Change in Testing Cannot Change the Nature of Goods — Bombay High Court Grants Exporters Refund of ₹4.33 Crores Under CCS Scheme

“Retrospective Denial of Export Incentives Is Ultra Vires”—  In a landmark judgment Bombay High Court, comprising Justice M.S. Sonak and Justice Jitendra Jain, decisively ruled in favor of exporters, holding that the change in the method of testing castor oil from the Carbon Disulphide Test to Thin Layer Chromatographic (TLC) Test does not alter the nature of the goods, and the denial of Cash Compensatory Support (CCS) based on this is arbitrary, unjustified, and unsustainable in law.

The Court categorically set aside the Government’s rejection order dated 29 October 1993, directing the Union of India and the Directorate General of Foreign Trade to refund ₹4,33,75,866 to the petitioner, with interest at 6% per annum from 1 September 2025 if not paid within eight weeks.

“An Administrative Change Cannot Rewrite Commercial Realities” — Court on Product Classification

Rejecting the Respondents’ primary argument that ‘Castor Oil First Special’ was not equivalent to ‘Castor Oil Medicinal’, the Court firmly declared:

“It is important to note that merely because the test required is changed would not alter the nature of the goods.”

The Court further observed:

“The goods ‘Castor Oil Medicinal’ and ‘Castor Oil First Special’ would remain the same although there was a change in the test by Circular dated 23 June 1989.”

“Retrospective Withdrawal of Benefits Is Without Authority of Law” — Court Relies on Mazda International Precedent

The Court reiterated the principle laid down in the celebrated decision of Mazda International Pvt. Ltd. v. Union of India, 1995 (77) ELT 526 (Bom), holding:

“Once the rates had been fixed in respect of the goods described in the communication, it was not open to the Respondents to retrospectively amend the benefit given. Such retrospective withdrawal is ultra vires.”

The Court noted that the Circular dated 31 March 1989, which granted a CCS rate of 5% of FOB value, applied from 1 April 1989 to 31 March 1992, and the subsequent change in testing norms cannot deprive exporters of benefits already accrued under valid contracts executed before the change.

“Contracts Executed Before Policy Change Are Shielded” — Court Cites Multiple Precedents

The judgment strongly affirms that contracts executed prior to 23 June 1989 are not subject to subsequent changes in policy. The Court emphasized:

“The rejection of the benefit of CCS by the respondents is not justified since the exports were made under contracts executed prior to 23 June 1989.”

Supporting this, the Court relied upon precedents like Union of India v. Cosmique International, Vibgyor Textile International v. Union of India, and Parmanand Industries v. Union of India, which all reiterate that subsequent changes cannot be applied retrospectively to pre-existing contracts.

“Technical Reports Confirm Product Equivalence” — Court Dismisses Government’s Technical Objections

Referring to uncontroverted expert reports, the Court categorically held:

“Technical reports confirm that the product ‘Castor Oil Medicinal’ remains the same even after the change of the test from Carbon Disulphide to TLC. These reports have not been rebutted by the Respondents.”

Further strengthening this, the Court noted the Government’s own Circular dated 8 May 1991, which explicitly recognized the equivalence by stating:

“Castor Oil Medicinal/First Special – 5%.”

This, the Court observed, is a clear admission by the Government itself that the products are identical, and therefore, denying CCS benefit for the period 22 June 1989 to 8 May 1991 is untenable.

“Same Issue Already Decided in Duty Drawback Case — Binding Precedent”

The Court placed significant reliance on its own previous judgment in Writ Petition No. 871 of 1994 involving the same petitioner, wherein it was held that:

“Castor Oil First Special qualifies as Castor Oil Medicinal for the purpose of duty drawback. The controversy raised is identical, and the ratio squarely applies here for CCS benefits.”

Rejecting the Respondents’ attempt to distinguish between duty drawback and CCS, the Court clarified:

“Both schemes serve to promote exports, and the underlying classification of the goods cannot differ arbitrarily between the two.”

 “Looked From Any Angle, The Petition Must Succeed” — Court Directs Refund of ₹4.33 Crores

Delivering a scathing rebuke to the arbitrary rejection of benefits, the Court declared:

“Looked from any angle, the goods ‘Castor Oil Medicinal’ and ‘Castor Oil First Special’ remain the same, and the rejection of the benefit merely on the ground of change in testing is unjustified.”

The Court passed the following final order:

“Order dated 29 October 1993 is quashed and set aside. The Respondents are directed to pay to the Petitioner the cash assistance of ₹4,33,75,866 within 8 weeks from the date of uploading of this order, failing which the amount shall carry interest at 6% per annum from 1 September 2025 until effective payment.”

Date of Judgment: 12 June 2025