The High Court of Chhattisgarh has ruled that a statutory condition, though couched in mandatory language, cannot be enforced where compliance is factually impossible or where the very premise on which the condition operates does not exist. The Division Bench, comprising Chief Justice Ramesh Sinha and Judge Bibhu Datta Guru, established that fiscal provisions must, where reasonably possible, be interpreted in a manner consistent with constitutional guarantees.
Applying these principles, the Court held that an exemption condition requiring exports to be backed by an irrevocable Letter of Credit (LoC) could not be enforced against exporters who lawfully transact through other valid payment modes. Consequently, the Court directed the Union of India and Customs authorities to refund the export duty of Rs. 2,01,28,295 deposited by the petitioner, declaring that denying the benefit would “elevate form over substance.”
Background of the Case
The petitioner, M/s Eastman International, a recognized “3-star export house,” is engaged in the export of rice. Between August 14, 2023, and August 25, 2023, the petitioner’s consignments of parboiled rice entered the customs station at ICD CONCOR, Naya Raipur, for export.
On August 25, 2023, the Central Government issued Notification No. 49/2023-Customs, levying a 20% export duty on parboiled rice. Simultaneously, Notification No. 50/2023-Customs was issued, granting an exemption from this duty subject to certain conditions. Specifically, Condition No. 6 of the exemption notification stipulated two requirements:
- (i) Goods must have entered the customs station before August 25, 2023, without a clearance order being issued.
- (ii) Goods must be backed by an irrevocable Letter of Credit (LoC) opened before August 25, 2023.
The petitioner, who realizes export proceeds through “cash upon delivery” and not through LoCs, satisfied the first condition but could not satisfy the second, as the premise of an LoC did not exist in their transaction mode. Consequently, the Customs authorities denied the exemption. To avoid delay, the petitioner paid the 20% export duty amounting to over Rs. 2 crores “under protest” and approached the High Court challenging the applicability of the second condition.
Arguments of the Parties
Counsel for the petitioner, Mr. Ajay Aggarwal, argued that the petitioner has been exporting rice since 2012 using the “cash upon delivery” method, which is a legitimate method of realization of export proceeds. He contended that the second sub-condition of Condition No. 6 regarding the LoC was inapplicable to the petitioner, as compliance was factually impossible for a transaction not based on an LoC.
Mr. Aggarwal submitted that insisting on an LoC for an exporter who does not trade through that mechanism is arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution. He relied on the Supreme Court’s decision in Mangalore Chemicals and Fertilizers Limited v. Deputy Commissioner of Commercial Taxes (1992), arguing that technical conditions should not defeat substantive rights when the objective (realization of export proceeds) is met.
On behalf of the Revenue, Ms. Anmol Sharma and Mr. Anumeh Shrivastava argued that exemption notifications must be strictly interpreted. They emphasized that clauses (i) and (ii) of Condition No. 6 are joined by the conjunction “and,” implying that both must be satisfied concurrently.
The respondents contended that the petitioner had the option to export on payment of duty if they did not meet the exemption criteria. They further argued that the levy was a policy decision taken in the exercise of emergency powers under the Customs Tariff Act to augment domestic availability, and policy decisions are generally beyond the scope of judicial review unless arbitrary.
Court’s Analysis and Observations
The Court rejected the Revenue’s strict interpretation, emphasizing that fiscal provisions must be interpreted in a manner consistent with constitutional guarantees. The Bench noted that export transactions can be lawfully carried out through multiple modes, such as open account, wire transfer, and cash-upon-delivery, and export through an LoC is “neither compulsory nor statutorily mandated.”
Impossibility of Compliance The Court held that Clause (ii) of Condition No. 6 is “predicated on the existence of an irrevocable LoC.” The Judges observed that a statutory condition cannot be enforced where the very premise on which it operates is absent.
“The law does not compel an exporter to first create an LoC merely to satisfy a condition meant to regulate those who already operate under that mechanism. To hold otherwise would amount to rewriting the notification and importing a requirement which the notification itself does not mandate.”
On the Conjunctive Use of “And” Addressing the respondents’ argument that the conditions must be read conjunctively, the Court stated:
“The use of the conjunctive ‘and’ does not ipso facto mean that a condition becomes applicable even where its very factual foundation is absent. Strict interpretation does not mean mechanical interpretation divorced from legislative intent.”
Legal Maxims and Constitutional Validity The Court invoked the maxim lex non cogit ad impossibilia (the law does not compel a person to do what is impossible). The Bench remarked that compelling an exporter retrospectively to open an LoC prior to August 25, 2023, would render the exemption illusory.
The Court further held that the respondents’ interpretation created a “hostile classification” between exporters using LoCs and those using other lawful modes, despite both being identically situated regarding the realization of export proceeds.
“Such classification lacks intelligible differentia and has no rational nexus with the stated objective, thereby falling foul of Article 14 of the Constitution of India.”
Purpose of the Exemption The Court clarified that the purpose of the condition was to protect exporters who had already committed to transactions before the imposition of the duty.
“Where such commitment is demonstrably established through other legally recognised modes and the export proceeds have in fact been realised, the substantive object of the exemption stands fulfilled.”
Decision
The High Court allowed the writ petition, ruling that the second condition of the notification is applicable only to exporters who trade via Letters of Credit and is inapplicable to those who do not.
The Court held:
“The petitioner having fulfilled clause (i) and having realised the export proceeds, is entitled to the benefit of exemption under Notification No. 50/2023-Customs.”
The respondents were directed to refund the amount of Rs. 2,01,28,295/- along with interest in accordance with the law within eight weeks.
