2015 (1) TMI 708 - HC - Customs

Court overturns rejection of Duty Credit scrip transfer based on shareholding, promotes export liberalization

The court held that the rejection of the petitioner's request to transfer Duty Credit scrips to GHIAL based on shareholding percentage was erroneous. The ... Transferability of Duty Credit scrips within group companies - Served From India Scheme (SFIS) - definition of Group Company under the Foreign Trade Policy - liberal construction of beneficial export incentive schemes - limits of Director General of Foreign Trade's power to interpret (not amend) the Foreign Trade PolicyTransferability of Duty Credit scrips within group companies - definition of Group Company under the Foreign Trade Policy - Served From India Scheme (SFIS) - liberal construction of beneficial export incentive schemes - Whether the Director General of Foreign Trade was justified in refusing transfer of Duty Credit scrips on the ground that the petitioner did not hold 26% shareholding in the transferee company, having regard to para 3.12.7 and para 9.28 of the Foreign Trade Policy 2009-2014. - HELD THAT: - The Court examined Chapter 3 (promotional measures) and para 3.12.7 which permits, as an exception to the general non-transferability of Duty Credit scrips, transfer within group companies under the Served From India Scheme. Paragraph 9.28 supplies the definition of 'Group Company' by reference to the ability to exercise 26% or more of voting rights or to appoint more than 50% of directors. On a plain cumulative reading, para 3.12.7 permits intra-group transfer and para 9.28 merely defines the term 'Group Company'; neither provision, when read together, imposes an additional restriction that the company which earned the scrips must itself hold 26% in the transferee. The SFIS is a beneficial incentive scheme intended to promote exports and is to be construed liberally. The Director General's interpretation, which effectively introduced a new condition for transferability by requiring the scrip-holder to possess minimum shareholding in the transferee, amounted to altering the policy rather than interpreting it. The Court held that the Director General may interpret policy but does not have power to amend or add restrictions not contained in the FTP; accordingly the impugned refusal was beyond jurisdiction and inconsistent with the scheme's provisions and spirit. [Paras 7, 9, 10, 11]The refusal to permit transfer of the Duty Credit scrips on the ground that the petitioner did not hold 26% shareholding in the transferee was held to be contrary to the Foreign Trade Policy and beyond the Director General's power; the interpretation placing such a restriction was rejected.Limits of Director General of Foreign Trade's power to interpret (not amend) the Foreign Trade Policy - remedial direction to give effect to FTP entitlements - Relief to be granted consequent to the finding that the Director General's refusal was unlawful. - HELD THAT: - Having found the refusal to transfer the scrip unlawful, the Court directed that the impugned proceedings dated 22.7.2014 be set aside and directed the second respondent to accept and transfer the Served From India Duty Credit scrip in favour of the transferee company in terms of the Foreign Trade Policy 2009-2014. The Court also authorised, if necessary, an extension of the scrip's validity for a further period of six months from 3.1.2015 to give effect to the transfer order. The writ petition was allowed and ancillary petitions were closed. [Paras 11]Impugned proceedings set aside; respondents directed to transfer the Duty Credit scrip to the transferee and, if necessary, extend its validity for six months from 3.1.2015; writ petition allowed.Final Conclusion: The High Court held that para 3.12.7 and para 9.28 of the Foreign Trade Policy 2009-2014 do not support introducing an additional requirement that the scrip-holder must possess 26% shareholding in the transferee; the Director General's refusal was therefore beyond power and set aside, and the respondents were directed to effect the transfer of the Duty Credit scrip (with a limited extension of validity if required). Issues:Interpretation of Foreign Trade Policy for transfer of Duty Credit scrips within group companies.Analysis:The petitioner, a subsidiary holding company of GMR Hyderabad International Airport Limited (GHIAL), requested permission to transfer Duty Credit scrips to GHIAL for importing goods under the Served From India Scheme. The request was rejected as the petitioner did not hold more than 26% shares in GHIAL, a mandatory requirement as per policy. The petitioner challenged this rejection through a writ petition.Contentions:- The petitioner argued that as a group company, it should be allowed to transfer the scrips to GHIAL based on a literal reading of the Foreign Trade Policy.- The senior counsel contended that the Policy Interpretation Committee's clarification was illegal and the rejection based on shareholding percentage was contrary to the policy's spirit.- The Assistant Solicitor General supported the rejection, stating that the Policy Interpretation Committee's decision aligned with the policy's provisions.Legal Framework:- The Foreign Trade Policy aims to promote foreign trade, with specific provisions in Chapters 2, 3, and 9 governing imports, exports, and definitions.- Chapter 3 introduces the Served From India Scheme (SFIS) to boost service sector exports, allowing Duty Credit sops transferable within group companies.- Para 9.28 defines a group company as having at least 26% voting rights in another enterprise for benefits transfer.Judgment:The court held that the Director General's decision to reject the transfer based on shareholding percentage was erroneous. The Policy did not restrict transferability based on the petitioner's shareholding in GHIAL. The Director General overstepped by introducing an additional restriction not envisaged in the policy. The court set aside the rejection and directed the transfer of Duty Credit scrips to GHIAL, emphasizing the need for a liberal construction of beneficial trade schemes.This judgment clarifies the interpretation of the Foreign Trade Policy regarding the transfer of Duty Credit scrips within group companies, emphasizing the policy's intent to encourage exports and the need for a liberal construction of beneficial trade schemes.