TMI Blog2021 (3) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... y rendered by the ports and for which the foreign exchange earnings (or INR payments as allowed under the scheme) are received and retained by them on this account. The port cannot claim benefits to the extent of free foreign exchange earnings (or INR payments as allowed under the scheme) simply routed through it as receipt of service charges with regard to services rendered by other actual service providers. 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. It is clear that for any amendment to alter or modify the provisions of FTP 2015-20, the powers are exclusively vested in respondent No. 1 i.e the Central Government in terms of section 5 of the FT (D R) Act, 1992. In such circumstances we have to examine as to whether by way of the two impugned policy circulars any new conditions or restriction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2018 dated 21.06.2018 issued by respondent No.3 i.e. Joint Director General of Foreign Trade clarifying determination of eligibility of service providers for Service 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng sign on and sign off (crew / officers); (xiii) Arranging cargo documentation : (a) Arranging to file cargo manifest; (b) Arranging to obtain trading license on behalf of charterers in co-ordination with 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner for the said period after considering all applicable aspects and eligibility as per its application and the enclosures thereto. 3.9. Petitioner filed application on 27.09.2017 for issuance of SEIS benefit on the same terms and conditions for F.Y.2016-17. 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. Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligence, Chennai Zonal Unit, Chennai issued show cause notice dated 30.05.2019 to the petitioner demanding refund of ₹ 21,04,02,303.00, being the SEIS benefit received by the petitioner. 3.18. Petitioner thereafter withdrew Writ Petition No.1411 of 2019 on 28.06.2019 with liberty to file fresh 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Handbook of Procedures (HBP), including appendices and Aayat Nirayat Forms or amendments thereto; Handbook of Procedures (Vol.1) is a supplement to the FTP and contains relevant procedures and other details; procedure for availing benefit under various schemes of the FTP are stated in the HBP. 5.3. He submitted that 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 Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Nos.2 and 3 attempts to illegally legislate and modify the major conditions / restrictions and attempts to introduce and insert an undefined and alien term Aggregator which is not defined either in the FTP or in the FT (D R) Act; both circulars prescribe a procedure for deeming foreign exchange earning; such major statutory 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 guideline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the petitioner first appoints various service agents in respect of various works required to be done locally in India and only thereafter receives foreign exchange from the owner of the vessel; while referring to the invoice raised by the petitioner on the owner of the ship / vessel, it is contended that the various services 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 Forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 5 of the FT (D R) Act, 1992 and as such a policy circular would be ultra vires and unlawful where it purports to amend the terms of the FTP. It was argued that any such action which results in denial of benefit under the scheme would amount to a breach or modification of the terms of the policy. Supreme Court while considering the above submissions 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The challenge in these proceedings by the Petitioners is to the decision contained at points 2(b), 4(ii) and 4(iii) of the minutes of the PIC. The first part of the challenge, as noted earlier, is covered by the judgment delivered by this Court on 17 June 2011 in the case of Vodafone Essar Ltd. In serial no. 4 of the minutes, the PIC has dealt with other services provided 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as. Counsel submitted that the situation which the Petitioners have postulated before the Court namely of a transmission of data/voice/video on a continuous fibre optic cable from a point in India to an overseas destination was not before and was not hence considered by the PIC. The grievance of the Petitioners is that the PIC minutes purport to artificially split the transaction in which a dedicated 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 entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt upheld the decision of the High Court. Petitioner has placed reliance upon paragraph 7 of the said judgment to emphasis the intention of legislature in a statute which reads thus:- 7. Counsel then relied upon Section 5 of the Colliery Control Order, 1945, in order to show that the Legislature there had dealt with coal in its strict and technical meaning. He also relied upon certain other statutory 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subject-matter of statute and to whom the legislation is addressed, will give if the problem were put to him. (Justice G.P. Singh : Principles of Statutory Interpretation, Ninth Edition, 2004, p.95) 7. 'Agriculture' is the science or art of cultivating the soil, growing and harvesting crops, and raising livestock. The art of making land more productive is practiced throughout the world - in some areas 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 fis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood in the several statutes does not necessarily throw any light on the manner in which the term should be understood generally. ........ 13. The relevant entry in the Act as its historical background show was intended to provide electricity at concessional rates or free of any charge to the farmers by dividing them into classes such as small farmers and others farmers. A farmer would be an agriculturist in the traditional 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 cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders who render various services to the said foreign clients; petitioner being an agent therefore cannot claim benefit of the entire free foreign exchange earning or INR payments as allowed under the scheme merely because it is received in its bank account and is is simply routed through the petitioner for onward transmission to the actual service providers; petitioner merely provides agency service or representative service to its principal / foreign 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that as per para 3.09(a) of the FTP read with Trade Notice 11/2015-20 dated 21.07.2016 issued by the Directorate General of Foreign Trade, only foreign exchange remittances received in lieu of the services rendered by the service exporter are counted towards entitlement under SEIS. He submitted that if the service provider has not rendered the actual service for which remittances have been received, such remittances cannot be counted towards entitlement under SEIS; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come earned through foreign exchange and not on the basis of disbursement / expenditure of the income received by the service provider. He submitted that the petitioner qualifies itself in respect of the aforementioned three tests and it is only the petitioner and not the actual service provider who can seek benefit under SEIS. 9. Submissions made by the respective counsel have received the due consideration of the Court. Materials on record have been perused. 10. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change minus Total expenses / payment / remittances of Foreign Exchange by the IEC holder, relating to service sector in the Financial year. (e) If the IEC holder is a manufacturer of goods as well as service provider, then the foreign exchange earnings and Total expenses / payment / remittance shall be taken into account for service sector only. (f) In order to claim reward under the scheme, Service provider shall have to have an active IEC at the time of rendering such services for which rewards are 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich had received the foreign exchange earnings (or INR payments as allowed under the scheme) in its account in India. 15. On the basis of the above two circulars an order of refusal and renewal of further licenses dated 25.10.2018 calling upon the petitioner to refund the amount of ₹ 22,10,00,000.00 and ₹ 2,88,365.00 received against SEIS scrips numbers 0319087350 and 0319087351 dated 03.10.2016 came to be passed. Petitioner had filed appeal against the order of refusal before respondent No. 2 i.e. Director General of Foreign Trade. Show cause 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 ₹ 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 anno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment in the FTP 2015-20 and as mandated under the provisions of section 5 of the FT (D R) Act would have to be carried out only by the Central Government. 19. The two impugned policy circulars clearly curb the right of the petitioner as an independent foreign exchange earner for the purposes of FTP 2015-20 and its consequential SEIS benefits in conformity with para 3.08(d) of the FTP. The designation or description of the petitioner as aggregator of services purchased by them is not in conformity with the underlying ethos of the FTP 201520 read with the FT (D R) 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country. (Mode 4 - Presence of natural persons.) 21. On thorough consideration of the above statutory provisions together with the definition of 'service provider' and the provisions of the Exports from India Schemes pertaining to eligibility, it is clearly discernible that the petitioner's activity falls within the definition of 'service provider' and is therefore eligible for benefit / reward under SEIS. We may also refer to the application form ANF3B for seeking benefit under SEIS filed by petitioner which is annexed at page 89 of the paper book. This application form states that the petitioner has been registered 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore than one reason. Firstly, having regard to what we have discussed above, this would not be a permissible interpretation. For this reason we would like to refer to para 22 in the case of Vodafone Essar Ltd (supra) which has clearly distinguished such a submission. Paragraph 22 of the said judgment reads thus:- 22. The learned ASG sought to submit that for the purposes of clause 3.6.4.3 the amount earned must refer to the net amount earned. Ex-facie, this would not be a permissible interpretation. For one thing, the amount earned cannot be different while defining entitlement and for determining eligibility. The amount earned can only mean the same thing, 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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