Exporter Not Required To Hold IEC Number To Avail Benefits Under 'Service Exports From India' Scheme: Bombay High Court

The Division Bench of Justices S.V. Gangapurwala and Vinay Joshi held that the said condition cannot be termed as mandatory in nature for availing the benefits under the SEIS since it is against the principal legislation, i.e., the FTDR Act.

The petitioner Smarte Solutions Pvt. Ltd. provides market research services, which is eligible for benefits under the Services Export from India Scheme (SEIS), as introduced under the Foreign Trade Policy 2015-2020 (FTP).

The petitioner's application for availing the benefits under the SEIS was rejected by the Policy Relaxation Committee of the Director General of Foreign Trade (DGFT) on the ground that it did not hold a valid Import Export Code (IEC) number at the time of rendition of services exported from India. The petitioner filed a review application, which was rejected. Against this, the petitioner filed a writ petition before the Bombay High Court.

The petitioner Smarte Solutions Pvt. Ltd. submitted before the High Court that the object of the FTP is to encourage exports from the India. The petitioner added that in view of the proviso to Section 7 of the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act), the petitioner was required to hold an IEC number only at the time of applying under the scheme. The petitioner contended that obtaining an IEC number at the time of rendering services is not a statutory requirement.

The petitioner averred that para 3.08 (f) of the FTP provides that in order to avail the benefit under the SEIS, the service provider is required to have an active IEC number at the time of rendering the services for which the SEIS benefit has been claimed. The petitioner contended that the said condition is contrary to the provisions of Section 7 of the FTDR Act and is against the very objective of the FTDR Act

The petitioner submitted that the FTP is notified by the Central Government in exercise of the powers conferred under Section 5 of the FTDR Act and therefore, the policy notified under the FTDR Act should be in conformity with the provisions of the FTDR Act.

Section 7 of the FTDR Act provides that no person shall make any import or export except under an Importer-exporter Code Number granted by the Director General or the officer authorised by the Director General.

The Proviso to Section 7 provides that in case of import or export of services or technology, the Importer-exporter Code Number shall be necessary only when the service or technology provider is taking benefit under the foreign trade policy or is dealing with specified services or specified technologies.

The Bombay High Court observed that the Supreme Court in the case of Supreme Court Employees Welfare Association versus Union of India (1989) had ruled that a delegated legislation or a subordinate legislation must confirm to the power granted to it and that the rules framed by it must be consistent with the parent law under which the power has been derived.

Further, the Court noted that in General Officer Commanding-in-Chief versus Dr. Subhash Chandra Yadav (1988), the Apex Court had held that for a rule to have the effect of a statutory provision, it must conform to the provisions of the statute under which it is framed and it must fall within the scope and purview of the rule making power of the authority framing the rule.

The Court observed that in the proviso to Section 7 of the FTDR Act, an exception has been carved out with respect to import or export of services or technology, and accordingly, an IEC number shall be necessary only when the service provider is taking the benefits under the FTP. Hence, the Court noted that the IEC number is only required for taking the benefits under the scheme, and that as per the proviso to Section 7, the IEC number is not essential at the time of rendering the specified services.

Thus, the Court held that the eligibility criteria, as provided in Clause 3.08 (f) of the FTP, for availing the benefits under SEIS has imposed an additional restriction of having an IEC number at the time of rendering the services, which is not the intent or purport of the FTDR Act.

Holding that the said condition, as provided in Clause 3.08(f) of the FTP, is against the principal legislation, the Court ruled that the said condition cannot be termed as mandatory in nature for availing the benefits under the SEIS.

"The proviso does not lay down that the IEC number is essential at the time of rending services of said specified kind. The requirement of IEC number is only for taking benefits under the scheme. Therefore, it is abundant clear that the eligibility criteria of Clause 3.08(f) of the FTP has imposed additional restriction of having IEC number at the time of rendering services which was not intent or purport of the statute. Therefore, we are of the considered view that the said condition is against the principal legislation and therefore, it cannot be termed as of mandatory nature for availing benefits under the scheme."

Hence, the Court allowed the writ petition and directed the DGFT Authorities to consider the petitioner's application without insisting on having an active IEC number at the time of rendering the services.

Case Title: Smarte Solutions Pvt. Ltd. versus Union of India and Ors.

Dated: 27.07.2022 (Bombay High Court)

Counsel for the Petitioner: Ms. Meetika Baghul, Advocate a/w. Ms. Anveshika Sing, Advocate i/b. Ms. Sharon Patole, Advocate

Counsel for the Respondent: Ms. Shehnaz V. Bharucha, Advocate a/w. Ms. Priyanka Chavan, Advocate i/b. A. A. Ansari, Advocate

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