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of <h1>Petition dismissed upholding denial of SFIS benefits; FTP 2009-14 and PIC require India-developed brands; scrip return directed -14</h1> <h3>Cummins Technologies India Pvt. Ltd. Versus Union of India and others</h3> The HC dismissed the petition, upholding denial of SFIS benefits to the petitioner company and directing return of the entire Duty Credit scrip amount ... Denial of benefits of the 'Served From India Scheme' - direction to return entire amount of the Duty Credit scrips under SFIS along with applicable rate of interest thereon - petitioner company is subsidy of foreign company - HELD THAT:- In exercise of powers conferred by Section 5 of the FTDR Act, the Central Government notifies foreign trade policy from time to time. The relevant policy for the period of issuance of fourteen (14) SFIS scrips to the petitioners is FTP 2009-14. The objective of the scheme is to create a ‘Served From India’ brand. Based on the free foreign exchange earned by the India Service Providers, duty credit scrips would be issued. On 27.12.2011, the PIC constituted in terms of the FTP 2009-14, interpreted the SFIS provisions and held that the objective was to encourage Indian brands and not incentivize a brand created outside India. The Division Bench of Bombay High Court in the case of Naman Hotel & Others V/s. Union of India [2015 (9) TMI 564 - BOMBAY HIGH COURT] on which the impugned letters places reliance, has appreciated the SFIS and the provisions of FTP 2009-14. The Bombay High Court after appreciating each and every point taken by the petitioners therein has held that they are not eligible for SFIS benefits. The objective of SFIS to give the benefit to brand produced and developed from India. The petitioner-Company, namely, Cummins Technologies India Private Limited is a wholly owned subsidiary of Cummins Inc. U.S.A. The company was already recognized and respected world over prior to their entry in India. Therefore, will not qualify and cannot be held eligible for SFIS benefit. The brand of such an entity is already created, existing and established. The writ petition filed by the petitioner(s), has no merit and is accordingly, dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Served From India Scheme (SFIS) under FTP 2009-14 is available to a company that is a wholly owned subsidiary of a foreign parent, or whether nationality/identity of shareholders can be a criterion to deny SFIS benefits. 2. Whether the petitioner has a vested right to retain duty credit scrips once issued and whether a recovery direction issued by DGFT under the Foreign Trade (Development & Regulation) Act, 1992 can be quashed on the ground that a contrary High Court decision was not a speaking order of ultimate court. 3. The legal consequence of prior judicial decisions (Delhi High Court judgment favorable to certain petitioners; Bombay High Court judgment adverse; and dismissal of Special Leave Petition by the Supreme Court) on entitlement to SFIS benefits and on the DGFT/PIC interpretation. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of SFIS to foreign-owned subsidiaries - Legal framework SFIS objective (FTP 2009-14, paras 3.12, 3.12.2-3.12.7) is to accelerate export of services to create a 'Served From India' brand; eligibility limited to 'Indian Service Providers' earning specified free foreign exchange; certain remittances and services expressly ineligible (para 3.6.1). The Directorate General of Foreign Trade (DGFT) and the Policy Interpretation Committee (PIC) are charged with interpretation and administration of the policy. Issue 1: Precedent treatment The PIC and DGFT interpreted SFIS as inapplicable to subsidiaries of foreign companies. The Delhi High Court in earlier matters set aside PIC/DGFT denials (favoring eligibility), while the Bombay High Court (Division Bench) upheld a restrictive interpretation excluding such foreign-brand entities from SFIS and elaborated on policy purpose; the Supreme Court dismissed Special Leave Petitions against the Bombay High Court decision, sustaining that adverse view. Issue 1: Interpretation and reasoning The Court adopts the view that SFIS rewards entities that create an Indian brand identity and that reference to nationality/shareholder identity in the policy is purposeful to ensure that incentives foster 'Served From India' branding. The wording of paras 3.12 and 3.6.1 support a construction limiting entitlement to service providers who meaningfully contribute to creation of an Indian brand; entities whose brand was pre-established abroad do not further that object. Eligibility language ('Indian Service Providers', entitlement conditions, non-transferability and specified exclusions) is read as consistent with a purposive restriction. Issue 1: Ratio vs. Obiter Ratio: The correct construction of SFIS (FTP 2009-14) is that benefits are to be confined to service providers who further the objective of creating an Indian brand; wholly foreign-branded entities that do not satisfy that object are not entitled. Obiter: Observations about broader policy matters (e.g., interplay with other schemes) are ancillary and not determinative. Issue 1: Conclusion The petitioner, being a wholly owned subsidiary of a foreign company whose brand was already established internationally, does not satisfy the object of SFIS and therefore is not eligible for SFIS duty credit scrip benefits under FTP 2009-14. Issue 2: Vested right in issued duty credit scrips and validity of DGFT recovery direction Legal framework: Entitlement to duty credit scrips under SFIS is statutory-policy based and subject to conditions; administrative authority (DGFT) may issue recovery directions under FTDR Act and rules if benefits were wrongly granted. Issue 2: Precedent treatment The Bombay High Court's decision (affirmed by the Supreme Court's dismissal of SLP) supports DGFT's authority to refuse/recall benefits inconsistent with policy interpretation. The petitioner relied on authorities addressing the effect of dismissal of SLPs without reasons, invoking that such dismissal without a speaking order may not merge adverse High Court reasoning into binding law for all subsequent claimants. Issue 2: Interpretation and reasoning The Court rejects the contention that the petitioner acquired a vested right to the duty credit scrips merely because scrips were earlier issued. Entitlement is contingent on meeting eligibility criteria; no vested right accrues to continue to receive or retain fiscal incentives once it is found they were not lawfully due. The Court also holds that dismissal of a Special Leave Petition without a reasoned order does not alter the binding effect of the adverse High Court decision in the context at hand, given that the Supreme Court's dismissal left intact the precedent unfavorable to the petitioner. Administrative recovery directed by DGFT is permissible where benefits were granted contrary to correct policy interpretation. Issue 2: Ratio vs. Obiter Ratio: No vested right to retention of duty credit scrips where entitlement was not in conformity with the governing policy; DGFT may recall wrongly granted benefits. Obiter: Discussion of Article 141 effects of non-speaking SLP dismissals and finer points of judicial discipline are noted but not treated as overriding the immediate statutory/policy interpretation. Issue 2: Conclusion The DGFT recovery direction to recall the duty credit scrips is lawful because the petitioner was not eligible under SFIS; the petitioner has no vested right to retain the scrips merely because they were earlier issued. Issue 3: Impact of prior judicial decisions on entitlement and administrative action Legal framework: While High Court decisions are persuasive in other jurisdictions, the central administrative authority must consider relevant judicial pronouncements and apply correct legal position; decisions of the Supreme Court (including dismissal of SLP) have decisive legal effect. Issue 3: Precedent treatment The Court notes the conflicting High Court views: Delhi High Court decisions setting aside PIC/DGFT denials and Bombay High Court decision upholding restrictive interpretation. The Supreme Court's dismissal of SLP against the Bombay view means that the adverse interpretation prevailed in the hierarchy. The Court criticizes the Executive for not adequately considering the Delhi High Court judgment but holds that the Bombay High Court view (sustained by non-interference at the Supreme Court level) correctly interprets FTP 2009-14. Issue 3: Interpretation and reasoning The Court follows the Bombay High Court's purposive reading of SFIS and accepts the reasoning that incentivising foreign-established brands does not serve the scheme's object. The Court emphasizes that administrative officers ought to have regard to relevant judicial decisions but that the legal correctness of the restrictive construction is determinative regardless of the earlier conflicting pronouncements. Issue 3: Ratio vs. Obiter Ratio: The authoritative construction adopted here aligns with the Bombay High Court and the non-intervention by the Supreme Court; administrative denial and recovery consistent with that construction is valid. Obiter: Remarks reproving administrative handling of precedent are persuasive directions for executive conduct but not central to entitlement determination. Issue 3: Conclusion Pursuant to the accepted construction of FTP 2009-14 and in light of higher judicial treatment, the DGFT/PIC's denial and consequent recovery direction are upheld; conflicting earlier High Court views do not confer entitlement when contrary reasoning prevails at higher levels of adjudication.
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