Delhi High Court Upholds Transferability of SFIS-Imported Goods After Five Years

Introduction

In the landmark case of Greatship (India) Ltd. v. Union Of India & Ors., heard by the Delhi High Court on May 23, 2016, the petitioner, Greatship (India) Ltd., challenged the validity of a Customs Notification that imposed an absolute bar on the transfer and sale of goods imported under the Served From India Scheme (SFIS) duty certificates/scrips. This case revolved around the interpretation and application of the Foreign Trade Development and Regulation (FTDR) Act, 1992, and examined the conflicting viewpoints between the Department of Revenue (DoR) and the Directorate General of Foreign Trade (DGFT).

Summary of the Judgment

The Delhi High Court, presided over by Justices S. Muralidhar and Vibhu Bakhru, ruled in favor of Greatship (India) Ltd., declaring the impugned Customs Notification No. 91/2009 dated September 11, 2009, as unconstitutional and violative of several statutory provisions. The court held that the Department of Revenue's absolute restriction on the transferability of goods imported under the SFIS was contrary to the Foreign Trade Policy (FTP) 2004-2009 and 2009-2014, the FTDR Act, and related rules. Consequently, the court restrained the DoR from objecting to the transfer or sale of the relevant vessels that had been imported more than five years prior.

Analysis

Precedents Cited

The petitioner referenced the Tanfac Industries Ltd. v. Assistant Commissioner of Customs (Madras High Court, 2009) and Commissioner of Central Excise and Service Tax, LTU, New Delhi v. Havells India Ltd. (Delhi High Court, 2015) to support their argument that goods imported using SFIS scrips should be treated as duty payable rather than duty exempted. These precedents were pivotal in underscoring the principle that payment through scrips constitutes a legitimate method of duty remuneration, thereby not subjecting the goods to perpetual non-transferability restrictions.

Legal Reasoning

The court meticulously analyzed Sections 5 and 6 of the FTDR Act, the Foreign Trade Policy (both 2004-2009 and 2009-2014), and the Foreign Trade (Regulation) Rules, 1993. It established that the DGFT, empowered under the FTDR Act, holds the ultimate authority in interpreting the FTP. The court found that the DoR's notification conflicted with existing FTP provisions that allow for the transfer of SFIS-imported goods after a stipulated period (two years under FTDR Act, amended to three years in FTP 2009-2014). Moreover, the court emphasized that the imposition of additional restrictions by the DoR was arbitrary, lacking any rational basis or legitimate objective.

The court also highlighted the inconsistency between the DoR's stance and the DGFT's policy amendment, pointing out that the FTP should prevail in inter-ministerial conflicts where FTP is the primary governing policy. The decision underscored the necessity for a harmonious statutory scheme, where various regulations and notifications must align to prevent operational impasses.

Impact

This judgment has significant implications for importers utilizing the SFIS scheme. It clarifies that after a specified period, goods imported under SFIS can be freely transferred or sold, aligning with the FTP's provisions. This decision also reinforces the precedence of the DGFT's interpretations over conflicting directions from other departments, ensuring streamlined and predictable regulatory compliance for businesses engaged in international trade.

Additionally, the ruling serves as a precedent for resolving inter-departmental conflicts within the government, emphasizing the supremacy of the FTP in governing foreign trade policies. Future disputes involving the interpretation of FTP provisions are likely to cite this judgment for reinforcing the DGFT's authoritative role.

Complex Concepts Simplified

Served From India Scheme (SFIS): A mechanism allowing importers to pay customs duties through duty credit scrips instead of immediate cash payment. These scrips can be utilized for future duty payments on imported goods.

Foreign Trade Policy (FTP): A government framework outlining the rules and regulations governing import and export activities, aimed at promoting and regulating foreign trade.

Foreign Trade Development and Regulation (FTDR) Act: Legislation providing the legal framework for the formulation and administration of policies related to foreign trade in India.

Actual User Condition: A stipulation that imported goods under certain schemes must be used for the intended business purpose and cannot be diverted for other uses without permission.

Non-Transferability: A restriction preventing the sale or transfer of imported goods to third parties, ensuring that the goods remain within the specified business operations or group entities.

Conclusion

The Delhi High Court's decision in Greatship (India) Ltd. v. Union Of India & Ors. reaffirms the authority of the DGFT in interpreting the Foreign Trade Policy and ensures that importers have clarity regarding the transferability of goods imported under the SFIS scheme. By invalidating the DoR's restrictive notification, the court has upheld the principles of regulatory consistency and fairness, enabling businesses to operate without undue governmental impediments. This judgment not only resolves the immediate conflict but also sets a clear precedent for the harmonious application of trade policies, ultimately fostering a more predictable and business-friendly environment in India's foreign trade landscape.