This article is in continuation of the article written in December 2024 regarding the imposition of quantitative restrictions on imports of ‘Low Ash Metallurgical Coke’ (‘LAM Coke’) into India.
Recently, the Hon’ble Delhi High Court delivered a significant judgment in a batch of petitions where certain traders and users of LAM Coke had challenged the notification issued by the Ministry of Commerce imposing these quantitative restrictions.
Points of challenge: The genesis of the dispute
The primary contention of the petitioners was that the quantitative restrictions should not apply to such consignments of LAM Coke for which Irrevocable Commercial Letters of Credit (‘ICLCs’) had been opened prior to the date of the notification that imposed these quantitative restrictions, i.e., 26 December 2024.
The Petitions were filed on the following grounds:
The petitioners’ ICLCs were opened when LAM Coke was categorised as ‘free’ under the prevailing import policy, which meant that the imports of LAM Coke did not require any government authorisation. They argued that since the notification imposing quantitative restrictions was issued on 26 December 2024, the ‘free’ import policy was in effect until that date. Thereafter, the import policy for LAM Coke had changed to ‘restricted’, meaning thereby that imports would require government authorisation.
The Petitioners relied on Paragraph 1.05(b) of the Indian Foreign Trade Policy, 2023 (‘FTP’) which deals with transitional agreements. Relevant excerpt from Paragraph 1.05(b) is reproduced below:
“In case of change of policy from ‘free’ to ‘restricted/prohibited/state trading’ or ‘otherwise regulated’, the import/export already made before the date of such regulation/restriction will not be affected. However, the import through High Sea sales will not be covered under this facility. Further, the import/export on or after the date of such regulation/restriction will be allowed for importer/ exporter who has a commitment through Irrevocable Commercial Letter of Credit (ICLC) before the date of imposition of such restriction/ regulation and shall be limited to the balance quantity, value and period available in the ICLC. For operational listing of such ICLC, the applicant shall have to register the ICLC with jurisdictional RA against computerized receipt within 15 days of imposition of any such restriction/ regulation. Whenever, Government brings out a policy change of a particular item, the change will be applicable prospectively (from the date of Notification) unless otherwise provided for.”
Hence, the Petitioners argued that by virtue of Paragraph 1.05(b), imports should be allowed for those importers who had a commitment through an irrevocable ICLC opened before the quantitative restriction was imposed.
The following arguments were presented by the Parties:
Petitioners' arguments:
The Petitioners argued that they had entered into contracts and opened ICLCs for the import of LAM Coke before the imposition of the quantitative restrictions. They maintained that the benefit of transitional arrangement under Paragraph 1.05(b) of the FTP was available to them, and thus, these imports should be allowed. Therefore, the government should follow the procedure and register such ICLCs rather than deny registration, due to which, the importers were unable to clear their consignments.
They further contended that the notification imposing quantitative restrictions was essentially an amendment to the import policy of LAM Coke, falling squarely within the ambit of Paragraph 1.05(b) of the FTP. Consequently, these restrictions would be subject to the transitional arrangements under Paragraph 1.05(b).
The Petitioners refuted the idea that Paragraph 1.05(b) was limited only to restrictions imposed under Section 3 of the Foreign Trade (Development and Regulation) Act (‘FTDR Act’) and did not apply to measures under Section 9A (like the quantitative restriction imposed in the present case).
Respondents' arguments:
The respondents, i.e. the Government of India, contended that the rejection of the applications for ICLC registration was justified on the grounds of reasonableness and merit.
The Government argued that the Notification imposing quantitative restrictions was issued under Section 9A of the FTDR Act, a standalone provision which deals specifically with quantitative restrictions to safeguard domestic industry from increased imports causing serious injury.
The Government highlighted that the imposition of restrictions under Section 9A was pursuant to a detailed investigation by the Directorate General of Trade Remedies (‘DGTR’), involving consultations with stakeholders, including importers. On the other hand, Paragraph 1.05(b) of the FTP intends to address unforeseen contingencies under Section 3 restrictions, in case of genuine hardship, where the importers, in the customary course of proceedings, would not have been aware of the restrictions to be imposed by the Government.
However, for measures undertaken under Section 9A, all interested parties are aware of the investigation, and the impending restrictions that may be imposed upon conclusion of the investigation.
Judgment of the Court:
The High Court dismissed the petitions, ruling in favour of the Government and upholding the applicability of the quantitative restrictions to the Petitioners' imports.
The High Court's reasoning centered on the distinction between actions taken under Section 3 and Section 9A of the FTDR Act. It accepted the Government's argument that Paragraph 1.05(b) of the FTP, which provides for transitional arrangements, is primarily applicable to restrictions imposed under Section 3 of the FTDR Act, which are often implemented to address general trade policy concerns or unforeseen contingencies.
In contrast, the court emphasised that Section 9A provides a specific mechanism for imposing quantitative restrictions as a safeguard measure to protect the domestic industry from serious injury caused by increased imports. This action under Section 9A is contingent upon a thorough investigation conducted under the Safeguard Measures (Quantitative Restrictions) Rules, 2012 (‘Safeguard Rules’), which includes notice to interested parties and a determination of serious injury to the domestic industry. Thus, parties are aware of the process and the outcome of the investigation conducted pursuant to Section 9A. On the other hand, parties are not aware of any measures that are to be imposed under Section 3.
Crucially, the High Court noted that Rule 12 of the Safeguard Rules explicitly states that safeguard quantitative restrictions take effect from the date of publication of the notification. This rule does not provide for any further transitional arrangements based on pre-existing ICLCs, unlike the provisions under the FTP related to Section 3 actions.
The High Court relied on the Supreme Court's judgment in Union of India v. Agricas LLP[1], which established that Section 9A operates independently and is a result of incorporating Article XIX of the General Agreement on Tariffs and Trade (‘GATT’) into the domestic law.
The High Court concluded that subjecting safeguard measures under Section 9A to the transitional arrangement provisions of the FTP would defeat the very purpose of these measures, which are intended to provide relief to the domestic industry facing serious injury from import surges. The High Court particularly noted that if the imports under these ICLCs were to be allowed, it would lead to imports of 610,121 MT of LAM Coke from Indonesia, as against the allocated quota of 66,364 MT, thereby defeating the purpose of the safeguard measures altogether.
Going forward:
While the Petitioners may choose to appeal this decision, the immediate effect of this judgment is significant. It clarifies that quantitative restrictions imposed under Section 9A are not subject to the transitional arrangements outlined in Paragraph 1.05(b) of the FTP.
This interpretation has important implications for importers. The improbability of relying on pre-existing ICLCs in instances where safeguard investigations are ongoing or anticipated, will lead to greater unpredictability, which might subsequently create uncertainty once the DGTR issues Final Findings. In the present case, while the Final Findings were issued on 1 May 2024, the safeguard measures were imposed after almost eight months, on 26 December 2024. Hence, the unpredictability is bound to grow.
Unlike anti-dumping and countervailing duty investigations, where, if the measures are to be imposed, the same has to be done by the Central Government within three months of the conclusion of the investigation by the DGTR, there is no provision of such a timeline for safeguard investigations. To create a balance between the interests of the domestic industry and importers, it is time that a similar provision should be introduced for safeguard investigations as well, so that the importers are not left with an indefinite period of unpredictability, and can conduct their business knowing well that the Government must decide regarding applicability of the safeguard measures within a three-month period.
[The authors are Partner and Associate, respectively, in International Trade and WTO practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]
[1] (2021) 14 SCC 341.
