Unauthorised Demand
   Date :14-Feb-2022

Unauthorised Demand
By Adv. R. S. Agrawal :
According to the HC, the demand notice and the reminder being unauthorised, are invalid in law and inoperative, hence, the same deserve to be set aside. The impugned Circular does not take away the benefits that have accrued, on the basis of the Served From India (SFI) Scheme prior to the contents thereof being clarified by the said Circular. 
THROUGH the judgement of the case – Essar Shipping Ltd. v. Union of India & Others, delivered on February 8, 2022, Chief Justice Dipankar Datta and Justice M. S. Karnik, at the Bombay High Court have seen no reason to hold the Policy Circular No. 25 of 2007 of January 1, 2008, issued by the Director General of Foreign Trade (DGFT), ultra vires Articles 14 and 19(1)(g) of the Constitution of India as well as section 5 of the Foreign Trade (Development & Regulation) Act, 1992 (FTDR Act) and paragraphs 3, 6, 4 of the Foreign Trade Policy (FTP) -2004-2009. However, according to the HC, the demand notice of January 28, 2010 and the reminder of May 31, 2010 being unauthorised, are invalid in law and inoperative, hence, the same deserve to be set aside. In the opinion of the High Court, the impugned Circular does not take away the benefits that have accrued, on the basis of the Served From India (SFI) Scheme prior to the contents thereof being clarified by the said Circular. 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 Union of India in the year 2005 under the FTP 2004-2009 in its present form. According to the HC, it has 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 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. However, sight cannot be lost of two important aspects that appear on a bare reading of paragraphs 2 and 3 of the said Circular. In paragraph 2, it has been noted that “applications have been 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. “On consideration thereof, the decision crystallised in paragraph 3 is that “the following principles be applied while finalising the claims”.
The HC’s attention was drawn to a further decision taken in the meeting of the Port Officers, held on November 25, 2008, where in Agenda at point No. 3 pertaining to SFI Scheme, It was recorded that “RAs have been advised to make recoveries wherever excess grants of benefits may have taken place earlier”. Although it is recorded that the minutes had the approval of the DGFT, no such approval was placed before the HC. Even otherwise, any statement recorded in the minutes of the said meeting, which is clearly contrary to the said Circular cannot be binding on any party. The HC has unequivocally recorded that the said Circular does not, either expressly or by necessary implication endorse the decision taken in the meeting of the Port Officers held on December 14, 2007 and in absence of any stipulation in the said Circular authorising re-opening of claims that have been settled and/or closed, it seems to us to have been impermissible to again take a decision in the Port Officers’ meeting held on November 25, 2008 contrary to the terms of such Circular and in absence of further clarification by issuing another Circular. The HC has held 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 respondent-authority 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 held on November 25, 2008.
The HC has reiterated that the terms do not relate to cases settled and/or closed. 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 authorises them to do so but not otherwise. The Court has pointed out that it is clear that but for the said Circular, the demand notice would not have been issued. The source of the authority of the said respondent for issuing the demand notice is the impugned Circular and in view of what the Court has already held 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 finalised, the respondent erred in exercise of his jurisdiction in issuing the demand notice/reminder. The petitioner-Company is engaged in the business of rendering maritime transport services. Through the demand notice issued on January 28, 2010 and reminder sent on May 31, 2010, consequent upon the said Circular, the respondent-Joint Director, of Foreign Trade, Bengaluru, post-facto and retrospectively, directed the petitioner to pay customs duty and interest on the basis of benefits already availed and utilised by the petitioner on account of its entitlement under the SFI Scheme, in a sum of Rs 27, 40, 35,827/-.
The essence of the petitioner-Company’s challenge has been that the DGFT cannot take away the benefits conferred by the Foreign Trade Policy 2004-09 by way of a Circular, which is only administrative and/or executive in nature. Further, the respondent- authority does not have power to deny the benefits long after the utilisation thereof by the petitioner, when there is no provision whatsoever, authorising it, to recall the benefits granted to the petitioner, under the Policy for the past period. The High Court has set aside the impugned demand notice of January 28, 2010 and reminder of May 31, 2010, without touching the impugned Circular. 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 have been permitted by the Court to proceed against the petitioner to take away such benefits only if such an action is permissible in law. The High Court has allowed the petition to the extent permitted by it.