Bombay HC quashes circulars determining eligibility of Service Providers under SEIS to claim benefit of Free Foreign Exchange earnings [Read Judgment]

Bombay HC quashes circulars determining eligibility of Service Providers under SEIS to claim benefit of Free Foreign Exchange earnings [Read Judgment]

Bombay HC - determining eligibility of service - SEIS - foreign exchange earnings - Taxscan

The Bombay High Court quashed the circulars determining the eligibility of service providers under the Service Exports from India Scheme (SEIS) to claim the benefit of free foreign exchange earnings routed through them as the receipt of service charges.

The Petitioner, Atlantic Shipping Private Limited is a shipping agent providing port services, logistical services, and other ancillary services to the oil or chemical tanker owners or foreign clients is one of the leading port agencies in India with strong fundamentals operating for the past 30 years. Petitioner is an ISO-certified port agency in India certified by Det Norske Veritas and accredited by the Dutch Accreditation Council – Raad voor Accreditatie (RvA). Petitioner is also a member of the Maritime Association of Nationwide Shipping Agencies of India (MANSA).

The petitioner has challenged the validity and legality of Policy Circulars No. 06/2018 dated May 22, 2018 and 08/2018 dated June 21, 2018 issued by respondent No.3 i.e. Joint Director General of Foreign Trade clarifying determination of eligibility of service providers for SEIS to claim benefit to the extent of free foreign exchange earnings (or INR payments as allowed under the scheme) routed through them as receipt of service charges. Petitioner has also challenged refusal order and consequential show cause notice issued by respondent authority i.e. Zonal Additional Director General of Foreign Trade, Mumbai and show cause notice issued by Additional Director General of Revenue Intelligence, Chennai Zonal Unit, Chennai.

Mr. Nankani, senior counsel appearing on behalf of the petitioner at the outset submitted that without issuance of any demand cum show cause notice to the petitioner of any alleged violation or infraction the impugned order of refusal is issued; such an order is manifestly arbitrarily, illegal, unjust and in gross violation of the principles of natural justice as also contrary to the departmental guidelines issued; the order of refusal has been signed by the Foreign Trade Development Officer (FTDO) on behalf of the Additional Director General of Foreign Trade and not signed by a proper authority without sanction and approval of the competent authority, thus acting in excess of jurisdiction.

He submitted that both policy circulars attempt to modify the provisions of FTP 2015-2020; policy circular No.08/2018 dated 21.06.2018 is based upon erroneous interpretation of the wordings of para 3.08(c) of the FTP 2015-2020 read with public notice No.07/2015-20 dated 04.05.2016 with respect to services notified under Appendix 3E in as much as the deeming provision in the policy circular is not in adherence with the RBI guidelines for the purpose of provisions of section 8 of the FEMA Act and the regulations framed thereunder.

He, therefore, contended that the payments made to ports do not qualify as “Deemed Foreign Exchange earning” in view of the existing RBI guidelines; payments made by the petitioner to ports for the services purchased are not covered in para 3.08(c) of the FTP and as such do not entitle the ports for benefit under SEIS; service charges collected by major ports are in the exercise of powers as a government authority operating under the statute and therefore the port charges collected against such governmental services are excluded from GATS as per article 1 clause 3(b) and 3(c) and also from the purview of the definition of services.

The division bench of Justices Milind N.Jadhav and Ujjal Bhuyan held that it would not be possible to restrict the benefit of SEIS with reference to the concept of net foreign exchange as canvassed by the respondents as the same would result in an amendment or change in the policy.

The court said, “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.”

The court further ordered that Impugned order of refusal passed by the Additional Director of Foreign Trade, Mumbai cannot be sustained and is accordingly quashed and set aside.

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