Arun Goyal | 20 Jun, 2006
The
entitlement on exports under the Target Plus scheme in this financial
year ending 31 March, that is year 2005-2006 will now be cut to a
uniform five percent on the growth. The other two entitlement slabs of
10 percent and 15 percent of the growth were removed by a notification
issued on 12 June, 2006.
The steep
cuts of one half to one third of the original entitlement have sent the
export houses into a state of shock. They were expecting a good reward
for growth with the results showing up in the export figure which
crossed the $100 bn mark in year 2005-06. However, the Commerce
Ministry and the exporters forgot that the revenue department is not
ready to foot the bill for the growth in terms of the duty entitlement
scrips which are now surfacing in the customs houses for debit of
import duty.
The value of the Target Plus and DFCE entitlements crossed the Rs.
10,000 crores mark quite some time ago. Former FIEO President Ramu
Deora estimates that total export subsidies are running at Rs. 33,000
crores a year. Apparently, the Department of Revenue has issued a fiat
to the Commerce Ministry to cut loss and limit the future burden of
Target Plus to the minimum of five percent. The Commerce Department
responded in three steps, first, it pulled out the so-called bulk items
which included value added items like dehusked and polished rice
produced by farmers from 2005-2006 exports on 20 February 2006. Next,
the Target Plus scheme was terminated and the validity limited to
exports till 31 March, 2006. In the third and last step of the current
amendment, the entitlement is cut to five percent of growth with
retrospective effect from 1 April, 2005.
In our view, the action to amend a scheme which stands terminated and
abolished will boomerang on the government in a big way. A notification
cannot amend a text which does not exist. Thus notification 08(RE)
dated 12 June 2006 which amended para 3.7.3 to restrict the
entitlements with effect from 1.4.2005 is, ab initio, null and void
because the para 3.7.3 itself was deleted more than two months ago by
notification 57(RE) dated 31 March 2006. Similarly, the power to amend
Target Plus scheme with retrospective effect under para 3.7.8 is
invalid since this para too was deleted earlier on 31 March, 2006.
Once the matter comes up for administrative or judicial scrutiny, the
notification to restrict the scheme will be voided. The DGFT must then
arm itself with new powers under which it can amend a policy already
voided but effective under the savings clause of the law. This
provision protects actions which were taken or not taken under an
earlier policy which is currently dead. (The legal propriety of this
course of action may not stand the scrutiny of the Court since even
laws like POTA are interpreted only in terms of the original conditions
after repeal in respect of past actions continuing in the present and
future).
The change of course on the part of DGFT also attracts the doctrine of
promissory estoppel which prevents the government from going back on a
promise based on which the exporter has already acted by way of export
performance. The doctrine is specially effective when the performance
is completed and the stage for fulfillment of the promise has come. In
this case, the exporter achieved the growth target on 31 March, 2006
and his entitlement was crystallized on this date. Subsequently, he is
in the process of claiming the entitlement and in some cases, the
applications for the reward is already filed with the DGFT. Thus going
back on the promise is bad in law even if the government reserves the
right in public interest to change the terms and conditions with
retrospective effect. The doctrine of promissory estoppel will prevail
over the right to amend with back effect arrogated to itself by the
executive. The basic character of the scheme is sought to be changed
without any apparent or stated ground which has emerged since the first
announcement of the scheme.
All said and done, the affairs of the Commerce Ministry are in a mess
and there is no hope of improvement in the near future. A negotiated
settlement with trade is a must to preserve the honour of the
government and extend justice to the exporters.
