Gujarat HC dismisses petition challenging Policy Circular 06/2018 and SEIS scrip cancellation notice as premature pending adjudication

Gujarat HC dismissed petition challenging Policy Circular No. 06/2018 and show cause notice for cancellation of SEIS scrips as premature. Court held that since the show cause notice was consequential to DGFT's order which remains valid, respondent authorities must adjudicate the notice. Following SC precedent against interference at show cause stage, HC found petition premature as petitioner could challenge the original DGFT order before appropriate forum. No interim relief granted restraining adjudication of show cause notice.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

• Whether the Impugned Policy Circular No. 06/2018 dated 22.05.2018 is ultra vires the Foreign Trade (Development & Regulation) Act, 1992 and the Foreign Trade Policy 2015-2020 by unlawfully inserting additional conditions that curtail benefits under the Service Export from India Scheme (SEIS).
• Whether the Show Cause Notice dated 21.06.2024 issued under Section 28AAA of the Customs Act, 1962, based on the impugned Circular and the order-in-original passed by the DGFT cancelling SEIS scrips, is legally maintainable.
• Whether the petitioner is entitled to interim relief restraining the respondents from adjudicating the Show Cause Notice or staying its operation.
• The applicability and interpretation of Section 28AAA of the Customs Act, 1962 concerning recovery of duties in cases involving alleged collusion, wilful mis-statement, or suppression of facts in obtaining instruments such as SEIS scrips.
• Whether the petition challenging the Circular and the Show Cause Notice is premature and not maintainable at this stage.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Circular No. 06/2018 dated 22.05.2018

Relevant Legal Framework and Precedents: The Circular was issued under the Foreign Trade (Development & Regulation) Act, 1992 and pertains to the interpretation and implementation of the SEIS scheme under the Foreign Trade Policy 2015-2020. The petitioner relied on two High Court decisions-Bombay High Court in Atlantic Shipping Private Limited and Karnataka High Court in M/s ECL Puyvast India Pvt Ltd.-which had declared the Circular ultra vires and invalid.

Court's Interpretation and Reasoning: The Court acknowledged the petitioner's contention that the Circular unlawfully inserted additional conditions not contemplated under the parent statutes and policies. However, the Court did not delve into the merits of the validity of the Circular, noting that the issue is currently sub judice and subject to challenge before appropriate forums.

Application of Law to Facts: The petitioner's reliance on the Circular to deny benefits under SEIS was the foundation for the DGFT's order cancelling the scrips. The Circular's validity is thus central to the dispute but was not adjudicated in the present petition.

Treatment of Competing Arguments: The respondents argued that the Circular was relied upon by the DGFT in its order-in-original and that the petitioner's challenge to the Circular should be made in appropriate proceedings rather than at the stage of the present petition.

Conclusion: The Court refrained from deciding on the Circular's validity, indicating that the petitioner may challenge it in suitable proceedings.

Issue 2: Maintainability and Legal Basis of the Show Cause Notice dated 21.06.2024 under Section 28AAA of the Customs Act, 1962

Relevant Legal Framework: Section 28AAA of the Customs Act, 1962 provides for recovery of duties where instruments such as SEIS scrips have been obtained by collusion, wilful mis-statement, or suppression of facts, and subsequently utilized. The provision allows for recovery of duty along with interest and penalty.

Court's Interpretation and Reasoning: The Court observed that the impugned Show Cause Notice was a consequential proceeding following the DGFT's order-in-original dated 16.04.2024 cancelling the SEIS scrips and imposing penalties. The Show Cause Notice under Section 28AAA is a recovery mechanism triggered by the DGFT's cancellation order.

The Court noted that the DGFT's order remains in force and has not been stayed or set aside by any competent forum. Therefore, the Show Cause Notice issued by Customs authorities is legally maintainable and requires adjudication.

Key Evidence and Findings: The DGFT's order cancelling scrips worth Rs. 1,81,24,518/- and imposing a penalty of Rs. 50,00,000/- forms the basis for the Show Cause Notice. The petitioner's statements recorded under Section 108 of the Customs Act and investigations by the Directorate of Revenue Intelligence (DRI) further support the proceedings.

Application of Law to Facts: Since the Show Cause Notice is a statutory recovery proceeding consequent to the DGFT order, the Court held that it cannot be quashed at this stage. The petitioner's challenge to the underlying order is to be pursued in the appropriate forum.

Treatment of Competing Arguments: The petitioner argued that the Show Cause Notice is without jurisdiction and premised on an invalid Circular, thus liable to be quashed. The respondents countered that the petition is premature and the Show Cause Notice validly follows the DGFT order. The Court sided with the respondents, emphasizing the procedural propriety and the need for the petitioner to exhaust remedies before the DGFT order.

Conclusion: The petition challenging the Show Cause Notice is premature and not maintainable. The Customs authorities are entitled to proceed with adjudication.

Issue 3: Interim Relief and Stay of Proceedings

Court's Reasoning: Given the nature of the proceedings and the fact that the DGFT order has not been stayed, the Court declined to grant any interim relief restraining the respondents from adjudicating the Show Cause Notice or staying its operation.

Conclusion: No interim relief was granted.

Issue 4: Prematurity of the Petition

Court's Reasoning: The Court emphasized that since the DGFT order cancelling the SEIS scrips is under challenge and has not been stayed, the present petition challenging the Circular and the Show Cause Notice is premature. Interference at this stage could prejudice the ongoing proceedings and the petitioner's right to challenge the DGFT order before the competent forum.

Conclusion: The petition was dismissed in limine on grounds of prematurity without examining the merits.

3. SIGNIFICANT HOLDINGS

The Court held:

"The impugned show cause notice is in nature of recovery of consequential proceedings to the order passed by the DGFT which still holds the field and as such the respondent authorities are required to adjudicate the show cause notice in the facts of the case and no interference is called for at this stage."

"The Hon'ble Supreme Court in catena of decisions has held that the Court should not interfere at the stage of issuance of show cause."

"Any observation or interference by this Court may hamper further challenge to such order-in-original passed by DGFT before appropriate forum."

"In view of the above facts, no interference is made at this stage as the petition is filed at a premature stage in view of the fact that the very issue of challenge to the impugned Circular No. 6 of 2018 shall be the subject matter of challenge by the petitioner or to challenge the order-in-original passed by the DGFT and therefore in such circumstances, the petition is not entertained and accordingly dismissed in limine."

"We have not gone into the merits of the matter and the respondents shall adjudicate upon the show cause notice independently in accordance with law."

Core principles established include:

• Section 28AAA of the Customs Act provides a statutory mechanism for recovery of duties where instruments such as SEIS scrips are obtained by collusion, wilful mis-statement, or suppression of facts.
• A Show Cause Notice issued under Section 28AAA consequential to a DGFT order cancelling scrips is maintainable and not liable to be quashed at the preliminary stage.
• The Court will not interfere at the stage of issuance of a Show Cause Notice, especially when the underlying order is under challenge before an appropriate forum.
• Challenges to policy circulars or government notifications should be pursued through proper channels and forums rather than through premature writ petitions.

Final determinations:

• The petition challenging Circular No. 06/2018 and the Show Cause Notice dated 21.06.2024 is dismissed in limine as premature.
• No interim relief restraining the respondents from adjudicating the Show Cause Notice is granted.
• The respondents are directed to proceed with adjudication of the Show Cause Notice in accordance with law.

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