Court Invalidates Circular, Grants SFIS Benefits for Optic Fibre Services.

The Court held the Circular dated 15 July 2010 as ultravires the Foreign Trade Policy 2004-09 concerning certain decisions. It found the Petitioners entitled to SFIS benefits for services provided via optic fibre cables, emphasizing that the PIC's interpretation was fallacious. The Court quashed the Circular, directing the implementation of certain decisions, and allowed verification of the Petitioners' claims for SFIS benefits. The rule was made absolute, with no order as to costs.

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Issues Involved:
1. Validity of the Circular dated 15 July 2010 issued by the Directorate General of Foreign Trade.
2. Interpretation and application of the Foreign Trade Policy 2004-09 and the Served From India Scheme (SFIS).
3. Entitlement of the Petitioners to SFIS benefits for services provided via optic fibre cables.

Detailed Analysis:

Issue 1: Validity of the Circular dated 15 July 2010
The Court examined the challenge to the Circular dated 15 July 2010 issued by the Directorate General of Foreign Trade, which was based on the minutes of a meeting of the Policy Interpretation Committee (PIC) dated 5 July 2010. The Circular aimed to revoke the benefits granted under the SFIS. The Court had already quashed this Circular in a companion case (Vodafone Essar Ltd. vs. Union of India and ors.) on 17 June 2011, specifically concerning the decisions at serial nos. 1 and 2(b) of the PIC meeting. Consequently, the Court held the Circular dated 15 July 2010 as ultravires the Foreign Trade Policy 2004-09 concerning these decisions.

Issue 2: Interpretation and Application of the Foreign Trade Policy 2004-09 and SFIS
The objective of the SFIS, as prescribed in paragraph 3.6.4.1 of the Foreign Trade Policy, is to accelerate the growth in the export of services and create a recognizable "Served From India" brand. Paragraph 3.6.4.2 defines eligibility based on foreign exchange earnings, and paragraph 3.6.4.3 details the entitlement to a Duty Credit scrip equivalent to 10% of the free foreign exchange earned. The term "Service Provider" is defined in Para 9.53, which includes the supply of a service from India to any other country and through commercial or physical presence in another country. The Court found that the Petitioners' services, involving dedicated bandwidth through optic fibre cables, fell within these definitions.

Issue 3: Entitlement of the Petitioners to SFIS Benefits
The Court considered the specific challenge to the PIC's decisions at serial nos. 4(ii) and 4(iii), which dealt with rentals from optic fibre cables in India and overseas. The PIC had opined that these services did not fall within the purview of paragraph 9.53 of the Foreign Trade Policy and were not entitled to SFIS benefits. The Court disagreed, noting that the Petitioners provided dedicated bandwidth services through a continuous optic fibre cable network, contracting with foreign telecommunication carriers for services between India and other countries. The Court held that these services constituted a supply of service from India to any other country within the meaning of clause (i) and through commercial or physical presence in another country within the meaning of clause (iii) of Para 9.53.

The Court emphasized that the PIC's interpretation was fallacious and that the task of the PIC was to interpret, not modify or amend, the Foreign Trade Policy. Therefore, the Court found that the Petitioners were entitled to SFIS benefits for the foreign exchange earned from these services.

Conclusion
The Court quashed and set aside the Circular dated 15 July 2010, in so far as it directed the implementation of the decisions taken at serial nos. 1, 2(b), 4(ii), and 4(iii) of the PIC meeting dated 5 July 2010, as ultravires the Foreign Trade Policy 2004-09. The directions to reopen SFIS cases and make recoveries based on these decisions were also quashed. The Court allowed the Authorities to verify the factual basis of the Petitioners' claims for SFIS benefits as stated before the Court. The rule was made absolute, with no order as to costs.

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