Facts of the Case

The petitioners, Messrs Aalidhra Textool Engineers Pvt. Ltd. and associated entities, are manufacturers and exporters of textile machinery and its parts. They were granted Duty Credit Scrips under the Merchandise Exports from India Scheme (MEIS) pursuant to their export performance under the Foreign Trade Policy (FTP) 2015-2020.

The MEIS Scrips, issued in May and July 2019, carried a validity period of 24 months. Before the nationwide COVID-19 lockdown in March 2020, the petitioners could utilize only a small portion of the available duty credit. Due to the unprecedented disruption of business activities caused by the pandemic, a substantial balance of the duty credit remained unutilized within the prescribed validity period.

The petitioners sought extension of the validity of the MEIS Scrips by excluding the COVID-19 period from the computation of the validity period. However, the Policy Relaxation Committee rejected their request, holding that no genuine hardship was established. Aggrieved by the rejection, the petitioners approached the Gujarat High Court under Article 226 of the Constitution of India.

Issues Involved

  1. Whether the validity period of MEIS Duty Credit Scrips should be extended by excluding the period affected by the COVID-19 pandemic.
  2. Whether the Policy Relaxation Committee acted arbitrarily in rejecting the petitioners' applications despite the extraordinary circumstances arising from the pandemic.
  3. Whether authorities under the Foreign Trade Policy were bound to consider the Supreme Court's orders extending limitation during the COVID-19 period while deciding applications for revalidation of MEIS Scrips.
  4. Whether refusal to extend the validity of the MEIS Scrips defeated the object of the export incentive scheme under the Foreign Trade Policy.

Petitioners' Arguments

  • The petitioners contended that they could not utilize the MEIS Duty Credit Scrips solely because of the nationwide lockdown and severe business disruptions caused by the COVID-19 pandemic.
  • They argued that there was no benefit in intentionally allowing the scrips to lapse, as the inability to utilize them resulted in a substantial financial loss.
  • It was submitted that the Supreme Court, in its suo motu proceedings concerning limitation during the pandemic, had directed exclusion of the relevant COVID-19 period, and the same principle ought to apply while considering the validity of the MEIS Scrips.
  • The petitioners further relied upon notifications issued by the Ministry of Commerce and Industry granting relaxations under various Foreign Trade Policy schemes during the pandemic, contending that similar relief ought to have been granted in their case.
  • They asserted that the Policy Relaxation Committee ignored genuine hardship and acted arbitrarily by refusing extension despite the exceptional circumstances prevailing throughout the country.

Respondents' Arguments

  • The respondents submitted that extension of validity under the Foreign Trade Policy was not an automatic or vested right.
  • It was argued that the Policy Relaxation Committee had considered the petitioners' request on merits and concluded that no genuine hardship warranting relaxation had been established.
  • The respondents maintained that the Committee possessed discretionary powers to relax policy conditions only in deserving cases involving exceptional hardship.
  • Therefore, according to the respondents, no judicial interference was warranted with the policy decision refusing revalidation of the MEIS Duty Credit Scrips.

Court Order / Findings

The Gujarat High Court allowed the writ petition.

The Court observed that the petitioners were prevented from utilizing the MEIS Duty Credit Scrips solely because of the extraordinary circumstances arising from the COVID-19 pandemic. It held that the Policy Relaxation Committee failed to appreciate the unprecedented situation and ignored the binding directions of the Supreme Court extending limitation during the pandemic.

The Court further held that the authorities were bound by the Supreme Court's orders issued under Articles 141 and 142 of the Constitution and ought to have considered those directions while deciding the applications for extension.

Accordingly, the Court quashed the decision of the Policy Relaxation Committee dated 29.11.2021 rejecting the requests for revalidation and directed the respondents to extend the validity of both MEIS Duty Credit Scrips until they were fully utilized by the petitioners.

Important Clarification

  • Extraordinary circumstances such as the COVID-19 pandemic must be considered while deciding requests for extension of benefits under export incentive schemes.
  • Authorities exercising discretionary powers under the Foreign Trade Policy cannot ignore binding directions issued by the Supreme Court.
  • Genuine hardship resulting from circumstances beyond the control of exporters deserves fair consideration.
  • Administrative authorities are required to exercise policy relaxation powers reasonably, fairly, and in accordance with constitutional principles.
  • Export incentive benefits should not be denied merely because the prescribed validity period expired during the pandemic when utilization became impossible due to government-imposed restrictions.

Sections 

  • Article 226 of the Constitution of India
  • Article 141 of the Constitution of India
  • Article 142 of the Constitution of India
  • Section 5 of the Foreign Trade (Development and Regulation) Act, 1992
  • Foreign Trade Policy (FTP) 2015-2020
  • Merchandise Exports from India Scheme (MEIS)
  • Paragraph 3.13 of the Handbook of Procedures (HBP)
  • Paragraph 2.20(c) of the Handbook of Procedures (HBP)

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785325596_2259compressed.pdf

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