Court’s Decision:
The Bombay High Court quashed the order dated 29 October 1993 which denied the petitioner a refund under the Cash Compensatory Support (CCS) Scheme for exports made between 22 June 1989 and 8 May 1991. The Court held that “Castor Oil First Special” is not different from “Castor Oil Medicinal” and directed the Union Government to pay ₹4,33,75,866 within 8 weeks, failing which the amount will carry interest at 6% per annum from 1 September 2025 until payment.
Facts:
The petitioner exported castor oil under contracts executed before 23 June 1989. A CCS Scheme Circular dated 31 March 1989 provided a 5% FOB benefit for “Castor Oil Medicinal.” However, following a test revision by the Ministry of Agriculture on 23 June 1989, the same oil was graded as “Castor Oil First Special” based on the new Thin-Layer Chromatographic (TLC) test, in place of the earlier Carbon Disulphide test. This led to the denial of CCS benefits for the period between 22 June 1989 and 8 May 1991, prompting the writ petition.
Issues:
- Whether “Castor Oil First Special” is materially different from “Castor Oil Medicinal” after the introduction of the TLC test.
- Whether CCS benefits can be denied for exports under contracts executed before the change in testing method.
Petitioner’s Arguments:
The petitioner argued that in an identical matter concerning duty drawback, the Bombay High Court had already held that “Castor Oil First Special” was the same as “Castor Oil Medicinal.” The rejection of CCS benefits based on a change in test was thus arbitrary, especially since contracts were entered before the new test was introduced. Technical reports also confirmed the identity of the two grades of oil.
Respondent’s Arguments:
The Respondents contended that the earlier judgment pertained to a different scheme—duty drawback—and did not govern the present CCS claim. They further argued that the introduction of the TLC test made “Castor Oil First Special” ineligible for CCS, and that the petitioner failed to specifically challenge the rejection order dated 29 October 1993.
Analysis of the Law:
The Court clarified that mere change in testing methods cannot alter the fundamental nature of the product. It held that the scheme’s benefit had to be viewed in light of the contractual terms and policies applicable at the time of export. Since the exports were made under pre-existing contracts and the goods remained substantively the same, CCS benefits could not be denied.
Precedent Analysis:
- Mazda International Pvt. Ltd. v. Union of India, 1995 (77) E.L.T. 526 (Bom.): Held that subordinate legislation cannot operate retrospectively without explicit power.
- Gandhi Sons v. Union of India, 2002 (81) ECC 261 (Bom.): Reinforced prohibition of retrospective withdrawal of fiscal benefits.
- Arviva Industries (I) Ltd. v. Union of India, 2004 (167) E.L.T. 135 (Bom.): Held retrospective amendments void unless expressly permitted.
- Union of India v. Cosmique International, 1994 (73) ELT 526 (Del.): Contracts prior to policy change not affected by retrospective amendments.
- Vibgyor Textile International v. Union of India, 1989 (39) ELT 535 (Bom.): Same principle on pre-existing contracts upheld.
- Parmanand Industries v. Union of India, 1993 (68) ELT 726 (Bom.)
- Old Village Industries Ltd. v. Union of India, 1994 (73) ELT 289 (Del.)
These precedents unanimously upheld the principle that benefits due under a policy cannot be denied due to subsequent procedural changes when the transaction was undertaken in compliance with earlier norms.
Court’s Reasoning:
The Court held that the distinction drawn by the government based on the new TLC test was without merit. “Merely because the test required is changed would not alter the nature of the goods.” Further, the 8 May 1991 Circular equating “Castor Oil First Special” and “Castor Oil Medicinal” showed they were treated identically post facto. The Court also noted that the petitioner did, in fact, challenge the rejection order in the prayer clause, rejecting the procedural objection by the Respondent.
Conclusion:
The Court quashed the order dated 29 October 1993 and directed the Government to pay ₹4,33,75,866 within 8 weeks, failing which interest at 6% per annum will accrue from 1 September 2025 until actual payment.
Implications:
This judgment reiterates that administrative shifts in testing or classification standards cannot retrospectively deny exporters their entitlements under government benefit schemes when the fundamental nature of the exported goods remains unchanged. It strengthens the principle of legal certainty and protects exporters from arbitrary retrospective reclassification.
