TaxTMI 
TaxTMI 
2021 (3) TMI 444
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....vice Exports from India Scheme (for short "SEIS") to claim benefit to the extent of free foreign exchange earnings (or INR payments as allowed under the scheme) routed through them as receipt of service charges. Petitioner has also challenged refusal order dated 25.10.2018 and consequential show cause notice dated 10.05.2019 issued by respondent No.4 i.e. Zonal Additional Director General of Foreign Trade, Mumbai and show cause notice dated 30.05.2019 issued by respondent No.6 i.e. Additional Director General of Revenue Intelligence, Chennai Zonal Unit, Chennai. 3. Before we advert to the submissions made by learned counsel for the parties, it will be apposite to briefly refer to the relevant facts as pleaded: 3.1. Petitioner is a shipping agent providing port services, logistical services and other ancillary services to the oil / chemical tanker owners / foreign clients being one of the leading port agencies in India with strong fundamentals operating for the past 30 years. Petitioner is an ISO 9001:2008 certified port agency in India certified by Det Norske Veritas and accredited by the Dutch Accreditation Council - Raad voor Acreditatie (RvA). Petitioner is also member of Mari....
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....th the Director General of Shipping; (xiv) Assisting in MMD (Mercantile Marine Department) and PSC (Port State Control) inspections; (xv) Arranging port clearance for the vessels; (xvi) Arranging services for undertakings on board of the vessels as and when required; (xvii) Arranging security guard clearance; (xviii) Arranging vessel charter permission from the Director General of Shipping; (xix) Arranging conversion / reversion of vessels; (xx) Arranging importation of vessels; (xxi) Arrangement of hotel / cars for signing on / off crew members and owner's representatives; (xxii) Supplying stores / desk stores / provisions to the vessels; (xxiii) Arranging technical support to the vessels as and when required; (xxiv) Arranging bonded / ex-bonded bunker to the vessel as and when required; (xxv) Arranging fresh water, medical assistance to the vessels as and when required; (xxvi) Organizing vessel stevedores as per requirement. 3.4. In the case of damage to cargo or the ship, petitioner also makes the necessary arrangements (at the request of the ship's master or owner) with the insurance company and for nautical inspections and the services of exp....
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....3.10. In the meanwhile, petitioner received email dated 03.11.2017 from Cochin Port Trust (CPT) wherein it was stated that Cochin Port Trust being the actual service provider of the services provided to foreign vessels during F.Y.2016-17 is entitled to the benefit i.e. duty credit scrips at the notified rates calling upon the petitioner not to avail benefit under SEIS and provide 'No Objection Certificate' to enable Cochin Port Trust to avail the said benefit. By detailed reply dated 01.03.2018 petitioner refused to accept the contention of Cochin Port Trust and refused to provide 'No Objection Certificate'. 3.11. Petitioner vide letter dated 11.04.2018 sought release of SEIS benefit for F.Y. 2016-17 from the respondents. Petitioner was given a personal hearing on 08.05.2018. 3.12. Upon receiving representation from the Industry, respondent No.3 with the approval of respondent No.2 i.e. Director General of Foreign Trade issued policy circular No.06/2018 dated 22.05.2018, inter alia, stating that the actual service providers (and not ports) are eligible for SEIS benefit in respect of their shares of earnings made by performing the notified services under SEIS and p....
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....h writ petition. Accordingly, petitioner filed the present petition on 04.07.2019 challenging the validity, propriety and legality of: (i) Policy circulars No.06/2018 dated 22.05.2018 and No.08/2018 dated 21.06.2018; (ii) Order of refusal dated 25.10.2018; and (ii) Show cause notices dated 10.05.2019 and 30.05.2019. 4. Respondent Nos. 1(a), 1(c), 2, 3 and 4 have filed reply affidavit denying the claim of the petitioner and justifying the impugned action taken. 5. Mr. Nankani, learned senior counsel appearing on behalf of the petitioner at the outset submitted that without issuance of any demand cum show cause notice to the petitioner of any alleged violation or infraction the impugned order of refusal dated 25.10.2018 is issued; such an order is manifestly arbitrarily, illegal, unjust and in gross violation of the principles of natural justice as also contrary to the departmental guidelines issued vide F.No.18/24/HQ/99-2000/ECA II dated 31.12.2003; the order of refusal has been signed by the Foreign Trade Development Officer (FTDO) on behalf of respondent No.4 i.e. the Additional Director General of Foreign Trade and not signed by a proper authority without sanction and ap....
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....from the aforesaid provisions it is clear that respondent No.2 is only authorized to issue policy notices for implementing the provisions of the FT (D & R) Act, the rules and orders of the FTP; for any amendment which alters the provisions of the FTP, the powers are exclusively vested in respondent No.1 in terms of section 5 of the FT (D & R) Act. 5.4. He submitted that the petitioner is supplying tradable services under the Major Head "Maritime Transport Services" and Minor Head "Supporting Services for Maritime Transport" as appearing in Appendix 3D notified vide public notice No.03/2015-20 dated 01.04.2015 to overseas principals / ship-owners / foreign clients after purchasing such services in INR from downstream local services providers / ports; such services supplied by the petitioner are 'tradable services' as envisaged by the General Agreement on Trade in Services (for short "GATS"); petitioner earns free foreign exchange for the supply of such services on the basis of exclusivity of contract with its principals / ship-owners / foreign clients and accordingly applies for benefit under SEIS; SEIS benefits are given to promote manufacture and export of notified goods ....
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....atutory decisions ought to have been brought through issuance of notification under section 5 of the FT (D & R) Act by following the due process of law and not by way of policy circulars. 5.6. He submitted that both policy circulars attempt to modify the provisions of FTP 2015-2020; policy circular No.08/2018 dated 21.06.2018 is based upon erroneous interpretation of the wordings of para 3.08(c) of the FTP 2015-2020 read with public notice No.07/2015-20 dated 04.05.2016 with respect to services notified under Appendix 3E in as much as the deeming provision in the policy circular is not in adherence with the RBI guidelines for the purpose of provisions of section 8 of the FEMA Act and the regulations framed thereunder. He therefore contended that the payments made to ports do not qualify as "Deemed Foreign Exchange earning" in view of the existing RBI guidelines; payments made by the petitioner to ports for the services purchased are not covered in para 3.08(c) of the FTP and as such do not entitle the ports for benefit under SEIS; service charges collected by major ports are in exercise of powers as a government authority operating under the statute and therefore the port charges ....
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....es provided by the petitioner are inherently documented with all details corresponding to the appointment of agents / service providers by the petitioner in INR; it is only thereafter the foreign exchange is received by the petitioner in its account in US dollars which is thereafter converted into INR by virtue of the privity of contract between the petitioner and its principal. 5.9. Definition of service provider in paragraph 9.41 of Chapter 9 of the FTP therefore has a significant meaning in as much as service provider means a person providing supply of a service from India to any other country or to service consumers of any other country; services as defined under section 9.50 include all tradable services covered under General Agreement on Trade in Services (GATS) and earning free foreign exchange; thus, contending that the avowed object of the Foreign Trade Policy was concerned with earning net foreign exchange in respect of the services provided and it is the petitioner who having received the entire foreign exchange has earned the said foreign exchange or is deemed to have earned / received the said foreign exchange under the FTP. 5.10. Petitioner is an independent foreign....
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.... which are closest in terms of facts in the present case held that the directions contained in the circular dated 15.07.2010 to implement the decisions taken in the meeting of the PIC dated 05.07.2010 is ultra vires to the FTP. Reliance has been placed on paragraph No. 17 and paragraph No. 28 of the said judgment which read thus:- "17. The submission which has been urged on behalf of the Petitioners is that the minutes of the PIC meeting of 5 July 2010 and the consequential circular that was issued on 15 July 2010 enforcing them amount to an amendment of the Foreign Trade Policy and are not capable of being sustained as a clarification or as an interpretation. The submission of the Petitioners is that the Foreign Trade Policy has been framed by the Central Government in exercise of powers delegated to it by Section 5 of the Foreign Trade (Development and Regulation) Act, 1992. A policy circular would be ultra-vires and unlawful where it purports to amend the terms of the policy. According to the Petitioners, in each of the three situations, namely those at serial nos. 1, 2(a) and 2(b) of the circular, the Indian Service Provider is entitled to receive the benefit of SFIS upon the....
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.... by Telecom service providers. Clause 4(ii) deals with rentals from optic fibre cables in India, while 4(iii) deals with rentals from optic fibre cables overseas. The PIC has opined that these services do not fall within the purview of paragraph 9.53 of the Foreign Trade Policy. According to the PIC, foreign exchange earnings earned from optic fibre cables can be categorised as rentals from international private leased circuits. According to the Committee, these would not be entitled to SFIS benefits. 11. The narrow issue which falls for determination in these proceedings is whether the Petitioners fall within the purview of the expression "service provider" in Paragraph 9.53 of the Foreign Trade Policy. Clause (i) of Para 9.53 brings within the purview of that expression, the supply of a service from India to any other country. Clause (iii) comprehends the supply of a service from India through commercial or physical presence in the territory of any other country. The Handbook of Procedures provides in Appendix-10 a list of eligible services. Telecommunications services were a sub-category of Communication services (item 2C). Among the subcategories of Telecommunications service....
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....icated bandwidth is provided between a place located in India and a place outside India into two separate transactions relating to the portion of the optic fibre cables physically located in India and the portion located overseas. According to the Petitioners, they provide a dedicated bandwidth as a part of a cohesive service involving the use of the cable located in India and overseas and the entire transaction falls within clause (i) of Para 9.53. Alternatively, it has been urged by the Petitioners that the service would clearly fall within clause (iii) and on a purported interpretation of SFIS, the element of service through the use of the fibre optic cable which is located on high seas (and therefore technically not present in the territory of any country) cannot be denied an SFIS entitlement. The conditions of eligibility for availing of the benefits of SFIS entitlements are prescribed in clause 3.6.4.2. The eligibility is defined with reference to service providers who have a total free foreign exchange earning of at least the stipulated amount in the preceding financial year. Who is a service provider is elucidated in Para 9.53. Evidently, on the facts which have been stated....
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....tutory provisions with a view to show that the Legislature has all along been using the word 'coal' as a mineral product only. The Colliery Control Order deals with collieries and obviously, therefore, the term 'coal' there is used as a mineral product. It is a well-settled principle that in construing a word in an Act caution is necessary in adopting a meaning ascribed to that word in other statutes. As Lord Loreburn stated in Macbeth v. Chislett, it would be a new terror in the construction of Acts of Parliament if we were required to limit a word to an unnatural sense because in some Act which is not incorporated or referred to such an interpretation is given to it for the purposes of that Act alone'. The strict sense in which such a word is to be found in another statute may mean the etymological or scientific sense and would not in the context of another statute be applicable. From the Colliery Control Order, 1945 or the other provisions to which our attention was drawn, it would neither be possible nor safe to adopt the meaning of the word 'coal' given in those provisions for the purposes of the Act under construction. Nor can we infer that there i....
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....as by methods not far removed from the conditions of several thousands of years ago, in other areas with the aid of science and mechanization, as a highly commercial type of endeavour. (New Encyclopaedia Britannica, Vol. 1, p.156). According to Oxford lllustrated Encyclopedia of Invention and Technology, 'agriculture' is cultivation of the soil, including the allied pursuits of gathering crops and rearing livestock. (at p.7). 'Fish farming' is a branch of aquaculture involving the rearing of fish under controlled conditions. Ideally, the environment is controlled so that natural predators are eliminated, optimum nutrition is provided, and the fish flourish. (at p. 133). 8. 'Pisciculture' is the breeding, rearing and preservation of living fish by artificial means. (Oxford English Dictionary, Vol. 7, p.904). According to McGrawHill : Encyclopedia of Science & Technology, (6th Edition, Vol.7), 'aquaculture' is the artificial propagation of fishes and other aquatic organisms. (p. 129). The term 'fishing' is used to mean the taking or propagation of fishes or other aquatic life in inland or oceanic water (p. 128). 'Aquaculture' is the c....
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....nal sense and narrow meaning of the term. A person engaged in aquaculture or fish farming would not be called a farmer. Neither the legislature while enacting the schedule to the Act as it originally stood nor the State Government issuing the notification amending the schedule can be attributed with the intention that they had intended to make available electricity at concessional rate or without charge to aquaculturists whose activity is purely commercial. We are also not prepared to hold that in the circle of agriculturists fish farming is understood as agriculture. ........ 16. The learned senior counsel for the appellants invited our attention to the definition of term 'agriculture' as given in definition sections or interpretation clauses of several other enactments such as sub-section (2) of Section 2 of Tamil Nadu Agricultural Produce Marketing (Regulation) Act, 1987, clause (b) of Section 2 of Tamil Nadu Agricultural University Act, 1971, clause (a) of Section 2 of Agricultural and Rural Debt Relief Scheme, 1990, so defining the term 'agriculture' as to include therein 'pisciculture'. These definitions were pressed in service by Shri Iyer, the le....
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....eign client and is not covered by the definition of service provider under paragraph 9.51 read with paragraph 3.08 of the FTP. 6.1. He submitted that the objective of SEIS as envisaged under para 3.07 of the FTP reads thus:- "3.07 Objective Objective of Service Exports from India Scheme (SEIS) is to encourage and maximize export of notified services from India." 6.2. He submitted that as canvassed by the petitioner objective of the SEIS scheme or for that matter, Exports from India Schemes is not merely earning foreign exchange but is to encourage and maximize export of notified services from India; thus the thrust of the petitioner's submissions that the petitioner was earning foreign exchange and therefore should be rewarded under the scheme is contrary to the objective of the scheme provided under the FTP; since it being an admitted position that petitioner merely receives the foreign exchange in its account for making onward payment / transmission to the actual service providers namely the ports and other service providers; petitioner therefore cannot claim entitlement to benefit in respect of services which the petitioner does not provide; the ports and other agencie....
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....EIS; Appendix 3E has listed certain services rendered in the customs notified area to a foreign liner and the port and other agencies / entities rendering such notified services to the foreign lines are the real beneficiaries under SEIS and not the petitioner; the impugned policy circulars reiterate the above position; petitioner in its statutory filing before service tax authorities and the Registrar of Companies is a 'steamer agent' and is accordingly entitled only to agency fee as its income / revenue earned in foreign exchange; all other charges beyond the agency fee received by the petitioner in its bank account in foreign exchange are the receipted charges of the actual service providers i.e third parties who are entitled to the benefit under SEIS; foreign exchange remittances received by the petitioner from its principal (foreign client) are actually utilized by the petitioner in paying for the actual services rendered by the notified service provider located in India and the same cannot be construed to have been received towards rendering service output as a steamer agent; the impugned policy circular Nos. 06 and 08 have reinforced and reiterated the meaning and con....
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..... Before we advert to the submissions made by the respective counsel, it would be apposite to consider the provisions of Foreign Trade Policy 2015-20 and the Exports from India Schemes namely Service Exports from India Scheme (SEIS) which is relevant for the purpose of the present case. 11. The Foreign Trade (Development & Regulation) Act, 1992 (already referred to as the FT (D & R) Act hereinabove) is an Act enacted to provide for the development and regulation of foreign trade by facilitating imports into and augmenting exports from India and for matters connected therewith or incidental thereto. Section 5 of the said Act empowers the Central Government to formulate the Foreign Trade Policy at regular intervals. The said section reads as under : "Foreign Trade Policy : 5. The Central Government may, from time to time, formulate and announce by notification in the Official Gazette, the foreign trade policy and may also, in the like manner, amend that policy : Provided that the Central Government may direct that, in respect of the Special Economic Zones, the foreign trade policy shall apply to the goods, services and technology with such exceptions, modifications and adaptat....
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....claimed." 11.4. Chapter 9 defines the terms used in the Policy. Para 9.50 and para 9.51 state the definition of "service" and service provider", as referred to in the Policy. Paras 9.50 and 9.51 are reproduced herein below : "Para 9.50 "Services" include all tradable services covered under General Agreement on Trade in Services (GATS) and earnings free foreign exchange." Para 9.51 "Service Provider" means a person providing : (i) Supply of a 'service' from India to any other country; (Mode 1 - Cross border trade ); (ii) Supply of a 'service' from India to service consumer(s) of any other country in India; (Mode 2 - Consumption abroad); (iii) Supply of a 'service' from India through commercial presence of any other country. (Mode 3 - Commercial Presence); (iv) Supply of a 'service' from India through the presence of natural persons in any other country. (Mode 4 - Presence of natural persons.)" 12. In the present case, the petitioner has been granted SEIS benefit / reward in the form of duty free scrips for the financial year 2015-16 by the respondents. For the financial year 2016-17, petitioner's application for seeking benefit....
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....se notice dated 10.05.2019 is issued by respondent No. 3 seeking to improve penalty on the petitioner and show cause notice dated 30.05.2019 is issued by respondent No. 6 seeking refund of the amount of Rs. 21,04,02,303.00 from the petitioner, being the SEIS benefit received by the petitioner. 16. We may state that section 5 of the FT (D&R) Act provides that the Central Government may from time to time formulate and announce the Exim Policy by issuing notification in the official gazette. Thus, it is the Central Government which has power to amend the policy by adopting the procedure as stated in the Act; the power to announce the policy and to amend as such solely remains within the domain of the Central Government and cannot be delegated. 17. Chapter 1 paras 1.01, 1.02 and 1.03 of the Foreign Trade Policy 2015-20 are also relevant. In para 1.01 of the FTP, it is stated that in pursuant of the provisions of para 1.03 of the FTP, DGFT notifies the procedure to be followed by an exporter or importer or by the licensee / regional authority or by any other authority for the purpose of implementing the provisions of FT (D&R) Act, the rules / orders made thereunder and the provisions ....
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.... Act, 1992. 20. We also have to bear in mind the objective of the Exports from India Schemes as envisaged in para 3.00 and the objective of Service Export from India Scheme (SEIS) as envisaged in para 3.07 in consonance with the eligibility criteria stated in para 3.08 of Chapter 3 and the definition of 'service provider' provided in para 9.51 of the FTP. The said relevant provisions are reproduced hereunder :Exports from India Scheme "3.00 Objective The objective of schemes under this chapter is to provide rewards to exporters to offset infrastructural inefficiencies and associated costs. 3.07 Objective Objective of Service Exports from India Scheme (SEIS) is to encourage and maximize export of notified Services from India. 3.08 Eligibility (a) Service Providers of notified services, located in India, shall be rewarded under SEIS. Only Services rendered in the manner as per Para 9.51(i) and Para 9.51(ii) of this policy shall be eligible. The notified services and rates of rewards are listed in Appendix3D. (b) Such service provider should have minimum net free foreign exchange earnings of US$ 15,000 in year of rendering service to be eligible for Duty Credit ....
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....tered for the following products/services in terms of its main line of business: (i) marine transport service; (ii) rental of commercial vehicles with operator; (iii) road transport services - passenger transportation and (iv) supporting services for road transport services. 22. That apart we may also refer to the return filed by the petitioner under section 70 of the Finance Act, 1994 read with rule 7 of the Service Tax Rules, 1994 i.e form ST-3 (revised) wherein the petitioner has applied for computation of service tax as a steamer agent service as taxable service (s) for which tax is being paid for the entire gross amount for which bills / invoices / challans or any other documents are issued relating to services provided or to be provided (including export of service and exempted service) for all services. It would therefore be wrong to hold that the petitioner has been appointed by its foreign client as a mere agent to pay to the actual service providers in view of the definition of the word 'services' and 'service provider' in paras 9.50 and 9.51 alluded to herein above. Further it would also be incorrect to hold that the petitioner is merely an age....
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....ng, while applying the conditions of eligibility and for defining the extent of the entitlement. Secondly, where the Foreign Trade Policy postulates that a net foreign exchange earning should be computed, express provisions to that effect have been made by the Policy. For instance, in paragraph 6.5 of Chapter VI which relates interalia to export oriented units and paragraph 7.4 of Chapter VII which deals with Special Economic Zones, the policy has made a reference to net foreign exchange (NFE). Similarly, an NFE criterion has been provided for in paragraph 7.A.7 of Chapter VII.A which deals with free trade and warehousing zones. Clause 9.4(1) of Chapter IX defines NFE to mean net foreign exchange earning. Advisedly, the policy has not used the expression "net foreign exchange earning" either while defining the conditions of eligibility or the conditions of entitlement for the Served From India Scheme. Where the same policy document employs two distinct phrases, each of those phrases must be given a separate meaning according to its plain and natural interpretation. For the purposes of defining eligibility and entitlement under SFIS, the words that have been used are `total free for....