GMR Hotels and Resorts Ltd. vs The Union of India

P. Naveen Rao, J.—The petitioner is 100% subsidiary holding company of GMR Hyderabad International Airport Limited (for short referred to as GHIAL). Petitioner is one of the group companies of GHIAL. In recognition of exports carried out by the petitioner, competent authority issued Duty Credit scrips dated 4.7.2013 in all thirteen in number worth Rs. 1,25,56,045/-, which can be encashed while importing goods specified in the Served From India Scheme. These scrips are transferable within the group company. Therefore, petitioner requested the Director General of Foreign Trade to permit utilisation of scrips by GHIAL. Petitioner submitted a representation dated 20.12.2013 requesting to grant such permission. In response, by letter dated 12.2.2014, the petitioner was asked to furnish documentary evidence as per para 9.28 of the Foreign Trade Policy for the years 2009-2014 duly attested by Registrar of Companies to process the case further. On application, the Registrar of Companies, informed that no such certificate can be issued. Therefore, a certificate from M/s. Brahmayya & Company, Chartered Accountant of GHIAL was obtained and submitted in lieu of requirement of certificate of attestation from the Registrar of Companies. By proceedings dated 22.7.2014, petitioner was informed that request for transferability of Duty Credit scrips under the Served From India Scheme to GHIAL was rejected on the ground that petitioner is not holding more than 26% of the shares in GHIAL, which is a mandatory requirement as per policy. Aggrieved thereby, this writ petition is instituted.

Heard Sri E. Manohar, learned senior counsel appearing on behalf of petitioner and Sri B. Narayana Reddy, learned Assistant Solicitor General for respondents.

Learned senior counsel contended that GMR Hotels and Resorts Limited-petitioner herein is 100% holding company of GHIAL and controls the affairs of the petitioner company in all respects. It is a group company and therefore it is permissible for one company to transfer the scrips as per the Foreign Trade Policy to another in the group company. Learned senior counsel further contended that on literal reading of para 3.2.7 read with para 9.28 of Foreign Trade Policy 2009-14 makes it clear that petitioner can transfer the scrips to GHIAL. When the policy is clear and unambiguous, the Director General cannot apply his own interpretation to the said term of the policy nor the Policy Interpretation Committee can give wholly a different meaning to what is contained in para 3.2.7 read with para 9.28 of Foreign Trade Policy. Therefore, any such clarification given by the Policy Interpretation Committee, is wholly illegal, without jurisdiction and competency and rejection of the request of the petitioner on the ground that petitioner does not hold minimum 26% share holding in GHIAL is contrary to Foreign Trade Policy.

Learned senior counsel further contended that the scheme is a beneficial provision and has to be liberally construed. The scheme is to encourage foreign trade. Thus, facility of utilisation of scrips obtained on account of such foreign trade carried out by one company be utilised by another company is also intend to encourage foreign trade. This encourages the group companies to actively involve in foreign trade and earn good returns. The interpretation placed by the Policy Interpretation Committee and applied by the Director General is erroneous and contrary to very spirit of the foreign trade policy. Placing reliance on Commnr. of Central Excise, Bhopal Vs. Minwool Rock Fibers Ltd., learned senior counsel contended that circulars /clarifications are not binding on the Court and Court is competent to construe the provision as such without regard to a clarification. Learned senior counsel therefore contends that interpretation placed by the Policy Interpretation Committee was erroneous and same can be ignored and benefit of provision contained in para 9.28 of the policy should be extended to the petitioner to enable the petitioner to transfer the scrip to its holding company.

Learned Assistant Solicitor General placing reliance on the averments in counter affidavit contended that para 9.28 envisages that a group company must have 26% or more voting rights in other enterprise to which the benefit of exports account can be transferred in accordance with Foreign Trade Policy. The interpretation placed by the Policy Interpretation Committee is in tune with the provisions contained in para 9.28 of the Foreign Trade Policy. The Director General of Foreign Trade consistently holding that a group company which does not have 26% of the share holding in another company cannot transfer the scrips issued to it on account of exports carried out, to that other company.

The decisions given by the Policy Interpretation Committee and applied by the Director General are enclosed to the counter. In cases of M/s. Tata Teleservices Maharashtra Limited and M/s. Essar Oil Limited, the facts are identical and request was rejected by applying the provisions in para 9.28 of the Foreign Trade Policy strictly. He therefore submits that decision communicated to the petitioner is valid and is not erroneous nor illegal or arbitrary warranting interference by this Court.

With an objective to facilitate imports and to augment export, Foreign Trade (Development and Regulation) Act, 1992 (Act 22 of 1992) was made. From time to time Central Government notifies Foreign Trade Policy (FTP). Last such policy was notified in the year 2009 operative for a period from 2009 to 2014. Wherever necessary, changes were effected in the meantime. The policy sets out Government agenda to promote foreign trade. The Foreign Trade Policy is divided into 10 chapters. Each of the chapter deals with each of the aspects of foreign trade. In this case relevant paras are paragraph 2.3 of Chapter 2, 3.12.7 of Chapter 3 and Para 9.28 of chapter 9.

Chapter 2 deals with general provisions regarding imports and exports. According to para 2.3(a) the decision of DGFT is final and binding on all matters relating to interpretation of policy. Policy interpretation committee (PIC) aids and advices him in this regard.

Chapter 3 deals with promotional measures. As part of promotional measures, Served from India Scheme (SFIS) was launched. Objective of the scheme is to accelerate growth in export of services to create powerful and unique Served From India brand. Person qualified to avail the SFIS is entitled to Duty Credit sops equivalent to 10% of free foreign exchange earmarked during the financial year. Duty credit sops can be utilised for import of certain capital goods/for payment of duty on import of certain vehicles/ for import of consumables /for payment of excise duty for procurement from domestic sources in respect of items permitted for import under SFIS duty credit scrip.

Chapter 9 provides for definitions on terms used in the FTP. Para 9.28 defines Group Company as under:

9.28 Group Company: Group company means two or more enterprises which, directly or indirectly, are in a position to:-(a) Exercise twenty six percent, or more of voting rights in other enterprise; or (b) Appoint more than fifty percent of members of board of directors in the other enterprise.

For group companies to claim benefits or have their exports counted for benefits to be claimed by another member of group, the group company should have been in existence at least 2 years prior to date of application under any of export promotion schemes notified in Foreign Trade Policy.

Cumulative reading of objectives of the Act and the FTP, more particularly various incentives incorporated in Chapter 3, would show that Central Government is giving lot of impetus to encourage exports, more particularly in service sector. As part of this impetus, the Duty Credit Scrips are issued as incentive. As per para 3.12.7, normally Duty Credit Scrips are not transferable but within the group companies, the said scrips can be transferred. While granting relaxation of conditions of non-transferability of Duty Credit Scrip within group companies, it has not put any further restrictions. Para 9.28 only deals with definition of term Group Company. On reading of this definition, it would mean that to qualify to be a group company, an enterprise must have minimum of 26% or more voting rights or in a position to appoint more than 50% of Board of Directors in another company. It does not envisage that the company which earned Duty Credit Scrips alone should hold 26% or more voting rights or has power to appoint more than 50% of Board of Directors in the other company. On a plain reading, neither the provision in para 3.12.7 nor definition in para 9.28 seeks to restrict transfer of Duty Credit Scrip from a group company to another company based on holding capacity as understood by the Director General of Foreign Trade. Chapter 3 and more particularly para 3.12 deals with incentive scheme for export of services and is a beneficial scheme. Such beneficial scheme must receive liberal construction. The petitioner company availed the SFIS and earned Duty Credit Scrips. When relevant provision does not impose any restriction on transferability of Duty Credit Scrips by invoking power of interpretation, Director General of Foreign Trade cannot introduce something which is not envisaged and impose an additional restriction. The Director General of Foreign Trade has only power to interpret the existing clauses but cannot seek to amend or alter the Foreign Trade Policy terms. The impugned decision amounts to altering the terms of Served From India Scheme and is in excess of power and jurisdiction vested in him.

For the foregoing reasons, the impugned proceedings dated 22.7.2014 is set aside and second respondent is directed to receive served from India Duty Credit scrip No. 09100566123 dated 4.7.2013 and transfer the same in favour of GMR Hyderabad International Airport Limited in terms of Foreign Trade Policy 2009-2014, if necessary by extending the period of validity for a further period of six months from 3.1.2015.

Accordingly the writ petition is allowed. No costs. Having regard to the same, miscellaneous petitions are closed.