TaxTMI 
TaxTMI 
2022 (2) TMI 471
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....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 benefits conferred by the FTP 2004-09 by way of a circu....
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....uction 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 financial year. The scrips obtained by such notified Indian Service Providers under the SFI Sch....
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....truction 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 amendment can be introduced by way of a policy circular. Reference in this connection was made to the decisions of this Court repor....
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....eneral 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 September, 2004 (Exhibit "I"). Since the effect of holding a License is that the customs duty is reduced in future imports, the power to recover such lower duty benefits has been granted to the customs ....
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....nd 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 under clause (i) of paragraph 9.53. Both these factors are directly material and relevant in the instant case, where the petitioner is now seeking to base his case on a plea contrary to its own application and un....
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....ingh 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 further submitted by Mr. Singh that even the petitioner understood the SFI Scheme in the same manner and hence, in its Declaration/Undertaking (at pg 110) it specifically stated that the foreign exchange earned is on account of services "rendered from India alone". 26. Mr. Singh, there....
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....ntitled 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 fact or that the petitioner has approached the writ court with unclean hands? (b). Should the answer to the above issue be in the negative, whether the said Circular is ultra vires Articles 14 and 19(1)(g) of the Constitution, section 5 of the FTDR Act and paragraph 3.6.4 of the FTP 2004-2009? (c). Whether the sai....
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....tands 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 qualified to obtain any benefit of the SFI Scheme and such notice had been made the subject matter of challenge without such application and/or such declaration/undertaking being brought on record of the writ petition, the decision on the issue could have been otherwise. 33. However, in view of the nature of challenge laid in this writ petition, non-disclosure of t....
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....untry. 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 originating from India. Accordingly only receipts of FX for providing services from India (e.g. routes originating from India or touching India as per route charter) are entitled and therefore, route-wise bifurcation should be called. This issues with the approval of the DGFT." 36. Validity of the said Circular is questioned by the petitioner on the ground that the same being administrative or executive in nature, and not statutory in ....
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....ely 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 on the tests that ought to be applied for ascertaining whether a clarification of the law that has been made is in reality clarificatory or amendatory. 40. In its decision reported in (2020) 4 SCC 484 (Gelus Ram Sahu vs. Surendra Kumar Singh), the Court had the occasion to observe that: "clarificatory notifications are distinct from amendatory notifications, and the former ought not to be a surreptitious tool of achieving the ends of the latter". This statement was preceded by the followi....
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....ted 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 clarification and blindly applying it to cases not covered thereby without application of mind would not be a permissible act. For such purpose, every such clarification and in this case the said Circular must be read in its entirety. 43. Although following the guidance received from the aforesaid decisions we agree with the respondents that the said Circular is merely clarificatory, we are as of necessity tasked to analyze its contents to ascertain whether it could be made applicable to the petitioner, in a way, to withdraw a benefit that was ....
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....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 closed claims. We are also of the view that the terms of the said Circular being at variance with the decision taken in the meeting of the Port Officers dated 14th December, 2007, where it was decided to undertake the exercise "even in cases where RAs may have already granted SFI Scheme benefits earlier" (emphasis ours), the said Circular would prevail over the said decision; consequently, it would logically follow that it was never the intention of the DGFT while approving the said Circular to permit an exercise of reopening settled and/or closed case....
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.... 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 been reopened. Since the clarification flowing from the said Circular was intended to be applicable only in respect of claims which had not been finalized, the third respondent erred in the exercise of his jurisdiction in issuing the demand notice/reminder. 52. Since the said Circular does not, in our view, take away the benefits that have accrued on the basis of the SFI Scheme prior to the contents thereof being clarified by the said Circular, we see no reason to hold such circular to be ultra vires Articles 14 and 19(1)(g) of the Constitution of India as well as....