Bhatinda Chemcials Ltd. And Ors. vs Union Of India (Uoi) And Ors.
2005 Latest Caselaw 1340 Del

JUDGMENT

T.S. Thakur, J.

Page 1401

1. Judicial review of public policies is limited to finding out whether the policy violates any law validly enacted or fundamental or constitutional right guaranteed to the citizens. The wisdom underlying any such policy cannot be examined by the Courts who have resisted the temptation of examining whether a particular public policy was beneficial for the system or whether a Page 1402 better policy could be evolved in its place. The predominant reason why courts have been slow in entertaining issues regarding the suitability of a particular policy, whether economic or otherwise, is the lack of expertise required to adjudicate upon matters that go into the formulation of such policies. The result is that public policies are allowed to stay untouched by judicial interference unless it is found to be so violative of the constitutional limits or so abhorrent to reason that interference becomes necessary. The legal position in this regard is settled by a catena of decisions delivered by the Apex court from time to time. Before we refer to some of those decisions, we may briefly set out the factual backdrop in which the petitioners have filed the present writ petitions in which the prayers made by them in essence exhort the Court to review the policy underlying import of edible oils from Sri Lanka under an Indo-Lankan Free Trade Agreement (FTA).

2. Petitioner No. 1 M/s Bhatinda Chemicals Ltd. is engaged in manufacture of Vanaspati while petitioners 2, 3 and 4 are Associations of Vanaspati manufacturers in the States of Punjab, U.P. and Rajasthan. They have, in the present writ petitions, assailed notifications dated 01.03.2000 and 18.03.2003 issued by the Government of India granting 100% import duty exemption to import of edible oil/Vanaspati from Sri Lanka under the Indo-Lankan Free Trade Agreement referred to earlier. This agreement was executed between Government of India and Government of Sri Lanka on 28.12.1998 with the basic objective of developing economic relations between the two countries through expansion of trade by providing fair conditions of competition for trade on the principle of reciprocity by removing trade barriers to provide a level playing field for their competing industries. The agreement inter alia provided that any product to be eligible for preferential treatment under the FTA will have to satisfy the criteria provided under the 'Rules of Origin' as set out in the appendix to the Agreement.

3. The petitioners' case is that after the execution of the agreement, the Sri Lankan Government came out with brochures with a view to attracting Indian investors to invest and set up industries in Sri Lanka and avail the benefits of FTA. These brochures claimed that Sri Lanka would under the FTA be a cheaper source of raw material and machinery with lower cost of production for domestic and Indian manufacturers. Goods manufactured and exported from Sri Lanka would be entitled to preferential tariffs and thereby help existing and new industries to enter the Indian market apart from exporting the products to the international market.

4. In pursuance of the FTA between the two governments, the Government of India issued a notification dated 01.03.2000 under Section 25 of the Customs Act, 1962 providing for import/custom duty exemption for goods specified therein when imported under the FTA from Sri Lanka. Vanaspati (edible oil) manufactured and exported from Sri Lanka was one such product that could be imported into India at 90% rebate/concession from the applied rate of import/custom duty. By another notification dated 18.03.2003, the earlier notification was amended granting 100% custom/import duty exemption for import of several items including edible oil manufactured in Sri Lanka and imported into India under the FTA. The petitioners allege that both these notifications were arbitrary, discriminatory Page 1403 and unfair to the Indian producers of edible oil and Vanaspati. This is, according to the petitioners, so because the landed cost of edible oil/Vanaspati manufactured and exported from Sri Lanka to India under the FTA would be at least Rs. 14.50 per Kg. cheaper than the cost of manufacturing edible oil under the existing duty structure prevalent in India. The petitioners allege that since Sri Lanka is not a natural producer of Crude Palm Oil (CPO), therefore, any producer of edible oils in Sri Lanka claiming preferential treatment under the FTA would have to import the same from a third country. No import duty, according to the petitioner, is levied on the import of CPO in Sri Lanka as per the terms of the FTA nor is the edible oil so produced subject to any import duty in India. The result is that edible oil under FTA will flood the Indian market causing, according to the petitioners, grave injury to the domestic manufactures. This would, argued the petitioner, amount to dumping of cheap edible oils from Sri Lanka which cannot be permitted.

5. The petitioners' further case is that the Customs Tariff (Determination of Origin of Goods under the Free Trade Agreement between the Democratic Socialist Republic of Sri Lanka and Republic of India) Rules, 2000 lay down the criteria for a product to be eligible for preferential treatment under the FTA. Rule 7 of the said Rules provides that there must be at least 35% value addition to raw materials obtained from third country for manufacturing products meant for export to India before such product would qualify for preferential treatment under the FTA. According to the petitioners, the edible oils/Vanaspati manufactured in Sri Lanka does not satisfy this requirement as a simple process of 'hydrogenization' which involves addition of hydrogen to edible oil does not account for value addition to the extent of 35% as required under the said Rules.

6. Aggrieved by the notifications, the petitioners appear to have made representations to the Central Government which did not, according to the petitioners, evoke any response forcing the latter to file WP(C) No. 5445/2003 inter alia for a writ of certiorari quashing the notifications and for other reliefs. This petition was eventually disposed of by a Division Bench of this Court by its order dated 28th November, 2003 with the observation that since the imports of Vanaspati from Sri Lanka were negligible, there was no imminent threat of serious injury to the domestic Indian manufacturers. Special Leave Petition filed against the said order was withdrawn by the petitioners with liberty to agitate the matter before this Court once again on the basis of certain subsequent developments that were said to have taken place during the intervening period. The present writ petitions were then filed once again challenging the notifications in question and for a mandamus directing the Government of India to take action under the safeguard measures in the Free Trade Agreement to protect the domestic edible oil industries and to rationalize the import duty structure of Crude Palm Oil by reducing import duty on Crude from 65% to 0% or some other reasonable rate to ensure that domestic manufacturers of edible oils are put at a level playing field with their counterparts who are availing the benefits under the said agreement.

7. Apart from making other averments, the petitioners allege that large scale imports of Vanaspati have commenced from Sri Lanka into India which is being granted preferential treatment under the FTA. It is stated Page 1404 that although there is no amendment to the Rules of Origin requiring a minimum of 35% value addition to raw material imported from outside Sri Lanka, the authorities were granting preferential treatment to imports made from Sri Lanka in clear circumvention of the Rules of Origin which, according to the petitioners, make out a case for intervention of this court under Article 226 and issue of a writ of certiorari as prayed for in the writ petition.

8. Appearing for the petitioners, Mr. Vikas Singh, learned senior counsel argued that the grant of preferential treatment to Vanaspati manufactured in Sri Lanka was a clear violation of the provisions of the Rules of Origin framed by the Government according to which only such products would qualify for preferential treatment under the FTA as had a value addition of not less than 35% to the raw material imported from a third country. This value addition was not, according to the learned counsel, possible in the case of Vanaspati manufactured in Sri Lanka as the process of hydrogenization of the edible oil could at best account for a value addition of 20% and no more. It is submitted that the custom authorities had not enforced the rules regarding grant of preferential treatment even in a single case as not a single consignment of Vanaspati imported from Sri Lanka had been stopped or confiscated on the ground that the import does not satisfy the requirement of value addition. He urged that a direction could, in that view, be issued to the custom authorities to strictly adhere to the provisions of the Rules of Origin and prevent all such imports of Vanaspati as did not qualify for preferential treatment under the FTA.

9. On behalf of the respondents, it was per contra argued by Mr. Narula that the question whether any preferential treatment was deserved and if so, the extent thereof were matters of policy with which the Court would not meddle in the light of the settled legal position on the subject. He urged that the issue of impugned notifications were a part of the policy adopted by the Central Government for promoting trade with Sri Lanka. The said notifications were, therefore, beyond the pale of any challenge. It was also argued that the Rules of Origin were being enforced by the authorities while permitting imports from Sri Lanka and that the Government was taking adequate measures in that direction, including measures aimed at sensitizing the Sri Lankan authorities to ensure that exports from that country were permitted only if the same satisfied the requirement of 35% value addition stipulated under the rules. There was, according to Mr. Narula, no room for interference by this Court in a case where petitioners had failed to establish a clear breach of the rule leading to any civil consequences either for the petitioners or their constituent members. The petitions were, according to Mr. Narula, based entirely on conjectures and surmises hence fail to provide a sound basis for this Court to intervene.

10. Two distinct issues fall for consideration before us. One relates to the validity of the impugned notifications issued in pursuance of the policy formulated by the Government and implicit in the execution of the Free Trade Agreement with Sri Lanka, while the other relates to the enforcement of the rules and the norms subject to which the imports are under the FTA made permissible. We propose to deal with the issues ad seriatim :

Page 1405

11. The Free Trade Agreement executed between Sri Lanka and India is aimed at accelerating the process of economic development in the two countries by expanding their domestic markets through economic integration. The Agreement signifies the need felt by the two countries for establishing and promoting free trade arrangements, and strengthening intra-regional economic co-operation with a view to help development of national economies. It also recognizes that eradication and elimination of obstacles to bilateral trade would contribute to the expansion of world trade. Article I of the Agreement identifies the following objectives which the contracting parties aim to achieve :

(i) To promote through the expansion of trade the harmonious development of the economic relations between India and Sri Lanka.

(ii) To provide fair conditions of competition for trade between India and Sri Lanka.

(iii) In the implementation of this Agreement the Contracting Parties shall pay due regard to the principle of reciprocity.

(iv) To contribute in this way, by the removal of barriers to trade, to the harmonious development and expansion of world trade."

12. Under Article VII, the parties have agreed to give preferential treatment to products covered by the agreement provided the same satisfy the Rules of Origin set out in Annexure C which forms an integral part of the agreement. Article VIII envisages safeguard measures and inter alia provides that the importing contracting party may, with prior consultations except in critical circumstances, suspend provisionally without discriminating the preferential treatment accorded under the Agreement if any product which is the subject of preferential treatment is imported into the territory of such party in such manner or in such quantity as to cause or threatened to cause serious injury to the importing contracting party. The agreement also permits the contracting parties to apply their domestic legislation to restrict imports in cases where prices are influenced by unfair trade practices like subsidies or dumping. It permits the contracting party facing balance of payments difficulties to suspend provisionally the preferential treatment as to the quantity and value of merchandise permitted to be imported under the Agreement. More importantly article XI of the Agreement envisages a Joint Committee to review the progress made in the implementation of the Agreement and to ensure that benefits of trade expansion emanating from the same accrue to both the contracting parties equitably.

13. The Rules of Origin, alleged violation whereof is the very basis of the petitioners' case, are nothing but a part of the FTA. There is no gainsaying that the execution of the Free Trade Agreement and the objectives sought to be achieved by the same constitute a measure aimed at harmonious development of economic relations between two sovereign countries and is, therefore, in the realm of policy making. Whether or not India should adopt a policy that would promote expansion of trade and development of economic relations with another country and if so the terms on which such expansion or development ought to be permitted are matters for the policy makers to determine. A Writ Court exercising jurisdiction under Article 226 of the Page 1406 Constitution would not sit in judgment over the wisdom underlying any such policy or tinker with the same on the ground that the policy is either deficient or that a better policy could be evolved to achieve the objectives underlying the measure.

14. Grant of exemption from payment of duty on the import of Vanaspati from Sri Lanka in pursuance of the said policy and the agreement executed between the two countries, has therefore to be viewed as a part of the policy itself. The impugned exemption notifications cannot be viewed in isolation. The same have to be seen and read as constituting a part and parcel of the policy adopted by the Government under which the Government have decided to promote expansion of trade and trade relations with Sri Lanka and harmonious development of economic relations between the two countries. Judicial review of such policies would be limited to finding out whether the policy or any measure taken in pursuance thereof violates any fundamental right of any citizen or any law validly enacted. The Court has, while approaching the issue even from that limited angle, to bear in mind that import policy of any country, especially a developing economy like ours has to be tuned to its general economic policy founded upon its constitutional goals and the requirements of internal and international trade, its agricultural and industrial development plans and its monetary and financial strategies. As observed by their lordships in Glass Chatons Importers and Users' Association v. UOI , such policies would often be formulated keeping in view international, political and diplomatic overtones depending on friendship, neutrality or hostility with other countries. Considerable number of other factors also go into the making of an import policy. This include expertise in public and political, national and international economy before one may engage in the making or in the criticism of a policy involving import from another country.

15. In Liberty Oil Mills v. UOI , the Supreme Court underscored the lack of expertise with the courts and their consequent incompetence to pass a judgment on the appropriateness or adequacy of a particular import policy. In Narmada Bachao Andolan v. UOI , the Apex Court by majority emphasised the need for the courts to adopt a cautious approach whenever issues involving the wisdom underlying a policy was brought up for determination before them. The court observed :

"229. It is now well settled that the courts, in the exercise of their jurisdiction, will not transgress into the field of policy decision. Whether to have an infrastructural project or not and what is the type of project to be undertaken and how it has to be executed, are part of policy-making process and the courts are ill-equipped to adjudicate on a policy decision so undertaken. The court, no doubt, has a duty to see that in the Page 1407 undertaking of a decision, no law is violated and people's fundamental rights are not transgressed upon except to the extent permissible under the Constitution."

16. To the same effect is the judgment of the Supreme Court in Balco Employees' Union (Regd.) v. UOI where the Court held that it was neither within the domain of the courts nor the scope of the judicial review to embark upon an enquiry as to whether a particular public policy is wise or whether better public policy could be evolved. The courts are not, observed their lordships, inclined to strike down a policy at the behest of a petitioner merely because a different policy would have been fairer, wiser, more scientific or more logical. We may also refer to the decision of the Supreme Court in UOI and Anr. v. Azadi Bachao Andolan and Anr. where their lordships held that it was wholly wrong for the court to substitute its own opinion as to what principle or policy would best serve the objects and purposes of a particular legislation nor was it open to the court to sit in judgment over the wisdom, effectiveness or otherwise of the policy. The Court observed that there are many principles in a fiscal economy which, at first flush, might appear to be feeble but are tolerated in a developing economy in the interest of long term development.

17. In Maharashtra State Board of Secondary and Higher Secondary Education v. Paritosh Bhupeshkumar Shethe , the Court held that it was within the province of the legislature and its delegate to determine as a matter of policy how the provision of a statute can best be implemented and what measures substantive as well as procedural would have to be incorporated in the rules or regulations for the efficacious achievement of the objects and purposes of the Act.

18. In the light of the above authoritative pronouncements, we have no difficulty in repelling the challenge to the validity of the notifications which flow from and constitute a part and parcel of the policy underlying the execution of the Free Trade Agreement with Sri Lanka. In fairness to Mr. Vikas Singh, learned senior counsel for the petitioners, we must mention that neither the Free Trade Agreement nor the notifications were in themselves challenged as violating any fundamental right of the petitioners or the provisions of any other law validly made in this country. All that was contended by the learned counsel was that on account of adoption of the policy of promoting Vanaspati imports from Sri Lanka, the Government had jeopardized the interest of the domestic manufacturers of that product. It was urged that the Government could not justify a policy which had the Page 1408 effect of shutting down domestic enterprises or sacrificing their interest for the sake of promoting trade with a neighbouring country.

19. There are two reasons why that argument must, in our opinion, fail. In the first place, the Agreement by itself provides for a sufficient safeguard and entitles either party to the agreement to suspend the preferential treatment in case the imports cause or threaten to cause serious injury in the importing country. The term 'serious injury' has been defined in Article II to mean significant damage to domestic producers, of like or similar products resulting from a substantial increase of preferential imports in situations which cause substantial losses in terms of earnings, production or employment unsustainable in the short term. The Agreement provides that examination of the impact on the domestic industry concerned shall also include an evaluation of other relevant economic factors and indices having a bearing on the state of the domestic industry of that product. There is therefore an inbuilt mechanism in the Free Trade Agreement which empowers the Government to act if serious injury within the meaning of Article VIII is either caused or threatened by the imports from the other country. The Free Trade Agreement or the preferential treatment envisaged by the same is not, therefore, a complete sell out so as to justify any panic reaction among the domestic producers. That is particularly so when a responsive government in a democratic policy like ours cannot remain insensitive to an injury if the same is either caused or threatened as alleged by the petitioners.

20. Secondly, because there is nothing on record before us to substantiate the petitioners' claim that any such injury has indeed been caused or that the Government have failed to examine or address the grievance which the domestic industry has made or may in future make. On the contrary, there is material on record to show that the Government have constituted a high power committee in which the representatives of the domestic industry were also associated to examine the modalities for regulating imports under the Free Trade Agreement. That being so, the grievance of the petitioners can be examined and redressed at the administrative level which appears to us to be the proper forum for monitoring the implementation of the policy. Beyond that it is neither necessary nor proper for this court to say anything at this stage.

21. That brings us to the second question raised by the petitioners and touching upon the alleged ineffective implementation of the Rules of Origin and the norms under which the imports from Sri Lanka can be made under the Free Trade Agreement. According to the petitioners, large scale imports of Vanaspati have commenced from Sri Lanka into India which are being granted preferential treatment under the FTA even though the same do not satisfy the requirements of the Rules of Origin as regards the norms of a minimum 35% value addition stipulated by the same. The petitioners allege that preferential treatment under the FTA is being granted in clear violation of the mandatory provisions of the Rules aforementioned causing grave prejudice to the domestic producers of Vanaspati.

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22. In the counter affidavit filed on behalf of the respondents, the above assertion has been specifically denied. According to the respondents, the Government of India have taken up the issue regarding compliance with value addition norms with the Government of Sri Lanka and the port authorities in India have been given clear instructions that wherever there is a suspicion about any consignment not achieving the 35% value addition norms, the same may not be cleared for entry into India. It has been further stated that the concerns expressed by the petitioners have been taken care of at the highest level as is evident from a communication addressed by the Commerce Secretary, Government of India to his counterpart in Sri Lanka.

23. The respondents also rely upon the constitution of a technical team including representatives from the industry to visit Sri Lanka and study the value addition norms of the Sri Lankan Vanaspati units. They also rely upon the decision taken by the Sri Lankan Government not to grant any new licenses to set up Vanaspati units and limiting the production capacity of Vanaspati to only 25,000 tonnes per unit per year. It is in the premises stated that because of the self-imposed restrictions of Vanaspati exports to India from Sri Lanka, the same would not in any case exceed 2.5 tonnes per year.

24. There is, in the light of the above, no real justification for the petitioners to either allege indifference by the authorities or inaction in the matter of enforcing the Rules of Origin. The material on record including the communication addressed by the Government of India to the Government of Sri Lanka sufficiently demonstrates that the Government are alive to the concerns expressed by the domestic Vanaspati producers and taken steps to ensure that imports from Sri Lanka are strictly in accordance with the norms stipulated by the FTA and the Rules of Origin. Mr. Narula submitted on the basis of the official record that far from allowing imports freely, Vanaspati consignments are held up at Indian port on account of the authorities demanding proper documentation before such imports are permitted. That apart, there is nothing on record before us to suggest that any consignment has been allowed to be imported without the same satisfying the requirements of value addition under the Rules of Origin. The allegations made by the petitioners in para 27 and 28 of the petition, in that regard, are vague and general in nature. They do not specify the particulars of consignments which have been allowed to be imported contrary to the norms regarding value addition.

25. Mr. Vikas Singh drew our attention to the averments made in para 41(E) of the counter affidavit to contend that the respondents had themselves admitted that Vanaspati manufactured in Sri Lanka did not meet the requirements of Rule 7 of the Rules of Origin. He urged that once the respondents had themselves accepted the non-compliance with the Rules of Origin by imports made from Sri Lanka, there was no justification for the authorities to permit such imports into the country.

26. There is, no doubt, some confusion as regards the language which the respondents have used in para 41(E) of their counter affidavit but it is difficult to read the averments in that para in isolation and hold that the Page 1410 respondents have generally accepted non-compliance with the Rules of Origin by the imports from Sri Lanka. Averments made in the counter affidavit when read in proper context, make it clear that what the respondents wish to point out is that achievement of value addition of 35% has been taken up with the Government of Sri Lanka and that the authorities have been sensitized to the need for preventing imports which do not satisfy the said requirement. So long as the Government is committed to that position, the question whether Vanaspati manufactured in Sri Lanka generally does or does not satisfy the requirements of value addition becomes academic. What is important is whether imports made from Sri Lanka are being regulated by reference to the prescribed norms and Rules of Origin. If they are being so regulated, other issues take a back seat. Suffice it to say that the writ petitions do not make out a case for this court to step in to issue a mandamus merely on the basis of an apprehension which the petitioners have expressed.

27. In the result, these petitions fail and are hereby dismissed but in the circumstances without any order as to costs.