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  • Writer's pictureRajesh Audithyan

Whether Import/Export restrictions imposed by DGFT, is applicable to third country shipments also?

An Indian merchant exporter wants to export from China to USA ( third country shipment ) of an item declared “Restricted” by DGFT in India. For example, refer recent past prohibition/restrictions on N95 masks etc. He has approached his banker to issue LC in favour of Chinese shipper but banker refused to issue LC saying that said item restricted by DGFT. The shipper has filed writ petition in High court stating that Constitution of India guarantees fundamental right in respect of freedom of trade and commerce.Let us see important observations of Hon’ble High Court in this case as follows ;

The RBI circular RBI/2019-20/152 dated 23.01.2020 Clause 2 ( iii) says ;

“ The Merchanting Trade Transactions shall be undertaken for the goods that are permitted for exports / imports under the prevailing Foreign Trade Policy (FTP) of India as on the date of shipment. All rules, regulations and directions applicable to exports (except Export Declaration Form) and imports (except Bill of Entry) shall be complied with for the export leg and import leg respectively”

The conditions imposed by Government of India as well as Reserve Bank of India are of general application to every Indian entity wishing to carry on Merchanting Trade Transactions. The conditions are neither specific either to petitioner's business, nor to a particular products

The Merchanting Trade Transactions involves foreign exchange and issuance of a Letter of Credit in India from a banker as well as Reserve Bank of India through its authorised dealer in foreign exchange. The banker as well as Reserve Bank of India are located in India and therefore, there is a clear nexus between the transactions and the involvement of foreign exchange reserves of Reserve Bank of India.

The Foreign Trade Policy is in existence framed by Government of India in exercise of powers conferred under the Foreign Trade (Development & Regulation) Act, 1992 and notifications have been issued by Government of India keeping in view the powers conferred by Section 3 of the Act of 1992. Its purely a policy decision taken by Government of India in larger public interest as there is an acute shortage of the goods which are the subject matter of the present writ petition.

Thus, in short the statutory provisions, rules, circulars and notifications issued from time to time permits Merchanting Trade Transactions only in respect of goods that are permitted for export and import under the prevailing Foreign Trade Policy of India and the question of complete ban in respect of freedom of trade and commerce as argued by exporter does not arise.

The Government of India is the best judge either to ban export of the aforesaid items or to place the aforesaid items under the restricted categories. It is true that the Constitution of India guarantees fundamental right in respect of freedom of trade and commerce, however, the same can be subjected to reasonable restrictions as the same has been done in the present case.

The restriction imposed by Government of India and Reserve Bank of India amounts to reasonable restriction and in no way violating the freedom of trade and commerce.


Take away for readers : Import and export restrictions imposed by Central Govt through DGFT is applicable to third country shipments also. No one can argue that goods are not touching the land mass of India and Shipper is bringing Forex into India by way of profit etc.,

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