2021 (3) TMI 444 - HC - Customs

SEIS Scheme - Validity and legality of Policy Circulars No. 06/2018 dated 22.05.2018 and 08/2018 dated 21.06.2018 - determination of eligibility of service providers for Service Exports from India Scheme (SEIS) to claim benefit to the extent of free foreign exchange earnings - HELD THAT - 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 under SEIS was pending. In the meanwhile upon representations received from the industry, the impugned circular Nos. 06/2018 dated 22.05.2018 and 08/2018 dated 21.06.2018 have been issued by the respondents - Policy circular No. 06/2018 dated 22.05.2018 states that the actual service providers (and not ports) are eligible for SEIS benefit in respect of their share of earnings made by performing the notified services under the SEIS scheme. Further, the aggregator of services (ports) shall be entitled for benefits under SEIS only for services exclusively 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 restrictions can be added or read into the FTP or whether respondent Nos. 2, 3 and 6 can add / alter / amend the provisions of the FTP without recourse to exercise of powers conferred by section 5 of the FT (D R) Act upon the Central Government - By virtue of the two circulars, modification and alteration of provisions of para 3.08(c) of the FTP 2015-20 has been made which stipulates the provisions of deeming INR earning as foreign exchange in terms of the Reserve Bank of India guidelines. Policy Circular No. 8/2018 dated 21.06.2018 clearly overrides the authority of the Reserve Bank of India and an attempt is made to introduce a provision for issuance of a certificate by the petitioner enabling the local domestic service provider, such as, ports to deem their INR billing as in foreign exchange. Such overriding policy decisions in our view would require an amendment 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. Circular Nos. 06/2018 dated 22.05.2018 and 08/2018 dated 21.06.2018 in so far as they seek to add and amend the provisions of the FTP 2015-20 by inserting additional conditions to curtail the rights / benefits claimed by the petitioner as service provider are ultra vires the Foreign Trade Policy for 2015-20 - Impugned order of refusal dated 25.10.2018 passed by the Additional Director of Foreign Trade, Mumbai cannot be sustained and is accordingly quashed and set aside

Issues Involved:
1. Validity of Policy Circulars No. 06/2018 and 08/2018.
2. Legality of the refusal order dated 25.10.2018.
3. Legality of show cause notices dated 10.05.2019 and 30.05.2019.
4. Eligibility of the petitioner for Service Exports from India Scheme (SEIS) benefits.

Issue-wise Detailed Analysis:

1. Validity of Policy Circulars No. 06/2018 and 08/2018:
The petitioner challenged the validity of Policy Circulars No. 06/2018 dated 22.05.2018 and 08/2018 dated 21.06.2018 issued by the Joint Director General of Foreign Trade. These circulars clarified the determination of eligibility for SEIS benefits, stating that actual service providers, not ports, are eligible for SEIS benefits for their share of earnings. The petitioner argued that these circulars alter and amend the provisions of the Foreign Trade Policy (FTP) 2015-2020, which is beyond the administrative authority's power and should be done only by the Central Government under Section 5 of the Foreign Trade (Development and Regulation) Act (FT (D & R) Act). The court agreed with the petitioner, stating that the circulars usurp the powers of the Central Government and are ultra vires the FTP 2015-2020.

2. Legality of the Refusal Order Dated 25.10.2018:
The petitioner contended that the refusal order dated 25.10.2018, which denied SEIS benefits and demanded a refund, was issued without a proper show cause notice and was signed by an unauthorized officer. The court found the refusal order to be arbitrary, illegal, and in violation of the principles of natural justice. The court quashed and set aside the refusal order, emphasizing that any amendment to the FTP must be done by the Central Government and not through administrative circulars.

3. Legality of Show Cause Notices Dated 10.05.2019 and 30.05.2019:
The petitioner also challenged the show cause notices dated 10.05.2019 and 30.05.2019, which sought to impose penalties and demand refunds of SEIS benefits. The court quashed these show cause notices, reiterating that the policy circulars on which these notices were based were ultra vires the FTP 2015-2020. The court emphasized that the petitioner, as an independent foreign exchange earner, is entitled to SEIS benefits and that the circulars cannot curtail these rights.

4. Eligibility of the Petitioner for SEIS Benefits:
The petitioner, a shipping agent providing various port and logistical services, claimed SEIS benefits based on its foreign exchange earnings. The court examined the definitions of "service provider" and "services" under the FTP and concluded that the petitioner's activities fall within these definitions. The court noted that the petitioner fulfills the eligibility criteria under para 3.08 of the FTP, which includes having minimum net free foreign exchange earnings and an active Importer Exporter Code (IEC). The court held that the petitioner is a service provider of the notified services and is eligible for SEIS benefits, rejecting the respondents' argument that the petitioner merely acts as an agent for actual service providers.

Conclusion:
The court allowed the writ petition, declaring Policy Circulars No. 06/2018 and 08/2018 ultra vires the FTP 2015-2020, quashing the refusal order dated 25.10.2018, and setting aside the show cause notices dated 10.05.2019 and 30.05.2019. The court affirmed the petitioner's eligibility for SEIS benefits as an independent foreign exchange earner.

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