Sujit Ghosh Advocate – Delhi High Court Partner & National Head, Advaita Legal Interface between Foreign Trade and Central and State Taxation Laws

1 CONTENTS Topic Inter-play between Ministry of Commerce and Ministry of Finance Different Scenarios – Legal Issues Issues relating to Foreign Trade Policy Tax exemptions under Treaties

Interplay between Ministry of Commerce and Ministry of Finance- Why?

3 Inter-play between Ministry of Commerce and Ministry of Finance – Why? V/s Legal issues often arise when: - the executive endeavours to ‘enact’/interprets the notifications issued under the respective enactments in abeyance or in contradiction to the FTP or SEZ Act - the executive assumes excessive power so as to withdraw certain tax benefits suo moto. Ministry of Commerce Ministry of Finance (Union & States) - Foreign Trade (Development and Regulation Act), 1992 (“FTDR Act”) - Special Economic Zones Act (“SEZ Act”) - Foreign Trade Policy under FTDR Act - Advance Authorization Scheme - Duty Free Import Authorization (DFIA) - Deemed Export Benefits like drawback and TED refund - Served From India Scheme (SFIS) Foreign Trade Policy confers several tax benefits on imports ( on account of exports) -CST Act -Central Excise Act Customs Act, Finance Act, 1994 (‘Service Tax’) - State VAT Acts Notifications under the Finance Act, Excise & Customs Act executes the tax benefits granted under FTP Schemes

Different Scenarios- legal issues

Issues relating to FTP

6 Clarifications & Implementation POWER TO CLARIFY/INTERPRET THE LAW  DGFT – Responsible to carry out the FTP & frame procedures  CBEC – Essentially administrative body and power to issue Section 37B order  Clarifications issued by DGFT binding on lower authorities  Clarifications issued by CBEC, binding on lower authorities and not appellate authorities  Retrospective clarifications !!!!  Clarifications – A fodder for Litigation ! IMPLEMENTATION OF EXEMPTIONS  Duty exemptions under FTP operate, subject to  Meeting MoF Notifications; read with  Certificate/ Licence from MoC/DGFT  Slip in either – Fodder for Litigation !

7 Administrative Power of DGFT Paragraph of the Handbook of Procedures (HoP) Provides that subject to the procedures laid down in the HoP, Customs and Central Excise Duty Drawback Rules, 1995 shall apply mutatis mutandis to deemed exports. Contains power to recover duty drawback erroneously granted HoP is procedural in nature HoP only for specifying the procedure to be followed by the importer, exporter and the licensing authorities No legislative power has been granted to DGFT either under the FTDR Act or the FTP -Nothing but colourable exercise of power by DGFT which is not permissible under the Constitution -Such powers amounts to collection of tax without the authority of law in violation of article 246 and 265 of the Constitution -An attempt by the executive to legislate (strictly against the doctrine of separation of power as per the basic structure of the Constitution)

8 Administrative Power of DGFT Paragraph 7 of the self-declaration under Form ANF 8 Handbook of Procedures Applicant declares that it would “immediately refund the amount of drawback obtained” by them “in excess of any amount/rate which may be re-determined by Government as a result of post verification” Power to recover is a substantive power which should be provided in the statutory framework and cannot be done through administrative guideline !! DGFT not empowered under the FTDR Act or its subordinates to re-determine/ re-verify the deemed export benefits already granted (except by way of review under section 16) - Can DGFT assume a power to review under para 7 of the self-declaration? - Can DGFT derive quasi-judicial powers which are beyond the provisions of FTDR Act?

Tax exemptions under Treaties

10 Power to Legislate  Article 246 – Distribution of power ( to legislate) between State & Center  Article 253 – Power to implement treaties, through Parliamentary legislation  What if there is a conflict ?  Example follows….

11 Tax exemptions under IFC Act and ADB Act -all the operations and transactions of the Banks shall be exempt from all taxation in India -exempt bank from any obligation for the payment, withholding or collection of any tax or duty -Both Acts have a non-obstante clause providing that the provisions of IFC Act and the ADB Act would have an overriding effect over contrary provisions of any other statutes -No exemption has been issued under the Finance Act, 1994 from payment of Service Tax by ADB or IFC Issue – Whether the provisions of IFC Act and ADB Act would override the provision of Finance Act, 1994? Asian Development Bank Act (‘ADB Act’) (Ref: Article 56 of the Schedule) International Finance Corporation Act (‘IFC Act’) (Ref: Section 9 of Article VI of the Schedule)

12 Tax exemptions under IFC Act and ADB Act  How to resolve the Conflict ?  Can there be a conflict to begin with ?  If yes, should Specific to overrule the General; or  Later legislation to overrule the earlier legislation ; or  Subordinate legislation cannot derogate Primary Legislation

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