
procedure specified in the Handbook (Vol.I) unless
specifically exempted under the Policy."
B 16. Chapter Ill of the EXIM Policy deals with 'Promotional
Measures' which are to be undertaken to achieve the objective
of the Policy. Apart from various other measures stipulated
therein, with which we are not concerned, this Chapter also
deals with grant of 'Status Certificate'which is to be given to
c various kinds of exporters etc. who are eligible for such
recognition. Categories of the exporters are mentioned therein
depending upon the export performance level achieved by such
export houses. Such status holders are eligible for certain
special facilities which could be availed during the validity
o period of the Policy, i.e. April 01, 2002 to March 31, 2007,
unless otherwise specified. Since all the petitioners who filed
the writ petitions have this Status Certificate, on the strength
of which they are claiming the special facilities, and in their
perspective the impugned notifications adversely affect the
E availment of these facilities, we reproduce verbatim concerned
paras of the Policy touching upon this aspect:

Status l 7. 1 MerchC11t k. Well as MC11ufacturer
Certificate Exporters, Service Providers, Export
Oriented Urits (EOU's) I Uiits Located in
F
Special Economic Zones (SEZs) I Agi
Export Zone (PE.l's) I Electroric
Hard.vare Ta::hnolcgy Parks (EHTPs) I
Solt\i\are Techldogy Parks (STPs) shaD
be eligible for such recognition.
G
Export l 7.2 The a~licant is req_iired to aclieve the
Perfornlalce prescribed average export performance
Level level:

H
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 303
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

Category Total FOB/FOR dunng the current A
licencing year or during the
preceding 1/2/3 licensing yP,ars
(in Rupees)
Export House 45 crores
B
Trading House 300 crores
Star Trading House 1500 crores
Super Star Trading House 6000 crores
Note:1. Units in Small Scale Industry/Tiny Sector/ C
Cottage Sector/Units registered with KVICs or
KVIBs/Units located in North Eastern States,
Sikkim and J&K/Units exporting handloom,
handicrafts, hand knotted carpets, silk carpets/
exporters holding golden status/exporters exporting D
to countries in Latin America and CIS/ sub Saharan
Africa as listed inAppendix-17C, units having ISO
9000 (series)/WHOGMP/ HACCP/SEI CMM level-
11 and above status granted by agencies listed in E
Appendix-28A, shall be entitled for export house
status on achieving Rs.15 ·crore FOB/FOR during
the current licencing year or during the preceding
1/2/3 licensing years. The same threshold limit shall
be applicable to the service exporters and agri F
exporters (other than grains) for obtaining Export
house status.
2. Export made on re-export basis shall not be counted
for the purpose of recognition.
G
3. The exports made by a subsidiary of a limited
company shall be counted towards export
performance of the limited company for the purpose
of recognition. For this purpose, the company shall
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304 SUPREME COURT REPORTS [2015] 15S.C.R.

A have the majority share holding in the subsidiary
company.
We now advert to the most crucial provision which entitles
these Status Holders to the following benefits:
B Special 3. 7 .2.1 The status holders shall be eligible
Strategic for the following new/special facilities:
Package for
Status Holders
(i) Licence/certificate/permissions and
c Customs clearances for both imports
and exports on self-declaration basis;
(ii) Fixation of Input-Output norms on
priority within 60 days;
D (iii) Exemption from compulsory
negotiation of documents through
banks. The remittance, however, would
continue to be received through banking
channels;
E
(iv) 100% retention of foreign exchange
in EEFC account;
(v) Enhancement in normal repatriation
period from 180 days to 360 days;
F
(vi) Duty free import entitlement for status
holders having incremental growth of
more than 25% in FOB value of exports
(in free foreign exchange) subject to a
minimum export turnover of Rs. 25 crore
G
(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
H
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 305
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

capital goods, office equipment and · A
inputs for their own factory or the factory
of the associate I supporting
manufacturer/job worker. The entitlement/
goods shall not be transferable.
B
The exporters who gets the Status Certificate are known
as 'Status Holders'. The term 'Status Holder' is defined in para
9.53 and reads as under:
""Status Holder" means an exporter recognised as
"Export House/Trading House by DGFT/ Development C
· Commissioner or Star Trading House/Super Star Trading
House" by the Director General of Foreign Trade."
17. As noted above, the main objective of this EXIM Policy
was to achieve the share of 1% of global trade and accelerated D
growth in exports. For this purpose, certain sectors, where
such exports were to be given the necessary boost, were
mentioned in para 3.10 describing them as 'Thrust Sector'.
These are as under:
3.10 With a view to achieve the share of 1% E
of globaltrade and accelerc;lted growth
in exports, the following shall be the
thrust sectors:
a) Electronic hardware
F
b) Textile including garments
c) Auto components/ancillary
d) Gem & Jewellery
e) Agriculture G

f) Service sector
Department of Commerce shall take
concerted efforts to promote exports of
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306 SUPREME COURT REPORTS [2015] 15 S.C.R.

A these sectors by specific sectoral
strategy.
18) It is already noted above in para 3.7.1 that various
kinds of categories are eligible for recognition as stat.us
holders. These include Export Oriented Units (EOUs),
8
Electronic Hardware Technology Parks (EHTPs) and Software
Technology Parks (STPs). A separate Chapter, i.e. Chapter
VI, is carved out to deal with the aforesaid categories.
Eligibility thereof is stipulated in para 6.1, which is to the
c following effect:
Eligibility 6.1 Units undertaking to export their entire
production of goods and services,
except permissible saJes in the OTA, as
per the Policy, may be set up under the
D Export Oriented Unit (EOU) Scheme,
Electronic Hardware Technology Park
(EHTP) Scheme or Software
Technology Park (STP) Sc~eme for
manufacture of goods, including repair,
E re-making, reconditioning, re-
engineering, and rendering of services.
No trading units shall, however, be
permitted.
F 19. Such EOUs/EHTPs/STPs are permitted to export
goods through status holder, as specifically provided in para
6.10 and we reproduce hereunder:
Export through
Status Holder 6.10 An EOU/EHTP/STP unit may export
G goods manufactured I software
developed by it through a merchant
exporter/status holder recognized under
this Policy or any other EOU/EHTP/STP/
SEZ unit.
H
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 307
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

20. Special Economic Zones (SEZs) are also entitled A
for Status Certificate. The provisions concerning these SEZs
are contained in Chapter VII of the EXIM Policy. Their eligibility
is defined in para 7 .1 in the following words:
Eligibility 7.1 (a) Special Economic Zone (SEZ) is a
8
specifically delineated duty free enclave
and shall be deemed to be foreign
territory for the purposes of trade
· operations and duties and tariffs.
(b) Goods and services going into the C
SEZ area from DTA shall be treated as
exports and goods coming from the
SEZ area into DTA shall be treated as
if these are being imported.
D
(c) SEZ units may be set up for
manufacture of goods and rendering of
services.
21. Para 7.8 deals with DTASales and Supplies which
these SEZ Units ma undertake. These SEZ Units are also E
entitled to export through status holder in terms of para 7.10,
asunder:
Export through
Status Holder 7.10 SEZ unit may also export goods F
manufactured/software developed by it
through a merchant exporter/status
holder recognized under this Policy or
any other EOU/SEZ/EHTP/STP unit.
22. Chapter IX contains definition of various terms which G
are used in the EXIM Policy. We have already noted the
definition of 'Status Holder' as well as 'Third Party Exports'.
Some other definitions which require a mention are as under:
9.5 "Actual User (Industrial)" means a person who
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308 SUPREME COURT REPORTS [2015) 15 S.C.R.

A utilises the imported goods for manufacturing in
his own industrial unit or manufacturing for his
own use in another unit including a jobbing unit.
9.6 "Actual User (Non-Industrial)" means a person
who utilises the imported goods for his own use
B
in: (i) any commercial establishment carrying
on any business, trade or profession; or (ii) any
laboratory, Scientific or Research and
Development (R&D) institution, university or
c other educational institution or hospital; or (iii)
any service industry.
9.10 "Capital Goods" means any plant, machinery,
equipment or accessories required for
manufacture or production, either directly or
D indirectly, of goods or for rendering services,
including those required for replacement,
modernisation, technological upgradation or
expansion. Capital goods also include
packaging machinery and equipment,
E
refractories for initial lining, refrigeration
equipment, power generating sets, machine
tools, catalysts for initial charge, equipment and
instruments for testing, research and
development, quality and pollution control.
F
Capital goods may be for use in manufacturing,
mining, agriculture, aquaculture, animal
husbandry, floriculture, horticulture, pisciculture,
poultry, sericulture and viticulture as well as for
G use in the services sector.
9.31 "Manufacturer Exporter" means a person who
export goods manufactured by him or intends to
export such goods.
9.33 "Merchant Exporter" means a person engaged
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 309
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

in trading activity and exporting or intending to A
export goods.
23. To put it in nutshell, EXIM Policy 2002-2007 was
promulgated with the principal objective, inter a/ia, to facilitate
sustained growth in exports to achieve a share of 1% of global
8
merchandise trade. Therefore, the thrust of this Policy was to
ensure and facilitate growth in exports. Because of this reason,
exports and imports were made free, except in relation to
cases where they were specifically regulated by the provisions
of this Policy or under any law. In order to facilitate the growth c
of these exports, following measures were specifically
provided in the EXIM Policy:
(a) third party exports;
(b) stipulating thrust sector, viz. mentioning those D
products which were having potential in achieving the
target of 1% of global trade and accelerated growth in
exports. It was, therefore, perceived that in these sectors
there is an ample scope for boosting the exports. Six
such sectors mentioned in para 3 .10 include Gem and E
Jewellery Sector as well;
(c) it was held that growth in exports can be accelerated
through small scale industry sector/mid level export
houses. For this purpose, depending upon the level of
export by the exporters, categories of the exporters were F
carved out, namely, Export Houses, Trading Houses, Star
Trading Houses and Super Star Trading Houses. In order
to encourage these export categories, depending upon
their category, the export incentives were provided for G
them;
(d) in the same direction, certain categories were chosen
for giving recognition as status holders, who could get
such Status Certificate if they come within the purview of
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310 SUPREME COURT REPORTS [2015] 15 S.C.R.

A the definition of 'Status Holder' contained in para 9.55.
24. The importance that was given to these status holders
was highlighted by the then Commerce Minister while
announcing special strategic package for status holders.
Relevant extract of the said speech contained in para 19 thereof
B-
is noted as under:
"19. The status holders have been a pillar of strength
in increasing exports. There is a feeling among
them that under the Exim Policy, substantive
c benefits are no longer available to them since the
earlier benefits such as fast track clearance and
relaxation from certain procedures, are now
universally applicable in the liberalized
environment. We recognize that the status holders
D 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. Moreover, it .will be our endeavor to
E facilitate India emerging as a major base for
outsourcing products and services for the rest of
the world. They are also critical to our strategy for
accelerating the rate of incremental growth of
exports. Therefore, we intend to give a premium
F
to the status holders who acbieve 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
G 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 crore.
They would be entitled to a duty free entitlement of
10% of the incremental growth in exports during the
H
DIRECTOR GENERAL OF FOREIGN TRADE ANDANR. v. 311
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

current financial year. This entitlement would b~ A
subject to actual user condition which can be
passed on to associate manufacturers."
25. In fact, as a part of the EXIM Policy, with amendment
coming into effect from April 01, 2003, certain incentives known
8
as 'Special Strategic Package' for status holders was
incorporated in para 3.7.2.1. We are concerned with sub-para
(vi) thereof, which granted duty free entitlement of 10% of the
incremental growth in exports. This para is reproduced above.
A reading of the said para would demonstrate that in order to c
have the aforesaid entitlement, fo!lowing conditions were to
be satisfied:
(a) the exporter had to be 'Status Holder';
(b) achieving incremental growth of more than 25% in
0
FOB value of exports in free foreign exchange ;
(c) minimum export turnover of 1 25 crores in free foreign
exchange;
(d) entitlement could be used for import of capital goods, E
office equipment and inputs for their own factory or the
factory of the associate/supporting manufacturer/job
worker;
(e) such entitlement/goods was non-transferable; and
(f) since the Scheme was intended to be a specific F
incentive for fast growing status holders, the benefits were
to be available only after April 01, 204 on the basis of the
export performance during the period April 01, 2003 to
March 31, 2004.
G
26. On the very same day, i.e. on March 31, 2003, in
exercise of the powers conferred by Section 5 of the Act, read
with para 1.1 of the EXIM Policy 2002-2007, the Central
Government amended and notified the EXIM Policy 2002-
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312 SUPREME COURT REPORTS [2015] 15 S.C.R.

A 2007 (revised edition: March 2003). The revised edition came
into force with effect from April 01, 2003. The relevant
provisions of the EXIM Policy, as amended upto March 31,
2003, and relevant for the purpose of the present case, are
paras 1.1, 1.2, 1.3, 2.2, 2.3, 2.4, 2.6, 2.8, 2.9 and 2.10 and the
B same are reproduced below:
"1.1 In exercise of the powers conferred under
Section 5 of the Foreign Trade (Development &
Regulation)Act, 1992 (No. 22of1992) the Central
c Government hereby notifies the Export and Import
Policy for the period 2002-2007. This Policy shall
come into force with effect from 1st April 2002 and
1
shall remain in force upto 31° March 2007 and will
be co-terminus with the Tenth Five Year Plan (2002-
D 2007). 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
made by means of a Notification published in the
E Gazette of India.
1.2 Any Notifications made or Public Notices
issued or anything done under the previous ExporV
Import policies, and in force immedic:itely before the
commencement of this Policy shall, insofar as they
F
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.
Licence/certificate/permissions issued before the
G commencement of this Policy shall continue to be
valid for the purpose for which such licence/
certificate/permission was issued unless otherwise
stipulated.
1.3 In case an export or import that is permitted
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 313
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

freely under this policy is subsequently subjected A
to any restriction or regulation, such export or import
will ordinarily be permitted notwithstanding such
restriction or regulation, unless otherwise stipulated,
provided that the shipment of the export of import
is made within the original validity of the irrevocable B
letter of credit established before the date of
imposition of such restriction.
xx xx xx
2.2 Every exporter or importer shall comply with the c
provisions of Foreign Trade (Development &
Regulation)Act 1992, the Rules and Orders made
thereunder, the provisions of this Policy and the
terms and conditions of any licence/certificate/
permission granted to him, as well as provisions of D
any other law for the time being in force. All
imported goods shall also be subject to domestic
laws, rules, orders, regulations, technical
specifications, environmental and safety norms as
applicable to domestically produced goods. No E
import or export of rough diamonds shall be
permitted unless the shipment parcel is
accompanied by Kiberley Process (KP) Certificate
required under the procedure specified by the Gem
F
& Jewellery Export Promotion Council (GJEPC).
2.3 If any question or doubt arises in respect of the
interpretation of any provision contained in this
Policy, or regarding the classification of any item in
the ITC (HS) or Handboo.k (Vol.I) or Handbook G
(Vol.2), or Schedule of DEPB Rate the said
question of doubt shall be referred to the Director
General of Foreign Trade whose decision thereon
shall be final and binding.
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314 · SUPREME COURT REPORTS [2015) 15 S.C.R.

A If any question or doubt arises whether a licence/
certificate/permission has been issued in
accordance with this Policy or if any question or
doubt arises touching upon the scope and content
of such documents, the same shall be referred to
B the Director General of Foreign Trade whose
decision thereon shall be final and binding.
2.4 The Director General of Foreign Trade may, in
any case or class of cases, specify the procedure
c to 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 Orders made thereunder and this
Policy. Such procedures shall be included in the
D Handbook (Vol.1 ), Handbook (Vol.2), 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.
The Handbook (Vol.1) is a supplement to the EXIM
E 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 ).
F xx xx xx
2.6 DGFT may, through a notification, adopt and
enforce any measure necessary for:
(i) Protection of public morals.
G (ii) Protection of human, animal or plant life or
health.
(iii) Protection of patents, trademarks and
copyrights and the prevention of deceptive
H practices.
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 315
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

(iv) Prevention of prison labour. A
(v) Prevention of national treasures of artistic,
historic or archaeological value.

(vi) Conservation of exhaustible natural resources. B

(vii) Protection of trade of fissionable material or
material from which they are derived; and
·(viii) Prevention of traffic in arms, ammunition and
implements of war. C
xx xx xx
2.8 Every licence/certificate/permission shall be
valid for the period of validity specified in the
licence/certificate/permission and shall contain D
such terms and conditions as may be specified by
the licensing authority which may include:
(a) the quantity, description and value of the goods;
(b) Actual User condition; E
(c) export obligation;
(d) the value addition to be achieved; and
(e) the minimum export price.
F
2.9 No person may claim a licence/certificate/
permission as a right and the Director General of
Foreign Trade or the licensing authority shall have
the power to refuse to grant or renew a licence/
certificate/permission in accordance with the G
provisions of the Act and the Rules made
thereunder.
2.10 If a licence/certificate/permission holder
violates any condition of the licence/certificate/
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316 SUPREME COURT REPORTS [2015] 15 S.C.R.

A permission or fails to fulfill the export obligation, he
shall be liable for action in accordance with the Act,
the Rules and Orders made thereunder, the Policy
and any other Jaw for the time being in force.
27. On March 31, 2003, in exercise of the powers
8
conferred under paragraph 2.4 of the EXIM Policy, 2002-207,
the DGFT notified the Handbook of Procedures (Volume-I)
(Revised Edition- March 2003) which was to come into effect
with effect from April 01, 2003. Para 3.2.5 of the same
c provided that:
'The status holders having an annual incremental
growth of more than 25% in the FOB value of exports
(in free foreign exchange) shall be entitled to the.
facility of duty free credit entitlement subject to
D achieving a minimum annual export turnover of
Rs.25 crore (in free foreign exchange). Such status
holders shall be entitled to duty free credit
entitlement certificate to the extent of 10% of the
incremental growth in exports.
E
Accordingly, status holders who will achieve more
than 25% growth in exports in the year 2003-04 (in
free foreign exchange) as compared to the exports
made in 2002-03 (in free foreign exchange) subject
F to a minimum export of Rs.25 crore (in free foreign
exchange) shall be entitled for duty free credit
entitlement certificate @ 10% of the incremental
growth in exports.
The duty free credit entitlement can be used for
G
import of capital goods, office equipments and
inputs provided the same is freely importable under
ITC (HS). Such goods shall be non-transferable.
Goods imported against such entitlement
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 317
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

certificate shall be used by status holders or his A
supporti~g manufacturerijob worker provided the
name and address of the supporting manufacturer/
job worker is endorsed on the certificate issued by
RLA.
B
Application shall be filed with the jurisdictional
regional licensing authority as per the address given
in status certificate. The application for the duty free
credit entitlement certificate would be made in
Appendix 17D. c
The duty free entitlement certificate shall be valid
for a period of 12 months. The status holder shall
within one month of the expiry of the validity of the
duty free entitlement certificate, submit a statement
of imports made under the certificate as per D
Appendix 17E to the jurisdictional Regional
Licensing Authority."
28. After taking stock of the main provisions of the EXIM
Policy which concern us in these proceedings, we now advert E
to the nature of amendments made by Notification dated
January 28, 2004 as well as Public Notice of even date,
followed by Notification No. 38 dated April 21, 2004.
29. Vide Notification No. 28 dated January 28, 2004,
which was issued in exercise of powers contained in Section F
5 of the Act read with para 1.1 of the EXIM Policy, certain
amendments were made in the EXIM Policy. However, we
are concerned here with amendment in para 3.7.2.1 in Chapter
Ill. As noted above, this para provides certain incentives and
contains seven sub-paragraphs. After sub-paragraph (vii), five G
notes were inserted by way of amendment. Though some
provisions of Note I are the bone of contention, we reproduce
here all these Notes for better understanding:
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318 SUPREME COURT REPORTS [2015] 15 S.C.R.

A "Note 1 - For the purpose of calculating the value
of exports, the following exports shall not be taken
into account, namely:
(i) re-export of imported goods or exports made
through transshipment;
B
(ii) export turnover of units operating under
SEZ/ EOU/EHTP/STP Schemes or products
manufactured by them and exported through
OTA units;
c (iii) deemed exports (even when payments are
received in free foreign exchange) and payment
from EEFC account;
(iv) service exports;
D (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
E be eligible for entitlement under the scheme;
(vii) supplies made or export performance
effected by a non-status holder (Merchant
exporter/ Manufacturer with any ~xport
performance in 2003-04) to a status holder if
F
the applicant as well as the non status holder
have less than 25 per cent incremental growth
over their respective previous years direct
export turnover; and
G (viii) the exports made by an applicant within a
group and the group to which it belongs has
individually less than 25 per cent incremental
growth of export.

H
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 319
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

Note 2 - The incremental growth of exports by an A
exporter shall not, directly or indirectly, be transferred
to any other exporters.
Note 3 - Government reserved the.right in public
interest, to specify the export products, which shall
B
· not be eligible for calculation of incremental growth/
entitlement. Similarly, the government may also
notify the list of goods, which shall not be allowed
for imports under the scheme.
Note 4- These guidelines will be applicable to the c
exports made on or after 1.04.2003.
Note 5 - The entitlement will be in terms of duty
credit."
To point out here itself, challenge was laid to sub-note D
(ii), (v), (vi) and (vii) of Note 1.
30. Sub-paragraph (3) of the para 3.8 pertaining to the
"duty free credit entitlement for service providers" was
amended to read as under:
E
"Service provider (other than hotels) shall be entitled
to duty free import equivalent to 10% of the average
foreign exchange earned by them in preceding
three licensing years. However, hotels (one star
and above), heritage hotels, stand-alone F
restaurants approved by Department of Tourism,
Govt. of India and other service providers in tourism
sector registered with Department of Tourism, Govt.
of India, and shall be entitled for duty free imports
equivalent to 5% of the average foreign exchange G
earned by them in free imports equivalent to 5% of
the average foreign exchange earned by them in
preceding three licensing years. For one & two
star hotels and stand-alone restaurants, the foreign
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320 SUPREME COURT REPORTS [2015] 15S.C.R.

A exchange earned through international credit cards
only shall be taken into account for the entitlement
under the scheme. The duty free entitlement shall
be used for import of any capital good including
spares, office equipment(s) & professional
B equipment(s), office furniture(s) & consumables.
However, agriculture, diary products motor cars
sports utility vehicles and all purpose vehicles would
not be allowed to be imported against this
entitlement."
c 31. Vide Public Notice bearing No. 40 dated January
28, 2004, which was issued along with the aforesaid
Notification No.28 on the same date, certain amendments were
made in the Handbook of Procedures (Volume-I). This Public
D Notice was issued by the DGFT in exercise of powers
conferred under para 2.4 of the EXIM Policy. By this Public
Notice, paragraph 3.2.6 was inserted below para 3.2.5 of the
Handbook of Procedures (Volume-I), which reads as under:
'.'The scheme will be applicable to status holders who
E were also status holders as on 31.3.2003 and who had
achieved minimum export turnover of 25 crores in the
year 2003-04:
I. For direct as well as third party exports, the Export
F documents viz. Export Order, Invoice, GR Form, Bank
Realization Certificate should be in the name of applicant .
only. However, for the third party exports, where goods
have been procured from a manufacturer, the shipping
bill should contain the name of the exporter as well as
G the supporting manufacturer.
II. Goods allowed to be imported under this scheme shall
have a nexus with the products exported and a
declaration in this regard shall be made by the applicant
in Appendix 170.
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 321
MIS. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

Ill. The licensing authority shall at the time of issuance of A
the duty free credit entitlement certificate endorse the
name of the associate manufacturer/supporting
manufacturer/ job worker on the certificate as declared
by the applicant. Goods imported against such
entitlement certificate shall be used by the status holder B
or his supporting manufacturer/job worker in proportion
to the value of their direct contribution to the entitlement.
IV. The last date for filing of such applications shall be
st
31 December. c
V. The duty free credit entitlement certificate shall be
issued with a single port of registration. For each duty
free credit entitlement certificate, split certificates subject
to a minimum of Rs.5 lakh each and multiples thereof
may also be issued. A fee of Rs.1000/- each shall be D
paid for each split certificate. However, a request for
issuance of split certificate(s) shall be made at the time
of application only and shall not be considered at a later
stage.
E
VI. The duty free credit entitlement certificate shall be
valid for a period of 12 months from the date of issue.
The status holder shall within one month of the last imports
made under this certificate or within one month of expiry
of the certificate whichever is earlier, submit a statement F
of imports/utilization made under the certificate as per
Appendix 17E, to the jurisdictional Regional Licensing
Authority who has issued.the certificate with a copy to
the jurisdictional excise authorities.
It also provided that: G
In terms of para 3.2.5 of Handbook of
Procedures (Volume 1), the following items .
would not be taken into account for
computation of entitlement and export H
322 SUPREME COURT REPORTS [2015) 15 S.C.R.

A performance under Duty Free Credit
Entitlement Scheme for Status Holders:
a) Rough, uncut and semi polished diamonds.
b) Gold, silver in any form including plain
B jewellery thereof.
c) Good grains sourced from central pool
maintained by FCI.
d) Items exported under free shipping bills.
C 3. In terms of para 3.2.5 of Handbook of Procedures
(Volume 1) the following items would not be allowed
for imports under Duty Free Entitlement Certificate
for Status Holders:
o a) Agricultural products, which fall under Chapters
1-24 of ITC (HS) classification of Export and Import
items."
32. We would like to mention at this stage itself that as
per the Government rationale for the amendment brought out
E by Notification No.28 dated 28.01.2004 and Public Notice
No.40 dated 28.01.2004 are as under:
------ ·-
s. Exclusion Rational for exclusion
No.
F Note Re-export of Such goods are
1 (i) imported goods imported under the
or exports made customs bond and
through trans- re-exported with little
shipment; value addition. Such
exports come from
G country A and go to
country B via India
and· are only pass
through exports and not
considered exports made
in India.
H
DIRECTOR GENERAL OF FOREIGNTRADEANDANR. v. 323
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

(ii) Export turnover of DFCE would be of no A
units operating under use to Export Oriented
SEZ/ EOU/EHTP/STPI Units (EOU) as they
Schemes or products are already entitled to
manufactured by import duty free. And
them and exported since a firm is not B
through OTA units; allowed to transfer or
sell its DFCE
entitlements or goods,
it cannot benefit from
it. Notification 28 and
Public Notice 40, kept c
the above logic in
mind while excluding
100% EOU from the
said scheme.

EXIM Policy makes a D
very clear distinction
between the exports
from an Export
Oriented Units (EOU)
and other exports E
(called Domestic Tariff
Area or OTA exports)
primarily because of
the difference in
nature of support
required by the two F
sectors. EOUs have
been allowed zero
duty facilities, besides
availing industrial
licensing exemptions.
Since these G
exemptions . are not
available to OTA
exporters, specific
schemes like DFCE
been formulated. H
324 SUPREME COURT REPORTS [2015] 15S.C.R.

A (iii) Deemed exports Goods do not leave the
country and are not
considered physical
exports.
(iv) Service exports The DFCE scheme was
B available only for physical
goods.
(v) Supplies made by The benefits of DFCE
one status holder to Scheme were not
another status applicable to all the
holder; status holders but only
c to those status holders
meeting the growth and
turnover criteria.
(vi) Export performance More than 1300 crores
made by one status of the exports of M/s
D holder on behalf of Adani Exports were
other status holder accounted by · the
will not be eligible supplies taken from the
for entitlement status holders who
under the scheme. supplied to the
(vii) Supplies made or petitioners because
E export performance they were not meeting
effected by a non- the minimum turnover
status holder and/or growth . criteria
(Merchant required to take benefit
exporter/Manufactu under the scheme.
rer with any export Claiming other firms
F performance in export would mean that
2003-04) to a status the country's export
holder if the turnover would remain
applicant as well as constant while
the non status applicant firms'
holder have less turnover will sky rocket.
G than 25 per cent This would n~t l~ad to
incremental growth the stated objective of
over their ~ccel.erating the rate of
respective previous incremental growth of
years direct export country's exports.
H turnover.
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 325
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

(viii) The exports made by M/s Reliance Industries A
an applicant within a Limited manipulated the
group and the group export turnover of its
to which it belongs group company IPCL to
has individually less maximize its DFCE and
than 25 per cent Target plus entitlements. B
incremental growth of All this led to artificially
export. increasing the export
performance which was
against the basic
principle of the DFCE
and hence excluded. c
Note Note 2. - The The scheme explicitly
2 incremental growth of was based on individual
exports by an exporters performance.
exporter shall not, Claiming other firm's
directly or indirectly, exports would mean that D
be transferred to any the country's export
other exporters. turnover would remain
constant while applicant
firm's turnover will
skyrocket.
E
If the finn had focused
on increasing their
exports, both the firm
and the country would
have gained in terms of
F
export turnover,
however, the firms chose
to focus on people who
were already exporting
(but were not entitled for
this benefit). Thus, the G
firm's turnover in the
past year grew at
astronomical rate
whereas country's export
growth was just average.
H
326 SUPREME COURT REPORTS [2015] 15 S.C.R.

~--~------ -----~-------------,

A S. No. Exclusion Rational for exclusion
a Rough, uncut and Rough diamonds are not
semi polished produced in India (Except
diamonds for a trickle from Panna).
Exporting rough diamonds
B
from India is like exporting
ostrich or giraffes from
India.

India imports rough
c diamonds polished them
and exports to the world.
The scheme ban rough
diamond while fully
allowing polished
D diamonds.

Together, the export of
diamonds and supplies
. taken from other status
E holders accounted for
81.4% of the exports of M/s
Adani Exports Ltd. during
the year 2003-04. Of these
24 75 crores were
accounted for by the export
F of rough and re-exported
polished diamonds.

The fact that the petitioners
were exporting rough
G diamonds merely to take
the benefits of DFCE
Scheme is proved beyond
doubt by the fact that firm
stopped exporting the
H rough diamonds the
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 327
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

A
Notification was issued in
January, 2004 and have
not exported any rough
diamonds during January
- March, 2004.
B
b Gold, silver in any 10% DFCE benefits
form including plain allowed the exporters to
jewellery thereof experiment in
commodities like gold
wherein India does not
have comparative c
advantage. Gold coins
and jewellery was
exported by M/s. Adani
Exports and M/s Rajesh
Exports largely to ports D
like Dubai where it was
melted and brought back
to India to be exported
again and again. The
entire operation can be
E
profitably financed
through the proceeds
under the Scheme.

With the exports taking
place within two days of F
the imports, 60 tonnes of
gold could be re--
circulated 80-90 times in
a year. That means with
a little working capital, the G
country can lose Rs.1500
for every Rs.100 invested
by an unscrupulous
exporter. Such exports
will show an increase in
H
328 SUPREME COURT REPORTS [2015] 158.C.R.

A India's exports, but this will
be unsustainable increase
and is ultimately a drain on
country's finances.
c Food grains sourced Food grains sourced from
B from central pool the open market · were
maintained by FCI allowed for benefit under the
Scheme. FCI is under
Government control where
prices are already
subsidised. As the
c Government did not want to
further subsidize the food
grains sourced from the
central pool maintained by
FCI, such exports were
excluded.
D
d Items exported under Free (also called white)
free shipping bills shipping bills do not
mandatorily require
verification of valuation by
Customs authority (as per
E Customs Circular No.612002
dated 23/1/2002). Firms
export under free shipping
bills when they do not apply
for any Government
incentives subsequently.
F
Government received
intelligence reports that the
export of high value items
like rough diamonds were
G taking place under Free
shipping bills where value of
the goods may be easily
inflated as there was no
customs valuation,
Government excluded these
H from the DFCE scheme.
~!--~~~~~~---'~~~~~~~~~---'
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 329
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

33. Mis Adani Export Lim'.ted, on February 07, 2004, A
filed S.C.A. No.1676 of 2004 in the High Court of Gujarat at
Ahmedabad challenging the validity of the Notification No. 28
and Public Notice No. 40 dated January 28, 2004.
34. Thereafter, as noted above, Notification No. 38 dated
8
April 21, 2004 was issued vide which Note 6 and 7 were
inserted in para 3.7.2.1 of the EXIM Policy. It may be recalled
that first five notes were inserted by Notification No. 28 dated
January28, 2004. By Note 6, certain products and category
of products were excluded from entitlement under duty free C
entitlement certificate for status holders, whereas under Note
7, certain items were not allowed for imports under duty free
entitlement certificate for status holders. These Notes read
as under:
"Note 6 - The export of the following products and D
categories of products would not be permitted for
counting entitlement under the Duty Free Entitlement
Certificate for Status Holders:
e) Rough, uncut and semi polished diamonds
f) Gold, silver in any form including plainjewellerythereof E
g) Good grains sourced from central pool maintained by
FCI
h) Items exported under free shipping bills.
F
Note 7 - The following items would not be allowed for
imports under Duty Free Entitlement Certificate for Status
Holders:
Agricultural products, which fall under Chapters 1-24 of I
TC (HS) classification of Export and lmpor:t items." G
Note 6 added in para 3.7.2.1 of the EXIM Policy was
earlier inserted as part of para 3.2.6 in the Handbo·ok of
Procedures (Volume-I) and is subject matter of
controversy.
H
330 SUPREME COURT REPORTS [2015] 15 S.C.R.

A 35. On July 23, 2004, the High Court of Gujarat partly
allowed Special Civil Application No. 1676 of 2004 holding
that "so far as Note 6 to Para 3. 7 .2.1 of the EXI M Policy as
inserted by the Government notifications dated April 21 and
24, 2004 and the D.G.F.T.'s public notice dated 28.01.2004
B exclude the following exports from the benefit of the duty free
import entitlement for the export status holders as contained
in Para 3.7.2.1 of the EXIM Policy 2002-2007:-
(i) Items exported under free shipping bills.
C (ii) Gold, Silver in any form including plain jewellery
thereof, insofar as the import of capital goods and office
equipment for the factory of the associate/supporting
manufacturer/ job worker of the petitioner Company is
concerned.
D
The High Court also clarified that the exports effected by
a non status holder (without any export performance in the year
previous to 2003-04) are eligible for the benefits under the
Special Scheme irrespective of the fact that such exporters
E did not have any incremental growth in exports, for obvious
reason that they had made no exports in the previous years, in
the first place.
36. Aggrieved by the judgment and order of the High
Court of Gujarat in Special Civil Application No. 1676 of 2004,
F Mis Adani Exports on October 30, 2004 filed Special Leave ·
Petition (Civil) No ... CC 6638 of 2005.
37. On April 07, 2005 in exercise of the powers conferred
under paragraph 2.4 of the Export & Import Policy 2002-2007,
G the Director General of Foreign Trade amended the first three
lines of Para 3.2.6 of the Handbook of Procedures. The
amended provision provided that:
'The scheme will be applicable to the status holders/
star export houses who have achieved a minimum
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 331
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

export turnover of Rs.25 crores in the year 2003- A
2004".
It also replaced the earlier appendix 17D prescribing the
application format for claiming the Duty Free Credit
Entitlement.
B
38. On July 04, 2005 Writ Petition No. 2397 of 2004 filed
by M/s. Kanak Exports before the High Court of Judicature at
Bombay challenging the Notification No. 28(RE-2003)/2002-
2007 dated January 28, 2004, Public Notice No. 40(RE-2003)/
2002-2007, Notification No. 38(RE-2003)2002-2007, came· C
up for hearing before a Division Bench of High Court and upon
hearing the parties, the High Court of Judicature at Bombay
upheld the validity of Notification No. 28(RE-2003)/2002-2007
dated January 28, 2004. However, it set aside the Public
Notice No. 40 dated January 28, 2004 and further held that D
the Notifications dated April 21 and 23, 2004 have only
prospective operation which means that exports made by the
exporters respondent prior to April 21, 2004 in respect of the
classes of goods covered by Notifications dated April 21/23,
2004 were entitled to be computed for the purposes of E
determining the entitlement of Duty Free Imports.
39. On October 21, 2005, this Court issued notice on
the Special Leave Petition as well as on application for
condonation of delay in the Special Leave Petition (C) (CC F
N0.6638 of 2005) filed by M/s. Adani Export Ltd.
40. On December 13, 2005, aggrieved by the order of
Bombay High Court dated July 04, 2005 in W.P. No.2397 of
2004 upholding the validity of the Notification No.28 of 2004 G
dated January 28, 2004, M/s. Kanak Exports filed Special
Leave Petition (Civil) No. 26123 of 2005.
41. Aggrieved by the order of the Bombay High Court
dated July 04, 2005 in Writ Petition No.2397 of 2004, the
H
332 SUPREME COURT REPORTS [2015] 15 S.C.R.

A appellant/Union of India and DGFT filed Special Leave Petition
(Civil) No.1331 of2006.
42. On January 13, 2006 Special Leave Petition (C) No.
26123 of 2005 filed by M/s. Kanak Exports and Special Leave
Petition (Civil) No.1331 of 2006 filed by the appellants/Union
8
of India and DGFT challenging the order of the Bombay High
Court dated July 04, 2005 in W.P.(C) No. 2397 of 2004 came
up for hearing before this Court.
This Court upon hearing the parties granted leave in the
C Special Leave Petition (C) No. 1331 of 2006 and in the
meantime stayed the operation of the impugned order in Civil
Appeal arising out of S.L.P.(C) No.1331 of2006.
43. On February 17, 2006, the Union of India and DGFT
aggrieved by the judgment and order of the High Court of
0
Gujarat at Ahmadabad in Special Civil Application No.1676
of 2004 dated July 23, 2004 filed the Special Leave Petition.
44. The High Court of Gujarat, in the lead case Adani
Exports Limited & Anr. v. Union of India & Anr.1, had
E rendered its judgment on July 23, 2004, which was available
with the High Court of Bombay when it gave its decision on
July 04, 2005. Insofar as the Gujarat High Court is concerned,
it partly allowed the petition quashing Public Notice dated
January 28, 2004 and Note 6 to Para 3.7.2.1 of the EXIM
F Policy, as inserted by the Government Notifications dated April
21 and 23, 2004 and rejected the challenge on all other counts.
The Bombay High Court substantially followed the same line
of action, except differing with the Gujarat High Court to a
limited extent thereby granting some more relief to these
G petitioners. Since these two judgments are the subject matter
of these appeals, it would be apposite to scan through these
judgments to find out what actually is decided by the two High
Courts and the reasons in support of their respective decisions.
H ' Special Civil Application No. 1676 of 2004
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 333
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

45. JUDGMENT OF THE GUJARAT HIGH COURT A
In the Special Civil Application filed by Adani Exports
Limited in the Gujarat High Court challenge was laid to the
amendmentto para 3. 7 .2.1 of the EXIM Policy vide Notification
dated January 28, 2004 whereby five Notes were inserted. It B
also challenged insertion of Note 6 vide Notification dated April
21, 2004 read with Notification dated April 23, 2004 and Public
Notice dated January 28, 2004 issued by the DGFT. The
validity of the aforesaid provisions was questioned on the
following premise: c
(i) Since Note 4 provided that the guidelines would be
applicable to exports made on or after April 01, 2003,
Notification was challenged on the ground that it
amounted to giving retrospective effect to the amendment
Notification dated January 28, 2004 and there was no D
such power with the Central Government under Section
5 of the Act, or otherwise, to make amendments to the
EXIM Policy with retrospective effect, or even
retroactively.
E
(ii) These Notes, particularly Notes 1 to 3, 6 and 7, added
by the impugned Notifications were not mere guidelines
or clarificatory in nature, but amounted to making
substantial changes by inserting new conditions under
the cover of clarification, which was not permissible. F
(iii) Note 4 was also violative of the petitioners
fundamental rights under Article 14 and 19(1 )(g) of the
Constitution. •
(iv) Doctrine of Promissory Estoppe/ was also invoked G
by contending that acting upon the EXIM Policy, which
came into effect from April 01, 2003, the petitioners had
exported the goods on the promise and assurance
contained in sub-para (vi) of Para 3. 7.2.1 of the EXIM
H
334 SUPREME COURT REPORTS [2015] 15 S.C.R.

A Policy and fulfilled the conditions set out therein, thereby
achieving the target of incremental exports stipulated in
the said para and, thus, became entitled to the benefit
conferred therein, namely, 10% duty free imports of the
specified items. The petitioner had, therefore, altered
B its position and the respondents were estopped from
going back on their promises and assurances.
(v) Insofar as Public Notice dated January 28, 2004 is
concerned, paragraphs 2 and 3, whereby certain items
c of goods which were exported were excluded from the
purview of the special scheme, were challenged on the
ground that they were ultra vires the powers of the DGFT
as it amounted to usurping the power of the Central
Government.
D (vi) Insofar as Notification dated January 28, 2004 read
with Notifications dated April 21 and 23, 2004 is
concerned, challenge laid thereon was on the ground that
they could not be made effective retrospectively.
E 46. The stand of the Union of India/respondents was that
Notification dated January 28, 2004 was only clarificatory in
nature. Detailed justification for laying down these
'clarifications' were given stating that large number of
representations were received from Trade Associations/Export
F Promotion Councils as well as individual exporters seeking
clarification on various points relating to the implementation
of the Scheme. At the same time, the Government had also
received information that many exporters were trying to misuse
the same and details thereof, including the investigation/inquiry
G that followed, were also given and all this necessitated issuance
of Notification dated January 28, 2004, in public interest. Other
arguments of the petitioners were also refuted giving various
justifications. It was also emphasized that Section 5 of the Act
and para 1.1 of the EXIM Policy reserved the right of the
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 335
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

Government to amend the Policy in public interest. It was A
argued that a statutory power to amend the Policy, after noticing
the misuse of the Policy, for the purpose for which it was never
intended, cannot be frustrated on the plea that the petitioners
had a legitimate expectation that they can continue to exploit
the Policy for a purpose totally different from the one for which B
it was intended and then expect that the Government would
not take any action whatsoever. It was argued that the writ
Court would not sit in appeal over the wisdom of ·the
Government in such economic matters and the Government
must have the freedom to experiment and must be allowed to C
adopt the "trial and error method". It was also argued that
economic decision, a~ contained in the Notifications granting
monetary benefits, can be withdrawn even before the expiry of
the period for which the benefit was originally given if the D
decision of the Government is based on relevant material
justifying such clarification or even change of the Policy.
4 7. After taking note of the aforesaid submissions of both
the parties, the High Court stated certain legal prir ::;iples
referring to few judgments of this Court, which it deemed E
necessary to bear in mind, as they reflected the caveat
sounded in those judgments. In this behalf, it quoted the
following passage from the judgment of this Court in State of
Madhya Pradesh & Ors. v. Nandlal Jaiswal & Ors. 2 , which
guides as to how the Courts have to deal howwith the challenge F
to a policy decision of the Government in economic matters:
"34 ... We had occasion to consider the scope of
interference by the Court under Article 14 while
dealing with laws relating to economic activities in G
R.K. Garg v. Union of India [(1981) 4 SCC 675].
We pointed out in that case that laws relating to
economic activities should be viewed with greater
latitude than laws touching civil rights such as
2
(1986) 4 sec 566 H
336 SUPREME COURT REPORTS (2015] 15 S.C.R.

A freedom of speech, religion, etc. We observed 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
doctrinaire or strait-jacket formula and this is
B particularly true in case of legislation dealing with
economic matters, where, having regard to the
nature of the problems required to be dealt with,
greater play in the joints has to be allowed to the
legislature. We quoted with approval the following
c admonition give by Frankfurter, J. in Moreyv. Dond
(354 us 457]:
In the utilities, tax and economic regulation cases,
· there are good reasons for judicial self-restraint if
D not judicial deference to legislative judgment. The
legislature after all has the affirmative responsibility.
The courts have only the power to destroy, not to
reconstruct. When these are added to the
complexity of economic regulation, the uncertainty,
E the liability to error, the bewildering conflict of the
experts, and the number of times the judges have
been overruled by events - self-limitation can be
seen to be the path to judicial wisdom and
institutional prestige and stability.
F
What we said in that case in regard to legislation
relating to economic matters must apply equally in
regard to executive action in the field of economic
activities, though the executive decision may not
G be placed on as high a pedestial as legislative
judgment insofar as judicial deference is concerned.
We must not forget that in complex economic
matters every decision is necessarily empiric and
it is based on experimentation or what one may
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 337
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

call 'trial and error method' and, therefore, its validity · A
cannot be tested on any rigid 'a priori'
considerations or on the application of any straight-
jacket formula. The court must while adjudging the
constitutional validity of an executive decision
relating to economic matters grant a certain B
measure of freedom or 'play in the joints' to the
executive. "The problem of government" as pointed
out by the Supreme Court of the United States in
Metropolis Theatre Company v. State of Chicago
[57 L Ed 730]: c
are practical ones and may justify, if they do not require,
rough accommodations, illogical, it may be, and
unscientific. But even such criticism should not be
hastily expressed. What is best is not discernible, the D
wisdom of any choice may be disputed or condemned.
Mere errors of government are not subject to our
judicial review. It is only its palpably arbitrary exercises
which can be declared void.
The Government, as was said in Permian Basin Area E
Rate cases [20 L Ed (2d) 312], is entitled to make·
pragmatic adjustments which may be called for by
particular circumstances. The Court cannot strike
down a policy decision taken by the State Government F
merely because it feels that another policy decision
would have been fairer or wiser or more scientific or
logical. The Court can interfere only if the policy
decision is patently arbitrary, discriminatory or mala
fide." G
48. The Court then observed that these principles were
reiterated in Zippers Karamchari Union v. Union of India &
Ors.3 and in BALCO Employees Union (Regd.) v. Union of
, c2000) 10 sec s1s H
338 SUPREME COURT REPORTS [2015) 15 S.C.R.

A India &Ors. 4 Thereafter, the High Court rE)ferred to the various
provisions of the EXIM Poli~y and the amendments made by
the impugned Notifications as well as Public Notice, which have
already been taken note of above.
49. The High Court thereafter adverted to three
8
exclusions under Note 1 to Para 3.7.2.1 which, according to
the writ petitioner, had adversely affected their interest and
these exclusions are:
(i) Export turnover of units operating under SEZ/EDU/
C THRP/ STPI Schemes or products manufactured by them
and exported through OTA units.
(ii) Supplies made by one status holder to another status
holder.
D (iii) Export performance made by one status holder on
behalf of oiiler status holder.
50. In the light of the above, the Court first discussed the
propriety or validity of the Notification dated January 28, 2004
E and pointed out that this Notification does not make 'third party
exports' illegal or entirely ineligible for getting incentive under
the said Incentive Scheme for status holders. On the other hand,
basic intention of the Scheme was to encourage the exports
of products manufactured by small-scale industry sector, who
F do not have access to international market because of lack of
required international marketing experience and the optimum
resources to have presence in the international market arena.
Therefore, the Scheme was not intended to encourage a status ·
holder/export house to pool the exports made by existing
G exporters, i.e. who have exported in previous years as well,
for the purpose of showing incremental growth in exports of
the status holder. Similarly, supply of goods by a status holder,
who is having the required marketing skill and has been ·

H ' (2002) 2 sec 333
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 339
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

exporting in previous years as well, to another status holder A
does not advance the purpose of the Scheme. Similarly,
transferring export turnover of the supplier/exporter, who is the
original export order holder, to the status holder for artificially
enhancing the incremental growth of exports of the status holder
will not further the object of the incentive scheme. Therefore, B
the Government stipulated through the impugned Notification
dated January 28, 2004 that the condition of 25% incremental
growth of exports will apply both to the petitioner/status holder
as well as to the supplier, whether the supplier is a status holder
or is an existing supplier/exporter of goods. The clarifications C
made by the impugned Notification, insofar as they provide
that the incremental growth of 25% in FOB value of exports is
the criterion applicable both to the status holders as well as to
the existing supplier/exporters, will have to be treated as .
0
clarificatory if the basic object of the incentive scheme is looked
at. The object of the Scheme was to boost exports in actual
terms and not merely to encourage the existing exporters to
pool their exports for the purpose of giving artificial appearance
of the incremental growth of exports.
E
51. On the aforesaid basis, the High Court concluded
that the main purpose of the Notification dated January 28,
2004 was to prevent transfer of export orders from one group
company to another company belonging to the same group in
order to show enhanced export performance of such another F
company and, therefore, it was clarificatory in nature.
52. The Court then took up for consideration the argument
of the writ petitioner that the impugned Notification and Public
Notice had the effect of taking away the vested right of the writ G
petitioner, which was repelled in the following words:
"17. Under the policy in force prior to the impugned
notifications and even thereafter the third party
exports are permitted. What the legal earlier is not
H
340 SUPREME COURT REPORTS [2015] 15 S.C.R.

A made illegal at all. For instance, exports of goods
manufactured by units in EDU/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
B was already availed for the export of such goods.
Chapter 6 of the Exim Policy relates to Exports
Oriented Units (EDUs), Electronics Hardware
Technology Parks (EHTPs) and Software
Technology Parks (STPs). As provided in paras
c 6.1and6.8ofthe 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 EDU/EHTP/STP
D
unit may import without payment of duty all types of
goods, including capital goods, as defined in the
Policy, required by it for its activities as mentioned
in para 6.1 ... "
E Para 6.10 reads as under:
"6.10 An EDU/EHTP/STP unit may export goods
manufactured/software developed by it through
a merchant exporter/status holder recognized
under this Policy or any other EDU/EHTP/STP/
F
SEZunit."
The amendments do not impinge upon the right of
any party to export its goods in accordance with
the Exim Policy. The clarification only excludes
G 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
H growth in exports is not to be countenanced. Hence, it is but
DIRECTORGENERALOFFOREIGNTRADEANDANR. v. 341
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

natural that the notification dated 28.1.2004 would apply to A
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 petitioner between 1.4.2003 and
27 .1.2003 (sic) would certainly be covered by the said notes. B
Two views were 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 objects of the Act, Exim
Policy and the Incentive Scheme ratherthan the interpretation C
canvassed by the petitioner. Hence, there is no substance in
the challenge to Notes 1 and 2 read with Note 4."
53. On the aforesaid basis, insofar as Notification dated
January 28, 2004 is concerned, its validity has been upheld. o
The High Court then discussed validity of Public Notice of the
even date. Observing that by this Public Notice certain export
products from the Incentive Scheme were sought to be
excluded and it could not be treated as mere clarifications,
.the High Court held that DGFT had no power to exclude exports E
of such groups merely by stating that rough diamonds or food
items were to be excluded.
54. Since Notification dated April 21, 2004 read with
Notification dated April 23, 2004 were issued whereby Note 6 F
was added, which was to the same effect as Public Notice
dated January 28, 2004, and since this was held not to be
merely clarificatory in nature, the Court went into the issue as
to whether Notes 6 and 3 read with Note 4 were retroactive or
retrospective. In the process, it dealt with the issue of 'vested G
right' and after discussing the aforesaid legal concepts, it came
to the conclusion that Notes 3, 6 and 4 were only retroactive in
nature and not retrospective and since Notification dated
January 28, 2004 (including Note 3 thereof) on exports made
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342 SUPREME COURT REPORTS (2015] 15 S;C.R.

A from April 01, 2003 was upheld as valid, Notifications dated
April 21 and 23, 2004, flowing from the said Note 3 and
adopting contents of Public Notice dated January 28, 2004,
could not be faulted with on the ground of retrospectivity.
55. The Court then took the issue of Promissory Estoppel
8
and discussed numerous case law on the subject and
concluded that since it was a case of change in economic
policy with future effect or retroactive effect only to 'prevent
manifest injustice or fraud: such public interest would override
C individual interest even if the promisee cannot resume his
position. On this basis, the argument based on the principle
of Promissory Estoppe/ was rejected.
56.At th'e same time, exclusion of two items vide Note 6
in Notifications dated April 21 and 23, 2004 and Public Notice
D dated January 28, 2004 was found to be neither clarificatory
nor in public interest and, therefore, bad in law. These are
exclusion of following exports from the benefits of duty-free
import entitlement for the export status holders:
E (i) Items exported under free shipping bills.
(ii) Gold, silver in any form including plain jewellery
thereof, in so far as the import of capital goods and office
equipment for the factory of the associate/supporting
manufacturer/job worker of the petitioner Company is
F concerned.
The Special Civil Application was allowed to the
aforesaid extent directing that the aforesaid items cannot
be excluded while computing the duty free import
G entitlement.
57. JUDGMENT OF THE BOMBAY HIGH COURT
The Bombay High Court, in its impugned judgment dated
July 04, 2005, has held as under:
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 343
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

. (i) Notification dated January 28, 2004 is valid. It does A
not seek to amend the policy with retrospective effect but is
only clarificatory in nature which was issued to stop the misuse
and abuse of the scheme as the main purport of the scheme
was to encourage the export of products and not to encourage
the status holders/export user to pool the exports made by other B
exporters for the purpose of showing incremental growth in
the export. Paras 19 and 20 of the High Court containing
discussion on this aspect are noted below.
"19. The reasons for making clarifications are c
contained in para 5 of the impugned Notification. It
appears that after the scheme was initiated, on the
basis of intelligence gathered the Central
Government learnt that the scheme was being
misused by certain status holders by entering into D
contracts with various exporters showing
themselves as third party exporters. Such contracts
were executed on stamp papers ostensibly showing
such status holders as third party exporters holding
other parties in obtaining the orders. These E
contracts were found to have been entered into
between the parties as merely a paper
arrangement with a view to claim benefits of duty
free credit entitlement on the export of others. It also
came to notice that the status holders were F
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. In the face of this clear abuse
of the scheme the Central Government had to G
intervene and issue the impugned Notification to
clarify the correct meaning of the scheme. Note 2
of the Notification provides that incremental growth
of exports by an exporter shall not, directly or
H
344 SUPREME COURT REPORTS [2015] 15 S.C.R.

A indirectly, be transferred to any other exporter i.e ..
exporter's own incremental growth will be counted
for entitlement. The appellants have not challenged
the validity of Note 2. What is challenged is the
validity of Note I which states that for the purpose
B of calculating the value of certain exports shall not
be taken into account in respect of sub-clauses
(ii),(v),(vi) and (vii) thereof.
20. It appears that till 2002-2003 the petitioners'.
c export performance was going down steadily. In
2002-2003 the export of the petitioners was hardly
Rs.27 crores. In the year 2002-2003 India's export
increased by 22% whereas as compared to the
petitioners' export of about Rs.27 crores in 2002-
D 2003, it catapulted to more than Rs.1000 crores.
The national export growth rate was only 22% while
the petitioners' exports grew at more than 3800%.
It is obvious that this growth is merely a paper growth
and not incremental growth within the meaning of
E the scheme. Notification dated 2ath January 2004
does not make any third party export illegal or
entirely ineligible for getting incentives under the
Exim Policy. However, the basic intention of the
amended scheme was to encourage the export of
F products manufactured by small scale units who do
not have access to the international market because
of lack of required international marketing expertise
and optimum resources to have presence in the
international marketing arena. The scheme was not
G 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
H
DIRECTOR GENERAL OF FOREIGN TRADEANDANR. v. 345
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

made by one status holder to another status holder A
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 B
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 c
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
D
abuse of the scheme. Reliance placed by the
petitioners on Circular No. 16 dated 24tth
December 2002 is also of no assistance as the
said Circular stating that 3'd party exports are
eligible for all the export promotion schemes was
E
issued long before the special incentive scheme
was announced on 31st March 2003. In our opinion,
the provisions contained in the impugned
Notification dated 2ath January 2004 are merely
clarificatory and cannot be treated as amendment F
· to the scheme."
In the process, the High Court rejected the contention of
the writ petitioners that the said Notification was unreasonable
and irrational. The Court held that in complex economic matters
every decision is necessarily empiric and is based on G
experimentation of 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 ahy straightjacket
formula.
H
346 SUPREME COURT REPORTS [2015] 15 S.C.R.

A (ii) Public notice dated January 28, 2004 issued by the
DGFT has been held to be without jurisdiction inasmuch as
DGFT has no power to do so under Section .5 read with
Section 3 of the Act. The Court held that by this Public Notice,
four items were sought to be excluded from the purview of the
B scheme and, therefore, it amounted to amendment of the
scheme which could be done by the Central Government only
that too by means of Notification under Section 5 of the
Notification, clarified that power of the DGFT is only to be
exercised for procedural purpose which was evident from para
C 2.1.4 of the EXIM Policy. On the other hand, para 3.2.6 inserted
by Public Notice dated January 28, 2004 went beyond the
procedural conditions as these conditions were not found in
the Policy. According to the High Court, since the Notification
was not clarificatory and it amounted to amendment of the
0 policy which was statutory in nature, this form of delegated or
subordinate legislation could be only prospective and not
retrospective unless the rule making authority has been vested
with the power under the Statute to make rules with
E retrospective effect.
(iii) Insofar as Notes (vi) and (vii) which were added vide
Notifications dated April 21 and 23, 2004, the High Court took
the view that they were not merely clarificatory in nature. It was
pointed out that vide these Notifications, four items were sought
F to be excluded from the purview of the scheme and, therefore,
could not be treated as merely clarificatory. The High Court,
thus, while affirming the validity of these Notifications, came to
the conclusion that it can be only prospective in nature.

G Contention of the Union that the word "amend" used in
Section 5 read with Section 3 confers upon the Central
Government to regulate, incorporates in its entrustment of the
power to make ~ubordinate legislation retrospectively, was
turned down by the High Court. The High Court took the view
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 34 7
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

that the word "amend" does not give power to make A
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 of the exercise of power by
a legislature cannot be pressed to construe the word "amend"
in relation to the power to make delegated legislation. In taking B
this view, the High Court relied upon the judgment of this Court
in Accountant General and Anotherv. S. Doraiswamy and
Others 5 •
Another contention of the Union predicated on Section c
21 of the General Clauses Act to buttress its submission that
retrospective effect could be given to the Notification was also
repelled. In the opinion of the High Cqurt, Section 21 of the
General Clauses Act embodies a realm of construction, nature
and extent of application which must inevitably be governed D
, by relevant provisions of the statute that confers power to issue
the notification. The said power must be exercised within the
limits prescribed by the provisions conferring such a power
and if there was no specific power given to make amendment
retrospectively, that could not be assumed on the ground that E
it was necessitated in public interest.
On this aspect, the Bombay High Court did not agree
with the view taken by Gujarat High Court which held that
Notifications dated April 21 and 24, 2004 were merely F
retroactive and not retrospective, by giving following reasons:
"The Division Bench, however, proceeded to hold
that the Notifications dated 21st/24th April, 2004
are merely retroactive and not retrospective. We
may hasten to add that the Division Bench struck G
down the Notifications dated 21st123rd April, 2004
as far as the free shipping bills and gold, silver and
jewellery are concerned on the ground that
5
(1981)4SCC93 H
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
58. 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
F 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
G first question is:
Whether Notifications were issued in public
interest?
59. The main objective of the scheme was to achieve
H 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 A
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 B
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
60. 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.
350 SUPREME COURT REPORTS [2015] 15 S.C.R.

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."
F 61. 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 D
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 E
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.

H
352 SUPREME COURT REPORTS [2015] 15 S.C.R.

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."
62. 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
E 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
F 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 D
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 E
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)

H
354 SUPREME COURT REPORTS (2015] 15 S.C.R.

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."
63. 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."
64. 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
356 SUPREME COURT REPORTS [2015] 15 S.C.R.

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
65. 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.
66. 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.
67. 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.
68. 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
358 SUPREME COURT REPORTS [201.5) 15 s~c.R.

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(.)"
69. 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.]

70. 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 ).
71. 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 ).
72. 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 E
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 F
have nexus for import under the certificate vis-a-
vis the exports made etc."
73. In the counter affidavit filed by the Union of India,
details of the modus operandi used by these exporters ~re G
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
360 SUPREME COURT REPORTS [2015] 15 S.C.R.

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
" '

G

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

--------
H
362 SUPREME COURT REPORTS (2015] 15 S.C.R.

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
D producing country.
These exports stopped the moment DFCE
benefits were disallowed.
a Export of such rough diamonds earlier never
E 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
F
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
F
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 G
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
364 SUPREME COURT REPORTS [2015] 15S.C.R.

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
E 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
F 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 A
linked and hence the possibility of manipulating
value addition.
According to one estimate the same set of
diamonds were rotating and these never entered
B
the Indian domestic territory or to the end consumers
abroad."
74. 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 C
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 D
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 E
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
366 SUPREME COURT REPORTS [2015] 15 S.C.R.

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
D 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
E 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
F
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
G 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
368 SUPREME COURT REPORTS [2015] 15 S.C.R.

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
D
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
E 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
F 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
G
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.
75. Notwithstanding strenuous efforts made by learned F
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
G
conditions of public interest in mind. We answer the question
in the affirmative.
76. Let us now discuss the validity of the Notification
dated January 28, 2004. The issue that arises for determination
H
370 SUPREME COURT REPORTS [2015] 15 S.C.R.

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?
77. In order to discuss this question in proper
perspective, it would be necessary to take note of those
C 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
D
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 A
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 B
their own factory or the factory of the
associate/supporting manufacturer/job
worker. The entitlement/goods shall not be
transferable."
c
78. 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 F
received in Free Foreign Exchange) and payment
from EEFC account;
(iv) service exports;
(v) supplies made by one status holder to another
G
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
372 SUPREME COURT REPORTS [2015] 15S.C.R.

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."
79. 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
D judgments have dealt with this issue.
80. 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
E 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 A
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 B
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".
81. 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 E
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 F
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
374 SUPREME COURT REPORTS [2015] 15 S.C.R.

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
D 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
E 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
F 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
G 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."
82. 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 D
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 E
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
F
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 G
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
376 SUPREME COURT REPORTS [2015] 15 S.C.R.

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
D
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
E 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
F 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
G 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."
83. Sub-note (ii) of Note 1 now provides that export
H 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 A
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 B
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 E
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 F
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 G
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
378 SUPREME COURT REPORTS (2015] 15S.C.R.

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.
85. 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 A
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 B
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 C
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.
86. 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?
87. The main submission of the petitioners, which was F
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, G
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
380 SUPREME COURT REPORTS [2015] 15S.C.R.

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.
88. 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.
89. 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 E
such conditions, by the Director-General or such
other officer subordinate to the Director General,
as may be specified in the Order."
90. From the aforesaid, it is clear that Section 5 provides
that the Central Government may, from time to time, formulate F
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
382 SUPREME COURT REPORTS [2015] 15 S.C.R.

A 91. 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
B 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
C 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.

D 92. 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
384 SUPREME COURT REPORTS [2015] 15 S.C.R.

A 93. 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.
F 94. 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.
95. 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.
96. 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.
97. 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.
98. 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.
99. 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.
100. However, at the same time, as already been pornted
C 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
D 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
E 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
F power vested with the Central Government to amend the Policy
retrospectively.
101. 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
G 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
102. 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
388 SUPREME COURT REPORTS [2015) 15S.C.R.

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 A
for all times to come when the Government acts in
its Governmental, public or sovereign capacity."
103. 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 B
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 C
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 D
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 E
has been indicated'.
104. 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 F
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 G
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
390 SUPREME COURT REPORTS [2015] 15 S.C.R.

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
G 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
H 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 A
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 B
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 D
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 E
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
F
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
G
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
D 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
E 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 D
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 E
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
F 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
G 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

H
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 E
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 F
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 G
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".

H
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 F
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 G
period when they were not
even in service does not
arise.'

H
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
D 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
E 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
F 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,
G
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."
106. 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.
F 107. 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.]

108. 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 A
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 B
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 F
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 G
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."
D 109. 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
E 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
F actual exports entitling them to avail the
benefit of the Scheme?
110. This issue would be inter-twined with other related
issue, namely, whether the notification has retroactive operation
G 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
H 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 A
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 B
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 C
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
111. 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.
112. We have referred to such material in detail while
upholding the contention of the Union that Notifications were F
issued in public interest to ensure that their misuse is not
allowed. To recapitulate, the inquiry conducted by the
Government revealed that there were exports of rough
diamonds even though India is not a rough diamond producing
country. These exports stopped the moment DFCE benefits G
in respect of rough diamond were disallowed. It was also
found that cut and polished diamonds were imported, stored
inside a bond and re-exported with artificial value addition.
Many of these exporters exported to their own counterparts in
Dubai and Sharjah and when this consignments reached those H
408 SUPREME COURT REPORTS [2015] 15 S.C.R.

A destinations, they were declared as scrap to avoid import duty.
Following statistics given by the Government in respect of so-
called exports by these exporters makes out startling ·
revelations:
Growth exceeding 2000% for two petitioners came from 100%
8
export of gold coins and plain jewellery
Firm Turnover Turnover % Share of Gold
2002-03 2003-04 Growth coins and Plain
jewellery in
c total exports
Rajesh 112 2372 2017 100
Exports,
Bangalore
Kanak 27 1070 3816 100
D Exports,
Mumbai

For M/s Adani Exports. over 80% of export turnover came for
E diamonds and Supplies from status holders not meeting the
minimum turnover and growth criteria

Adani Exports Limited, Ahmedabad Exports
(crores)

.F Total exports for the year 2003-04 of 4657
which

1 Rough, and re-exported polished 2475
diamonds
G 2 Supplies taken from st;:itus holders not 1316
meeting the minimum turnover and
growth criteria
Share of the above 2 categories in 81.4%
the total exports
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 409
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

Export surge of 1135% for M/s. Adani Exports came in A
2003-04 while.for the past six years their exports were declining.

Export Tumover \in crores1

~lr.tt':1.1~l!..ll B
-·-.-.. ---·· ~~~~~~~~"'"' j_ --· ~\ ..

c

-- --··---------
It is pertinent to note that except the above mentioned D
persons no other exporter in the country has challenged the
said Notifications or the Public Notices dated January 28, 2004
and April 21, 2004 respectively.
It was also brought to the notice of the DGFT that some E
of the exporters have procured rough diamonds from local firms
and exported the same by a 5% loss as they were confident of·
covering up the loss by receiving the 10% DFCE incentives
offered by the Government. All these aspects are discussed
in much details earlier and need not be repeated. We would F
like to recapitulate the following stark features/practices which
have surfaced on record as a result of investigation:
113. Mr. Adhyaru has successfully demonstrated that the
following methods were found to be .resorted to by these G
exporters to inflate their export turnovers:-
(i) Export of rough diamonds even though India is not a
rough diamond producing country. These exports
stopped the moment DFCE benefits were disallowed.
H
410 SUPREME COURT REPORTS [2015] 15 S.C.R.

A Export of such rough diamonds earlier has never been
part of the normal commercial operations and has taken place
just to take advantage of the Scheme.
According to Gems and Jewellery Export Prorryotion
Council, "India is not a rough exporting country. Rough
8 diamonds which are unsustainable for cutting in India are re-
exported." Such exports stopped the moment benefit was
explicitly withdrawn.
(ii) In the present case also the respondent M/s Adani
c 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,
"Party has not exported rough diamonds during January/March
2004".
D (iii) Cut and polished diamonds were imported, stored
inside a bond and re-exported with artificial value addition.
Few large firms including the petitioners exported these
products to buyers directly related to them.
E (iv) According to reliable information the same sets of
diamonds were rotating and these never entered the Indian
domestic territory or to the end consumer$ abroad. The value
of such exports in the past two years may exceed Rs. 15,000
crores. Government has detailed report of the modus operandi
F of the firms involved.
(v) Most notorious misuse of the Scheme was 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 Ltd.
G
(vi) 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
H Dubai to avoid the import duty.
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 411
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

(vii) As it was difficult for them to achieve the value A
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.
B
(viii) Few exporters including petitioners have purchased
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 third party exporter. According to reports status-holders c
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.
114, In such a scenario, a sagacious approach with
practical sense leads us to conclude that these writ petitioners/ D
exporters had actually achieved the targets set down in the
original Scheme and thereby acquired any "vested right". It
was pernicious and blatant misuse of the provisions of the
Scheme and periscopic viewing thereof establishes the same.
Thus, the impugned decision reflected in the notifications dated E
April 21 and 23, 2004, did not take away any vested right of
these exporters and amendments were necessitated by over-
whelming public interest/ considerations to prevent the misuse
of the Scheme.
F
Therefore, we are of the opinion that even when
impugned Notification issued under Section 5 could 'not be
retrospective in nature, such retrospectivity have not deprived
the writ petitioners/exporters of their right inasmuch as no right
had accrued in favour of such persons under the Scheme. G
This Court, or for that matter the High Court in exercise of its
writ jurisdiction, cannot come to the aid of such petitioners/
exporters who, without making actual exports, play with the

H
412 SUPREME COURT REPORTS (2015) 15 S.C.R.

A provisions of the Scheme and try to take undue advantage
thereof. To this extent, direction of the Bombay High Court
granting these exporters benefit of the Scheme for the past
period is set aside.
B 115. One incidental issue remains to be discussed. This
pertains to imposition of fee sought to be levied by Public
Notice No. 18 dated July 24, 2003. The exporters are right in
their submission that fee could not be imposed by a Public
Notice and it was necessary to have recourse to Section 5 of
c the Act to impose such a fee. Notification dated July 24, 2003
insofar as it relates to imposition of fee is.. therefore, set aside.
116. Thus, appeals and transfer cases stand disposed
of in terms of aforesaid answers provided by this Court to the
various questions formulated. To put it precisely, the effect of
D the aforesaid discussion would be to uphold the decision of
the Gujarat High Court, though on different grounds, thereby
dismissing the appeals of the exporters against the said
judgment except to the extent indicated in para 114 above while
the appeals of the Government are allowed. Likewise, appeals
E of the Union of India against the judgment of the Bombay High
Court are allowed to the aforesaid extent and the appeals of
the exporters/writ petitioners are dismissed.
· Writ Petition (Civil) No. 27 of 2008
F Transfer Case (Civil) No. 32 of 2007
Transfer Case (Civil) No. 33 of 2007
Transfer Case (Civil) No. of 2015
(arising out of Transfer Petition (Civil) No. 568 of 2014)
117. For the reasons mentioned in Transfer Petition
G (Civil) No. 568 of 2014, the same is allowed and LPANo. 290
of 2007, entitled 'Union of India & Ors. v. Mis. We/spun India
Limited', pending in the High Court of Gujarat atAhmedabad
is transferred to this Court. Since the challenge laid in the case

H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 413
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

is identical with that involved in the rest of the batch matters, A
summoning of the records of the case is dispensed with and
the matter is heard on the basis of the record already available
before the Court.
118. In these cases, challenge is to the constitutional
6
validity of para 3.7.8 of the EXIM Policy 2004-2009 as well as
Notification No. 48/2005 dated February 20, 2006 and
Notification No. 8/2006 dated June 12, 2006 by which certain
amendments in the aforesaid EXIM Policy were made.
Though it involves a different Scheme, known as 'Target·Plus c
Scheme', since the provisions and amendments are again
primarily challenged on the ground that these amendments are
given retrospective effect from April 01, 2005, these matters
were also analogously heard with the other batch of cases
which have already been dealt with above. D
119. As already noted above, the Government had
announced EXIM Policy 2004-2009. In this Policy various
schemes _and incentives to promote exports were
promulgated. One such scheme was known as 'Target Plus
Scheme' (TPS) for the aforesaid period of EXIM Policy, i.e. E
April 2004 to March 2009. This TPS was contained in para
3. 7 of the said EXIM Policy and reads as under:
"3.7 TARGET PLUS SCHEME
3. 7 .1 Objective F

The objective of the scheme is to accelerate growth
in exports by rewarding Star Export Houses who
have achieved a quantum growth in exports. High
performing Star Export Houses shall be entitled for G
a duty credit based on incremental exports,
substantially higher than the general annual export
target fixed (Since the target fixed for 2005-06 is
17%, the lower limit of performance for qualifying
for rewards is pegged at 20% for the current year). H
414 SUPREME COURT REPORTS [2015] 15 S.C.R.

A 3. 7.2 Eligibility Criteria
All Star Export Houses (including Status Holders
as defined in Para 3. 7.2.1 of Exim Policy 2002-
07) which have achieved a minimum export turnover
in free foreign exchange of Rs.10 crores in the
B
previous licensing year are eligible for consideration
under the Target Plus Scheme.
3.7.3 Entitlement
The entitlement under this scheme would be
c contingent on the percentage incremental growth
in FOB value of exports in the current licensing year
over the previous licensing year, as under:

D r~~~nrage incremenraJ
growth
Duty Credit Entitlement
(as a% of the incremental
growth) /

20% and above but below 5%

~or above
25%
but below 10%
E
100%

I 100% and above 15% (of 100%)

Note: ( 1) Incremental growth beyond 100% will not
F qualify for computation of duty credit entitlement.
(2) For the purpose of this scheme, the export
performance shall not be transferred to or
transferred from any other exporter. In the case of
third party exports, the name of the supporting
G
manufacturer/manufacturer exporter shall be
declared.
(3) Exporters shall have the option to apply for
benefit either under the Target Plus Scheme or
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 415
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

under the Vishesh Krishi Upaj Yojana, but not both A
in respect of the same exported product/s.
Provided that in calculating the entitlement under
Para 3.7.3 the total eligible exports shall be taken
into account for computing the percentage
incremental growth but the duty credit entitlement B
shall be arrived at on the eligible exports reduced
by the amount on which the benefit is claimed under
para3.8.2.
(4) All exports including exports under free shipping c
bill verified and authenticated by Customs and
Gems & Jewellery shipping bills but excluding
exports specified under para 3. 7 .5, shall be eligible
for benefits under the Target Plus Scheme.
(5) In respect of export of Cut & Polished diamonds D
only those shipments would be taken into account
for computation of eligible exports under the
scheme where a minimum of 10% value addition
has been achieved.
E
3.7 .4 Applicant Companies
Cc;:impanies which are Star Export Houses as well
as part of a Group company shall have an option to
either apply as an individual company or as a Group
based on the growth in the Group's turnover as a F
whole. (For the purpose of this scheme the
definition of Group Company as given in Chapter
9 will be applicable. Furthermore, only such
companies of the Group as are Star Export Houses
will be considered). G

If a Group company chooses to apply based on the
export of one or more of its individual Star Export
House companies, the entitlement would be
H
416 SUPREME COURT REPORTS [2015] 15 S.C.R.

A calculated considering the export performance of
the applicant company during the previous licencing
year and current licencing year. It shall be necessary
that the adjusted export performance of all the Star
Export House companies of the Group during the
B current licencing year does not fall below the
combined performance of all Star Export House
companies of the Group in the previous licencing
year.

c In case the Group chooses to apply based on the
overall growth in Group's turnover (i.e. the turnover
of all the Star Export House companies), any one
of the Star Export House companies of the Group
may file an application on behalf of all the Star Export
D House companies of the Group.
3.7.5 The following exports shall not be taken into
account for calculation of export performance or for
computation of entitlement under the scheme:

E (a) Export of imported goods covered under Para
2.35 of the Foreign Trade Policy or exports made
through transshipment.
(b) Export turnover of units operating under SEZ/
EOU/EHTP/STPl/BTP Schemes or products
F manufactured by them and exported through OTA
units.
(c) Deemed exports (even when payments are
received in Free Foreign Exchange and payment
G is made from EEFC account).
(d) Service exports.
(e) Rough, uncut and semi polished diamonds and
other precious stones.
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 417
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

(f) Gold, silver, platinum and other precious metals A
in any form, including plain and studded Jewellery.
(g) Export performance made by one exporter on
behalf of another exporter.
3.7.6 Imports allowed
B
The Duty Credit may be used for import of any
inputs, capital goods inclCJding spares, office
equipment, professional equipment and office
furniture provided the same is freely importable
under ITC (HS) Classification of Export and Import c
items, for their own use or that of supporting
manufacturers as declared in 'Aayat Niryaat Form'.
Import of agricultural Products listed in Chapter 1
to 24 of ITC (HS) Classification of Export and
Import items except the following shall be allowed: D
(i) Garlic, Peas and all other Vegetables with a Duty
of more than 30% under Chapter 7 of ITC (HS)
Classification of Export and Import items.
(ii) Coconut, Areca Nut, Oranges, Lemon, Fresh E
Grapes, Apple and Pears and all other fruits with a
Duty of more than 30% under Chapter 8 of ITC (HS)
Classification of Export and Import items.
(iii) All spices with a Duty of more than 30# under
F
Chapter 9 of ITC (HS) Classification of Export and
Import items (except Cloves).
(iv) Tea, Coffee and Pepper as per Chapter 9 of
ITC (HS) Classification of Export and Import Items.
(v) All Oil Seeds under Chapter 12 of ITC (HS) G
Classification of Export and Import Items.
Further, Natural Rubber as per Chapter 40 of ITC
(HS) Classification of Export and Import items shall
also not be allowed for import under the Scheme. H
418 SUPREME COURT REPORTS [2015] 15 S.C.R.

A Import of all edible oils classified under Chapter
15, shall be allowed under the scheme only through
STC and MMTC.
3. 7. 7 Cenvat/Drawback

B Additional customs duty/excise duty paid in cash
or through debit unde(J"arget Plus shall be adjusted
as CENVAT Credit or Duty Drawback as per rules
framed by the Department of Revenue.
3.7.8 Special Provision
c
Government reserves the right in public interest, to
specify from time to time the category of exports
and export products, which shall not be eligible for
calculation of incremental growth/entitlement.
D Further the Government shall have the right to
change the eligibility criteria and rate of entitlement
under the scheme effective from the date of
notification of this policy.
E Similarly, Government may from time to time also
notify the list of goods, which shall not be allowed
for import un_der the duty credit entitlement
certificate issued under the scheme.
120. Provisions relating to star export houses were
F contained in para 3.5 of Chapter 1A of the said Policy, which
enumerated the Status Category as well as the privileges which
were to be enjoyed by these star export houses. Said para
3.5 is as under:
G "3.5 STAR EXPORT HOUSES
3.5.1 Star Export House
Merchant as well as Manufacturer Exporters,
Service Providers, Export Oriented Units (EOUs)
H and Units located in Special Economic Zones
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 419
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

(SEZs), Agri Export Zone (AEZ's), Electronic A
Hardware Technology Parks (EHTPs), Software
Technology Parks (STPs) and Bio Technology
Parks (BTPs) shall be eligible for applying for status
as Star Export Houses.
B
3.5.2 Status Category
The applicant shall be categorized depending on
his total FOB/FOR export performance during the
current plus the previous three years:
c
Performance
Category
(Rupees in Crores)
One Start Export House 15
Two Star Export House 100
D
Three Star Export House 500
Four Star Export House 1500
Five Star Export House 5000

E
Note: 1. Manufacturer exporters in Small Scale
Industry/Tiny Sector/Cottag.e Sector, Units
registered with KVICs/KVIBs, Units located in North
Eastern States, Sikkim and J&K, Units exporting
handloom/handicrafts/hand knotted or silk carpets,
F
exporters exporting to countries in Latin America/
CIS/sub-Saharan Africa as listed in Appendix-9,
units having ISO 9000 (series)/ISO 14000(series)/
WHOGMP/HACCP/SEI CMM level-II and above
status granted by agencies listed in Appendix-6, G
exports of services and exports of agro products
shall be entitled for double weightage of exports
made for grant of Start Export House status.

H
420 SUPREME COURT REPORTS [2015] 15 S.C.R.

A 2. Exports made on re-export basis shall not be
counted for the purpose of recognition.
3. Exports made by a subsidiary of a limited
company shall be counted towards export
performance of the limited company for the purpose
B
of recognition only if the limited company has a
majority share holding in the subsidiary company.
4. lri case the recognition is claimed based upon
the current year's export performance, same shall
c be considered only in case the exporter has export
performance during any one of the preceding three
years as well.
3.5.2.1 Privileges
D A Star Export House shall be eligible for the
following 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) Entitlement for consideration under the
Target Plus Scheme; and
H
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 421
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

(vii) Exemption from furnishing of Bank Guarantee A
in Schemes under this Policy."
121. Chapter 3 of the EXI M Policy mentions various
'promotional measures' and in para 3.2.5 thereof, it contained,
inter a/ia, procedure for availing the benefit underTPS. Among
8
other things, it was stipulated that the last date for filing of such
applications shall be 31st of December and that the duty credit
certificate shall be valid for a period of twenty four months from
the date of issue, with a clear stipulation that revalidation of
duty credit entitlement certificate shall not be allowed. c
122. As is clear from the aforesaid provisions of TPS,
the Central Government had announced an export incentive
scheme under which star export houses were entitled to a duty
free entitlement certificate at varying rates, depending on the
quantum of incremental growth in exports achieved by them D
over their exports in the previous year. In terms of para 3.7.6,
the Central Government issued Notification No. 32/2005 dated
April 08, 2005 whereby it notified the duty credit of TPS which
could be availed of in the course of import of any inputs, capital E
goods, including spares, office equipment, professional
equipment and office furniture, provided the same is freely
importable under the ITC (HS) classification of export and
import items for their own use and that of supporting
manufacturers, as declared· in the application 170. The F
exporters in these cases claim that relying on the aforesaid
Scheme, they ensured that they achieved incremental exports.
123. Thereafter, however, the Central Government, in
exercise of powers conferred by Section 5 of the Act issued
Notification bearing No. 48 (RE 2005)/2004-2009 dated G
February 20, 206. Vide this Notification, the Government
amended the list of exports enumerated in para 3. 7 .5 of the
FTP thereby excluding the exports of all types of forms of
petroleum products covered under ITC (HS) codes 2706-2715
H
422 SUPREME COURT REPORTS [2015] 15 S.C.R.

A for the purpose of calculation of TPS and computation of its
entitlement. This amendment was made effective from April
01, 2005 in respect of exports effected during April 01, 2005
to March 31, 2006. The relevant portion of the said Notification,
with which we are concerned, reads as under:
B
"6. In para 3. 7.5, the following shall be inserted after
sub para 3.7.5(f)
(g). Ores and Concentrates, of all types and in all
forms.
c (h) Cereals, of all types.
(i) Sugar, of all types and in all forms.
0) Crude/Petroleum Oil & Crude/Petroleum based
Products covered under ITC HS codes 2709 to
D 2715, of all types and in all forms."
124. It maybe recollected that in para 3.7.5, certain items
are specified which are not to be taken into account for
calculation of exports performance or for computation of
E entitlement under the TPS. The effect of the aforesaid
amendment was to exclude the aforementioned four items as
well insofar as calculation of export performance or
computation of entitlement under the TPS is concerned.
125. Another amendment to the TPS was made vide
F Notification No. 8(RE 2006)/2004-2009 dated June 12, 2006.
It also pertained to the exports effected during April 01, 2005
to March 31, 2006. By this Notification, para 3. 7.3 was
substituted by the following para:
G 'The entitlement under this scheme would be
contingent on the minimum percentage incremental
growth of 20% in FOB value of exports in the current
licensing year over the previous licensing year, and
the rate of entitlement shall be 5% of the incremental
H growth."
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 423
MIS. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

126. Original para 3. 7 .3, which is in respect of A
'entitlement' under the TPS mentioned that the said entitlement
would be contingent on the minimum percentage incremental
growth in FOB value of exports in the current licensing year
over the previous licensing year. The percentage incremental
growth was subsequently stipulated in the table provided under B
the said para. As per that, if the incremental growth was 20%
and above to below 25%, duty credit entitlement provided was
5%. In case of incremental growth of 25% or above, but below
100%, the duty credit growth entitlement was to the tune of
10%. On incremental growth of 100% and above, duty credit C
entitlement stipulated was 15% (of 100%). However, byway
of amendment, the minimum percentage incremental growth
was specified as 20% in the FOB value of exports in the current
year over the previous year and entitlement was made uniform D
@ 5% of the incremental growth.
127. These Notifications are challenged on the ground
that these export houses had achieved the desired target by
making necessary exports within the stipulated period, i.e. April
01, 2005 to March 31, 2006 and thus got vested right to avail E
the entitlement as contained in para 3.7.6, which could not be
reduced to 5%. It was also submitted that the various items
exported included all types of forms of petroleum products
covered under ITC (HS) codes 2706-2715 and these items
could not be excluded by the aforesaid amendment. In nutshell, F
submission was that by giving retrospective effect to the
amendment, which was in any case impermissible, even the
vested right of these exporters was taken away. It can, thus,
be seen that the arguments on vested right and retrospectivity
are the same and the counsel who appeared in these matters G
advanced identical legal submissions.
128. We have already discussed these aspects in
detail. To recapitulate, it is held by us that Section 5 of the Act .
does not empower the Government to make amendments with H
424 SUPREME COURT REPORTS [2015] 15S.C.R.

A retrospective effect, thereby taking away the rights which have
already accrued in favour of the exporters under the Scheme.
No doubt, the Government has, otherwise, power to amend,
modify or withdraw a particular Scheme which gives benefits
to a particular category of persons under the said Scheme.
B At the same time, if some vested right has accrued in favour
of the beneficiaries who achieved the target stipulated in the
Scheme and thereby became eligible for grant of duty credit
entitlement, that cannot be snatched from such persons/
exporters by making the amendment retrospectively. In the
C present case, we find that Section 5 of the Act does not give
any specific power to the Central Government to make the
Rules with retrospective effect. The Central Government is
authorised to make Rules/Schemes under the said provision
as a delegatee, which means that the EXIM Policy/Scheme
0
framed under the said provision is by way of delegated
legislation. There has to be specific power to make the
amendments with retrospective effect, which are lacking in the
instant case. Moreover, even if there is such a power, it cannot
E take away vested rights which have accrued in favour of
particular persons/exporters. We have already enlisted number
of judgments of this Court taking such a view. A few such cases
laying down the aforesaid principle are:
(i) Regional Transport Officer, Chittoor & Ors. v.
F Associated Transport Madras (P) Ltd. &Ors. 20
(ii) Accountant General & Anr. v. S. Doraiswamy &
Ors. 21
(iii) A.A. Calton v. Director of Education & Anr. 22
(iv) Chairman, Railway Board & Ors. v. C.R.
G
Rangadhamaiah & Ors. 23
20 (1980) 4 sec 597
21 (1981) 4 sec 93
22
c1983) 3 sec 33
H 23 (1997) 6 sec 626
DIRECTOR GENERAL OF FOREIGN TRADE AND ANR. v. 425
M/S. KANAK EXPORTS AND ANR. [A. K. SIKRI, J.]

129. Keeping in view the aforesaid legal position, we A
embark on the discussion relevant for the purposes of these
cases, namely, pertaining to TPS.
130. TPS, which was introduced in EXIM Policy 2004-
2009 on August 31, 2004, adopted some of the features of
8
the earlier Schemes in the EXIM Policy 2002-2007 and
introduced the concept of Multi-Entitlement Rates, thus,
allowing higher entitlement rates for higher growth. The Multi-
Entitlement Rates depended upon the quantum of incremental
growth achieved by particular exporters. As taken note of c
above, the TPS prescribed three rates of entitlement based
on growth. It shows that TPS was in the nature of a reward
Scheme and was somewhat different from the earlier Schemes
which seek to neutralize the duty paid by the exporter. It intended
to accelerate growth in export by rewarding star export houses D
who have achieved a quantum growth in exports.
131. Vide Notification No. 32/2005 dated April 08, 2005,
the Central Government amended para 3. 7.8 and instead of
three rates of entitlement based on growth, it prescribed one
single rate, i.e. 5% of the incremental growth. In replies given E
by the Government, no cogent or valid reason is given for this
move. Interestingly, comments are made about the misuse of
earlier Scheme in the EXIM Policy 2002-2007 and the
evidence that surfaced during the said investigation, particularly F
with respect to the alleged dubious practices adopted by some
exporters who had inflated their turnover in respect of gold and
diamond exports and it is mentioned that under these
circumstances, for 'anticipating misuse', the Government came
out with the aforesaid Notification. The amendment Notification G
is justified. on the ground that in the Scheme itself it had·
preserved the right to change the eligibility criteria and rate of
entitlement effective from the beginning of the year, in public
interest. Thus, the action is justified on the ground that such a
H
426 SUPREME COURT REPORTS [2015] 15S.C.R.

A power was reserved in the TPS itself and that measure was
taken to avoid misuse by unscrupulous exporters. Nowhere it
is stated that there was misuse by any of these parties.
132. Pertinently, it is also not denied that these
petitioners/exporters had achieved the quantum/incremental
8
growth, as stipulated in the TPS, which made them eligible to
get the rewards under the said Scheme. These exporters,
therefore, had fulfilled the conditions contained in the TPS.
The Scheme was floated to accelerate quantum growth in
c exports and when those star export houses achieved the
quantum growth in exports, as stated in para 3.7.3, they would
naturally become entitled to a particular percentage of duty
credit entitlement depending upon the quantum of growth
achieved. These exporters, thus, got vested right to avail the
o duty credit entitlement and achieve higher rate, i.e. 10% or
15%, as the case may be. Reducing the same to 5% would
clearly amount to taking away their vested right with the issuing
of the Notification and making them effective retrospectively.
133. Likewise, no cogent explanation is coming forward
E for adding four items by amending para 3.7.5 vide Notification
No. 48 (RE 2005)/ 2004-2009 dated February20, 2006. The
only argument advanced at the time of hearing was that the
Government felt that benefit of TPS should not be extended to
F the exporters of these items. That may be a policy decision
and the Government is empowered to take such a decision. It
may be noted that in para 3.7.5 of TPS, as was originally
provided, certain items of exports were specifically mentioned.
which were not to be taken into account for calculation of export
G performance or for computation of entitlement under the
Scheme and the items now added vide Notification No. 48
(RE 2005)/2004-2009 dated February 20, 2006 were not
mentioned therein. If the Government realised afterwards that
export of these items should not have been given the benefit
H
DIRECTOR GENERAL OF FOREIGNTRADEANDANR. v. 427
M/S. KANAK EXPORTSANDANR. [A. K. SIKRI, J.]

of TPS and extending the benefit to now excluded items was A
an ill-considered move, though the Cen'tral Government was
free to withdraw it in .respect of such items but it could do so
only prospectively, but was not entitled to do so with effect from
the back date, i.e. April 01, 2005, by taking away the vested
right that had already accrued in favour of exporters of these B
items.
134. As a result, we hold that Notification No. 48/2005
dated February 20, 2006 and Notification No. 8/2006 dated
June 12, 2006 cannot be applied retrospectively and they would c
be effective only from the dates they were issued.
135. Writ Petition (Civil) No. 27 of 2008, Transfer Case
(Civil) Nos. 32 and 33 of 2007 (which were the writ petitions
filed by exporters before the High Court) are, thus, allowed in
the aforesaid terms. The Transfer Case arising out of Transfer D
Petition (Civil) No. 568 of 2014, which was the writ appeal
filed by DGFT before the High Court is dismissed thereby
confirming the order of the Gujarat High Court allowing the writ
petition filed by the exporter, namely, M/s. Welspun India
Limited. E

Bibhuti Bhushan Bose Matters disposed of.