Court’s Decision
The Bombay High Court quashed the rejection order dated 29 October 1993 and allowed the writ petition filed under Article 226 of the Constitution, directing the Government of India and relevant authorities to pay ₹4,33,75,866/- to the petitioner as Cash Compensatory Support (CCS) within eight weeks. The Court held that “merely because the test required is changed would not alter the nature of the goods” and the rejection of CCS for the period between 22 June 1989 and 8 May 1991 was unjustified.
Facts
The petition concerned the denial of CCS refund to a castor oil exporter for the period 3 July 1989 to 7 May 1991. In 1964, castor oil graded as “Medicinal” was determined using the ‘Carbon Disulphide Test’. This test was changed to the ‘Thin-Layer Chromatographic (TLC) Test’ via a Circular dated 23 June 1989. Following this change, the same product was graded as “Castor Oil First Special” instead of “Medicinal”, leading the respondents to deny the benefit of CCS.
However, the petitioners argued that the chemical nature and quality of the oil remained unchanged despite the test change. They relied on a previous decision of the same Court in their own case involving duty drawback, where the product was accepted as “Castor Oil Medicinal”.
Issues
- Whether “Castor Oil First Special” is distinct from “Castor Oil Medicinal” under the CCS scheme after the test change in 1989.
- Whether the change in the method of testing can be retrospectively applied to deny CCS benefits for exports made under contracts executed prior to 23 June 1989.
- Whether the rejection of CCS by relying on a subsequent Circular violates legal precedents on retrospective denial of benefits.
- Whether the petitioner was required to challenge the 1993 rejection order explicitly.
Petitioner’s Arguments
The petitioner contended that:
- The nature of the exported product remained identical even after the test change; only its classification label altered.
- Their previous Writ Petition No. 871 of 1994, in an identical factual context (duty drawback), was allowed by the same Court.
- The test change from Carbon Disulphide to TLC could not retrospectively disqualify benefits under CCS.
- Circular dated 31 March 1989 applied for the entire period up to 31 March 1992 and allowed 5% FOB cash assistance for “Castor Oil Medicinal”.
- Circular dated 8 May 1991 later confirmed that “Castor Oil Medicinal” and “First Special” are the same by using both terms interchangeably.
- Contracts for export were executed before 23 June 1989; hence, any subsequent change could not defeat vested rights.
Respondent’s Arguments
The Respondents argued:
- The present petition relates to CCS whereas the earlier one dealt with duty drawback; hence, the decisions are not binding.
- The TLC test introduced in June 1989 redefined classification; therefore, goods failing that test could not qualify as “Medicinal”.
- The petitioner did not explicitly challenge the rejection order dated 29 October 1993 and was therefore barred from relief.
Analysis of the Law
The Court noted:
- CCS Scheme introduced in 1966 provided export incentives and the applicable rate during the relevant period was 5% FOB.
- The change in test did not alter the inherent character of the oil, as technical reports established the chemical identity of both grades.
- Reliance was placed on past decisions like Mazda International v. UOI, Gandhi Sons v. UOI, and Arviva Industries v. UOI which held that benefits granted under subordinate legislation could not be withdrawn retrospectively unless expressly permitted.
Precedent Analysis
The Court relied on:
- Mazda International Pvt. Ltd. v. Union of India – Held that subordinate authorities cannot retrospectively amend schemes unless explicitly empowered.
- Gandhi Sons & Ors. v. Union of India and Arviva Industries v. Union of India – Reiterated that retrospective denial of export benefits is impermissible.
- Union of India v. Cosmique International, Vibgyor Textile v. UOI, Parmanand Industries v. UOI, and Old Village Industries v. UOI – Confirmed that benefit entitlements must be judged with reference to the contract execution date and not the export date.
Court’s Reasoning
The Court held that:
- The distinction made between “Castor Oil Medicinal” and “First Special” was artificial and not backed by chemical difference.
- The decision in Writ Petition No. 871 of 1994 squarely applied, and the only change was the label, not the product.
- The Government itself granted CCS for the same oil post 8 May 1991, further proving the product remained the same.
- The 1993 rejection order was specifically challenged in the prayer clause, defeating the respondent’s technical objection.
Conclusion
The Bombay High Court quashed the impugned rejection order and allowed the petition, holding that the denial of CCS on the basis of changed testing method was untenable. The Court ordered the Union to pay ₹4.33 crore within eight weeks, failing which interest at 6% p.a. would apply from 1 September 2025.
Implications
- Establishes that retrospective application of test changes in export schemes is illegal.
- Reinforces that nomenclatural or procedural changes do not override substantive product identity.
- Provides relief to exporters where denial of benefits is based on arbitrary or technical classification changes.
Cases Referred:
- Mazda International Pvt. Ltd. v. Union of India, 1995 (77) ELT 526 (Bom.)
- Gandhi Sons & Ors. v. Union of India, 2002 (81) ECC 261 (Bom.)
- Arviva Industries (I) Ltd. v. Union of India, 2004 (167) ELT 135 (Bom.)
- Union of India v. Cosmique International, 1994 (73) ELT 526 (Del.)
- Vibgyor Textile v. Union of India, 1989 (39) ELT 535 (Bom.)
- Parmanand Industries v. Union of India, 1993 (68) ELT 726 (Bom.)
- Old Village Industries Ltd. v. Union of India, 1994 (73) ELT 289 (Del.)
