TaxTMI 
TaxTMI 
2022 (2) TMI 471
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....etition, the relevant FTP is for the period 2004-2009 (hereafter FTP 2004-09, for short). 3. By instituting this writ petition, the petitioner seeks to challenge Policy Circular No.25 of 2007 dated 1st January, 2008 (hereafter "the said Circular", for short) issued by the Director General of Foreign Trade (hereafter "DGFT", for short), the second respondent. According to the petitioner, in the garb of purported clarification, the DGFT has curtailed benefits available to service providers, such as the petitioner, under the Served from India Scheme (hereafter "SFI Scheme", for short). Consequent upon the said Circular, the Joint Director General of Foreign Trade, Bengaluru, the third respondent, vide demand notice dated 28th January, 2010 (hereafter "demand notice", for short) and reminder dated 31st May, 2010 (hereafter "reminder", for short), post-facto and retrospectively, directed the petitioner to pay customs duty and interest on the basis of the benefits already availed and utilized by the petitioner on account of its entitlement under the SFI Scheme, in a sum of Rs. 27,40,35,827/-. 4. The essence of the petitioner's challenge is that the DGFT cannot take away the benefit....
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....times, maritime transportation services are also provided in cases where on the instruction of the shipper, located outside India, the petitioner transports the goods from place X to place Y, both located outside India without making any port call in India. Even in these cases, the contract of carriage is entered into by the petitioner situated in India as well as the payment for such transportation services is received by the petitioner in freely convertible foreign exchange in India. b. There are various schemes to provide benefits to exporters engaged in exporting certain goods and services outside India. One of such schemes was the SFI Scheme, introduced by the first respondent in the year 2005 under the FTP 2004-2009 in its present form, prior to which similar benefits were available since April 2003. The SFI Scheme introduced under the FTP 2004-2009 provided benefits, in the form of duty credit scrip certificates equivalent to an amount of 10% of such foreign exchange earnings, to notified Indian "Service Providers" engaged in exporting certain services and who had a total free foreign exchange earnings of at least Rs. 10,00,000/- (Rupees Ten Lakh) in the current fin....
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....hips owned or chartered by it. At times, maritime transportation services were also provided in cases where on the instruction of the shipper, located outside India, the petitioner transported the goods from place X to place Y, both located outside India without making any port call in India. Even in these cases, the contract of carriage was entered into by the petitioner situated in India as well as the payment for such transportation services was received by the petitioner in freely convertible foreign exchange in India. b. Since the petitioner was engaged in providing the aforesaid services from India to any other country, the petitioner would qualify as a "Service Provider" and, thus, be entitled to claim the benefits under the SFI Scheme. Further, since the services provided by it were not specifically excluded from the ambit of the SFI Scheme, the petitioner had rightly applied for and was correctly granted SFIS scrips to the tune of Rs. 30 crore by the third respondent in 2007. c. It is the settled position in law that in terms of section 6 of the FTDR Act, an amendment to the Foreign Trade Policy can be brought about only by the Central Government and no a....
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....cular was meant to be applicable only for finalizing pending claims and would have no bearing whatsoever on the licenses already granted in the past. i. The officers of the Directorate General of Foreign Trade, Ministry of Commerce (hereafter "the said directorate", for short) have no powers under the FTDR Act to recover any customs duty benefits granted to an importer. 12. Without prejudice to the above, it was submitted on behalf of the petitioner that the policy is framed, and license is granted by the said directorate; that the exporter applies for and is granted the license by the said directorate; that thereafter, the said license is registered with the concerned Customs authorities at the port of import; that the applicable Customs duties in future imports is thereafter adjusted by the customs authorities from the License registered by the importer; and that, accordingly, the benefit of lower customs duty is granted by the customs authorities which, while operating under the Ministry of Revenue, is the implementing agency for all FTP schemes. The actual benefit is in the form of Customs Exemption Notification which is Notification No. 92/2004-Cus dated 10th Septe....
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....r had shown no income under clause (iii) of paragraph 9.53 of the FTP and shown its entire income under clause (i) of paragraph 9.53 of the FTP. Clause (i) refers to service from India to any other country and is different and distinct from clause (iii), which refers to a situation of "supply of a 'service' from India through commercial or physical presence in territory of any other country." (emphasis supplied by him). The "Declaration/Undertaking" filed by the petitioner, it was submitted by Mr. Singh, specifically provides, inter alia, that "I hereby certify that foreign exchange earned on account of services rendered from India alone has been taken into account for this application under SFIS and these do not fall under any category or service which are not eligible as per Para 3.18.1 of HBP VI" (emphasis supplied by him). 17. A perusal of the above, according to Mr. Singh, would evince that the petitioner whilst seeking benefit under the SFI Scheme had specifically given an undertaking that the foreign exchange earned is on account of services "rendered from India alone" (emphasis supplied by him). This was also supplemented by an assertion in terms of claiming the same und....
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.... presence in territory of any other country. (iv) Supply of a 'service' in India relating to exports paid in free foreign exchange or in Indian rupees which are otherwise considered as having being paid for in free foreign exchange by RBI. 23. Moving forward, Mr. Singh referred to section 2(e) of the FTDR Act (as it stood prior to its amendment in 2010) defining import and export, inter alia, respectively as "bringing into or taking out of India any goods by land, sea or air" (emphasis supplied by him). He requested us to note that whilst the definition provides only for export of goods at the relevant time, the same would have to be applied even for export of services. 24. Mr. Singh submitted that on a plain and conjoint reading of the definition of 'export' under the FTDR Act, paragraph 9.53 of the FTP 2004-2009 and the provisions of the SFI Scheme, it is clear as crystal that the letter, intent and purpose of the SFI Scheme was always to grant a benefit only in respect of services which were originating from India or touching India. The said Circular, he contended, thus merely clarifies this position which was evident in the SFI Scheme itself. 25. It was furthe....
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....f the FTP is accepted, it would result in the Writ Court granting a relief of perpetuating a benefit claimed on an incorrect undertaking and thus allowing the petitioner to unjustly enrich itself. Considering that the benefit of the SFI Scheme is granted by the Government, the Department would be entitled to recover the benefits which have been wrongfully claimed by a party. c. The Minutes of Meeting of the Port Officers dated 14th December, 2007 pursuant to which the said Circular came to be issued also clarifies that "Even in cases where RAs may have already granted SFIS benefits earlier, (including under the then EXIM policy (RE-2003), this exercise should be done and adjustment of excess grant in previous years may be carried out within the next 3 months. A compliance report may be submitted to DG by Mar 2008." 28. In the light of the above, it was submitted that the writ petition being devoid of merit was liable to be dismissed. ISSUES AND DECISION THEREON 29. Having heard Mr. Nankani and Mr. Singh at considerable length, the issues that arise for our decision are: (a). Whether the writ petition ought to be dismissed for suppression of any material f....
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....third respondent to reopen proceedings by issuing the demand notice as well as the reminder based on the said Circular. 32. Mr. Singh's argument is that by reason of the contents of the Application and/or the Declaration/Undertaking and the disclosures now made, the petitioner was not entitled to any benefit under the SFI Scheme. If indeed that is so, it stands to reason that the petitioner was disqualified from seeking any benefit under the SFI Scheme, yet, the respondents granted the benefit to it. Once the benefit was granted and such benefit is not sought to be taken away by reason of any disqualification evident from the Application and/or the Declaration/Undertaking but in pursuance of the said Circular based whereon the demand notice and the reminder have been issued and such circular and notice/reminder are under challenge on the grounds noted above, we consider it too far-fetched for Mr. Singh to argue that the petitioner has been guilty of suppression of a material fact. Had the demand notice/reminder been issued without being goaded by the said Circular but on the ground that the petitioner in terms of its Application and/or the Declaration/Undertaking was not qualifi....
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....in mind. (b) Services not originating from India would not be entitled for SFIS benefits. (c) The definition of Services Provider, as given in Para 9.53 of FTP 2004-2009, clearly stipulates that supply of a service 'from India' is the first condition. Thus payment might have been made by a service provider in India to a Foreign Service Provider, who has provided some part service in the foreign country. Such services provided abroad cannot be counted as 'Services originating from India', and hence would not be eligible for benefits under SFIS Scheme. Some other instances are detailed below. i. Telecom Service providers earn Foreign Exchange (FX) for providing service that includes services not originating from India (e.g. global roaming charges). Such receipts of FX are not eligible for SFIS. Thus, FX earned would be mean 'receivables' minus 'payables' in a particular year, for telecom services. This shall also apply to Software and other service providers. ii. Airlines, Shipping Lines Service Providers provide services which include services provided from Country X to Country Y routes (not touching India at all). Such services are not o....
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.... India as per route charter) are entitled and therefore, route-wise bifurcation should be called. Even in cases where RAs may have already granted SFIS benefits earlier, (including under the then EXIM policy (RE-20003), this exercise should be done and adjustment of excess grant in previous years may be carried out within the next 3 months. A compliance report may be submitted to DG by Mar 2008. Action: All RAs." (bold in original) 39. The relevance of the aforesaid extract may immediately be noticed. The decision taken in the Port Officers Meeting on 14th December, 2007, as we read it, did not intend the exercise contemplated thereby to be restricted to claims which were yet to be finalized, but was required to be extended even to cases where SFI Scheme benefits had been granted earlier. What we need to find out is whether the said Circular simply toes the line of the said decision or says something which is at variance with the latter. What slight modification the DGFT suggested of the "Draft Policy Circular" is unknown, since such draft has not been placed before us. We propose to come back to this point after taking note of certain relevant decisions of the Supreme Court ....
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....on of any item in the ITC (HS) or in the Handbook, the said question or doubt shall be referred to DGFT, whose decision thereon shall be final and binding." Thereafter, based on its consideration of provisions in section 5 and section 6(3) of the FTDR Act read with paragraph 2.3 of the FTP 2004-2009, it was reiterated that there is a clear demarcation between an amendatory provision and a clarificatory provision. The power to amend the FTP (Exim Policy) is exclusively vested in the Central Government whereas the power to clarify is vested in the DGFT. 42. In view of the law laid down in Atul Commodities (P) Ltd. (supra), if there be any doubt or question in respect of interpretation of any provision in the FTP, the DGFT has the authority to interpret the same and provide suitable clarification. Therefore, per se, a purported clarification of the SFI Scheme issued upon approval by the DGFT is not impermissible. However, whether such clarification really clarifies or brings about an amendment of the terms of the SFI Scheme needs to be examined. We would also add that in so examining, the terms in which the clarification are worded would assume significance. Looking at the clari....
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...., it has been noted that "applications have been received for grant of benefits under the scheme even where 'export of services from India' does not take place, although foreign exchange may have been earned" (emphasis ours). On consideration thereof, the decision crystalized in paragraph 3 is that "the following principles be applied while finalizing the claims" (emphasis ours). 47. Having regard to the above, the conclusion seems to be inescapable that though the DGFT by issuing the said Circular sought to clarify the terms of the SFI Scheme but such Circular was intended to be implemented to decide claims for grant of benefits under the SFI Scheme which were not finalized as on date the said Circular was issued. Had the DGFT intended to reopen claims which had already been finalized, we are inclined to the view that paragraph 3 of the said Circular, if not also paragraph 2 thereof, would have been differently worded to carry forward such an intention. The words "while finalizing the claims" definitely would pertain to claims which have not yet been finalized on the date the said Circular was issued and could not have been stretched to take within its coverage settled and/or clos....
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....no assistance to the respondents. Benefit claimed in terms of the SFI Scheme was settled in favour of the petitioner without raising any question. It is an official act to which a presumption of legality is attached. If a benefit has been erroneously extended by the respondents, they can recover such benefit only if law authorizes them to do so but not otherwise. 51. Now, looking at the first paragraph of the demand notice, it is revealed as follows: "With reference to the subject mentioned above, I am directed to invite your attention to Para 3.(ii) of Policy Circular No.25 (RE-2007) 2004-2009 dtd. 01.01.2008 wherein it has been clarified that receipt of foreign exchange for providing services from India (i.e. routes originating from India or touching India as per route charter) are only entitled for benefit under SFIS." (bold in original) It is, therefore, clear that but for the said Circular, the demand notice would not have been issued. The source of the authority of the third respondent to issue the demand notice is the said Circular and in view of what we have held above, on our analysis of paragraphs 2 and 3 thereof, settled and/or closed claims could not have....