2015 (1) TMI 708 - HC - Customs

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

GMR Hotels and Resorts Ltd. Versus The Union of India Rep by Director General of Foreign Trade Govt of India New Delhi and another

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 ... Rejection of request for transferability of Duty Credit scrips under the Served From India Scheme to GHIAL - petitioner is not holding more than 26 % of the shares in GHIAL, which is a mandatory requirement as per policy - Held that:- Central Government is giving lot of impetus to encourage exports, more particularly in service sector. As part of this impetus, the Duty Credit Scrips are issued as incentive. As per para 3.12.7, normally Duty Credit Scrips are not transferable but within the group companies, the said scrips can be transferred. While granting relaxation of conditions of non-transferability of Duty Credit Scrip within group companies, it has not put any further restrictions. Para 9.28 only deals with definition of term Group Company. On reading of this definition, it would mean that to qualify to be a group company, an enterprise must have minimum of 26% or more voting rights or in a position to appoint more than 50% of Board of Directors in another company. It does not envisage that the company which earned Duty Credit Scrips alone should hold 26 % or more voting rights or has power to appoint more than 50 % of Board of Directors in the other company. On a plain reading, neither the provision in para 3.12.7 nor definition in para 9.28 seeks to restrict transfer of Duty Credit Scrip from a group company to another company based on holding capacity as understood by the Director General of Foreign Trade. The petitioner company availed the SFIS and earned Duty Credit Scrips. When relevant provision does not impose any restriction on transferability of Duty Credit Scrips by invoking power of interpretation, Director General of Foreign Trade cannot introduce something which is not envisaged and impose an additional restriction. The Director General of Foreign Trade has only power to interpret the existing clauses but cannot seek to amend or alter the Foreign Trade Policy terms. The impugned decision amounts to altering the terms of Served From India Scheme and is in excess of power and jurisdiction vested in him. - Impugned order is set aside - Decided in favour of assessee. 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.