Castor Oil Medicinal and First Special Held Identical | Bombay High Court Quashes 1993 Order, Terms CCS Benefit Denial Unjustified
Safiya Malik
The High Court of Bombay Division Bench of Justice M.S. Sonak and Justice Jitendra Jain held that the denial of Cash Compensatory Support (CCS) for the period between 22 June 1989 and 8 May 1991 on the ground that 'Castor Oil First Special' is not the same as 'Castor Oil Medicinal' was unjustified. The court quashed the rejection order dated 29 October 1993 and directed the authorities to pay the petitioner cash assistance amounting to Rs.4,33,75,866 within eight weeks. It further stated that in the event of non-compliance within the stipulated time, the amount would carry interest at the rate of 6 percent per annum from 1 September 2025 until the effective payment is made.
The court found that the change in testing methodology from the Carbon Disulphide Test to the Thin-Layer Chromatographic (TLC) Test did not alter the essential nature of the goods. The benefit under the CCS scheme, as per the Circular dated 31 March 1989, was held applicable based on the contract execution date rather than the test method applied. Consequently, the rejection of CCS benefits by the respondents was held to be arbitrary and contrary to law.
The matter involved a challenge under Article 226 of the Constitution of India to the rejection of an application for Cash Compensatory Support (CCS) for the export of castor oil. The petitioner, comprising a company liquidator and an individual, contested an order dated 29 October 1993 issued by the Joint Director General of Foreign Trade. The impugned order had denied CCS benefits to the petitioner for exports made between 3 July 1989 and 7 May 1991, on the ground that the product exported—'Castor Oil First Special'—did not qualify as 'Castor Oil Medicinal' under the applicable scheme.
The CCS scheme, initially introduced in 1966, provided cash assistance for exports to incentivize Indian exporters. The rate of benefit applicable to 'Castor Oil Medicinal' during the relevant period was 5% of the FOB value, as prescribed by a Circular dated 31 March 1989 issued by the Ministry of Commerce. The circular was effective from 1 April 1989 to 31 March 1992.
Originally, the grading of castor oil as 'medicinal' was determined using the 'Carbon Disulphide Test', according to a 1964 Circular from the Ministry of Food and Agriculture. However, on 23 June 1989, this testing method was replaced with the 'Thin-Layer Chromatographic Test' (TLC). Following this change, the petitioner's product, which had previously qualified as 'Castor Oil Medicinal', began to be graded as 'Castor Oil First Special'.
The petitioner opposed this change and continued to seek CCS benefits for the same product. Subsequently, a Circular dated 8 May 1991 clarified that 'Castor Oil First Special' would be eligible for CCS benefits. Nonetheless, the authorities denied CCS claims for the intervening period from 22 June 1989 to 8 May 1991.
The petitioners submitted that the court had already stated in their favour in a previous writ petition (No. 871 of 1994), concerning duty drawback claims. In that case, the court had held that 'Castor Oil First Special' was effectively the same as 'Castor Oil Medicinal', and the denial of benefits based on a change in testing methodology was improper.
In response, the respondents argued that the earlier judgment related to duty drawback and not CCS. They contended that post-introduction of the TLC test, the product no longer met the standard for 'Castor Oil Medicinal' and that the petitioners had not appropriately challenged the 1993 rejection order.
The court recorded that the primary issue was whether 'Castor Oil First Special' could be equated to 'Castor Oil Medicinal' following the introduction of the TLC test.
"The short issue which arises for our consideration is whether the goods 'Castor Oil Medicinal' is different than the 'Castor Oil First Special' post of the introduction of the new test i.e. TLC."
The bench referred to its earlier judgement in Writ Petition No. 871 of 1994. In that case, it had rejected the Government's attempt to retrospectively amend the description of goods to exclude 'Castor Oil First Special' from benefit eligibility:
"The Petitioners had already exported Castor Oil First Grade under the mark Castor Oil First Special Grade as they were doing earlier. It is only that the same oil then was being described as Castor Oil medicinal, pursuant to the test which was earlier being done in terms of Circular of 3rd October, 1964."
The court noted that the retrospective exclusion of such products from the benefit scheme, without express statutory authority, was unlawful.
"Based on these Authorities it will be clear that once the rates had been fixed in respect of the goods described in the communication it could not have been open to the respondents to retrospectively amend the benefit given."
The court also held that the change in the testing method did not justify the denial of CCS benefits, as the product itself remained unchanged.
"Merely because the test required is changed would not alter the nature of the goods."
It further observed that contracts for the exports in question were executed prior to the introduction of the new testing methodology.
"There is also no dispute that the contracts under which the exports were made by the Petitioner for the period under consideration were executed prior to June 1989."
The bench found support in other decisions of various High Courts, which had held that benefits could not be denied based on changes introduced after the execution of contracts.
"The ratio of this decision squarely applies to the facts of the present case...since in the present case also, there is no dispute that the exports made for the period under consideration were in respect of contracts executed prior to 23 June 1989."
The court also referenced a technical report submitted by the petitioner which confirmed that the product remained the same despite the change in testing procedures.
"These technical reports have not been controverted by the Respondents."
The High Court of Bombay issued the following directives:
"Order dated 29 October 1993 (Exhibit-Y) is quashed and set aside."
"The Respondents are directed to pay to the Petitioner the Cash assistance of Rs.4,33,75,866/- within the period of 8 weeks from the date of uploading of the present order. If this is not done, then this amount shall carry interest at 6 per cent per annum, commencing from 1.9.2025 until effective payment."
"The Petition is allowed in the above terms."
"No order as to costs."
Advocates Representing the Parties:
For the Petitioners: Mr. Gouresh Mogre along with Ms. Tripty Kapadia, instructed by Joy Legal Consultants
For the Respondents: Dr. G. R. Sharma along with Mr. D. P. Singh and Mr. Vikas Salgia
Case Title: Sanjay Kumar Agarwal & Anr. v. Union of India & Ors.
Neutral Citation: 2025: BHC-OS:8604-DB
Case Number: Writ Petition No. 872 of 1994
Bench: Justice M.S. Sonak and Justice Jitendra Jain
[Read/Download order]
