Essar Shipping Limited vs Union Of India And 4 Ors
2022 Latest Caselaw 1298 Bom

                                                    WP-1335-2010-JT

PDP




           IN THE HIGH COURT OF JUDICATURE AT BOMBAY
              ORDINARY ORIGINAL CIVIL JURISDICTION

                  WRIT PETITION NO. 1335 OF 2010


      Essar Shipping Limited                       .. Petitioner

                 Vs.

      Union of India & Ors.                        .. Respondents


      Mr. Vikram Nankani, Sr. Advocate with Mr. Prithviraj Choudhari
      a/w Mr. Archit Virmani and i/by Mr. Nikhil Mengde for petitioner.
      Mr. Anil C. Singh, ASG a/w Mr. M. S. Bhardwaj, Mr. Aditya
      Thakkar and Mr. D. P. Singh for respondents.

                       C0RAM: DIPANKAR DATTA, CJ &
                              M. S. KARNIK, J.

RESERVED ON: DECEMBER 23, 2021 JUDGMENT ON: FEBRUARY 08, 2022

JUDGMENT: [Per Dipankar Datta, CJ.]

FACTS GIVING RISE TO THE WRIT PETITION

1. The petitioner is a company incorporated under the Companies

Act, 1956 and, inter alia, engaged in the business of rendering

maritime transport services.

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2. The first respondent is the Union of India and the other 4 (four)

respondents are the officers of the first respondent, who are obliged

to exercise powers and discharge duties in terms of the Foreign Trade

(Development & Regulation) Act, 1992 (hereafter "the FTDR Act", for

short). Thereunder, the Central Government announces the Foreign

Trade Policy (hereafter "FTP", for short) from time to time. For the

purposes of the present writ petition, 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

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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 circular, which is only administrative and/or executive in nature.

It is also claimed that the third respondent does not have the power

to deny the benefits conferred under the FTP 2004-09 long after the

utilization thereof by the petitioner, when there is no provision

whatsoever either under the FTDR Act or the FTP 2004-09

authorizing the third respondent to recall the benefits granted to the

petitioner under the FTP 2004-09 for the past period, such benefits

having accrued and granted to the petitioner in accordance with law.

5. Aggrieved by the said Circular as well as the the demand notice

and the reminder, the petitioner has approached this Court under

Article 226 of the Constitution of India seeking relief, which reads as

follows:

"(a) that this Hon'ble Court be pleased to declare the impugned Circular No. 25/2007 dated 1st January, 2008 (Exhibit-'K' hereto) ultra vires Article 14 and Article 19(1) (g) and Section 5 of the Foreign Trade (Development & Regulation Act, 1992 and paragraph 3.6.4 of Foreign Trade Policy 2004-09;

(b) that this Hon'ble Court be pleased to issue a Writ of Certiorari, or a Writ in the nature of Certiorari, or any other appropriate Writ, Order or direction, leading to the issuance of the impugned demand Notices dated 28th January, 2010 and 31st May, 2010 (Exhibits-'N' and 'O' respectively hereto) and after going into the legality,

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validity and propriety thereof, to quash and set aside the same;

(c) that this Hon'ble Court be pleased to issue a Writ of Prohibition or a Writ in the nature of Prohibition, or any other appropriate Writ, Order or prohibition, prohibiting the Respondents from implementing and/or carrying on and/or giving the impugned policy Circular No. 25/2007 dated 1st January, 2008 (Exhibit-'K' hereto);

(d) that this Hon'ble Court be pleased to issue a Writ of Mandamus, or a Writ in the nature of Mandamus, or any other appropriate Writ, Order or direction, directing the Respondents to forthwith withdraw the impugned demand Notices dated 28th January, 2010 and 31st May, 2010 (Exhibits-'N' and 'O' hereto)."

6. The pleaded case in the writ petition, in brief, is this.

a. The business of rendering maritime transport services, carried

on by the petitioner, includes carriage of goods by ships which are

owned or chartered by it. At 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

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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 Scheme

could then be used for setting off the applicable customs duty

payable on import of any capital goods, spares, professional

equipment, office furniture and consumables. However, the benefit

under the SFI Scheme was not available to services specifically

excluded out in the FTP 2004-2009 read with the Handbook of

Procedures (HBP).

c. It is the petitioner's specific claim that the maritime

transportation services provided by it were not specifically excluded

from the ambit of the SFI Scheme and, accordingly, it applied for

and was granted SFIS scrips to the tune of Rs.30 crore by the third

respondent in 2007.

7. While the matter stood thus, we find that in line with a decision

taken in the Port Officers Meeting dated 14th December, 2007

[Agenda 6, Decision No. 4(c)(ii)] presided over by the Joint Director

General of Foreign Trade, New Delhi, such joint director issued the

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said Circular wherein it was clarified that the benefits of the SFI

Scheme will not be available to service providers, such as the

petitioner, who have provided maritime transportation services from

a place outside India to another place outside India without making

a port call in India.

8. Subsequently, in the FTP 2009-2014, a specific amendment

was brought to this effect and such services were specifically

excluded from the ambit of the SFI Scheme.

9. The third respondent issued the demand notice and the

reminder in line with the said Circular, directing the petitioner to

return back the customs duty benefits along with interest claimed by

it while utilizing the SFI Scheme scrips issued to it in 2007.

10. In such factual background, the petitioner has invoked the writ

jurisdiction of this Court with prayers noted above.

CONTENTIONS OF THE PETITIONER

11. Appearing in support of the writ petition, Mr. Nankani, learned

senior advocate contended on pleaded lines. According to him:

a. The said Circular cannot retrospectively amend or take away

the benefits conferred under the FTP 2004-2009. In terms of

paragraph 9.53 of the FTP 2004-2009, the term "Service

Provider" includes a person "(i) providing services from India

to any other country". At the relevant point in time, the

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petitioner was rendering maritime transport services, which

includes carriage of goods by ships 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

amendment can be introduced by way of a policy circular.

Reference in this connection was made to the decisions of this

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Court reported in 2011 SCC OnLine Bom 728 (Vodafone

Essar Ltd. vs. Union of India) and 2011 SCC OnLine Bom

838 (Tata Communication Ltd. vs. Union of India).

d. The issues here are also squarely covered by the latest

decision of this Court in the case of Atlantic Shipping Private

Limited vs. Union of India [Writ Petition No. 1827 of 2019,

decided on 9th March, 2021] wherein, in a very similar

situation, the writ petition was allowed in favour of the

petitioners and while relying on its earlier decisions, this Court

concluded that provisions of the FTP cannot be amended by

issuing a circular.

e. In the present case, the said Circular has been issued with a

view to circumvent the due process of law prescribed under

the FTDR Act to amend the FTP 2004-2009 and benefits,

otherwise correctly granted to the service providers, such as

the petitioner, were curtailed by introducing a new condition

which was not existing under the prevalent policy provisions of

the FTP 2004-2009. Therefore, introduction of such a new

condition in the FTP 2004-2009 by way of the said Circular is

wholly unsustainable and contrary to the settled position in

law.

f. At the time of issuance of the SFIS scrips in 2007, there was

no specific restriction for availing benefit under the SFI

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Scheme with respect to the services provided by the petitioner.

The said restriction was sought to be introduced by way of a

clarification vide the said Circular and was later incorporated

in 2009 as part of the FTP 2009-2014. The benefits claimed

and obtained under the SFIS Scrips issued in 2007 cannot be

retrospectively taken away by issuance of the said Circular and

the demand notice as well as the reminder when, at the

relevant time of issuance of such scrips, the law did not provide

for any specific restriction to that effect.

g. Further, the aforesaid view is also buttressed by the language

used in the said Circular itself, the relevant extract of which

reads:

"3. After due deliberations, with respect to services not originating from India, it has been decided that the following principles be applied while finalizing the claims: ***"

h. The aforesaid language makes it abundantly clear that the

content of the said Circular 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.

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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 authorities, earlier under section 28 of the

Customs Act and presently, under section 28AAA of the Customs Act.

There is no provision under the FTDR Act which confers any power

whatsoever on the officers, such as the third respondent to issue the

demand notice and the reminder. The only action contemplated

under the FTDR Act is suspension/cancellation of license [section 8]

and Imposition of Penalty [section 11]. Apart from the above, there

is no provision under the FTDR Act which empowers the officers of

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the said directorate to recover the customs duty benefits, the latter

being the sole prerogative of the officers under the Customs Act.

Thus, the demand notice as well as the reminder issued by the third

respondent are without any authority of law and liable to be set aside

on this count itself.

13. It was, accordingly, prayed that relief as claimed by the

petitioner ought to be granted.

CONTENTIONS OF THE RESPONDENTS

14. It is the case of the respondents in their affidavit-in-reply that

the challenge in the writ petition is misconceived and hence, the

petitioner is not entitled to any relief in the writ jurisdiction of this

Court.

15. Mr. Anil Singh, learned Additional Solicitor General for the

respondents raised a preliminary objection to the maintainability of

this writ petition. It has been his submission that the petitioner is

not entitled to discretionary equitable relief since it has approached

this Court with unclean hands. We were reminded by Mr. Singh that

one who seeks equity must act in a fair and equitable manner.

16. While addressing us, Mr. Singh disclosed that the petitioner

has deliberately suppressed its Application and the

Declaration/Undertaking at the time of seeking benefits under the

SFI Scheme and in view thereof, cannot and ought not to be heard

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in the discretionary writ jurisdiction of this Hon'ble Court. According

to him, the contents of the said application and

declaration/undertaking (Exhibit 3 Pgs 109/110) are materially

relevant since they evince, inter alia, that contrary to Ground D (pg

14) of the writ petition where reliance is placed on clause (iii) of

paragraph 9.53 of the FTP, in the application the petitioner 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

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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 undertaking.

18. These material and directly relevant document(s) having been

suppressed by the petitioner, it was submitted by Mr. Singh that on

this ground alone the petitioner is not entitled to any relief and the

writ petition be dismissed.

19. Without waiving the objection that the writ petition is not

maintainable, Mr. Singh next proceeded to address us on the merits

of the issues.

20. Referring to paragraph 6 of the affidavit-in-reply, Mr. Singh

sought to highlight the reason behind the introduction of the SFI

Scheme. Inter alia, it says that ".....under the Foreign Trade Policy,

as a part of promotional measures, Government of India has

introduced Served from Indian Scheme (SFIS). As per

para 3.6.4.1 of the Foreign Trade Policy, the objective of the scheme

is to accelerate growth in export of services so as to create a

powerful and unique 'Served from India' brand, instantly recognized

and respected world over..." (emphasis supplied by him).

21. Our attention was then invited to the relevant provisions of the

SFI Scheme providing, inter alia, as under:-

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3.6.4 SERVED FROM INDIA SCHEME

3.6.4.1 Objective: The objective is to accelerate the growth in

export of services so as to create a powerful and unique 'Served

From India' brand, instantly recognized and respected word over.

3.6.4.2 Eligibility : All Service Providers, of services listed in

Appendix 10 of HBP vl, who have a total free foreign exchange

earning of at least Rs. 10 Lakhs in preceding financial year shall

qualify for Duty Credit scrip. For Individual Service Providers,

minimum would be Rs. 5 Lakhs:" (emphasis supplied by him).

22. Next, the expression "Service Provider" defined in paragraph

9.53 of the FTP was referred to by Mr. Singh with particular emphasis

on clauses (i) and (iii). Paragraph 9.53, for facility of convenience, is

quoted below: -

"Service provider" means a person providing:

(i) Supply of a 'service' from India to any another country:

(ii) Supply of a 'service from India to service consumer of any other country in India; and

(iii) Supply of a 'service' from India through commercial or physical 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.

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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 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, therefore, submitted that in the light of the clear

letter, purpose and intent of the SFI Scheme read with the manner

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in which the petitioner itself understood the SFI Scheme, the

challenge to the said Circular on the basis that it is not clarificatory

but a substantial amendment is not only misplaced and misconceived

but based on improper consideration of the past

Declaration/Undertaking of the petitioner; hence, the said Circular is

valid, being merely clarificatory in nature.

27. Dealing with the contention of the petitioner that the said

Circular does not permit revising entitlements that have already

been granted and hence, the subject demand notice and the

reminder ought not to have been issued, it was contended by Mr.

Singh that reliance placed by the petitioner on paragraph 3 thereof

is misplaced. He submitted that a holistic reading of the said Circular

clearly envisages that wrongful benefits that may have been granted

cannot and ought not to be allowed. According to him, the contention

of the petitioner is without basis for the following reasons, viz.

a. The said Circular read as a whole show that the

entitlements can be revisited. This would be evident on

reading of the paragraph below paragraph b which reads,

inter alia, as "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

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eligible for benefits under SFIS Scheme..." (emphasis

supplied by him).

b. The petitioner having wrongfully obtained benefits on the

basis of an incorrect declaration cannot seek to unjustly

enrich himself. It is evident from the record that

irrespective of the SFI Scheme, the petitioner has himself

undertaken that the foreign exchange earned is from

"services rendered from India only". However, now, if the

admission of the petitioner in the writ petition that the

services were not rendered from India but must be

deemed to be services under clause (iii) of paragraph 9.53

of 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 (RE2003), this exercise should

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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 said Circular is prospective, in the sense

that it would apply only to claims that are yet to be finalized,

or whether cases settled and/or closed could be reopened

thereby?

(d). Whether the demand notice dated 28th January 2010 and

the reminder 31st May 2010 seeking to recover the duty benefit

received by the petitioner under the SFI Scheme are valid in

law and hence, sustainable?

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(e). To what relief, if any, is the petitioner entitled?

Issue (a)

30. Suppression of a material fact, undoubtedly, is a valid ground

for refusing exercise of discretionary writ jurisdiction. Law seems to

be well-settled that a party is disentitled to the extra-ordinary

remedy of writ if material facts, which would have materially affected

the merits of the reliefs claimed (either interim or final), are not

disclosed in the writ petition. One may usefully refer to the decision

of the Supreme Court reported in (2004) 7 SCC 166 [S.J.S.

Business Enterprise (P) Ltd. vs. State of Bihar] where, in

paragraph 13, it has been held that:

"13. As a general rule, suppression of a material fact by a litigant disqualifies such litigant from obtaining any relief. This rule has been evolved out of the need of the courts to deter a litigant from abusing the process of court by deceiving it. But the suppressed fact must be a material one in the sense that had it not been suppressed it would have had an effect on the merits of the case. It must be a matter which was material for the consideration of the court, whatever view the court may have taken..."

31. Applying the law as aforesaid, it needs to be considered

whether non-disclosure by the petitioner of the Application or its

Declaration/Undertaking in the writ petition (A/R - pg 109/110)

while seeking benefits of the SFI Scheme amounts to suppression of

material facts. The question that ought to be posed is, whether the

Application and/or the Declaration/Undertaking have a bearing on

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the main point in issue, i.e., the authority of the DGFT to issue the

said Circular and the action of the 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 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

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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 the Application and/or the

Declaration/Undertaking by the petitioner, in our considered opinion,

does not amount to suppression of material facts warranting

dismissal of the writ petition.

34. The issue is, thus, answered against the respondents.

Issues (b), (c) and (d)

35. These issues are taken up for consideration together for the

sake of convenience. A decision on these issues would require us to

look at the terms of the said Circular closely, which purports to have

been issued with the approval of the DGFT. For ease of understanding

and clarity, we quote the said Circular below in its entirety:

"POLICY CIR NO.25/2007, DT.01/01/2008

Service not originating from India and Served From India Scheme (SFIS) for service providers, clarification thereof.

Attention is invited to Served from India Scheme. It is mentioned in Para 3.6.4 of Foreign Trade Policy that Served from India scheme's objective is promotion of 'export of services' that are originating from India.

2. It has been brought to the notice of DGFT that applications have been received for grant of benefits under the scheme even where 'export of service from India' does not take place, although foreign exchange may have been earned. The issue was deliberated in the Port Officer's Meeting held on 14.12.2007. Instances like development of software

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exclusively by an Indian wholly owned Subsidiary/Unit overseas (or by other Foreign Service Providers) and the sale of such software in International markets would lead to earning of foreign exchange for the Indian Company. However such providing of software service does not originate in India and cannot be covered under SFIS scheme for grant of benefits.

3. After due deliberations, with respect to services not originating from India, it has been decided that the following principles be applied while finalizing the claims.

(a) While examining the claim of Service Providers, the objective of promotion of export of services from India should be kept 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 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

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nature, and not statutory in character, any attempt to add to or

amend the SFI Scheme cannot take away the benefit conferred

under the SFI Scheme by the FTP 2004-2009; and reliance in this

regard has been placed on the decision of this Court in Atlantic

Shipping Pvt. Ltd. (supra). The contention is sought to be

countered by the respondents by arguing that the said Circular is

merely clarificatory and not amendatory, and therefore will apply

with retrospective effect.

37. In course of hearing we had called upon Mr. Singh to place

before us the relevant records pertaining to the said Circular. The

primary intention was to ascertain whether the said Circular was

issued with the approval of the DGFT. Perusal thereof reveals this.

On 28th December, 2007, Mr. A.K. Singh, Joint Director General of

Foreign Trade, placed the following note before the DGFT:

"Draft Policy Circular for SFIS has been attempted, in line with the decision recorded for POM dt 14/12/07. Submitted for approval, pl."

Thereupon, the DGFT appears to have endorsed on 1st January, 2008

as follows:

"As slightly modified".

It was thereafter that the said A.K. Singh signed the document and

directed for its "Web Hosting". In such circumstances, we are

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inclined to record a satisfaction that the said Circular was not issued

keeping the DGFT in the dark.

38. However, an interesting twist can be discerned if the decision

taken in the Port Officers Meeting dated 14th December, 2007 is

perused. We consider it appropriate to quote the relevant portion

thereof below:

"c. Services not originating from India would not be entitled for SFIS.

i. *** ii. Airlines, Shipping Lines provide services which include services provided from Country X 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 (i.e. routes originating from India or touching 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 (RE20003), 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 14 th

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

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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 following observation:

"24. 'Clarificatory' legislations are an exception to the general rule of presuming prospective application of laws, unless given retrospective effect either expressly or by necessary implication. In order to attract this exception, mere mention in the title or in any provision that the legislation is 'clarificatory' would not suffice. Instead, it must substantively be proved that the law was in fact 'clarificatory', ..."

While so observing, the Court affirmed its earlier decision reported

in (2007) 9 SCC 665 (Virtual Soft Systems Ltd. vs CIT) where it

was held that:

"50. *** It is the well-settled legal position that an amendment can be considered to be declaratory and clarificatory only if the statute itself expressly and unequivocally states that it is a declaratory and clarificatory provision. If there is no such clear statement in the statute itself, the amendment will not be considered to be merely declaratory or clarificatory.

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51. Even if the statute does contain a statement to the effect that the amendment is declaratory or clarificatory, that is not the end of the matter. The Court will not regard itself as being bound by the said statement made in the statute but will proceed to analyse the nature of the amendment and then conclude whether it is in reality a clarificatory or declaratory provision or whether it is an amendment which is intended to change the law and which applies to future periods."

(emphasis ours)

41. We may also take note of the decision reported in (2009) 5

SCC 46 [Atul Commodities (P) Ltd. vs. Commissioner of

Customs] where the Supreme Court had the occasion to observe

that:

"31. Under Para 2.3 of FTP (2004-2009) DGFT is empowered to interpret the Policy. If any doubt or question arises in respect of interpretation of any provision in FTP or in the matter of classification 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

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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 granted to it

earlier on its understanding and working of the terms of the SFI

Scheme. In other words, even if the said Circular were clarificatory

and despite clarifications being normally retrospective, it would need

examination whether such clarification is intended to cover only

pending claims yet to be finalized, or whether by reason of such

clarificatory circular, settled and/or closed claims could be reopened.

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44. Having read the said Circular in between the lines, we may now

proceed to record our reasons to reach our conclusions.

45. Recital of the said Circular envisaging that the same was issued

as a clarification of the SFI Scheme notwithstanding, we are not to

be bound by such recital but as guided by the aforesaid decisions of

the Supreme Court its contents have to be analyzed to find out

whether (i) it is clarificatory in nature; and (ii) even though

clarificatory, whether the same is applicable without restrictions. As

earlier observed, we have little reason to doubt that the said Circular

only highlighted what was implicit in the SFI Scheme. What would

"Served From India" mean required a clarification and it was,

accordingly, clarified by the DGFT that where "export of service from

India does not take place, although foreign exchange may have been

earned", such of those services not originating from India (emphasis

ours) would not qualify for the benefit under the SFI Scheme. Based

on such clarification, it is indeed arguable as to whether the

petitioner was qualified to seek the benefit of the SFI Scheme having

regard to its admission that in the nature of export of services

undertaken by it, the routes neither originated from India or touched

India.

46. However, sight cannot be lost of two important aspects that

appear on a bare reading of paragraphs 2 and 3 of the said Circular.

At paragraph 2, it has been noted that "applications have been

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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 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

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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 cases.

48. Our attention has also been drawn to a further decision taken

in the meeting of the Port Officers dated 25th November, 2008, where

on Agenda Point No.3 pertaining to SFI Scheme, it was recorded that

"RAs have been advised to make recoveries wherever excess grant

of benefits may have taken place earlier". This meeting too was

chaired by the said A.K. Singh. Although it is recorded that the

minutes had the approval of the DGFT, no such approval has been

placed before us. Even otherwise, any statement recorded in the

minutes of the meeting of the Port Officers dated 25th November,

2008, which is clearly contrary to the said Circular cannot be binding

on any party. We unequivocally record that the said Circular does

not, either expressly or by necessary implication, endorse the

decision taken in the meeting of the Port Officers dated 14th

December, 2007 and in the absence of any stipulation in the said

Circular authorizing reopening of claims that have been settled

and/or closed, it seems to us to have been impermissible to again

take a decision in the meeting of the Port Officers dated 25 th

November, 2008 contrary to the terms of such circular and in the

absence of issuing a further clarificatory circular.

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49. We, thus, hold on the terms of the said Circular that though it

is clarificatory in nature, it does not have retrospective operation. As

such, it was not open for the third respondent to issue the demand

notice and the reminder to recover Rs.27,40,35,827/- from the

petitioner acting on the minutes of the meeting of the Port Officers

dated 25th November, 2008.

50. Mr. Singh's contention, recorded in paragraph 27(a) and (c)

supra does not advance the case of the respondents. We reiterate,

the terms do not relate to cases settled and/or closed. Also, the

contention recorded in paragraph (b) is of 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)

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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 section 5 of the FTDR Act and

paragraph 3.6.4 of the FTP 2004-2009. However, the demand notice

dated 28th January 2010 and the reminder dated 31st May 2010 being

unauthorized, are invalid in law and inoperative; hence, the same

deserve to be set aside.

53. Issues (b), (c) and (d) are answered accordingly.

Issue (e)

54. The demand notice dated 28th January 2010 and the reminder

dated 31st May 2010, for the reasons as aforesaid, are set aside.

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55. The petitioner is discharged from the undertaking given by it

at the time of admission of the writ petition on 14th September 2010.

56. However, since it appears to be the case of the respondents

that the petitioner was disqualified, even on the basis of the contents

of the Application and/or Declaration/Undertaking given by it while

obtaining benefits under the SFI Scheme, the respondents may

proceed against the petitioner to take away such benefits only if such

an action is permissible in law.

OUTCOME:

57. The writ petition stands allowed to the extent mentioned

above. However, the parties shall bear their own costs.

                       (M. S. KARNIK, J.)                            (CHIEF JUSTICE)


                       LATER:

58. Mr. Thakkar, learned advocate appearing for the Union of

India prays for stay of operation of this order. The prayer is

considered and refused.

                       (M. S. KARNIK, J.)                            (CHIEF JUSTICE)



          Digitally
          signed by
          PRAVIN
PRAVIN    DASHARATH
DASHARATH PANDIT
PANDIT    Date:
          2022.02.08
          18:44:44
          +0530