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PETITIONER: UNION OF INDIA

       Vs.

RESPONDENT: M/S. GODREJ SOAPS PVT. LTD AND ANR.

DATE OF JUDGMENT12/09/1986

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) PATHAK, R.S.

CITATION:  1987 AIR  175            1986 SCR  (3) 771  1986 SCC  (4) 260        JT 1986   408  1986 SCALE  (2)409  CITATOR INFO :  F          1987 SC 179  (2,4)  F          1987 SC1794  (14,23)  RF         1989 SC 690  (6)  RF         1992 SC 696  (5,12)

ACT:      Import Policy 1985-88:      List 8  of Part  2 of  Appendix 6  - Additional licence holders-import of ’canalised’ items - Permissibility of-This Court’s order  dated April  18, 1985 - ’Whether canalised or otherwise’- Interpretation of.

HEADNOTE:      The respondents  purchased  certain  quantity  of  palm kernel fatty  acid on  high seas basis from a firm which had imported it  on the strength of an additional licence issued to it  pursuant to  the order of this Court dated 18th April 1985 in  C.A. No.  1423 of  1981 Union of India v. Rajnikant Brothers.  The   Customs  authorities   refused  to   permit clearance  of  the  goods  on  the  ground  that  they  were canalised items  and could  not be  imported even under such additional licences.      The  respondents   filed  a  petition  under  Art.  226 challenging the  action of the Customs authorities. A Single Judge of  the High  Court permitted  the  clearance  of  the goods, which order was affirmed by the Division Bench.      In the appeal to this Court on behalf of the appellant- Union of  India it was contended that the direction given by the High  Court was contrary to the directions given by this Court in Raj Prakash’s and Indo Afghan Chamber’s cases.      On behalf of the respondents it was contended: (1) that the holders  of the additional licences would be entitled to import  items   permissible  to   export  houses  under  the additional licence  category as  per para  176 of the Import Policy for  1378-73; (2)  that in  any event under Item 1 of Appendix 6  (import of  items under open General Licence) of the Import  Policy 1985-88,  raw-materials,  components  and consumables (non-iron  and steel  items)  other  than  those included in  the Appendices  2, 3  Part A,  5 and  8 will be permissible by the actual user 772

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(industrial); and (3) that the respondents were actual users (industrial) because  these were  used  by  them  for  their production.      Allowing the appeal of the Union of India, ^      HELD: 1. A diamond exporter can import the items he was entitled to  import under the Import Policy 1978-79 provided they are  importable also  under the Import Policy ruling at the time  of import. They are items which are open to import by an Export House holding an Additional Licence for sale to eligible Actual  Users (Industrial).  These are  items which could  be   directly  imported,   for  example,   the  items enumerated in  Part 2 of List 8 of Appendix Vl of the Import Policy 1985-88.  These are  items which are not ‘canalised’. [776 F-H]      2.  ‘Canalised’   items  are   those  items  which  are ordinarily open  to import  only  through  a  public  sector agency. Now although generally they are importable through a public sector  agency only, it is permissible for the Import Policy to  provide an exception to that rule, and to declare that an  importer may import a canalised item directly. [776 H; 777 A]      3.  Paragraph   75(1)  of  the  Import  Policy  1985-88 entitles a  Trading House  holding an  Additional Licence to directly import  canalised items in Appendix V Part A to the extent laid down in that Policy. There is nothing to prevent an Import Policy from providing in the future that an Export House holding  an Additional  Licence  can  directly  import certain canalised  items also. In that event an Export House holding an  Additional Licence  will be  entitled to  import items open ordinarily to direct import (non-canalised items) as  well  as  items  directly  importable  although  on  the canalised list.  It is  in that  sense that  the Court could have  intended  to  define  the  entitlement  of  a  diamond exporter. He  would be  entitled to  import  items  "whether canalised or  not", if  the Import  Policy prevailing at the time of  import permitted  him to import items falling under each category.  The Court  would not  know  whether  in  the future certain canalised items could be imported directly by an  Export   House  holding   an  Additional   Licence.  The possibility of  a policy being framed in the future enabling an Export  House holding  an Additional  Licence to directly import items  which are ’non-canalised’ and also items which are ’canalised’  cannot be  ruled out.  It is  in this light that the  Court can  be said to have used the words "whether canalised or otherwise" in its order dated 18th April, 1985. [777 B-E]      Raj Prakash  Chemical’s case, [1986] 2 SCC 297 and Indo Afghan Chamber  of Commerce’s  case,  AIR  1986  S.C.  1567, followed. 773      4.  Only  such  items  could  be  imported  by  diamond exporters under  the Additional  Licences granted to them as could have  been imported  under the  Import Policy 1978-79, the period  during which  the diamond  exporters had applied for Export  House  Certificates  and-  had  been  wrongfully refused, and  were also  importable under  the Import Policy prevailing at  the time  of import which is the present case was the  Import Policy  1985-88. These  were the items which were not  specifically banned  under  the  prevalent  Import Policy. That  is the  construction. The  items had  to  pass through two  tests. These  should have been importable under the Import Policy 1978-79. These should have been importable under the  Import Policy 1985-88 in terms of the order dated 18th April, 1985. [777 G-H; 778 A-B]

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    5. In  respect of  Palm Kernel  Fatty Acid  which is  a canalised item  listed as  item 9  (v) in Appendix V Part of the Import  Policy 1985-88,  there is  no provision  in that Policy which  permits the  import of  such item by an Export House holding an Additional Licence. [779 B-C]      6.  As  importation  of  canalised  items  directly  by holders of  additional licences are banned, it should not be construed to  have been  permitted by virtue of the order of this Court  and the  items sought to be imported do not come within List  8 of  Part 2 of Appendix 6 of the Import Policy of  1985-88   against  additional  Licences.  The  goods  in question which were sought for by the respondents fall under item 9  Part of  Appendix 5  which is the canalised item and such cannot  be allowed  to be  imported against  additional licence granted  pursuant to  the order  of this Court dated 18th April, 1385. [779 D-F]      7. The  goods were purchased by the respondents only on 27th June,  1986 after  they were  aware of  the judgment of this Court  in Raj  Prakash’s case  as well  as Indo  Afghan Chambers of  Commerce’s case. No question of any restitution of rights arises. [779 F]      8.  The   acid  in   question  comes   within  specific prohibition of  Item 9 in Part-B Appendix 5 being fatty acid and acid oil which were importable only by the State Trading Corporation of India under open General Licence on the basis of foreign  exchange  released  by  the  Government  in  its favour. The  actual importation  was not  by the respondents but by somebody else. [780 A-B]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 3418 of 1986 774      From the  Judgment and  order dated 22/23.7.1986 of the Bombay High Court in Appeal No 565 of 1986.      A.K. Ganguli and Sushma Relan for the Appellant.      Soli  J.  Sorabjee,  J.B  Dadachanji,  R  Narain,  Mrs. A.K.Verma, D.N.Mishra,  Aditya Narayan  and Harish  N. Salve for the Respondents.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI,  J. This  is  an  application  for special leave  to appeal  against the  order of the Division Bench of  the Bombay  High Court dated 22nd/ 23rd July, 1986 filed on behalf of the Union of India.      M/s Godrej  Soaps (P)  Limited, and  a shareholder  and Director of  the said  company,  Mr  A.B.  Godrej  who  were petitioners went  before  the  Bombay  High  Court  in  Writ Petition No.  1665 of  1986. The  said petitioners  who  are respondents herein  (hereinafter described  as  respondents) purchased 544.860  Metric Tonnes of Palm Kamel Fatty Acid on high sea  basis imported  under an  additional licence. They challenged the action of the Customs authorities refusing to permit the  clearance of  the said Palm Karnel Fatty Acid in view of the decision of this Court in Raj Prakash Chemical’s case [1986]  2 SCR 297 and Indo Afghan Chamber of Commerce’s case AIR 1986 S.C. 1567      It may  be mentioned  that one  Messrs. Dimexon  a firm carrying  on   business  of  importing  rough  diamonds  and exporting cut and polished diamonds were issued Export House Certificate under  the import  policy for the period 1978-79 and certain  additional licences  in or  about the  month of July, 1986  covered by  the licensing period AM-79. The said licence was  claimed to  have been issued in compliance with

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the order  of this  Court dated  18th April,  1985.  As  the purport  of  that  order  was  the  subject  matter  of  two subsequent decisions  of this  Court and  the genesis of the right of  the present  respondents was claimed from the said decision, it  may not  be inappropriate to refer to the said decision. The  said decision  was given  in Civil Appeal No. 1423 of  1984. This Court held that there was no requirement of diversification  of exports  as a condition for the grant of Export  House Certificates  in the  Import Policy for the year 1978-79.  In that appeal, this Court confirmed the High Court’s judgment  quashing the  order whereby the Government had refused Export House Certificates 775 on the  ground that  the petitioners  in those cases had not diversified its  export and  as such  were not  entitled  to Export House  Certificates.  The  High  Court  quashed  that order. This Court confirmed that direction of the High Court and further directed the Union of India and its employees to issue the  necessary Export  House Certificates for the year 1978-79 within  a period  of three months from the date This Court further directed as follows:           "Save and  except items which are not specifically           banned under  the prevalent  import policy  at the           time of  import, the respondents shall be entitled           to import  all other  items whether  canalised  or           otherwise in  accordance with  the relevant rules.           Appeals are  disposed of accordingly with no order           as to  costs." (Emphasis  supplied in  view of the           contentions now  sought  to  be  raised  in  these           proceedings). This direction  was given by a Bench of three learned judges consisting of  S. Murtaza  F. Ali, A. Varadarajan and one of us (Sabyasachi Mukharji, J.)      According to  the petitioners  before the  Bombay  High Court in  pursuance of the order of this Court, Import Trade Control  Authority   issued  diverse   additional   licences expressly covered  by the licensing period AM-79 where under the description of the goods was as under:           "This  licence   is  valid  for  import  of  items           permissible  to  export  houses  under  additional           licence category  as per para 176 of Import Policy           for  1978-79  excluding  those  items  which  were           banned in  the Policy  for the  period 1978-79 and           which have been banned in the Import Export Policy           volume 1, 1985-88. The additional licence category           import shall  be subject to the provisions of para           176 of the import policy for 1978-79."      It was  the contention  of the  petitioners before  the Bombay High  Court that  it was  absolutely clear  that  the holders of  the said  licences would  be entitled  to import items permissible  to export  houses  under  the  additional licence category  as per  para 176  of the Import Policy for 1978-79.      It may  be mentioned  that the  said direction  of this Court came  up for  consideration before this Court again in Civil Appeal  No. 4978  of 1985-Raj Prakash Chemicals Ltd. & Anr. v. Union of India & Ors. 776 (supra) This Court clarified the decision in that case which was rendered  by a  bench of three learned judges consisting of V  Tulzapurkar, J.  and  both  of  us  (R.S.  Pathak  and Sabayasachi Mukharji, JJ).      As this  Court has observed in M/s Indo Afghan Chambers of Commerce  and another v. Union of India and other (supra) the order dated 18th April. 1985 has been considered by this

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Court in  Raj Prakash Chemicals Ltd. and another v. Union of India & others (supra) to mean that:           "only such  items could  be  imported  by  diamond           exporters under the Additional Licences granted to           them as  could have been imported under the Import           Policy  1978-79,   the  period  during  which  the           diamond exporters  had applied  for  Export  House           Certificates and  had been wrongfully refused, and           were  also  importable  under  the  Import  Policy           prevailing at  the time  of import,  which in  the           present case  is the  Import Policy 1985-88. These           were the  items which  had not  been ’specifically           banned’ under  the prevalent  Import  Policy.  The           items had  to pass  through two tests. They should           have been importable under the Import Policy 1978-           79. They  should also  have been  importable under           the Import  Policy 1985-88  in terms  of the order           dated April 18, 1985." The Court  had no  occasion to  consider the significance of the words  "whether canalised or otherwise" mentioned in the order dated  April 18, 1985 because that point did not arise in the case before it The respondents rely on those words in this case  in order  to justify  the import of the commodity under consideration.      What did  the Court intend by those words? We have seen that a diamond exporter can import the items he was entitled to import  under the Import Policy 1978-79 provided they are importable also  under the  Import Policy ruling at the time of import  They are  items which  are open  to import  by an Export House  holding an  Additional  Licence  for  sale  to eligible Actual  Users (Industrial).  These are  items which could  be   directly  imported,   for  example,   the  items enumerated in Part 2 of List 8 of Appendix. Vl of the Import Policy 1985-88.  These are  items which  are not ’canalised’ ’Canalised’ items  are those items which are ordinarily open to import  only through a public sector agency. Now although generally they are importable through a public 777 sector agency  only, it is permissible for the Import Policy to provide an exception to that rule, and to declare that an importer may import a canalised item directly. For instance, paragraph 75(1)  of the  Import Policy  1985-88  entitles  a Trading House  holding an  Additional  Licence  to  directly import canalised  items in  Appendix V  Part A to the extent laid down  in that  Policy. There  is nothing  to prevent an Import Policy  from providing  in the  future that an Export House holding  an Additional  Licence  can  directly  import certain canalised  items also. In that event, in view of the aforesaid discussion,  an Export House holding an Additional Licence will  be entitled to import items open ordinarily to direct  import   (non-canalised  items)  as  well  as  items directly importable although on the canalised list. It is in that sense  that the Court could have intended to define the entitlement of  a diamond  exporter. He would be entitled to import items  "whether canalised  or  not",  if  the  Import Policy prevailing  at the  time of  import permitted  him to import items  falling under  each category.  The Court would not know whether in the future certain canalised items could be  imported   directly  by   an  Export  House  holding  an Additional Licence. The possibility of a policy being framed in the future enabling an Export House holding an Additional Licence to  directly import  items which are ’non-canalised’ and also  items which are ’canalised’ cannot be ruled out It is in this light that the Court can be said to have used the words "whether  canalised or  otherwise" in  its order dated

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18th April, 1985.      The  point   from  a   slightly  different   angle  was considered in  writ petition  No. 199 of 1986 in Indo Afghan Chambers of  Commerce with  Civil Appeal  No.  664  of  1986 (supra) dated  15th May,  1986 by a bench consisting of both of us  (R.S. Pathak  & Sabyasachi  Mukharji, JJ). There Indo Afghan Chambers  of Commerce  and its President aggrieved by the grant  of additional  licences to  the respondents,  M/s Rajnikant Brothers  and M/s  Everest Gems  for the import of dry fruits  came to  this Court. This Court examined some of the contentions  This Court  reiterated that  by  the  order dated 5th  March, 1986,  this Court  has construed its order dated 18th April, 1985 referred to hereinbefore to mean that only such items could be imported by diamond exporters under the Additional  Licences granted  to them as could have been imported under  the Import Policy 1978-79, the period during which the  diamond exporters  had applied  for Export  House Certificates and  had been wrongfully refused, and were also importable under the Import Policy prevailing at the time of import which in the present case was the Import Policy 1985- 88, i  e, it  meant to say that those importable at the time when licence  was refused and must continue to be importable at the time when import is sought, i.e., 1985-88. These were the items 778 which were  not  specifically  banned  under  the  prevalent Import Policy  That is  the construction.  The items  had to pass through  two tests.  These should  have been importable under the  Import Policy  1978-79. These  should  have  been importable under  the Import  Policy 1985-88 in terms of the order dated  18th April,  1985. The Court examined the facts of that case.      Regarding dry fruits, this Court observed as follows:           "In our  opinion the respondents diamond exporters           are not  entitled to  import dry  fruits under the           Import  Policy   1985-88  under   the   Additional           Licences possessed  by them.  They  are  also  not           entitled to  the benefit  extended by the judgment           of this  Court dated  5th  March,  1986  to  those           diamond exporters  who had  imported  items  under           irrevocable   letters   of   credit   opened   and           established before  18th October, 1985. It appears           from the  record before  us that  the  respondents           diamond  exporters   opened  and  established  the           irrevocable letters of credit after that date."      Bearing in  mind the  aforesaid enunciation  of law, we have  to   examine  this   case.  It  is  the  case  of  the respondents, Godrej Soaps Co Ltd. and its Director that they have purchased  544.860 Metric  Tonnes of  palm karnel fatty acid (now called ’the said acid’) on highseas basis from M/s Dimexon. M/s  Dimexon had  imported the  said  acid  on  the strength of  an additional  licence issued to it pursuant to the order  of this  Court dated  18th April,  1985 in  Civil Appeal  No.   1423  of  1984-Union  of  India  v.  Rajnikant Brothers. The  Customs authorities,  according to  the  said respondents, refused to permit clearance of the said acid on the ground  that the  canalised items  could not be imported even  under   such  additional   licence.  The  respondents, therefore, filed a writ petition in this Court requiring the Union  of  India  and  the  Customs  authorities  to  permit clearance of  the said  acid. It  may be mentioned, the said acid was  not a canalised item under the Import Policy 1978- 79. It  is a  canalised item under the current Import Policy 1985-88.      As the  Government refused  to permit  clearance of the

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said goods  because  the  said  goods  were  canalised,  the learned single  judge of  the Bombay High Court by its order dated 10th  July, 1986  permitted the clearance of the goods in question.      Aggrieved by  the said  order, Union of India preferred an appeal  before the  Division Bench  of  the  Bombay  High Court. The Division 779 Bench was  pleased to,  by its  order dated  23rd July 1986, allow clearance  of the  goods. It  is the submission of the Union of  India that  this direction  was  contrary  to  the directions given  in Raj  Prakash’s case  (supra)  and  Indo Afghan Chamber’s case (supra).      In respect  of  Palm  Karnel  Fatty  Acid  which  is  a canalised item listed as item 9(v) in Appendix V Part of the Import Policy  1985-88, 13  there is  no provision  in  that Policy which  permits the  import of  such item by an Export House holding an Additional Licence. Therefore, the claim of the diamond  exporters, or, as in this case a purchaser from the diamond  exporter, must  fail because  it is not open to import by  the diamond  exporter under  any provision of the Import Policy 1985-88.      Therefore, we  are unable  to accept the contentions of the  respondents   and  both   on  grounds   of  equity  and construction, we are of the opinion that this appeal must be allowed and decision of the High Court of Bombay impugned in this appeal  must be  set aside. As importation of canalised items directly by holders of additional licences are banned, it should  not be construed to have been permitted by virtue of the  order of  this Court  and the  items  sought  to  be imported do  not come  within List 8 of Part 2 of Appendix 6 of the Import Policy of 1985-88 against additional licences. The  goods   in  question  which  were  sought  for  by  the respondents fall  under item  9 Part  of Appendix 5 which is the canalised item and such cannot be allowed to be imported against additional  licence granted pursuant to the order of this Court  dated 18th  April, 1985.  As we  have  mentioned hereinbefore  the   respondents  were  fully  aware  of  the position in law and they purchased goods on 27th June, 1986, there is no equity in their favour.      In this  case no injustice would be done by this order. The goods  were purchased by the present petitioners only on 27th June,  1986 after  they were  aware of  the judgment of this Court  in Raj  Prakash’s case  (supra) as  well as Indo Afghan Chambers  of Commerce’s  case (supra). No question of any restitution of rights arises.      It was further submitted that in any event under item 1 of Appendix  6 (import  of items under open General Licence) of the Import Policy, 1985-88, raw materials, components and consumables (non-iron  and steel  items)  other  than  those included in  the Appendices  2, 3  Part A,  S and  8 will be permissible  by   the  actual   user  (industrial).  It  was submitted that  the respondents  herein  were  actual  users (industrial) because  these were  used  by  them  for  their production.  This  contention  cannot  be  accepted  firstly because it comes within specific 780 prohibition of  Item 9  in Part-B  of Appendix S being fatty acid and  acid oil  which were  importable only by the State Trading Corporation  of India  under open General Licence on the basis  of foreign exchange released by the Government in its favour.  Secondly the  actual importation was not by the petitioners but  by somebody else is mentioned hereinbefore, being M/s  Dimexon Co.  In the  premises, the  view  of  the Bombay High Court cannot be sustained.

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    In that  view of  the matter  special leave is granted. The appeal  is allowed.  The order  of the  High Court under challenge is  set aside.  The appellant  is entitled  to the costs. A.P.J.                                       Appeal allowed. 781