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TMI Blog2010 (12) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent imports of freely importable goods – Held that the two DFCE certificates dated 4th February 2005 and 9th January 2006 are licences within the meaning of Section 2(g) of the FTDR Act - The writ petition is disposed of - W.P.(C) 48/2009 & CM 103/2009 - - - Dated:- 24-12-2010 - S. MURALIDHAR Petitioner Through : Mr. S. Ganesh, Mr. Tarun Jain, Respondents Through : Mr. A.S. Chandhiok, Mr. Ravinder Agarwal, Mr. Ritesh Kumar, Mr. Nitish Gupta, 1. Does the sale of a residential building against the payment in free foreign exchange amount to "service" for the purposes of the grant of a Duty Free Credit Entitlement (DFCE) Certificate (duty free scrip) under the Served From India Scheme ("SFIS") announced as part of the Foreign Trade Policy 2004-09 ("FTP 2004-09")? This is the principal question that arises for consideration in the present writ petition, in which the communication dated 25/26th June 2008 issued by the Joint Director General of Foreign Trade (JDGFT) answering the question in negative has been challenged by the Petitioner DLF Ltd. The other questions are whether the duty free scrip is a licence within the meaning of Section 2 (g) of the Foreign Trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Sir, Please refer to your letter no. nil dated 10th November, 2006 on the above subject. In this connection, I would like to clarify that Real Estate Services contained in appendix 10 of the Hand Book of Procedure of Exim Policy are as per the classifications of services adopted under the General Agreement on Trade in Services (GATS) of the WTO vide document no. W/120. Detail description of the two sub-sectors of Real Estate Services i.e. (i) Involving own or leased property; and (2) On a fee or contract basis; are contained in UNCPC 821 and 822. A copy of UNCPC 821 and 822 is enclosed for your information." 6. It may be mentioned that the reference to "UNCPC" in the above letter is to the United Nations Central Product Classification, copies of the relevant pages of which were enclosed with the said letter. Group 821 of the UNCPC deals with "Real Estate Services" and Group 822 with "Real Estate Services on a Fee or Contract basis. Sub-Class 82103 of the UNCPC includes sales of residential buildings and land. The said entry reads as under: "82103 Residential buildings and land sales Sales on own account of residential buildings and land in cases where the sales are treated as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s" in terms of Section 9(4) FTDR Act. On 30th July 2007, the Petitioner submitted its detailed reply to the show cause notices. 10. On 13th September 2007, the JDGFT wrote to the Petitioner explaining that the letter dated 7th December 2006 issued by the Trade Policy Division, Department of Commerce merely referred to the classification of Services in the World Trade Organisation ("WTO") and did not by any way justify the claims of the Petitioner. It was reiterated that "sale of a residential unit comes within "goods" not "services", as they are disposals of fixed assets." It was clarified that "the entries in the UNCPC are referring to only services under those respective codes." The letter proceeded to state as under: "Accordingly, the two digit code heading is 82- "Real Estate Services" is disaggregated to four digit code namely, 8210-"Real Estate Services involving own or leased property" and this has been further disaggregated to a five digit code namely, 82103-"Residential buildings and land sales". What is critical to note is that it is not the sale of residential building or land per se which comes under this heading but the services relating to these activities like fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 7,62,55,947/-. The plea of the Petitioner for issuance of duty free scrips under the SFIS towards exports made for the year 2005-06 was not acceded to. In the circumstances the present writ petition was filed by the Petitioner praying for a declaration that sale of residential buildings against the payment in free foreign exchange amounted to "service" for the purposes of the grant of a DFCE Certificate under the SFIS; that the communication dated 25/26th June 2008 issued by the JDGFT be directed to be withdrawn; that the adjudication proceedings pursuant to the show cause notices dated 16th July 2007 sent to the Petitioner by the JDGFT be dropped and the Respondents be directed to issue the Petitioner duty free scrip for the year 2005-06. 13. In response to the notice issued in the writ petition on 7th January 2009, a counter affidavit has been filed by the Respondents on 17th September 2009 reiterating the stand of the Government as contained in the impugned decision dated 25/26th June 2008. It is reiterated that the interpretation given under the General Agreement on Trade in Services (GATS) of the WTO "is not fully relatable" to the SFIS. It is stated as under: "Under GA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or granted under the FTDR Act. He points out that the duty free scrip issued to the Petitioner is on the face of it described as a "licence". It permits the holder of such licence to avail of duty credit while making subsequent imports of freely importable goods. Reference is made to the averments made in para 2 of the writ petition and para 10 of the rejoinder where the Petitioner itself states that the two DFCE certificates were licences. Reliance is placed on the decision in DKM Cassette Pvt. Ltd. v. Union of India 2010 IX AD ( Del ) 218 . 16. In order to determine whether the DFCE certificates are licences within the meaning of the FTDR Act, a reference may be made to Section 2 (g) thereof which reads as under: " 2. Definitions - In this Act, unless the context otherwise requires -(g) "licence" means a licence to import or export and includes a customs clearance permit and any other permission issued or granted under this Act; " 17. A plain reading of the definition shows that a licence for the purpose of the FTDR Act is not restricted to a licence to import or export. The second part of the definition is an inclusive one. It includes a customs cleara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinct consequences under two different enactments. It is not possible to agree with the learned counsel for the Petitioner that no action could have been taken under the FTDR Act by the DGFT, if it was of the view that the licence issued under the FTDR Act was not properly utilised by the Petitioner. Whether the Respondents' omission to entertain Petitioner's applications for issuance of DFCE certificates is justified? 21. Mr.Ganesh next submitted that the Petitioner"s request for issuance of DFCE certificates for the years 2005-06 onwards was not acceded to by the Respondents on an erroneous interpretation of the relevant Clauses of the FTP 2004-09 as is evident from the impugned letter dated 25/26th June 2008 which holds that real estate services as mentioned in Appendix 10 of the HBP 2004-09 did not include sale of immovable property. He relied upon the judgment in Mouat v. Betts Motors Ltd. [1958] 3 All ER 402 to emphasise that it would be strange if one wing of the MoC is unaware of the position taken by the other wing. He further submitted that valuable foreign exchange has in fact been earned by the sales made abroad by the Petitioner of immovable property and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other country (including NRI) is not present in India (like in foreign tourist in India]; (c) Para 9.53(iii) is not satisfied [since there is no commercial or physical presence overseas]; and (d) Para 9.53(iv) is not satisfied [since there is no supply of service relating to exports in this case]. Hence in conclusion, the applicant is not a "service provider" under the definition Para 9.53 of FTP." 23. The above submissions have been considered. Appendix 10 to the HBP 2004-09 lists out in Serial No. 1(D) "real estate services" which could include service in relation to "owned or lease property" or "on a fee or contract basis." While it is correct that there is no express reference to the GATS or UNCPC in Appendix 10, it appears that a reference is made to those documents during the course of market access negotiations under the GATS of the WTO. An Office Memorandum dated 19th May 2008 appears to have been issued by the Department of Commerce, (Trade Policy Division) dissociating itself from the earlier stand taken by it on 7th December 2006 and stating that no claims governed by the definitions under the sub-sectors of the UNCPC would be sustainable since there is no re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such sales, for the purposes of the DFCE. Whether the show cause notices issued to the Petitioner on the ground of 'misrepresentation of facts' are sustainable in law? 27. The last submission of learned Senior counsel for the Petitioner is that the impugned show cause notices dated 16th July 2007 issued to the Petitioner by the JDGFT proposing cancellation of the licences (duty free scrips) proceed on the footing that the Petitioner had misrepresented the facts while applying for such scrips. He submitted that this was the only ground cited in the said show cause notices. It is pointed out that it is only after seeking a clarification from the MoC that the Petitioner proceeded to avail the duty credit on the second scrip dated 9th January 2006 and, therefore, the Petitioner could not be said to have misrepresented facts. In fact, the communication dated 2nd November 2006 showed that the Petitioner had disclosed the full facts concerning duty credit availment in its Annual Report, which then led to the query raised by the DGFT. There was, therefore, no valid ground on which the show cause notices could have been issued. Moreover, there was no question of cancellation of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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