Case Analysis: Gujarat High Court’s decision in Alstom India

In the course of day-to-day practice in super-specialized areas of law (like tax laws), one often loses sight of the importance of the fundamental administrative law principles..Even though administrative law is un-codified in India, a robust jurisprudence has developed in India since independence – advocates/legal advisors would do well to evaluate every administrative action (irrespective of the field of law in question) affecting their clients on the touchstone of administrative law principles. Such an evaluation may often open-up effective legal solutions for the client..It is in the foregoing context that the relevance of the recent decision of the Hon’ble Gujarat High Court in the matter of Alstom India Limited (“Alstom” or “the Petitioner”) needs to be understood by a legal practitioner. In this case, the Hon’ble Gujarat High Court struck down/read down certain provisions of the Foreign Trade Policy (“FTP”) and forms and procedures formulated thereunder – Para 2.3 of the FTP has been read down and para 8.3.6 of the Hand Book of Procedures (“HoP”) and para 7 of the self-declaration under the ANF-8 Form (the application form to be filed for claiming deemed export benefits) has been declared as ultra vires the Foreign Trade Development and Regulation Act, 1992 (“FTDR Act” or “the Act”) and Articles 14, 19(1)(g), 246 and 265 of the Constitution of India..While at an immediately discernible level, the pronouncement is likely to be a boon for suppliers/project owners of non-mega power projects [as it has the effect of rendering the recent actions of the office of the Director General of Foreign Trade (“DGFT”) in attempting to recover/withdraw deemed export benefits already granted, null and void], it is the broader ramifications/points of law arising out of this decision that this article seeks to highlight..First and foremost, it is to be noted that strong preliminary objections were raised against the writ filed by Alstom on grounds of ‘suppression of material facts’ and ‘lack of territorial jurisdiction’ – these objections were rejected by the Gujarat High Court..The judgment has dealt at length on the point of ‘suppression of material facts’, discussed relevant judicial precedents threadbare and has laid down important points of law in this regard. The Gujarat High Court clarified that to reject a writ-application on the ground of suppression of material fact, a writ-court must come to a specific conclusion that suppression of facts is material in the sense that if such facts were pleaded and brought to the notice of the court, it would not have entertained the writ-application at all inasmuch as the writ-petition would have been dismissed for existence of a circumstance which would disentitle the petitioner from getting the relief claimed. The Gujarat High Court also took note of the Supreme Court decision in PGF Ltd [2013 (o) GLHEL-SC 53925] where the Supreme Court was concerned with a case where frivolous pleas of vires of the provisions were taken in order to delay the proceeding or to obstruct the judicial proceeding and in that context, made cautionary observations. The Gujarat High Court clarified that the said observations cannot have any application to a case where the Court, on consideration of the materials on record, holds that a particular provision really ultra vires the provision of the Constitution or the Act itself..On the point of territoriality too, the Gujarat High Court rejected the preliminary objection by taking note of the fact that (i) even though Alstom’s registered office was in Mumbai, Alstom had significant investment in the State of Gujarat; and (ii) one of the respondents were based out of Gujarat..From a substantive law perspective, in what is probably a first, arguments based on fundamental administrative law principles were used successfully in a FTP context, as discussed below..a) Vide paragraph 8.3.6 of the Handbook of Procedures (“HoP”) under the FTP the DGFT had tried to incorporate the provisions of the Customs and Central Excise Duty Drawback Rules, 1995 (“DBK Rules”) merely through a reference to the DBK Rules. These DBK Rules contained powers to recover duty drawback erroneously granted. Against such ‘attempted incorporation of substantive legal provisions merely by reference’, the following was argued and accepted by the Gujarat High Court..In terms of para 2.4 of the FTP, power has been given to the DGFT to specify the procedure to be followed by the importer, exporter and the licensing authorities. In terms of the said power, DGFT has issued HoP. This implies that the HoP is procedural in nature. No legislative power has been granted to DGFT either under the FTDR Act or the FTP. Incorporation by reference of the DBK Rules is nothing but colourable exercise of power by the DGFT which is not permissible under the Constitution. Conferment of such power would amount to collection of tax without the authority of law in violation of article 246 and 265 of the Constitution. Further, incorporation of DBK Rules by reference (which are by and large substantive in nature) is an attempt by the executive to legislate which is strictly against the doctrine of separation of power which is part of the basic structure of the Constitution..b) Similarly, under paragraph 7 of the self-declaration under Form ANF 8, the applicant had to declare that it would “immediately refund the amount of drawback obtained” by them “in excess of any amount/rate which may be re-determined by Government as a result of post verification”. Against such ‘attempted assumption of quasi-judicial powers by a superior administrative authority’, the following was argued and accepted by the Gujarat High Court..The requirement of filing up of the said form emanates from para 8.3.1 of HoP which is in nature of an administrative guideline. Under the FTDR Act no power has been granted to the DGFT or its subordinates to re-determine or re-verify the deemed export benefits already granted except by way of review under section 16. In absence of any other provision the DGFT cannot assume a power to review under para 7 of the self-declaration under the ANF-8 form – by way of this para 7, DGFT was trying to derive quasi-judicial powers which is beyond the provisions of FTDR Act. Further, power to recover is a substantive power which should be provided in the statutory framework and cannot be done through administrative guidelines..c) Further, under para 2.3 of the FTP, DGFT is entrusted with the power to interpret the policy provisions, HoP and ITC HS classification. The provision also lays down that the decision of the DGFT shall be final and binding with respect to the above interpretation. Pursuant to powers vested thereunder the DGFT had interpreted the provisions of the FTP through which it had clarified in March 2011 that deemed export drawback was not contemplated to be granted as per the scheme of FTP to non-mega power projects. It is this interpretation that had led to issuance of recovery notices for deemed export drawback benefits conferred in the past to the non-mega power projects. Alstom challenged the validity of the unbridled discretionary power under para 2.3 on the following grounds..Para 2.3 confers very wide powers on the DGFT with regard to interpretation of the FTP and is without any restrictive covenant. Thus, this interferes with the quasi-judicial function of the subordinates of the DGFT like grant of duty drawback etc. as it binds them with the interpretation accorded by the DGFT. The subordinates do not have the liberty to independently apply their mind and adjudge. Further, under Section 15 of the FTDR Act, DGFT sits as an appellate authority against the orders passed by its subordinates under section 13. It is very unlikely that the DGFT will take a decision contrary to the interpretation placed by him. This makes the entire appeal mechanism a sham and vitiates fair play, justice and thus violative of article 14 of the Constitution..The Gujarat High Court read down para 2.3 of the FTP based on the above arguments..Concluding comments.Clearly, this judgment of the Gujarat High Court is a confirmation of the pre-eminence of the source statute/Constitution over administrative guidelines. This is a reminder for legal practitioners advising clients whose substantive rights have been affected by administrative guidelines (under any area of law) that it is extremely crucial to analyse the legal validity of any such administrative guidelines vis a vis the source statute/Constitution..It must be remembered that given the principle of ‘Rule of Law’ as embodied under our Constitution, no administrative guideline (under any area of law) needs to be treated as immutable..Sujit Ghosh (Partner and National Head – Tax Litigation & Controversies, Advaita Legal) was the arguing counsel in this case. Inputs from Sudipta Bhattacharjee (Principal – Tax Controversy Management & Contract Documentation, Advaita Legal)