Bombay High Court quashes ₹27 crore demand notice against Essar Shipping under FTP scheme

The Bombay High Court on Tuesday quashed the demand notices issued by the Joint Director-General of Foreign Trade (DGFT) in light of the circular curtailing benefits granted to Essar Shipping Limited under the Served From India (SFI) Scheme of the Foreign Trade Policy (FTP) 2004-09. [Essar Shipping Limited v. Union of India & Ors].A Bench of Chief Justice Dipankar Datta and Justice MS Karnik noted that the circular issued by DGFT under which the demand notice was issued was only clarificatory and highlighted what was implicit in the scheme. However, the same did not grant any power to the authorities to issue demand notices, the Court held..The Bench noted that the benefit claimed in terms of the SFI Scheme was already settled in favour of Essar without raising any question.“It is an official act to which a presumption of legality is attached,” the Bench remarked.“If a benefit has been erroneously extended by the respondents, the (respondents) can recover such benefit only if law authorizes them to do so but not otherwise,” the Court emphasized.Accordingly, the demand notice was quashed and set aside..The SFI Scheme was introduced to provide benefits in the form of ‘duty credit scrip certificates’ equivalent to an amount of 10 per cent of such foreign exchange earnings to notified Indian Service Providers engaged in exporting services.The scrips 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.This benefit did not expand to ‘services not originating from India’, which was clarified in the policy circular issued by DGFT..Essar challenged this circular in the present petition and sought for quashing of the demand notice.The grounds for challenging the policy were:that DGFT could not take away benefits conferred by the Foreign Trade Policy (FTP) 2004-09 by way of a circular which only administrative or executive in nature.that Joint DGFT did not have powers to deny benefits conferred under FTP when there was no provision under the Foreign Trade (Development & Regulation) Act (FTDRA) or FTP authorizing the respondent to recall the benefits granted by law.The grievance for filing such petition arose when post such circular the Joint DGFT issued demand notice and remainders directing the petitioner to pay customs duty and interest in the sum of ₹27,40,35,827/- on the basis of benefits already availed under the SFI scheme..Opposing the plea, the Union claimed that Essar deliberately suppressed the fact that it provided maritime transportation services from a place outside India to another place outside India without making a port call in India, thus a service not originating from India.Essar having wrongfully obtained benefits on the basis of an incorrect declaration could not have sought to unjustly enrich itself, the Union contended..Rejecting this contention, the Bench observed that if the petitioner was indeed not entitled to benefit under the scheme, then it would not have been granted by the respondent authorities. The Court added that the demand notice issued should have used ’suppression by petitioner’ as a ground, and not the circular under challenge.Accordingly, the demand notice was quashed..Meanwhile, since the circular did not take away benefits of the scheme, the Court did not find any reason to interfere with the circular and upheld it.The Bench discharged Essar from its undertaking. However, it granted liberty to the respondents to take away benefits under the SFI Scheme if permitted by law..Senior Advocate Vikram Nankani with Advocates Prithviraj Choudhari, Archit Virmani and Nikhil Mengde appeared for Essar.Additional Solicitor General Anil Singh with Advocates MS Bharadwaj, Aditya Thakkar and DP Singh appeared for the Union of India and DGFT authorities..[Read order]