The court ruled that a show cause notice based on prior misinterpretation of law is untenable, reaffirming that settled claims cannot be reopened.

Judgement :

(Somasekhar Sundaresan, J.)

1. Rule. Respondents waive service. Rule made returnable forthwith. With the consent of the parties taken up for final hearing.

Context and Factual Background:

2. This is a Writ Petition challenging the issuance of a show cause notice dated January 13, 2023 (“Impugned SCN”) issued by the Director General of Foreign Trade (“DGFT”) to the Petitioner, Essar Shipping Ltd. (“Essar”) under Section 14 of the Foreign Trade (Development and Regulation) Act, 1992 (“FTDR Act”) and subordinate law thereunder. The allegation is that Essar availed of the benefits under the Foreign Trade Policy 2004-2009 (“FTP”) by furnishing information, making declarations and relying on certificates, that were allegedly wrong.

3. For the reasons set out in this judgement, we hold that the Impugned SCN deserves to be quashed and set aside, since it is primarily based on a mis-reading of a judgement of a Learned Division Bench of this Court, in a Writ Petition filed by this very Petitioner, namely, Writ Petition No. 1335 of 2010 decided on February 8, 2022 (“DB Judgement”). In fact, the Impugned SCN is untenable by reason of the very decision of the Learned Division Bench, as would be seen from the analysis below.

4. Under the FTP, a “Served from India Scheme” (“SFIS”) was formulated. The intent was to incentivise a unique brand identity for export of services and to create a “Served From India” brand. Under the SFIS, onthe basis of the quantum of free foreign exchange earned out of services exported in the previous financial year, “duty credit scrips” would be issued to the service exporters for a value equivalent to 10% of the export earnings. These ‘scrips’ could then be used to offset Customs Duty payable on imports of any capital goods, spares, equipment and the like.

5. At all times relevant to this Petition, Essar was in the business of providing shipping services to clients – an export of services by an Indian company. It is common ground that export of shipping services was eligible under the SFIS. Ships owned or chartered by Essar would ply in international waters and deliver goods i.e. “freight” to consignees around the world. Essar’s clients availed of such services to export goods from India or to import goods into India. Some international clients would also avail of services between intermittent stops on the routes of such ships – on its voyage, a ship may carry freight between two foreign countries. For example, if a ship were to sail from Singapore to Mumbai, some clients may consign freight from Singapore to Colombo, and the ship would shed such cargo in Colombo en route to Mumbai. Essar would earn foreign exchange from such services too. Based on all earnings from export of services including from fright between two foreign countries, Essar sought duty credit scrips linked to foreign exchange earnings between 2006 and 2007. The duty credit scrips were also utilised for setting off Customs Duty on imports from time to time.

6. The DGFT’s case is that the file opened on May 3, 2007 by Essar seeking SFIS benefits (“SFIS File”), containing documents, information and certificates, was misleading. The Impugned SCN was issued, evidently over 15 years later. The basis of alleging that the SFIS File was untruthful, is based on the assertion that Essar’s certification of the SFIS File being in conformity with the SFIS, was a material mis-statement.

Policy Circular of August 1, 2008:

7. The basis for such a view is rooted in the change in policy by a Policy Circular No. 25/2007 dated January 1, 2008 (“Policy Circular”). Under the Policy Circular, based on deliberations held on December 14, 2007, the DGFT took a view that the earnings from export of services that would qualify for the benefit of duty credit scrips, ought to be from exports that physically “originate from India”. The Policy Circular stipulated that “while examining the claim of “Service Providers” for duty credit scrips, there ought to be a connection to