DGFT cannot narrow SEIS eligibility by circular; customs recovery notices fail before cancellation of the underlying scrips.

DGFT circulars could not add substantive eligibility limits to the Service Exports from India Scheme by distinguishing actual service providers from aggregators, because the Foreign Trade Policy vested amendment power in the Central Government and DGFT was confined to procedural implementation; the Karnataka HC treated the circulars as altering the policy and quashed them. Recovery notices issued by customs under Section 28AAA were also quashed because the SEIS scrips had not first been cancelled by the issuing authority, so the statutory basis for recovery had not yet arisen and the notices were premature.

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Issues: (i) Whether the policy circulars issued by the DGFT, by introducing a distinction between actual service providers and aggregators and by restricting eligibility under the Service Exports from India Scheme, were ultra vires the Foreign Trade Policy, 2015-2020. (ii) Whether the show cause notices issued by the DRI-Customs under Section 28AAA of the Customs Act, 1962 were without jurisdiction and liable to be quashed.

Issue (i): Whether the policy circulars issued by the DGFT, by introducing a distinction between actual service providers and aggregators and by restricting eligibility under the Service Exports from India Scheme, were ultra vires the Foreign Trade Policy, 2015-2020.

Analysis: The Foreign Trade Policy vested power to amend the policy in the Central Government, while the DGFT was empowered only to prescribe procedure for implementation. The circulars attempted to add substantive eligibility conditions to the SEIS by narrowing the expression "service provider" and by excluding entities treated as aggregators, although the policy itself did not impose such a restriction. The petitioner's activities were found to fall within notified service categories and the eligibility framework of the scheme. The circulars were therefore treated as altering the policy rather than merely clarifying it, and such alteration could not be made by DGFT through circulars.

Conclusion: The policy circulars were held to be ultra vires the Foreign Trade Policy, 2015-2020 and were quashed.

Issue (ii): Whether the show cause notices issued by the DRI-Customs under Section 28AAA of the Customs Act, 1962 were without jurisdiction and liable to be quashed.

Analysis: Section 28AAA permits recovery of duty in cases where an instrument has been obtained by collusion, wilful misstatement, or suppression of facts, but the statutory scheme proceeds on the footing that the instrument remains valid until the issuing authority acts on it. As the SEIS scrips had not been cancelled by the DGFT, the customs authorities were found to have acted prematurely in initiating recovery proceedings and in seeking to withhold or demand the value of the scrips. The notices were thus held to lack the necessary jurisdictional foundation.

Conclusion: The show cause notices were held to be without jurisdiction and were quashed.

Final Conclusion: The petitions succeeded because the DGFT could not curtail SEIS benefits by circulars and the customs recovery notices could not proceed before cancellation of the underlying scrips by the issuing authority.

Ratio Decidendi: A subordinate authority cannot amend or restrict a statutory export policy by circular when the power to amend is vested elsewhere, and customs recovery against an export incentive instrument cannot proceed under Section 28AAA until the issuing authority has first cancelled the instrument.

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