2015 (8) TMI 728 - HC - Customs

Court allows indirect control in 'Group Company' definition for Export Obligation, quashes Policy Interpretation Committee decision.

The Court held that the definition of 'Group Company' under the Foreign Trade Policy includes indirect control, allowing the Petitioners to consider ... Fulfilment of export obligation – Group Company – Export Promotion Capital Goods Scheme – Petitioners alleged that benefit of utilization of excess exports of group company in computation of export obligation was, granted to EPCG License holder –Respondent No. 2 considered case of Petitioners as group company in accordance with paragraph 9.28 of FTP was rejected by observing that M/s. Tin Plate India Ltd. and Petitioners were not group company – Held that:- Policy Interpretation Committee observed that petitioner admitted that they do not hold 26% or more equity in M/s. Tata Consultancy Services Ltd., hence in terms of para 9.28 of FTP, they cannot be treated as group company – Perusal of definition of “Group Company” reveal that two or more enterprises, ought to be in position directly or indirectly to exercise 26% or more voting rights in other enterprise – Committee completely overlooked requirement stipulated in para 9.28 as requirement was not of direct control – Requirement was fulfilled by indirect control as well – If definition was only to allow singular entity to claim benefits and not when it was associated, then one could have understood interpretation placed –However, when it was permitted by policy maker that group company to claim benefits ought to have direct or indirect control in other enterprise then, requirement was fulfilled – Petitioners’ case clearly falling within parameters/ criteria evolved in para 9.28 that we have no alternative but to quash and set aside decision of Policy Interpretation Committee – Decided in favour of Petitioner. Issues Involved:1. Interpretation of the term 'Group Company' under the Foreign Trade Policy (FTP).2. Fulfillment of Export Obligation (EO) under the Export Promotion Capital Goods (EPCG) Scheme.3. Rejection of the Petitioners' application for considering excess exports of a group company for EO calculation.Issue-wise Detailed Analysis:1. Interpretation of the term 'Group Company' under the Foreign Trade Policy (FTP):The Petitioners argued that the term 'Group Company' as defined in para 9.28 of the FTP includes enterprises that directly or indirectly exercise 26% or more voting rights in another enterprise or appoint more than 50% of the Board of Directors. The Petitioners contended that this definition should be construed liberally to include indirect control through a parent company. They highlighted that Tata Sons Ltd. holds significant equity in both Tata Teleservices (Maharashtra) Ltd. and Tata Consultancy Services Ltd., thereby satisfying the criteria for indirect control.The Respondents, represented by the Additional Solicitor General, argued that the definition requires direct control and that indirect control through a parent company is not sufficient. They maintained that neither Tata Teleservices (Maharashtra) Ltd. nor Tata Consultancy Services Ltd. directly holds the required percentage of voting rights in the other, thus failing to meet the criteria.The Court observed that the Policy Interpretation Committee (PIC) had overlooked the provision for indirect control in para 9.28 of the FTP. The Court emphasized that the definition clearly includes indirect control, and the PIC's interpretation was inconsistent with the policy's intent to promote and encourage exports. Consequently, the Court held that the Petitioners' interpretation was correct, and the definition of 'Group Company' includes indirect control.2. Fulfillment of Export Obligation (EO) under the Export Promotion Capital Goods (EPCG) Scheme:The Petitioners had obtained licenses under the EPCG Scheme, which allows the import of capital goods at concessional duty rates subject to fulfilling an EO equivalent to eight times the duty saved. They sought to fulfill their EO by considering the excess exports of their group company, Tata Consultancy Services Ltd., as per para 5.4 of the FTP, which allows EO fulfillment through exports of the same firm/company or group company.The PIC rejected the Petitioners' request, stating that Tata Consultancy Services Ltd. does not directly or indirectly hold 26% or more voting rights in Tata Teleservices (Maharashtra) Ltd. The Court found this interpretation flawed and held that the Petitioners' request to consider excess exports of Tata Consultancy Services Ltd. for EO fulfillment was valid under the FTP.3. Rejection of the Petitioners' application for considering excess exports of a group company for EO calculation:The Petitioners' application was initially rejected by the PIC without providing reasons, and the subsequent rejection reiterated the same grounds. The Court noted that the PIC failed to consider the indirect control aspect and did not adhere to the Court's previous directions to interpret the policy consistently with its objectives.The Court quashed the PIC's decision, stating that the Petitioners' case clearly fell within the parameters of para 9.28 of the FTP. The Court directed the authorities to extend the benefits under the FTP to the Petitioners and implement the order within three months.Conclusion:The Court held that the definition of 'Group Company' under the FTP includes indirect control, and the Petitioners were entitled to consider the excess exports of Tata Consultancy Services Ltd. for fulfilling their EO under the EPCG Scheme. The PIC's interpretation was inconsistent with the policy's intent, and the Petitioners' application should have been approved. The Court quashed the PIC's decision and directed the authorities to extend the benefits to the Petitioners accordingly.