2015 (1) TMI 1127 - HC - Customs

Court grants SFIS benefits to subsidiaries of foreign companies, emphasizing policy compliance and fair interpretation.

M/s YUM RESTAURANTS (I) PVT. LTD AND ANR, NOKIA SOLUTIONS AND NETWORKS INDIA PVT. LTD. & ANR & EI DUPONT INDIA PVT LTD & ANR Versus UNION OF INDIA & ORS

The court allowed the petitions, setting aside the decisions denying SFIS benefits to subsidiaries of foreign companies. The court held that the term ... Denial of the benefits of the “Served from India Scheme”, as framed under the foreign trade policy - whether the petitioners could be denied the benefit of the SFIS only on the ground that they were subsidiaries of foreign companies. And, whether it was open for DGFT to interpret the foreign trade policy to exclude the petitioners from the benefit of the SFIS - Held that:- , it cannot be disputed that DGFT is empowered to interpret the foreign trade policy, such powers can be exercised only when the plain language of the policy presents an ambiguity. It would not be open for DGFT to introduce new conditions and criteria under the guise of interpreting the policy as that would, clearly, amount to amending the provision of the foreign trade policy. The words used in paragraph 3.12.2 of FTP 2009-14 are “Indian Service Providers”. There is no scope to read into these words the condition that for service providers to be Indian, its shareholders must also be Indian. This, clearly, would amount to introducing an additional eligibility condition which is extraneous to the eligibility criteria as spelt out in paragraph 3.12.2 of the FTP 2009-14. Introduction of such condition would, in effect, amount to amending the FTP 2009-14. The conclusion of DGFT that Indian companies having foreign equity cannot be considered as Indian, militates against well established canons of company law. The petitioners are companies incorporated under the Companies Act, 1956 and are governed by the provisions of the statute (currently Companies Act, 2013). Insofar as the domicile of the petitioners is concerned, no distinction can be drawn between the petitioners and other companies incorporated under the said Act. It is also well established that the situs of shares is located in the country in which the register upon which they are registered is kept. (See: R. Viswanathan v. R.S. Abdul Wajid: [1962 (5) TMI 25 - SUPREME COURT], Vodafone International Holdings BV v. Union of India and Anr.: [2012 (1) TMI 52 - SUPREME COURT OF INDIA]. Companies incorporated under the laws of India and having their registered offices in India would undeniably be Indian companies. Decisions of DGFT/PIC, denying the benefit of the SFIS to the petitioners reflected in the impugned minutes, as well as separate communications sent to the petitioners withdrawing/recalling the said benefits (i.e. Duty Credit Scrips), are set aside. - Decided in favour of appellants. Issues Involved:1. Denial of benefits under the Served from India Scheme (SFIS) to subsidiaries of foreign companies.2. Interpretation of the term 'Indian Service Providers' under the Foreign Trade Policy (FTP).3. Jurisdiction and power of the Director General of Foreign Trade (DGFT) in interpreting and amending the FTP.Issue-Wise Detailed Analysis:1. Denial of Benefits under the SFIS to Subsidiaries of Foreign Companies:The petitioners, subsidiaries of foreign companies, challenged the decision of the DGFT denying them benefits under the SFIS. The DGFT and Policy Interpretation Committee (PIC) held that the SFIS is not applicable to subsidiaries of foreign companies as it does not further the objective of creating a 'Served from India' brand. The petitioners argued that the SFIS should apply to all 'Indian Service Providers' meeting the specified criteria, without distinction based on the nationality of shareholders.2. Interpretation of the Term 'Indian Service Providers' under the FTP:The core controversy was whether the petitioners could be denied SFIS benefits solely because they were subsidiaries of foreign companies. The DGFT interpreted the term 'Indian Service Providers' to exclude such subsidiaries, based on the objective of creating a unique 'Served from India' brand. The court found this interpretation unsustainable, stating that the term 'Served from India brand' refers to the objective of accelerating growth in export of services from India, not to the trade names or trademarks of individual service providers. The court emphasized that the FTP's language did not support excluding subsidiaries of foreign companies from SFIS benefits.3. Jurisdiction and Power of the DGFT in Interpreting and Amending the FTP:The court examined the legal framework under the Foreign Trade (Development and Regulation) Act, 1992, which empowers the Central Government to formulate and amend the export and import policy. The DGFT's role is to implement the policy and interpret its provisions, but not to amend or alter it. The court held that the DGFT's decision to exclude subsidiaries of foreign companies from SFIS benefits amounted to an unauthorized amendment of the FTP. The court cited precedents establishing that the DGFT must act within the policy's framework and cannot introduce new conditions under the guise of interpretation.Separate Judgments Delivered:The court noted that the decisions of the DGFT/PIC, denying SFIS benefits to the petitioners, were made without considering the relevant provisions of FTP 2004-09. The court found no ambiguity in the language of FTP 2004-09, which entitled 'All Service Providers' meeting the eligibility criteria to SFIS benefits. The court concluded that the DGFT's interpretation to exclude subsidiaries of foreign companies was without basis and application of mind, rendering the decision unsustainable.Conclusion:The court allowed the petitions, setting aside the DGFT/PIC decisions and communications withdrawing the SFIS benefits. The court reaffirmed that the petitioners, as Indian companies incorporated under the Companies Act, 1956, are entitled to SFIS benefits for services exported prior to 26.08.2009 under FTP 2004-09 and for services exported after that date under FTP 2009-14. The judgment emphasized the distinction between interpreting and amending the policy, underscoring the DGFT's limited jurisdiction in this regard.