Failure To Prove Rational Nexus on Classification of Export Quota to Exporters having Past Export Experience: Delhi HC sets aside Trade Notice by DGFT [Read Order]

The Delhi High Court set aside the Trade Notice issued by the Directorate General of Foreign Trade (DGFT), inter alia, setting out the conditions of eligibility and procedure for allocation of quota for export of broken rice on humanitarian food security grounds as the department failed to prove rational nexus on classification of export quota to exporters having past export experience. Asfive Agro Private Limited & Ors And Bagadiya Brothers Private Ltd, the petitioners engaged in the business of trading in rice. They challenged the Trade Notice no. 08/2023 dated 20.06.2023 (‘the impugned Trade Notice’) issued by the Directorate General of Foreign Trade (DGFT), inter alia, setting out the conditions of eligibility and procedure for allocation of quota for export of broken rice on humanitarian food security grounds. The petitioners areaggrieved by the conditions that restrict the eligibility for securing allocation of quota to only those exporters, who had exported rice to the countries in question (Senegal, Gambia and Indonesia) in the three preceding financial years. The petitioners state that they have a verifiable track record of exporting rice, thus, restricting the eligibility to export rice only to those persons that had exported rice to the specified countries offends Article 14 and Article 19(1)(g) of the Constitution of India. Export of broken rice, which is otherwise proscribed, has been permitted to certain countries (Senegal, Gambia and Indonesia) in limited quantities on humanitarian grounds and to address the food security concerns of those nations. The petitioners contended that excluding all rice exporters with established track records from applying for a quota to export to those countries, is discriminatory and also curtails the freedom to carry on legitimate trade. In 2022, the Central Government issued a Notification (Notification no.31/2015-2020) in the exercise of powers under Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 (‘FTDR Act’) amending the export policy in respect of broken rice and prohibiting the export of broken rice from India. By a subsequent Notification dated 20.09.2022 (Notification No.34/2015-2020) issued by the Central Government under Section 3 of the FTDR Act, the period during which rice could be exported subject to the conditions as stipulated in the Notification dated 08.09.2022, was extended from 15.09.2022 till 30.09.2022. This period was further extended till 15.10.2022 in terms of the Notification dated 27.09.2022. That there is no challenge to the policy decision of the respondent to prohibit the export of broken rice or to permit the export of limited quantities of broken rice to the specified countries. The respondents state that notwithstanding that broken rice was placed in the prohibited category under the export policy, the Central Government had permitted exports of a limited quantity of broken rice to certain countries. The respondent’s contention that the impugned decision to restrict the permission to export only to those exporters who had exported rice to the respective countries in the three financial years preceding the date of the Notification prohibiting the export of broken rice, cannot be subjected to any judicial scrutiny on the ground that it violates Article 14 of the Constitution of India since the same does not impose any burden on the ineligible rice exporters, is unmerited. The policy to permit the export of rice only to certain rice exporters and not to others is a case of classifying rice exporters intoseparate classes and subjecting them to different treatment. Based on their experience of exports, certain exporters have been put in a separate class. Whilst they are permitted to export rice to the countries in question, the others are not. The question of whether the said classification falls foul of the equal protection clause, cannot be excluded from judicial review. A division bench of Justice Vibhu Bakhru and Justice Amit Mahajan viewed that there is no material on record, which would even remotely suggest that persons who have exported broken rice to the respective countries would have a higher capacity to export rice or the quality of broken rice to be exported by them would in any way be superior than that which may be exported by rice exporters who had exported to other countries in the past. The counter affidavit filed by the respondents also does not set out any material to suggest that the rice exporters having experience of exporting rice in a particular country, would be better placed to service the export orders from that country in comparison with other exporters with established track records. The court viewed that the respondent has not produced any material to establish any rational nexus between restricting the export quote to rice exporters that had exported rice during the three financial years preceding the prohibition of export of broken rice, and the object of ensuring capacity and quality. The court set aside the impugned trade notice and directed the respondent to re-evaluate the criteria for allocation of quota for the export of broken rice. Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates

Failure To Prove Rational Nexus on Classification of Export Quota to Exporters having Past Export Experience: Delhi HC sets aside Trade Notice by DGFT [Read Order]

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