LLM Group 2 Business Law Law Relating to Customs and Foreign Exchange 2024-25 Question Paper with Solutions

For full marks, cover: the two verbs in the question, "list" and "critically analyse", so every feature must be stated and then tested; the Act's origin and the fact that it was almost wholly rewritten in 2010; nine features taken in the order the Act arranges them; the strategic export controls in sections 14A to 14E, which most answers omit entirely and which are worth several marks on their own; and a critical analysis identifying what the Act does well, what it no longer does, and the one provision in it that now refers to a body that has ceased to exist.

Origin and the 2010 rewriting

The Act replaced the Imports and Exports (Control) Act, 1947, and the change of name states the change of purpose. The 1947 Act was a control statute, passed when imports were rationed and every consignment needed a licence. The 1992 Act is an Act to provide for the development and regulation of foreign trade by facilitating imports into, and augmenting exports from, India, and it was passed in the year after the reform programme of 1991.

Critically, this is the Act's most important and most delegated feature. The Act itself contains almost no substantive trade law; the substance is in the policy, which the Government may announce and amend by notification without returning to Parliament. That is defensible, because trade policy must respond to prices, harvests and external events faster than legislation can; but it means that the rights of a trader depend on an instrument that can change overnight, and the only protection is section 159A style saving of accrued rights, which this Act does not contain in the same form.

Feature two: a statutory regulator, section 6. The Central Government appoints a Director General of Foreign Trade to advise it in the formulation of the policy and to be responsible for carrying out that policy. Critically, the office combines advice, rule-making by way of public notices, licensing and adjudication under section 13, which is a concentration of functions that the appeal in section 15 and the review in section 16 only partly answer.

Feature four: a sanction that costs the trader his business, section 8. The code may be suspended or cancelled where the holder has contravened the Act, the rules or orders or the foreign trade policy, or any other law for the time being in force relating to central excise or customs or foreign exchange, or has committed any other notified economic offence; or where the Director General has reason to believe that he has made an export or import prejudicial to the trade relations of India with any foreign country, or to the interests of other persons engaged in imports or exports, or has brought disrepute to the credit or the goods of, or services or technology provided from, the country. Notice, a reasonable opportunity to represent in writing and a hearing if desired are required, and by section 8(2) the person may thereafter trade only under a special licence.

Critically, this is the heaviest sanction in the Act and it is far heavier than the penalty in section 11. It also reaches conduct under two other statutes, so a customs or FEMA contravention can end a trading business. The grounds in clause (b), particularly "brought disrepute to the credit or the goods of the country", are drafted very widely and are essentially unreviewable on their merits, which is the strongest objection to the section.

Feature six: a safeguard power, section 9A. Where the Central Government is satisfied after enquiry that goods are imported in such increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic industry, it may impose quantitative restrictions. The proviso exempts goods originating from a developing country so long as the share of imports from that country does not exceed three per cent, or, where several developing countries are involved, so long as the aggregate does not exceed nine per cent of total imports of such goods into India. Restrictions cease after four years unless extended where the domestic industry has taken adjustment measures, and may in no case continue beyond ten years.

Critically, section 9A is India's quantitative safeguard and it sits beside the tariff safeguard in section 8B of the Customs Tariff Act, 1975. The two are alternatives and the choice between a quantitative restriction and a safeguard duty is a policy one. The developing-country thresholds reproduce the World Trade Organization Agreement on Safeguards, so the section is treaty-compliant by design, and the ten-year outer limit is a real discipline that the tariff route does not carry in the same form.

Feature eight: strategic export controls, sections 14A to 14E. Inserted in 2010, they impose controls on the export of specified goods, services and technology (section 14A), transfer controls (section 14B), catch-all controls reaching items not on any list where the exporter knows or has reason to believe they are intended for weapons of mass destruction or their delivery systems (section 14C), and a power to suspend or cancel a licence for specified goods (section 14D). Section 14E(1) provides that in the case of a contravention relating to specified goods, services or technologies, the penalty shall be in accordance with the provisions of the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (21 of 2005).

Critically, this group converts the Act into a two-regime statute and is the feature most often missed. For ordinary trade the sanction is monetary under section 11; for the SCOMET list and for catch-all cases the sanction is criminal under the Act of 2005, which carries imprisonment. It is unusual for a trade facilitation statute to carry a non-proliferation regime, and the arrangement exists because export control is administered by the Directorate General of Foreign Trade rather than by a separate agency.

Critically, the appeal has two weaknesses. The forum against an order of the Director General is the Central Government, that is the executive, and there is no independent tribunal anywhere in this Act, in contrast to the Customs Act which has the Customs, Excise and Service Tax Appellate Tribunal. And the mandatory pre-deposit conditions the appeal on the appellant's liquidity, the undue-hardship dispensation being discretionary and exercised after filing.

One provision that now points at nothing

Section 11B, inserted in 2010, provides that a settlement of customs duty and interest as ordered by the Settlement Commission constituted under section 32 of the Central Excise Act, 1944 shall be deemed to be a settlement under this Act, for the regularisation of an export obligation default.

The Supreme Court held the Government bound by its representation. A scheme announced to traders, on the faith of which they act, cannot be departed from at will merely because it is administrative in form, and the plea of executive necessity is no answer. The decision is the origin of the modern law that a trade policy, though made by notification and amendable by notification, is not a licence to disappoint those who have already acted on it.

Why it bears on this question. It answers the principal criticism of the Act, which is that section 5 leaves the substance to a policy amendable by notification. The decision establishes that a scheme announced to traders, acted on by them, binds the Government notwithstanding that it is executive in form, and that the plea of executive necessity is no answer.

The authority on how far a trade policy may be relied on

The second authority is Kasinka Trading v. Union of India, (1995) 1 SCC 274, decided on 18 October 1994, which decides how far a trader may rely on a policy announced to him. A notification under section 25(1) of the Customs Act exempting PVC resin from duty was expressed to remain in force up to and inclusive of 31 March 1981. Importers entered into contracts and opened letters of credit on the faith of it. The exemption was withdrawn on 16 October 1980, before the stated date.

Conclusion

Conclusion. The salient features of the 1992 Act are nine and they should be listed as such: a statutory foreign trade policy under section 5; the Director General under section 6; the Importer-exporter Code as a gate under section 7; suspension or cancellation of that code, including for a customs or foreign exchange contravention, under section 8; licences, certificates and scrips under section 9; quantitative safeguards under section 9A with the three and nine per cent developing-country thresholds, cessation after four years and an absolute ten-year limit; penalties of not less than ten thousand rupees and up to five times value under section 11, credited to the Consolidated Fund under section 11A; the strategic export controls of sections 14A to 14E with penalties routed to the Weapons of Mass Destruction Act of 2005; and adjudication, appeal on pre-deposit and review under sections 13, 15 and 16.