JULY 17, 2018

By D Kalirajan, Advocate

THE Central Government in exercise of power under Section 5 of the Foreign Trade Development and Regulation Act, 1992 (in short 'the FTDR Act') has framed and notified the Foreign Trade Policy 2015 – 20 (in short 'the FTP') wherein the Merchandise Export from India Scheme (MEIS) and the Service Export from India scheme (SEIS) is provided. Quantum of benefits available under the MEIS and SEIS are provided under para 3.03 and 3.10 of the FTP, respectively. While the para 3.04 of FTP entitles the exporter of notified goods to claim MEIS scrip at notified rate on FOB value of exports as per Shipping bill or realised FOB value of exports, whichever is less, the para 3.10 of FTP entitles the Service providers of eligible services to claim SEIS Scrip at notified rates on net foreign exchange earned.

It is provided under the para 9.03 of Handbook of Procedures 2015 – 20 (in short 'the HBP' ) as existed upto 27.06.2018 that the supplementary claim sunder any schemes in the FTP could be considered after imposing a cut @ 2% on the entitlement. Therefore, exporter could have filed supplementary claim under the MEIS & SEIS wherever they are eligible. Entitlement as per FTP and the actual claim as per HBP as existed upto 27.06.2018 is provided in Table 1 below.

Table 1

Recently, para 9.03 of the HBP has been amended by the DGFT vide Public Notice No. 16/2015-20 dated 28.06.2018 to disallow supplementary claims under MEIS and SEIS . This amendment will reduce the MEIS & SEIS entitlements provided under the FTP by way of not allowing supplementary claim, as said in below table.

Table 2

The scope of HBP as envisaged by the Central government under para 2.04 of FTP is merely implementation of the provisions of the FTP. The said Para 2.04 of FTP reads as follows.

"2.04 Authority to specify procedures

DGFT, may specify procedure to be followed by an exporter or importer or by any licensing/Regional Authority (RA) or by any other authority for purposes of implementing provisions of FT (D&R) Act, the rules and the orders made there under and FTP. Such procedure, or amendments, if any, shall be published by means of a public notice."

In the case of Narendra Udeshi v. Union of India reported in 2003-TIOL-68-HC-MUM-EXIM the Hon'ble High Court of Bombay has held inter alia that the procedures to be prescribed by an authority in implementing the policy must be in consonance with the policy. If the procedural norms are in conflict with the policy, then the policy will prevail and the procedural norms to the extent they are in conflict with the policy, are liable to be held to be bad in law. Similarly, the Hon'ble High Court of Delhi in the case of BRG Iron & Steel Co Pvt Ltd v. Union of India reported in 2014-TIOL-1526-HC-DEL-CUS, has held that the Handbook of Procedures as notified by the DGFT is to specify the procedure for the purpose of carrying out the policy as formulated by the Central Government and it cannot take away the benefits provided under the FTP.The Courts in plethora of cases have held that the HBP is merely to prescribe the procedures for implementation of FTP and it cannot take away the benefits provided under the FTP.

In the instant case, though the FTP entitles an exporter to claim the benefits of MEIS & SEIS on the entire realised value of exports, the HBP tries to disallow a part of entitlement by way of not allowing supplementary claim. In this competitive export market, necessity to file supplementary claim would arise under the following circumstances.

a. When the Indian exporter extends the facility of instalment payment to the foreign buyers of goods or services.

b. Indian party exports the goods to their warehouse abroad and realises foreign exchange towards sale of such goods to various foreign buyers at different point of time (but within the period prescribed under the FEMA).

c. Recovery of debts which was considered as bad earlier.

d. Granting the MEIS benefits retrospectively by the DGFT to the products which were exported along with the products for which MEIS benefit has already been extended under same shipping bill.

As per Section 5 of the FTDR Act, 1992, only the Central government has the power to frame and amend the FTP. Even the Central government cannot sub-delegate its power to frame or amend the FTP to the DGFT in view of Section 6 of the FTDR Act.The Hon'ble High Courts under various cases has struck down the amendments brought in by the DGFT which are ultra vires the provisions of FTP. Therefore, in my humble view, the Public Notice disallowing the supplementary claims under MEIS and SEIS deserve to be stuck down by the Hon'ble High court(s).

Before parting…

It is to be noted that the benefits under similar schemes viz., Focus Market Scheme (FMS), Focus Product Scheme (FPS), etc., provided in the erstwhile FTP 2009 – 14, were granted even before realisation of foreign exchange and the supplementary claim was entertained if realised amount is more than the value declared on the Shipping bill. However, the present FTP 2015 – 20 requires the exporter to realise the foreign exchange to determine the amount of MEIS & SEIS to be granted. Therefore, the DGFT may under the impression that there will be no supplementary claim under Chapter 3 of FTP. However, it is the fact that there are various circumstances as said above where necessity to file supplementary claim would arise. In my humble view, in the interest of the trade and industry, the DGFT should review its decision to disallow the supplementary claim and reinstate the erstwhile position. In case the DGFT failed to do so, it would create a situation of litigation marching towards the various High courts.

(Author is associated with Lakshmikumaran and Sridharan, Bangalore and views expressed in the article are strictly personal.)