Legal principle

Once a policy clarification is held prospective and claims have attained finality, a show cause notice alleging only that earlier confirmations were mis-statements—without fresh material of suppression outside the earlier adjudication—is barred by res judicata and liable to be quashed.

Court decision

The Division Bench (B.P. Colabawalla and Somasekhar Sundaresan, JJ.) allowed the writ petition in favour of Essar Shipping, holding the Impugned SCN covered by res judicata and an unreasonable and arbitrary attempt to re-open an already closed issue; Paragraph 56 of the DB Judgement was of no assistance to the respondents, and the SCN was quashed and set aside, with rule made absolute and no order as to costs.

Facts

Essar Shipping Ltd., an Indian shipping company, earned duty credit scrips under the Served From India Scheme (SFIS) of FTP 2004-2009, equivalent to 10% of its foreign exchange earnings from export of shipping services for 2006-07, including freight earned on routes between two foreign countries, and used the scrips to offset Customs Duty on imports. After DGFT's Policy Circular No. 25/2007 dated 1.1.2008 restricted benefits to services originating from or touching India, DGFT issued Recovery Notices in 2010, which a Division Bench of the Bombay High Court quashed on 8.2.2022 (WP 1335 of 2010), holding the Circular to be a prospective clarification and that settled claims could not be re-opened. Over 15 years after Essar's 2007 SFIS file was opened, DGFT issued a show cause notice dated 13.1.2023 under Section 14 of the FTDR Act alleging Essar obtained the benefits by furnishing wrong information, declarations and certificates. Essar challenged that SCN in Writ Petition No. 1960 of 2024.

Key provisions

• Section 14, The Foreign Trade (Development and Regulation) Act, 1992 — Giving of opportunity to the owner of the goods (including the goods connected with services or technology), etc.