Arbitrary Notifications

I. Arbitrary and Unreasonable Restriction on Trade Rights & Right to Equality

A central argument against the export duty and the related notifications is their alleged violation of fundamental rights guaranteed by the Constitution of India, specifically Article 14 (Right to Equality) and Article 19(1)(g) (Right to Practise any Profession, or to Carry on any Occupation, Trade or Business).

• Unreasonable Restriction on Export Rights: The imposition of export duty is contended to be arbitrary, directly restricting the right to export parboiled rice, which constitutes an unreasonable restriction on trade rights. This aligns with the principle that any government action must not create unjust discrimination among similarly situated individuals, as emphasised by the Supreme Court in Balkrishna Industries Ltd. v. The Union Of India and Others.

• Discriminatory Nature of Letter of Credit (LC) Requirement: Notification 50/2023-Customs is specifically challenged for restricting exemptions solely to exports covered by irrevocable Letters of Credit opened before 25th August 2023.

  • This selective application is considered arbitrary and discriminatory, violating Article 14 by unfairly excluding other valid financial arrangements, such as advance remittances.

  • The principle of equality before the law dictates that governmental actions must not lead to unequal treatment of individuals in similar circumstances, a point reinforced in M/S PAGARIYA EXPORT PRIVATE LIMITED, NAGPUR THR. AUTHORIZED REPRESENTATIVE MR. SUDIP M. KOTHARI v. UNION OF INDIA. The notification is therefore viewed as discriminatory and lacking reasonable classification.

• Creation of a Monopolistic Environment: The requirement for an LC is argued to create a monopolistic environment, unfairly favouring larger entities that have access to such facilities, thereby denying equal opportunity to smaller players in the export market.

  • This LC requirement is considered an unreasonable restriction on the right to carry on trade under Article 19(1)(g), arguing it should not be imposed by a democracy.

  • Any imposition must be reasonable and justified by a legitimate public interest, as noted in Gujarat Ambuja Exports Ltd And Ors v. Union Of India And Ors. The LC requirement fails this test.

  • It also imposes unnecessary administrative burdens and costs without corresponding benefits, infringing upon the constitutionally guaranteed rights of small exporters.

  • Regulations are expected to be proportionate to their aims, a principle acknowledged in M/S INDIAN PRODUCTS PRIVATE LIMITED v. DIRECTOR GENERAL OF FOREIGN TRADE. The burdens from the LC are seen as excessive, failing the proportionality test.

  • This situation is seen as favouring entities with LC access, creating barriers for smaller businesses. Such conditions are argued to lack a rational nexus to the stated objectives of the legislation that granted the emergency power.

  • Furthermore, it deviates from standard international trade practices, which typically allow more flexibility in payment methods, thus placing small Indian exporters at a competitive disadvantage. The executive's action is described as creating an artificial entry barrier in the export of parboiled rice.

II. Unjustified Use of Emergency Powers

The invocation of emergency powers under Section 8(1) of the Customs Tariff Act, 1975, for imposing the export duty is strongly challenged due to a perceived lack of urgent or emergent circumstances.

• Absence of Urgent Situation: The respondents reportedly failed to demonstrate any urgent or emergent situation that justified the use of emergency powers. The timeline spanning from September 2022 to August 2023 is cited as providing ample time for Parliament to amend the law, rendering the bypassing of the regular parliamentary process unjustified.

• Need for Proper Justification: The use of emergency powers is intended for urgent circumstances and aims to bypass the regular parliamentary process. The necessity for immediate action could not be established, especially given the prolonged period, and the rationale for resorting to such powers must be disclosed and justified. This is supported by AABIS INTERNATIONAL v. UNION OF INDIA, which underscores the need for proper justification.

• Abdication of Legislative Function: Courts have held that the legislature cannot abdicate its essential legislative function to the executive, as established in Safari Fine Clothing Pvt. Ltd. v. Union of India. Additionally, it has been observed that only the legislature can impose duties on certain items, as noted in Prima Agro Products Ltd. v. Union Of India.

• Scope of Legislative Acts: A notification issued under Section 8A of the Customs Tariff Act is considered a legislative act and can only amend the First Schedule. This further questions the executive's authority to impose such duties via emergency notifications without parliamentary process.

• Lack of Genuine Emergency Indication: It is argued that if an actual emergency existed, a complete export ban might have been more appropriate. The domestic stock of parboiled rice consistently hovered between 8 and 8.5 million tonnes in recent years, never falling significantly enough (e.g., more than 10-15% below average monthly stock) to necessitate a 20% export duty. This raises questions about the "knee-jerk usage" of emergency powers and whether the government is being allowed to use them "at whim".

III. Failure to Lay Notifications Before Parliament

A critical procedural flaw highlighted is the failure to lay the impugned notifications before both Houses of Parliament.

• Serious Infraction and Nullity: This failure is considered a serious infraction that renders the notifications "non est" (non-existent or void).

• Undermining Democratic Process: The Supreme Court's decision in Krishna Kumar Singh and Another v. State of Bihar and Others held that the failure to place legislative instruments before the legislature undermines the democratic process.

• Vires and Defects: As a result of not being laid before Parliament, the notifications and trade notices are argued to suffer from vires and defects, as noted in B S A International vs S A the Competition Commission Of India, which referenced DG of Foreign Trade v. Kanak Exports. Consequently, they are deemed to offend the right to equality and violate Article 14 of the Constitution.

IV. Violation of Legitimate Expectation

Small exporters are argued to have had a legitimate expectation to fulfil their trade contracts based on the previous policy that allowed free exports.

• Reliance on Existing Policies: The principle of legitimate expectation supports the idea that individuals should be able to rely on existing policies and practices when entering into contracts, as discussed in Food Corporation of India Vs. M/s Kamdhenu Cattle Feed Industries.

• Disruption and Breach of Contracts: The sudden imposition of export duty disrupted this expectation and exposed small exporters to potential breach of contract claims. Restrictions must be reasonable and consider the circumstances under which they are imposed, a principle emphasised in State of Madras v. V.G. Row.

V. Economic Detriment and Lack of Public Interest

The notifications are argued to be against public interest due to the significant economic detriment they cause.

• Negative Economic Impact: The economic harm includes financial losses, supply chain disruptions, and damage to India's reputation and foreign exchange earnings.

• Definition of Public Interest: While "in the interest of general public" encompasses economic welfare (Municipal Corporation of the City of Ahmedabad v. Jan Mohammed Usmanbhal), the actions taken do not align with this.

• WTO Concerns and Ineffectiveness: Despite Article XI of GATT allowing temporary export restrictions for critical food shortages, six WTO members have raised concerns about India's parboiled rice export restrictions, which India initially deferred answering. Even after India reduced the export duty from 20% to 10%, the domestic stock of parboiled rice did not significantly rise (not even by 10% during the 20% duty regime).

• Benefit to Large Exporters, Not Public Interest: The argument suggests that large exporters continued to export substantial quantities (almost four times in value compared to small exporters), meaning the net result of the action was the executive earning revenue from export duty, rather than serving public interest or addressing a genuine shortage. It is contended that the government's intention was to "hurt small exporters," and that the interests of LC holders were mistakenly equated with public interest by the executive.