Court rules in favor of Export Oriented Unit (EOU) on SHIS eligibility under Foreign Trade Policy

The court held in favor of the petitioner, a 100% Export Oriented Unit (EOU), in a case concerning the eligibility of EOUs for Status Holder Incentive Scrip (SHIS) under the Foreign Trade Policy (FTP). The court found that the rejection of the petitioner's SHIS application was unjust as the FTP allows 100% EOUs to avail SHIS benefits. Additionally, the court ruled that the Directorate General of Foreign Trade (DGFT) exceeded its authority by attempting to restrict SHIS benefits to specific ITC HS codes for plastics, emphasizing that only the Central Government has the power to amend the FTP. The court directed the respondent to issue the SHIS to the petitioner in accordance with the FTP provisions.

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Issues Involved:
1. Eligibility of 100% Export Oriented Units (EOUs) for Status Holder Incentive Scrip (SHIS) under the Foreign Trade Policy (FTP).
2. Interpretation of the term "Plastics" under the FTP and its applicability to the petitioner's products.
3. Validity of DGFT's clarification restricting SHIS benefits to specific ITC HS codes for plastics.
4. Authority of DGFT to amend or interpret the FTP.

Detailed Analysis:

1. Eligibility of 100% Export Oriented Units (EOUs) for SHIS:

The petitioner, a 100% Export Oriented Unit (EOU), challenged the respondent's rejection of their SHIS application. The petitioner argued that the FTP expressly permits 100% EOUs to avail SHIS benefits, and the rejection was made without reference to any provision in the FTP, violating principles of natural justice. The court noted that the respondent initially rejected the application solely on the ground that the petitioner is a 100% EOU, which was not a valid reason under the FTP.

2. Interpretation of the term "Plastics" under the FTP:

The petitioner exported Thermoplastic High Pressure Hoses, which fall under ITC HS Code 39173100. The respondent argued that only products under ITC HS codes 3901 to 3914 are eligible for SHIS benefits as per DGFT's clarification. The petitioner contended that the FTP does not restrict the SHIS benefits to plastics under these specific codes and that their products fall under the broader "Plastics" category mentioned in the FTP. The court examined Para 3.16.4 of the FTP, which includes "Plastics" as an eligible sector for SHIS benefits, without specifying any particular ITC HS codes.

3. Validity of DGFT's clarification restricting SHIS benefits to specific ITC HS codes for plastics:

The respondent relied on a DGFT clarification letter dated 28.03.2012, which stated that only plastics under ITC HS codes 3901 to 3914 are eligible for SHIS benefits. The petitioner argued that this clarification was beyond DGFT's authority and contradicted the FTP. The court found that the DGFT's clarification effectively amended the FTP, which is beyond its power. The court cited previous judgments, including M/s. Yum Restaurants (I) Pvt. Ltd. vs. Union of India and E.I. Dupont India Pvt. Ltd. vs. Union of India, to support the view that DGFT cannot introduce new conditions under the guise of interpretation.

4. Authority of DGFT to amend or interpret the FTP:

The court emphasized that under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992, the power to amend the FTP lies solely with the Central Government, not the DGFT. Section 6 allows the Central Government to delegate certain powers to the DGFT, but not the power to amend the policy. The court concluded that the DGFT's clarification letter was invalid as it attempted to amend the FTP without proper authority.

Conclusion:

The court set aside the impugned order rejecting the petitioner's SHIS application. It directed the respondent to issue the SHIS to the petitioner as per the FTP, recognizing that the petitioner's products fall under the eligible "Plastics" sector and that the DGFT's restrictive clarification was beyond its authority. The writ petition was allowed, and the petitioner was entitled to the incentives as per the original FTP provisions.

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