SANDOZ PRIVATE LIMITED versus UNION OF INDIA & OTHERS
[2022] 2 S.C.R. 601, Supreme Court of India, 2022
Outcome: Disposed off
Segment: Ratio
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SANDOZ PRIVATE LIMITED
v.
UNION OF INDIA & OTHERS
(Civil Appeal No. 3358 of 2020)
JANUARY 4, 2022
[A. M. KHANWILKAR, DINESH MAHESHWARI AND
KRISHNA MURARI , JJ.]
Foreign Trade (Development and Regulation) Act, 1992: FTP
2009-2014 – Chapter 6 and 8 – Claim for refund of TED paid by
DTA unit on goods supplied by DTA unit to EOU unit for
manufacturing goods cleared for export – Held: If the refund claim
is by the EOU, the same needs to be processed by the authorities
under the FTP by reckoning the entitlement of DTA supplier specified
in Chapter 8 of the FTP concerning the goods supplied to it, being
a case of deemed exports – The EOU on its own, however, is not
entitled for refund of TED, as the mandate to EOU is to procure or
import goods from DTA supplier, without payment of duty in view of
the express ab initio exemption provided in terms of para 6.2(b)
read with para 6.11(c)(ii) – However, despite such express obligation
on the EOU, if the EOU has had imported goods from DTA supplier
by paying TED, it can only claim the benefit of refund provided to
DTA supplier under para 8.4.2 read with paras 8.3(c) and 8.5 subject
to obtaining disclaimer from DTA supplier in that regard and
complying with other formalities and requirements – Since the
entitlement of exemption and refund of TED flows from the provisions
of 1992 Act and FTP framed thereunder by the Central Government,
which is an independent dispensation than the one provided in
the
1944 Act and the rules framed thereunder, with the avowed purpose
of promoting export and earning foreign exchange, it is the
obligation of Authority responsible to implement the subject FTP, to
deal with refund claim of the concerned entities – For, it is not a
case of refund under the 1944 Act or 2002 Rules or 2004 Rules as
such, but under the applicable FTP – Central Excise Act, 1944 –
s.5A – Central Excise Rules, 2002 – Central Excise Rules, 2004.
Foreign Trade (Development and Regulation) Act, 1992: FTP
2009-2014 – The EOU entities, who had procured and imported
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specified goods from DTA supplier, are entitled to do so without
payment of duty [as in para 6.2(b)] having been ab initio exempted
from such liability under para 6.11(c)(ii) of the FTP, being deemed
exports – Under para 6.11(a) of the FTP, EOU is additionally eligible
merely to avail of entitlements of DTA supplier as specified in Chapter
8 of the FTP upon production of a suitable disclaimer from the DTA
supplier and subject to compliance of necessary formalities and
stipulations – It would not be a case of entitlement of EOU, but only
a benefit passed on to EOU for having paid such amount to the
DTA supplier, which was otherwise ab initio exempted in terms of
para 6.11(c)(ii) of the FTP coupled with the obligation to import
the same without payment of duty under para 6.2(b).
Words and phrases: Benefit and entitlement – Distinction
between – Held: “Benefit”, by its very nature, is an advantage,
help or aid, while “entitlement” is right to have something.
Disposing of the appeals, the Court
HELD: 1. Section 5A of the Central Excise Act, 1944
empowers the Central Government to grant exemption from duty
of excise in respect of specified excisable goods. The exercise
of power to exempt is a beneficial power — which enables the
Central Government to reduce or waive duty on specified goods
on such conditions as may be prescribed. The exemption
notification has statutory force. However, the manufacturers
(including DTA
Unit) of specified goods are free to disregard,
the benefit of exemption so provided when it is laced with
fulfilment of pre-conditions by third party (EOU). However, sub-
section (1A) of Section 5A came to be inserted by way of an
amendment w.e.f. 13.05.2005. It was for removal of doubts. It
declared that where an exemption under sub-section (1) in respect
of any excisable good from the whole of the duty of excise leviable
thereon has been granted absolutely, the manufacturer of such
excisable goods “shall not pay the duty of excise on such goods”.
This stipulation ordains that the excise duty is not payable on the
specified goods. However, this stipulation will be attracted if the
excise duty is exempted ab initio (without any pre-condition). Be
that as it may, the governing FTP regime ought to prevail being a
special dispensation under the 1992 Act. [Para 13][622-D; 623-
A-D]
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2. The authorities propounding the FTP were obviously
conscious of the purport of the provisions of the 1944 Act and
the rules framed thereunder. Despite that, the subject policy had
been propounded with the sole objective of promoting exports
and earning foreign exchange. At the relevant time, the goal set
forth by the policy makers was to achieve the target of at least
one per cent of the global trade by promoting exports. It is thus
clear that the concessions or so to say, benefits and entitlements
provided under the FTP cannot be constricted by the provisions
of the taxing statute of 1944 and the rules framed thereunder. To
put it tersely, the dispensation provided under the 1992 Act and
the FTP must operate independently and is thus mutually
exclusive in this regard. Taking any other view would be counter-
productive and whittle down the intent behind formulation of a
liberal FTP for promoting exports. [Para 14][623-D-F]
3. Under the subject FTP, Chapter 6 deals with EOUs,
Electronics Hardware Technology Parks (EHTPs), Software
Technology Parks (STPs) and Bio-Technology Parks (BTPs). Para
6.1 provides for the eligibility criterion. It envisages that units
undertaking to export their entire production of goods and
services (except permissible sales in DTA) may be set up under
the EOU Scheme. Para 6.2 of the FTP specifies the stipulations
for the EOU to conduct its activities such as export and import of
goods. From the opening part of Para 6.2 (b)
itself, it is amply
clear that it governs specified entities/units, who are engaged in
import and/or procurement of goods from DTA or bonded
warehouses etc., and that they must do so without payment of
duty. Besides, the specified entities are obliged to utilise the
goods imported with actual user condition and to be used or
utilised for export production. This twin condition must be
complied by the specified entities without any exception for
deriving benefit or availing of entitlements under FTP. Chapter
6 of the FTP postulates that supply of goods from DTA Units to
EOU must be regarded as deemed exports, as is evident from
para 6.11 of the FTP. [Paras 15, 16][623-G; 624-C, G-H; 625-A]
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4. The opening part of clause (a) concerns the supplier as
it refers to supplies from DTA Unit to EOU to be regarded as
deemed exports. Further, as a consequence of deemed exports,
DTA supplier becomes eligible for entitlements specified under
Chapter 8 of the FTP. To put it differently, in the same Chapter 6,
the entitlement of DTA supplier under Chapter 8 of FTP has also
been adverted to. This provision also deals with the manner of
availing the entitlements specified under Chapter 8 of FTP —
either by the DTA Unit itself or the EOU, the recipient of the
goods and services. For, in terms of this stipulation even the
EOU can set up a refund claim in respect of stated transaction, in
lieu of the entitlement of DTA Unit after obtaining suitable
disclaimer from DTA supplier. In other words, clause 6.11 [clause
(a) thereof in particular] deals with entitlement of DTA supplier,
which can be availed by the DTA supplier itself or by the EOU to
whom the goods were supplied by it upon giving suitable
disclaimer in that regard. [Para 16][626-A-D]
5. Clause (c) of para 6.11 is a provision which spells out the
entitlement of EOU. It includes reimbursement of Central Sales
Tax (CST) on goods manufactured in India; exemption from
payment of Central Excise Duty on goods produced from DTA
on goods manufactured in India; reimbursement of duty paid on
fuel procured from domestic oil companies/depots of domestic
oil public sector
undertakings as per drawback rate notified by
DGFT from time to time; and lastly, CENVAT Credit on service
tax paid. As regards the Central Excise Duty, para 6.11(c)(ii)
postulates exemption from payment of Central Excise Duty on
goods procured by the EOU from DTA on goods manufactured in
India. This is in consonance with the stipulation in para 6.2(b),
which predicates that the EOU may import goods from DTA
without payment of duty. [Para 17][626-E-G]
6. There is marked distinction between the expression
“benefit” and “entitlement”. “Benefit”, by its very nature, is an
advantage, help or aid, while “entitlement” is right to have
something. Under Chapter 6, the EOU is entitled to import
specified goods from DTA without payment of duty, subject to
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fulfilling other requirements including of actual user condition
and to be utilised for export production, being a case of ab initio
exemption qua EOU. The provision in the form of para 6.11(a)
merely enables EOU to set up a claim “in respect of” entitlements
of DTA supplier under Chapter 8 of FTP. There is no separate
entitlement for EOU under Chapter 8 of FTP. To put it differently,
although the heading of para 6.11 is “Entitlement for supplies
from the DTA” and clause (a) thereof envisages that EOU shall
on production of a suitable disclaimer from DTA supplier be
eligible for obtaining entitlements specified in Chapter 8 of FTP,
it does not follow that it is the entitlement of EOU. It is, however,
only a case of benefit transferred to EOU concerning the
entitlement of DTA supplier under Chapter 8 of FTP. [Para
19][627-A-D]
7. The heading of Chapter 8 is “Deemed Exports”. The
original para 8.1 specified that deemed exports refer to those
transactions in which goods supplied do not leave country and
payment for such supplies is received either in Indian rupees or
in free foreign exchange. By way of amendment, it further
provided that the supply of specified goods (noted in para 8.2)
shall be regarded as deemed exports provided goods are
manufactured in India. Para 8.2 of Chapter 8 specifies the
categories of supplies which can be regarded as deemed exports.
Clause (b) thereof is applicable to the present appeals. In other
words, only the specified
categories of supplies are regarded as
deemed exports. In that, import of goods, as specified in para
8.2(b) from DTA supplier to the EOU is regarded as deemed
exports. To put it differently, the supply of goods by DTA Unit to
EOU with actual user condition and utilised for export production,
are regarded as deemed exports. To such transactions, certain
benefits have been extended, as provided in para 8.3 of the FTP
applicable at the relevant time. [Para 20][627-D-E; 628-B, F-G]
8. In terms of para 6.11(a), the EOU can also avail of those
entitlements of DTA as specified in Chapter 8 of FTP, as had
been earmarked for DTA supplier. That does not mean that EOU
is eligible for those entitlements, on its own accord as, amongst
other, it is obliged to obtain disclaimer from DTA supplier as a
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precondition. Para 8.2 lists the categories of supply of goods which
are regarded as deemed exports including supply of goods to
EOU [para 8.2 (b)]. The specified transactions are provided certain
benefits mentioned in para 8.3, subject to terms and conditions
in the handbook procedures, volume I, published under FTP.
Para 8.3(c), inter alia, envisages that exemption from TED is
available for supplies made against International Competitive
Bidding and also to Advance Authorisation Holder to a
manufacturer holding another advance authorisation if such
manufacturer supplies the products to an ultimate exporter. In
other cases, (would include other DTA suppliers of goods to
EOU), however, refund of TED will be given. Further, the
expression “will” is to be construed as a mandate to give refund
to such DTA suppliers, being its entitlement under FTP. This
does not whittle down the ab initio exemption of payment of duty
given to EOU in respect of supply from DTA. [Paras 20, 21][632-
E-H; 633-A]
9. Para 8.3(c) of FTP does not provide in-built eligibility
“category” unlike specified in sub-paras (a) and (b) for ICB and
Advance Authorisation Holder. The expression “in other cases”
in sub-para (c) needs to be understood in proper perspective.
Concededly, paras 8.4.1 to 8.4.7 provide for benefits to the
supplier of goods to EOU as being deemed export. It is essentially
an entitlement of DTA supplier — as listed in para 8.3(a),
(b) and
(c) of FTP, as may be applicable. It is seen that para 8.4.2 was
substituted by the revised FTP of 2012, wherein a table was
inserted. As per that table, benefits available under para 8.2 to
specified categories of supplies including supply to EOU in para
8.2(b) had been extended benefits under para 8.3, as applicable.
[Para 22][633-B-C; 634-A]
10. The eligibility for refund of TED/drawback in terms of
para 8.3(c) of FTP is made dependent on the non-availment of
CENVAT credit/rebate on such goods by the recipient thereof,
as is envisaged in original para 8.5. Similarly, benefit under para
8.3(b) of FTP regarding deemed export drawback can be availed,
provided CENVAT credit/rebate has not been availed by DTA
supplier and subject to complying other formalities. Para 8.4.2 as
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originally stood, is indicative of option given only to supplier
(DTA) in connection with supply of goods to EOU, as specified in
para 8.3 (a), (b) and (c) of FTP. That has remained intact despite
the amendment of 2012, until March 2013. Be it noted that the
purport of para 8.5 states that supply of goods will be eligible for
TED refund only if CENVAT credit/rebate has not been availed
on such goods. These stipulations demonstrate that the scheme
of FTP is explicit and not ambiguous nor silent in respect of
benefits and entitlements of the concerned entities. Thus, an
argument having potential of defeating the intent of the applicable
FTP, in any manner, ought to be negated. [Paras 23, 24][634-A-
B; 635-C-E]
11. Going by the scheme of FTP applicable at the relevant
period, it is crystal clear that EOUs were entitled to ab initio
exemption from payment of Central Excise duty on goods
procured from DTA on goods manufactured in India, as the import
of such goods was to be made without payment of duty. That,
however, did not preclude the EOU from availing of the
entitlement of DTA supplier under Chapter 8 upon obtaining a
suitable disclaimer from DTA supplier, as provided in para 6.11(a).
That availment by EOU had been linked to entitlement of DTA
supplier, as specified in Chapter 8. The DTA supplier could
(entitled to) take refund of TED in respect of goods supplied by
it to EOU being exempted from TED, in light of para 8.3(c). The
eligibility for refund of
TED, however, has been circumscribed
by formalities and requirements to be adhered to, including as
noted in para 8.5. In that, recipient of goods (EOU) does not
avail CENVAT credit or rebate. Similarly, DTA supplier would be
eligible for deemed export drawback in terms of para 8.3(b) of
FTP on Central Excise paid on inputs/components, provided
CENVAT credit facility/rebate has not been availed. [Para 17][635-
F-H; 636-A-B]
12. Upon conjoint reading of the relevant para and its
clauses, it leaves no manner of doubt that the intent of the subject
FTP was to encourage DTA suppliers by providing refund of TED
in terms of para 8.3(c), subject to fulfilment of formalities and
stipulations in Chapter 8 of FTP. This was also to generate foreign
exchange as a consequence of goods supplied as inputs or
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otherwise, were finally exported by the EOU. The EOU, on the
other hand, could only avail of the entitlement of the DTA supplier
if the DTA supplier had not taken rebate or CENVAT credit facility
(as per para 8.5) treating it as deemed export. This dispensation
was uniformly followed until the issue of policy circular dated
15.3.2013. This circular proceeds on the assumption that the
goods supplied by DTA Unit to EOU being a case of deemed
exports, it predicates ab initio exemption from payment of excise
duties. It is true that the subject FTP stipulates that EOU may
import specified goods from DTA or bonded warehouses in DTA
or international exhibition held in India, without payment of duty.
But it is hatched with condition that the goods so imported shall
be with actual user condition and shall be utilised for export
production and further, an exemption of TED can be availed only
if the DTA supplier had not taken rebate or utilised CENVAT
credit facility as provided in para 8.5. It is on that understanding,
the department had been entertaining refund requests by the
DTA supplier for refund of TED made by it in the past until the
issue of stated policy circular. In that sense, it was not an ab initio
exemption at least for the DTA supplier. The circular, therefore,
introduces a new dimension qua the DTA suppliers. Such a change
for DTA suppliers cannot be introduced by issuing a policy circular
under the signatures
of the Joint Director of Foreign Trade. For,
the FTP is formulated by the Central Government in exercise of
powers conferred by Section 5 of the 1992 Act (as applicable at
the relevant time) read with Para 1.2 of the FTP, which had come
into force with effect from 27.9.2009. [Para 26][636-B-D; 637-E-
H; 638-A-B]
13. The dispensation, as it obtained prior to March, 2013
including the notification issued by the Central Government on
18.4.2013 amending the relevant provisions of the existing FTP
being paras 8.3(c) and 8.4, was materially different qua DTA
suppliers. For, it was not ab initio exemption for them, unlike in
the case of EOU by virtue of para 6.2(b) read with para 6.11(c)(ii).
Accordingly, it became necessary to make it amply clear by
amending paras 8.3(c) and 8.4 vide notification dated 18.04.2013,
that henceforth it would be regarded as ab initio exemption even
for DTA supplier. This, indeed, is a change or amendment effected
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in the FTP. Such a change needs to be given only prospective
effect, being introduced by delegated legislation. The policy
circular cannot be the basis to deny the vested right of the DTA
suppliers under the applicable FTP. [Para 26][638-B-D; 639-A]
14. As regards the claim for refund of TED by EOU,
therefore, need to be governed by the dispensation provided in
para 6.11(a) read with entitlement of DTA supplier under Chapter
8 of FTP. However, it may have to be processed by the authorities
under the FTP keeping in mind the principle underlying the refund
of CENVAT credit granted under Rule 5 of the 2004 Rules and in
the manner provided therefor, though not covered by Rule 5.
That is because in law it is a case of deemed export by virtue of
applicable FTP. If the refund claim is by the EOU, the same needs
to be processed by the authorities under the FTP by reckoning
the entitlement of DTA supplier specified in Chapter 8 of the
FTP concerning the goods supplied to it, being a case of deemed
exports. The EOU on its own, however, is not entitled for refund
of TED, as the mandate to EOU is to procure or import goods
from DTA supplier, without payment of duty in view of the express
ab initio exemption provided in terms of para 6.2(b) read with
para 6.11(c)(ii). However, despite such express obligation on the
EOU, if the EOU has had imported goods from DTA supplier by
paying TED, it can only claim the benefit of refund provided to
DTA supplier under para 8.4.2
read with paras 8.3(c) and 8.5
subject to obtaining disclaimer from DTA supplier in that regard
and complying with other formalities and requirements. Thus,
the EOU is not entitled to claim refund of TED on its own.
However, the Court adds a caveat that EOU may avail of the
entitlements of DTA supplier specified in Chapter 8 of FTP on
condition that it will not pass on that benefit back to DTA supplier
later on. In any case, the refund claim needs to be processed by
keeping in mind the procedure underlying the refund of CENVAT
credit/rebate of excise duty obligations. If CENVAT credit utilised
by DTA supplier or EOU, as the case may be, cannot be encashed,
there is no question of refunding the amount in cash. In that case,
the commensurate amount must be reversed to the CENVAT credit
account of the concerned entity instead of paying cash. If, the
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claim for refund by DTA supplier under the scheme of FTP is
allowed, it can be in cash if TED had been paid in cash. Else, it
can be in the form of reversal of commensurate CENVAT credit
amount to the concerned account of DTA supplier. [Paras 27, 28,
29, 30][639-A-B; 640-A-D; 641-A-D]
15. As regards the refund claim of DTA supplier, it needs
to be processed by the authorities under the FTP keeping in
mind the purport of stipulations spelt out in Chapter 8 of subject
FTP, such as the goods imported or supplied to EOU shall be
with actual user condition and shall be utilised for export
production and that the EOU did not avail CENVAT credit or
rebate in relation to the goods supplied to EOU. Similarly, if the
DTA supplier has utilised the CENVAT credit, commensurate
amount needs to be reversed to its CENVAT credit account, in
which case, there is no question of refunding the amount in cash
to the DTA supplier. [Para 31][641-D-F]
Raja Crowns and Cans Pvt. Limited v. Union of India
2015 (317) ELT 40; Lenovo (India) Pvt. Ltd. v. Union
of India (2017) 346 ELT 12 (Mad.); Manali
Petrochemical Limited v. Additional Director General
of Foreign Trade, New Delhi & Anr. W.P.No. 23194 of
2009, decided on 16.9.2019; Union of India v. Alstom
India Limited 2015 (325) ELT 72 (Del.); Commissioner
of Central Excise, Delhi II v. Welspring Universal 2018
(359) ELT 635 (Del.); Deepak Enterprises v. Union of
India 2018 (360) ELT 905 (Del.);
Alstom Transport
India Ltd. v. Union of India 2018 (363) ELT 69 (Del.);
Motherson Sumi Electric Wires v. Union of India 2018
(364) ELT 91 (Del.); Multitex Filtration Engineers
Limited v. Union of India 2020 (373) ELT 68 (Del.);
Hindustan Tin Works Limited v. Union of India 2020
(373) ELT 217 (Del.); Acer India Pvt. Ltd. v. Union of
India 2018 (361) ELT 44 (Kar.) 22 2001 – approved.
IFGL Refractories Limited v. Joint Director General of
Foreign Trade 2001 (132) ELT 545 (Cal.);
Commissioner of Central Excise and Customs v. NBM
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Industries 2012 (276) ELT 9 (Guj.); Commissioner of
Central Excise v. Shilpa Copper Wire Industries
2011(269) ELT 17(Guj.); Kandoi Metal Powders
Manufacturing Company Private Limited v. Union of
India (2014) 302 ELT 209 (Del.); Joint Director
General of Foreign Trade v. IFGL Refractories Limited
2002 (143) ELT 294 (Cal.) – referred to.
16. The DTA supplier of goods to EOU would be entitled
for refund of TED on the basis of applicable para 6.11(a) read
with paras 8.3(c), 8.4.2 and 8.5 of the FTP under consideration.
The modality of refund, however, ought to be in the form of
reversal of commensurate amount in the CENVAT credit account
of the DTA supplier, if the DTA supplier had utilized CENVAT
credit account in respect of goods supplied to EOU; and if it
had paid the amount in cash, the DTA supplier would be entitled
for refund of cash with simple interest at the rate of 6% per
annum as provided in para 8.5.1 of the applicable FTP on delay in
refund of duty drawback and TED under deemed exports scheme.
[Para 39][644-C-E]
17. The next question is: the refund claim should be set up
before which Authority? Since the entitlement of exemption and
refund of TED flows from the provisions of 1992 Act and FTP
framed thereunder by the Central Government, which is an
independent dispensation than the one provided in the 1944 Act
and the rules framed thereunder, with the avowed purpose of
promoting export and earning foreign exchange, it is the
obligation of
Authority responsible to implement the subject FTP,
to deal with refund claim of the concerned entities. For, it is not a
case of refund under the 1944 Act or 2002 Rules or 2004 Rules
as such, but under the applicable FTP. The EOU entities, who
had procured and imported specified goods from DTA supplier,
are entitled to do so without payment of duty [as in para 6.2(b)]
having been ab initio exempted from such liability under para
6.11(c)(ii) of the FTP, being deemed exports. Besides this, there
is no other entitlement of EOU under the applicable FTP. Indeed,
under para 6.11(a) of the FTP, EOU is additionally eligible merely
to avail of entitlements of DTA supplier as specified in Chapter 8
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of the FTP upon production of a suitable disclaimer from the DTA
supplier and subject to compliance of necessary formalities and
stipulations. It would not be a case of entitlement of EOU, but
only a benefit passed on to EOU for having paid such amount to
the DTA supplier, which was otherwise ab initio exempted in terms
of para 6.11(c)(ii) of the FTP coupled with the obligation to import
the same without payment of duty under para 6.2(b). Besides, if
the DTA supplier as well as EOU had utilized its CENVAT credit
for importing goods in question, the refund would be in the form of
reversal of commensurate amount of CENVAT credit to the account
of the concerned entity. However, if TED has been paid in cash by
the EOU, the EOU may get refund of that amount from Authority
implementing the applicable FTP in cash with simple interest at
the rate of 6% per annum for the delayed refund of duty (para
8.5.1) on condition that it would not pass on that benefit to the
DTA supplier owing to such refund/rebate. [Paras 41, 42, 43][645-
B-H]
18. As regards DTA supplier of goods to EOU, it is entitled
to receive the refund of TED in terms of para 8.3(c) read with
paras 8.4.2 and 8.5 of the applicable FTP subject to complying
necessary formalities and stipulations provided therein, being a
case of deemed exports. Even, in the case of DTA supplier of
goods to EOU, if TED has been paid by utilizing CENVAT credit,
the refund would be in
the form of reversal of commensurate
amount in its CENVAT credit account. And if the amount towards
TED has been paid in cash by the DTA supplier to the Authorities
under the 1944 Act, the refund of TED amount would be made by
the Authority implementing the applicable FTP in cash with simple
interest at the rate of 6% per annum for the delay in refund of
TED as per para 8.5.1. [Para 44][646-A-C]
19. In both cases, responsibility of refund of TED in reference
to applicable FTP would be that of the Authority responsible to
implement the FTP under the 1992 Act, which has had consciously
accorded such entitlements/benefits for promoting export and
earning foreign exchange. Further, the fact that the concerned
entity had unsuccessfully applied for refund to the Authorities
under the 1944 Act and the rules made thereunder, that would
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not denude it of its entitlement to get refund of TED under the
FTP, as may be applicable being mutually exclusive remedies. It is
so because it is well settled that the assessee is free to take benefit
of more beneficial regime. [Para 45][646-C-E]
CIVIL APPELLATE JURISDICTION: Civil Appeal No.3358 of
2020.
From the Judgment and Order dated 01.08.2016 of the High Court
of Judicature at Bombay in Writ Petition No.2927 of 2015.
With
Civil Appeal Nos.3359, 3360 and 3705 of 2020.
Balbir Singh, ASG, Arvind Datar, Jay Savla, G. Shivadass, Sr. Advs.,
Prakash Shah, Jasdeep Singh Dhillon, Jas Sanghavi, Rahul Gupta, Akshay
Sharma, Mohd. Akhil, Navanjay Mahapatra, Ms. Sunita Sharma, Mrs.
Anil Katiyar, B. K. Prasad, T. Sundar Ramanathan, M. P. Devnath, Abir
Roy, Vivek Sharma, Prashant Shivadass, Ishaan Chakrabarti, Vivek
Pandey, Rupesh Kumar, R. Krishnan, Rajeev Sharma, Ms. Neelam
Sharma, Ms. Pankhuri Shrivastava, Alekshendra Sharma, Pravesh
Bahuguna, Advs. for the appearing parties..
The Judgment of the Court was delivered by
A. M. KHANWILKAR, J.
1. From amongst these four appeals, first two appeals1 emanate
from the common judgment and order dated 01.08.20162 passed by the
High Court of Judicature at Bombay3 in Writ Petition No.2927 of 2015
and Writ Petition No.2926 of 2015, whereas, third appeal4 arises from
the judgment and order dated 08.10.20185 passed by the High Court of
Delhi at New Delhi in Writ Petition (C) No.10526 of 2017 and the fourth
appeal6 assails
the judgment and order dated 09.12.20197 passed by the
High Court of Karnataka at Bengaluru in Writ Appeal No.286 of 2019
(T-TAR).
1 Civil Appeal Nos. 3358 and 3359 of 2020
2 2016 (341) ELT 22 (Bom.)
3 for short, “Bombay High Court”
4 Civil Appeal No.3360 of 2020
5 2020 (373) ELT 217 (Del.)
6 Civil Appeal No.3705 of 2020
7 2020 (371) ELT 658 (Kar.)
SANDOZ PRIVATE LIMITED v. UNION OF INDIA & OTHERS
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CIVIL APPEAL NO. 3358 OF 2020
2a. The appellant in Civil Appeal No.3358 of 2020 claims to be
hundred per cent Export Oriented Unit8 engaged in the manufacture of
goods falling under Chapter 30 of the Schedule to the Central Excise
Tariff Act, 1985 and for that purpose, the appellant has a factory, inter
alia, at Plot No.8A/2, 8B/2, 8-8A/1/1, Kalwe, MIDC, Dighe, Navi
Mumbai – 400708. Besides, the appellant has another factory situated
at Plot No. L-1, MIDC, Mahad, Raigad, within the Domestic Tariff Area
Unit9. The appellant had applied for refund of Terminal Excise Duty10 in
respect of excisable goods procured from its unit in DTA, as it did in the
past and was granted refund from time to time between 2006 and 2012.
The instant refund application, however, came to be disallowed, which
decision is the subject matter of appeal before this Court. It had been
asserted that TED was paid by the DTA Unit from where the goods in
question were procured or supplied to the appellant for its EOU during
the relevant period. The application for refund dated 20.04.2012 was
accompanied by a declaration given by the appellant that the appellant’s
DTA Unit did not claim benefit of TED refund supported by the disclaimer
certificate given by DTA Unit in that regard. The refund application was
required to be decided within 30 days of receipt of complete application.
As it was not so disposed of, the appellant requested the Development
Commissioner to intervene and do the needful. The refund claim for the
period between July 2012 and September 2012 was around
Rs.1,90,47,437/- (Rupees One Crore Ninety Lakh Forty-Seven Thousand
Four Hundred and Thirty-Seven only) and for the period between October
2012 and December 2012, it was Rs.1,36,04,814/- (Rupees One Crore
Thirty-Six Lakh Four Thousand Eight Hundred and Fourteen only).
2b. In the meantime, a circular purported to be a policy circular
bearing No.16 (RE-2012/2009-14) dated 15.03.201311 came to be issued
by the Director General of Foreign Trade12 to clarify that no refund of
TED should be provided by the Office of DGFT/Development
Commissioners, as supplies made by DTA Unit to EOU are ab initio
8 for short, “EOU”
9 for short, “DTA Unit”
10 for short, “TED”
11 for short, “impugned circular”
12 for short, “DGFT”
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exempted from payment of excise duty. The Development Commissioner
eventually rejected the refund claim set forth by the appellant and informed
the appellant in that regard vide letter dated 01.04.2013.
2c. Resultantly, the appellant filed Writ Petition No.9312 of 2013
before the Bombay High Court challenging the legality and validity of
the stated policy circular issued by DGFT and two communications of
the Development Commissioner rejecting the refund application submitted
by the appellant.
2d. In the meantime, a notification bearing No.4(RE-2013)/2009-
2014 came to be issued by DGFT on 18.04.201313, notifying the
amendments made by the Central Government in Foreign Trade Policy,
2009-201414 in exercise of powers conferred by Section 5 of the Foreign
Trade (Development and Regulation) Act, 199215.
2e. The stated writ petition preferred by the appellant came to be
disposed of on 23.09.2014 whilst directing the competent authority to
consider the refund claim of the appellant afresh after taking into account
all aspects of the matter and give fair opportunity to the appellant.
2f. Pursuant to the remand order, the Development Commissioner
granted personal hearing, but eventually rejected the TED refund claim
of the appellant vide order bearing No. SEEPZ-SEZ/W.P./TED/
SANDOZ/314/2013-14 dated 06.01.2015.
2g. Feeling aggrieved by this decision, the appellant filed fresh
Writ Petition No.2927 of 2015 before the Bombay High Court assailing
the policy circular
dated 15.03.2013 and order dated 06.01.2015 passed
by the Development Commissioner. The Bombay High Court negatived
the challenge to the stated policy circular as well as the order passed by
the Development Commissioner and thus, dismissed the writ petition
vide impugned judgment and order dated 01.08.2016. This judgment is
subject matter of challenge in Civil Appeal No.3358 of 2020. By the
same judgment, the Bombay High Court dismissed the writ petition filed
by the appellant in Civil Appeal No.3359 of 2020 involving the self-same
issue.
13 for short, “said notification”
14 for short, “FTP”
15 for short, “1992 Act”
SANDOZ PRIVATE LIMITED v. UNION OF INDIA & OTHERS
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CIVIL APPEAL NO. 3359 OF 2020
3a. Reverting to the factual matrix in Civil Appeal No.3359 of
2020, the appellant claims to be identically placed as in the companion
appeal being hundred per cent EOU engaged in manufacturing of goods
falling under Chapter 30 of the Schedule to the Central Excise Tariff
Act, 1985 and for that purpose, the appellant has a factory at B-15,
Phase 1-A, Verna, Salcette, Goa - 403772. The appellant’s DTA Unit
has been supplying goods on payment of CENVAT duty under claim for
rebate to the appellant’s EOU. The appellant’s EOU uses the said goods
in the manufacture of goods cleared for export. The appellant asserted
that its DTA Unit did not claim benefit of TED refund and produced
disclaimer certificate in that regard to enable the appellant’s EOU to
claim the refund of TED on the goods procured by it or supplied by its
DTA Unit. The appellant asserts that even in the past it had claimed
refund of TED paid by its DTA Unit on the goods supplied to the
appellant’s EOU and was so granted by the Development Commissioner.
However, on this occasion, a different view had been taken in respect of
subject application dated 08.08.2012 submitted by the appellant for TED
refund for the month of November 2011 being Rs.6,87,89,737/- (Rupees
Six Crore Eighty-Seven Lakh Eighty-Nine Thousand Seven Hundred
and Thirty-Seven only). The claim came to be rejected in light of the
policy (impugned) circular issued by
DGFT, without giving any opportunity
to the appellant.
3b. Feeling aggrieved, the appellant filed Writ Petition No.9607 of
2013 before the Bombay High Court challenging the legality and validity
of the policy circular dated 15.03.2013. That petition was disposed of by
directing the competent authority to pass a speaking order on the refund
application submitted by the appellant. Pursuant to the remand order, the
competent authority gave personal hearing to the appellant and once
again rejected the TED refund claim vide order dated 12.01.2015 on the
ground that the appellant had received supplies of the concerned goods
from their DTA Unit to EOU, which were ab initio exempted from
payment of duty under para 6.11(c)(ii) of Foreign Trade Policy, 2009-
2014. Thus, refund was not admissible to the appellant.
3c. This decision was challenged by the appellant before the
Bombay High Court by way of fresh Writ Petition No.2926 of 2015
wherein the policy circular dated 15.03.2013 issued by DGFT was also
challenged. This writ petition was heard and decided by the Bombay High
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Court, along with another writ petition (which is subject matter in the
companion appeal filed by Sandoz Private Limited) vide common judgment
and order dated 01.08.2016, rejecting the assail to the policy circular and
order passed by the competent authority referred to above. This judgment
is subject matter of challenge in Civil Appeal No. 3359 of 2020.
4. As the factual matrix in both the writ petitions was similar, the
High Court vide common impugned judgment dated 01.08.2016
considered the grounds of challenge to the decision of the Development
Commissioner; and eventually opined that in light of paras 6.2(b) and
6.11(c)(ii) of the FTP, no refund of TED could be given by the regional
authority of DGFT or the Office of the Development Commissioners
because procurement of excisable goods by the appellants–EOUs was
ab initio exempted from payment of excise duty. It went on to observe
that there was a clear stipulation in the FTP itself in that regard. The
High Court noted that the purport of the impugned circular was only to
clarify the obvious position. There was no obligation on the EOU to pay
duty at the time of procurement of excisable goods. For, FTP plainly
predicates that the procurement of excisable goods should be done by
EOU without payment of excise duty. As there is reverse obligation on
EOU to procure excisable goods without payment of duty, there is no
question of claiming refund. Thus, it held that the conclusion reached by
the Development
Commissioner was in conformity with the dispensation
provided in the FTP and is not in any manner contrary thereto or to the
mandate of Section 5 of the 1992 Act. Further, the impugned circular
was only to place on record the correct perspective of the dispensation
provided in the FTP. The argument that the impugned circular can have
prospective effect only, cannot be countenanced in law. In that, the circular
was only to clarify the purport of paras 6.2(b), 6.11(c)(ii) and 8.3(c) of
the FTP; and if these provisions were read harmoniously and conjointly,
leave no manner of doubt that refund request before DGFT under para
8.3(c) in relation to excisable goods, even though procured by EOU
upon payment of duty, would be inadmissible in law.
5. The Bombay High Court also noted that although in the past
the regional authority had accepted refund request of EOUs, that cannot
bestow any right much less vested right in EOUs so as to issue mandamus
to the concerned statutory authorities to act contrary to the provisions of
the FTP. As a matter of fact, to dispel the doubt entertained by EOUs if
any, the position was restated by the Government vide notification dated
18.04.2013 issued in exercise of power conferred under Section 5 of the
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1992 Act. In substance, the Bombay High Court observed that the
impugned circular was only to restate and clarify that the regional
authority of DGFT was not competent to entertain the refund application;
and if EOU or the supplier so desired, were free to pursue refund claim
before the competent excise authorities where amount towards duty
had been deposited or paid.
CIVIL APPEAL NO.3360 OF 2020
6a. This appeal by the Union of India assails the judgment and
order dated 08.10.2018 passed by the Division Bench of the High Court
of Delhi in Writ Petition (C) No.10526 of 2017. By that writ petition, the
respondent claiming to be a “supplier” of excisable goods to various
EOUs, who in turn exported their final product outside India, sought
direction against DGFT to grant TED refund in the sum of Rs.46,54,295
(Rupees Forty-Six Lakh Fifty-Four Thousand Two Hundred and Ninety-
Five only), towards deemed exports made to EOUs (Vimal Agro Products
Pvt. Ltd. and TATA Coffee Ltd.). These supplies were made between
January 2012 and March 2013 and admittedly, before issue of the
impugned circular.
6b. The respondent-Company (DTA Unit) had filed refund
application before the Joint Director General of Foreign Trade, which
was returned to it in light of the impugned circular. The appellant then
pursued the refund application on 11.03.2014 to the Deputy Commissioner
of Central Excise Department, which came to be rejected on 29.05.2015.
Against this decision, the matter was carried in appeal up to the Customs
Excise and Service Tax Appellate Tribunal16 unsuccessfully. After
exhausting that remedy and allowing decision of the statutory authorities
under the Central Excise Act, 194417 as final, the respondent-Company
chose to file writ petition before the High Court of Delhi seeking direction
against DGFT to consider the refund application regarding TED amount
under FTP. It was urged that the primary responsibility to refund TED
amount paid by the respondent-Company (DTA Unit) being supplier of
excisable goods to EOU, was that of DGFT. The High Court of Delhi
vide impugned judgment dated 08.10.2018 allowed the writ petition and
issued directions to DGFT to consider the refund application filed by the
respondent-Company and if found in order, directed refund of TED
amount to the respondent with interest at the rate of 9 % per annum.
16 for short, “the CESTAT”
17 for short, “1944 Act”
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The High Court of Delhi essentially relied upon its earlier decision in
Kandoi Metal Powders Manufacturing Company Private Limited
vs. Union of India18 which in turn had adverted to the decision of the
Calcutta High Court in the case of Joint Director General of Foreign
Trade vs. IFGL Refractories Limited19, to reinforce the view taken
by it that the impugned circular invoked by the Department had
prospective effect only. It also noted that Kandoi Metal Powders
Manufacturing Company Private Limited20 was concerned with the
clarification issued by the Policy Interpretation Committee vide its decision
dated 04.12.2012 to the effect that refund of CENVAT credit provisions
were available under the Central Excise Act and the Rules framed
thereunder. The same should be availed instead of claiming refund. It
was held that the view taken by DGFT that the respondent could avail
of the refund under the provisions of the 1944 Act and the Rules framed
thereunder, was untenable in law. On facts, it noted that since the supply
of excisable goods was prior to 15.03.2013, the question of invoking
circular against the respondent-Company did not arise. Instead, the High
Court held that refund application ought to have been processed by the
DGFT in terms of para 8.3(c) of the FTP, as it stood prior to 15.03.2013.
Accordingly, while allowing the writ petition, the High Court of Delhi
issued direction to the appellant (DGFT) to consider the respondent’s
refund application and
to refund the due amount with interest at the rate
of 9 % per annum.
CIVIL APPEAL NO.3705 OF 2020
7. This appeal by Union of India is against the decision dated
09.12.2019 of the Division Bench of the High Court of Karnataka in
Writ Appeal No.286 of 2019 (T-TAR). The stated appeal was filed by
the appellant-Union of India by way of intra-court appeal against the
decision dated 20.3.201821 of the learned Single Judge of the same High
Court in Acer India Pvt. Ltd. vs. Union of India [Writ Petition No.64539
of 2016 (T-TAR)] whereby the respondent-Company — claiming to be
engaged in the business of manufacture and sale of computer systems
and supply of goods to hundred per cent EOUs on payment of TED, had
sought a declaration that it was eligible for refund of TED amount in
18 (2014) 302 ELT 209 (Del.)
19 2002 (143) ELT 294 (Cal.)
20 supra at Footnote No.18
21 2018 (361) ELT 44 (Kar.)
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respect of goods supplied to EOUs during the period from June 2009 to
October 2009 in terms of para 8.3 of the FTP. Learned Single Judge of
the High Court of Karnataka adverted to the decision of the learned
Single Judge of the Calcutta High Court in IFGL Refractories Limited
vs. Joint Director General of Foreign Trade22 (later confirmed by the
Division Bench of the same High Court in Joint Director General of
Foreign Trade23) and of the High Court of Delhi in Kandoi Metal
Powders Manufacturing Company Private Limited24 wherein it had
been held that once the supply of goods fall within the category of deemed
exports, the unit would be entitled to refund of TED. Learned Single
Judge also adverted to the decision of the Madras High Court in Lenovo
(India) Pvt. Ltd. vs. Union of India25 and to the decision of the Bombay
High Court in case of Sandoz Private Limited which is impugned in the
cognate appeals referred to above. Learned Single Judge, however, noted
that the decision of the Bombay High Court has been distinguished by
the Madras High Court, but then went on to observe that it did not agree
with the view taken by the Bombay High Court in view of the amendment
to the FTP. Instead, learned Single Judge opined that the policy circular
dated 15.03.2013, by no standard, was clarificatory in nature. Resultantly,
learned Single Judge allowed the writ petition and was pleased to set
aside the communication dated
31.03.2016 issued by the Deputy Director
of Foreign Trade, disallowing the refund claim of the respondent-Company
(DTA Unit). Learned Single Judge while setting aside that order relegated
the respondent-Company before the competent authority under the FTP
to consider the refund claim of the respondent-Company in accordance
with the policy. The Division Bench whilst dealing with the appeal filed
by the Department, vide impugned judgment noted that the respondent-
Company had supplied computer systems to EOU on payment of TED
from June 2009 till October 2009, which in terms of the FTP, in particular
para 8.2(b), was deemed export — entitling the respondent-Company to
claim refund of TED from the regional authority of DGFT in terms of
para 8.3(c) of the FTP. The Division Bench of the High Court of
Karnataka opined that there was no infirmity in the view taken by the
learned Single Judge holding that the appellant cannot be heard to retain
the amount which was not payable by way of tax being a case of deemed
22 2001 (132) ELT 545 (Cal.)
23 supra at Footnote No.19
24 supra at Footnote No.18
25 (2017) 346 ELT 12 (Mad.)
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export. As the amount of Rs.1,04,36,945 (Rupees One Crore Four Lakh
Thirty-Six Thousand Nine Hundred and Forty-Five only) was wrongly
paid by the respondent-Company, the same needed to be refunded and,
therefore, learned Single Judge was justified in relegating the respondent-
Company before the competent authority under the FTP to consider the
refund claim.
8. We have heard Shri Arvind Datar, Shri Jay Savla, learned senior
counsel and Shri Prakash Shah, learned counsel appearing for the
appellants in the appeals by the Assessee, Shri Balbir Singh, learned
Additional Solicitor General of India for the Department; and Shri G.
Shivadass, learned senior counsel for the respondent-Assessee (writ
petitioner), in the appeals by the Department.
CONSIDERATION
9. From the factual matrix delineated above in the respective
appeals, it is obvious that Civil Appeal Nos.3358 and 3359 of 2020 pertain
to EOUs, who had “procured” goods from its unit in Domestic Tariff
Area (DTA), which transactions were in the nature of deemed export
by the DTA Unit to EOU within the meaning of the applicable FTP. On
the other hand, the appeals against the decision of the High Court of
Delhi and the High Court of Karnataka pertain to the refund claim set
up by the DTA Unit — “suppliers” of goods to concerned EOU, also in
reference to self-same Foreign Trade Policy (FTP).
10. The moot question is: whether the entities herein are entitled
to refund of amount purportedly towards TED in
respect of specified
goods procured or supplied, as the case may be, being deemed exports
and from which authority, either under applicable Foreign Trade Policy
(FTP) or the 1944 Act? Further, whether Circular No.16 (RE-2012/
2009-14) dated 15.03.2013 is merely clarificatory regarding TED refund
and exemption and the efficacy thereof?
11. The claim for refund of TED amount of the concerned entities
being the recipient or the supplier of specified goods, as the case may
be, needs to be understood and analysed in two broad silos and in the
context of nature of transaction and the applicability of the provisions of
the concerned laws, namely, FTP propounded under the 1992 Act and
the 1944 Act. We will dilate on this aspect at appropriate place. Be it
noted that the refund claim in the respective appeals varies between
June 2009 and March 2013 (i.e., Civil Appeal No.3358 of 2020 — July
2012 and December 2012; Civil Appeal No.3359 of 2020 — November
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2011; Civil Appeal No.3360 of 2020 — January 2012 and March 2013;
and Civil Appeal No.3705 of 2020 — June 2009 and October 2009).
12. At the outset, it needs to be borne in mind that the entities in all
these cases are claiming refund founded on the FTP and not in reference
to the provisions of the 1944 Act or the rules framed thereunder, in
particular, the Central Excise Rules, 200226 and the CENVAT Credit
Rules, 200427.
13. Had it been a claim for refund of duty under the 1944 Act, the
same would be governed by the regime predicated in Section 11B of that
Act. The expression “duty” has been defined in Rule 2(e) of the 2002
Rules to mean the duty payable under Section 3 of the 1944 Act. Section
3 of the 1944 Act envisages that there shall be levied and collected in
such manner as may be prescribed a duty of excise as may be called the
Central Value Added Tax (CENVAT) on all excisable goods (excluding
goods produced or manufactured in special economic zones) which are
produced or manufactured in India as, and at the rates, set forth in the
Fourth Schedule. It may be apposite to refer to Section 5A28 of the 1944
Act. It empowers the Central Government to grant exemption from duty
of excise in respect of specified excisable goods. The exercise of power
26 for short, “2002 Rules”
27 for short, “2004 Rules”
28 5A. Power to grant exemption from duty of excise.— (1) If the Central Government
is satisfied that it is
necessary in the public interest so to do, it may, by notification in
the Official Gazette, exempt generally either absolutely or subject to such
conditions (to be fulfilled before or after removal) as may be specified in the
notification, excisable goods of any specified description from the whole or any part
of the duty of excise leviable thereon:
 Provided that, unless specifically provided in such notification, no exemption therein
shall apply to excisable goods which are produced or manufactured—
(i) in a free trade zone or a special economic zone and brought to any other place in
India; or
(ii) by a hundred per cent. export-oriented undertaking and brought to any other place
in India.
 Explanation. —In this proviso, “free trade zone”, “special economic zone” and “hundred
per cent. export-oriented undertaking” shall have the same meanings as in Explanation
2 to sub-section (1) of Section 3.
(1-A) For the removal of doubts, it is hereby declared that where an exemption
under sub-section (1) in respect of any excisable goods from the whole of the
duty of excise leviable thereon has been granted absolutely, the manufacturer of
such excisable goods shall not pay the duty of excise on such goods.
 …..
(emphasis supplied)
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to exempt is a beneficial power — which enables the Central Government
to reduce or waive duty on specified goods on such conditions as may
be prescribed. The exemption notification has statutory force. However,
the manufacturers (including DTA Unit) of specified goods are free to
disregard, the benefit of exemption so provided when it is laced with
fulfilment of pre-conditions by third party (EOU). However, sub-section
(1A) of Section 5A came to be inserted by way of an amendment w.e.f.
13.05.2005. It was for removal of doubts. It declared that where an
exemption under sub-section (1) in respect of any excisable good from
the whole of the duty of excise leviable thereon has been granted
absolutely, the manufacturer of such excisable goods “shall not pay the
duty of excise on such goods”. This stipulation ordains that the excise
duty is not payable on the specified goods. However, this stipulation will
be attracted if the excise duty is exempted ab initio (without any pre-
condition). Be that as it may, the governing FTP regime ought to prevail
being a special dispensation under the 1992 Act.
14. The authorities propounding the FTP were obviously conscious
of the purport of the provisions of the 1944 Act and the rules framed
thereunder. Despite that, the subject policy had been propounded with
the sole objective of promoting exports and earning foreign exchange.
At the relevant time, the goal set forth by the policy makers was to
achieve the target of at
least one per cent of the global trade by promoting
exports. It is thus clear that the concessions or so to say, benefits and
entitlements provided under the FTP cannot be constricted by the
provisions of the taxing statute of 1944 and the rules framed thereunder.
To put it tersely, the dispensation provided under the 1992 Act and the
FTP must operate independently and is thus mutually exclusive in this
regard. Taking any other view would be counter-productive and whittle
down the intent behind formulation of a liberal FTP for promoting exports.
15. Under the subject FTP, Chapter 6 deals with EOUs, Electronics
Hardware Technology Parks (EHTPs), Software Technology Parks
(STPs) and Bio-Technology Parks (BTPs). Para 6.1 provides for the
eligibility criterion. It envisages that units undertaking to export their
entire production of goods and services (except permissible sales in DTA)
may be set up under the EOU Scheme. Similar provision is made regarding
other Parks referred to therein. It is, however, made clear that trading
units are not covered under these schemes. Para 6.1 (Eligibility) reads
thus: -
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“6.1 Eligibility
Units undertaking to export their entire production of goods and
services (except permissible sales in DTA), may be set up under
the Export Oriented Unit (EOU) Scheme, Electronics Hardware
Technology Park (EHTP) Scheme, Software Technology Park
(STP) Scheme or Bio-Technology Park (BTP) Scheme for
manufacture of goods, including repair, re-making, reconditioning,
re-engineering and rendering of services. Trading units are not
covered under these schemes.”
16. Para 6.2 of the FTP specifies the stipulations for the EOU to
conduct its activities such as export and import of goods. Amongst others,
the clause relevant for considering the present appeals is para 6.2(b),
which reads thus: -
“6.2 Export and Import of Goods
(a) …..
(b) An EOU/EHTP/STP/BTP unit may import and/or
procure, from DTA or bonded warehouses in DTA/
international exhibition held in India, without payment of duty,
all types of goods, including capital goods, required for its
activities, provided they are not prohibited items of import in
the ITC (HS). Any permission required for import under any
other law shall be applicable. Units shall also be permitted to
import goods including capital goods required for approved
activity, free of cost or on loan/lease from clients. Import of
capital goods will be on a self-certification basis. Goods
imported by a unit shall be with actual user condition
and shall be utilized for export production.
…..”
(emphasis supplied)
From the opening part of this provision itself, it is amply clear that
it governs specified entities/units, who are engaged in import and/or
procurement of goods from DTA or bonded warehouses etc., and that
they must do so without payment of duty. Besides, the specified entities
are obliged to utilise the goods imported with actual user condition and to
be used or utilised for export production. This twin condition must be
complied by the specified entities without any exception for deriving
benefit or availing of entitlements under FTP. Chapter 6 of the FTP
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postulates that supply of goods from DTA Units to EOU must be regarded
as deemed exports, as is evident from para 6.11 of the FTP. The same
reads thus: -
“6.11 Entitlement for supplies from the DTA
(a) Supplies from DTA to EOU/EHTP/STP/BTP units will
be regarded as “deemed exports” and DTA supplier shall
be eligible for relevant entitlements under chapter 8 of
FTP, besides discharge of export obligation, if any, on the
supplier. Notwithstanding the above, EOU/EHTP/STP/
BTP units shall, on production of a suitable disclaimer
from DTA supplier, be eligible for obtaining entitlements
specified in chapter 8 of FTP. For claiming deemed export
duty drawback, they shall get brand rates fixed by DC wherever
All Industry Rates of Drawback are not available.
(b) Suppliers of precious and semi-precious stones, synthetic
stones and processed pearls from DTA to EOU shall be eligible
for grant of Replenishment Authorisations at rates and for items
mentioned in HBP v1.
(c) In addition, EOU/EHTP/STP/BTP units shall be
entitled to following:-
(i) Reimbursement of Central Sales Tax (CST) on goods
manufactured in India.
Simple interest @ 6% per annum will be payable on delay
in refund of CST, if the case is not settled within 30 days of
receipt of complete application (as in paragraph 9.10.1 of
HBP v1).
(ii) Exemption from payment of Central Excise Duty
on goods procured from DTA on goods manufactured
in India.
(iii) Reimbursement of duty paid on fuel procured from
domestic
oil companies/Depots of domestic oil Public Sector
Undertakings as per drawback rate notified by DGFT from
time to time. Reimbursement of additional duty of excise
levied on fuel under the Finance Acts would also be
admissible.
(iv) CENVAT Credit on service tax paid.”
(emphasis supplied)
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The opening part of clause (a) concerns the supplier as it refers
to supplies from DTA Unit to EOU to be regarded as deemed exports.
Further, as a consequence of deemed exports, DTA supplier becomes
eligible for entitlements specified under Chapter 8 of the FTP. To put it
differently, in the same Chapter 6, the entitlement of DTA supplier under
Chapter 8 of FTP has also been adverted to. This provision also deals
with the manner of availing the entitlements specified under Chapter 8
of FTP — either by the DTA Unit itself or the EOU, the recipient of the
goods and services. For, in terms of this stipulation even the EOU can
set up a refund claim in respect of stated transaction, in lieu of the
entitlement of DTA Unit after obtaining suitable disclaimer from DTA
supplier. In other words, clause 6.11 [clause (a) thereof in particular]
deals with entitlement of DTA supplier, which can be availed by the
DTA supplier itself or by the EOU to whom the goods were supplied by
it upon giving suitable disclaimer in that regard. The entitlements of the
DTA supplier have been delineated in Chapter 8 of FTP, to which we
will advert to a little later. Clause (a) of Chapter 6.11 also provides that
DTA supplier and EOU may claim deemed export duty drawback as
well, as per the rates fixed by DC wherever All Industry Rates of
Drawback are not available.
17. Clause (c) of para 6.11 is a provision which spells out the
entitlement of EOU.
It includes reimbursement of Central Sales Tax
(CST) on goods manufactured in India; exemption from payment of
Central Excise Duty on goods produced from DTA on goods
manufactured in India; reimbursement of duty paid on fuel procured
from domestic oil companies/depots of domestic oil public sector
undertakings as per drawback rate notified by DGFT from time to time;
and lastly, CENVAT Credit on service tax paid. As regards the Central
Excise Duty, para 6.11(c)(ii) postulates exemption from payment of
Central Excise Duty on goods procured by the EOU from DTA on goods
manufactured in India. This is in consonance with the stipulation in para
6.2(b), which predicates that the EOU may import goods from DTA
without payment of duty.
18. From the scheme of Chapter 6 of FTP, it is thus clear that the
EOU can import goods from DTA supplier, which transaction de jure is
treated as deemed export; and it can do so without payment of duty, as
it has been exempted vide para 6.11(c)(ii) of the FTP. On its own, the
EOU is not eligible for any other entitlement.
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19. Needless to observe that there is marked distinction between
the expression “benefit”29 and “entitlement”30. “Benefit”, by its very nature,
is an advantage, help or aid, while “entitlement” is right to have something.
Under Chapter 6, the EOU is entitled to import specified goods from
DTA without payment of duty, subject to fulfilling other requirements
including of actual user condition and to be utilised for export production,
being a case of ab initio exemption qua EOU. The provision in the
form of para 6.11(a) merely enables EOU to set up a claim “in respect
of” entitlements of DTA supplier under Chapter 8 of FTP. There is no
separate entitlement for EOU under Chapter 8 of FTP. To put it differently,
although the heading of para 6.11 is “Entitlement for supplies from the
DTA” and clause (a) thereof envisages that EOU shall on production of a
suitable disclaimer from DTA supplier be eligible for obtaining entitlements
specified in Chapter 8 of FTP, it does not follow that it is the entitlement
of EOU. It is, however, only a case of benefit transferred to EOU
concerning the entitlement of DTA supplier under Chapter 8 of FTP.
20. That brings us to Chapter 8 of FTP. The heading of Chapter 8
is “Deemed Exports”. The original para 8.1 specified that deemed exports
refer to those transactions in which goods supplied do not leave country
and payment for such supplies is received either in Indian rupees or in
free foreign exchange. By way of amendment, it
further provided that
the supply of specified goods (noted in para 8.2) shall be regarded as
deemed exports provided goods are manufactured in India. The original
para 8.1 reads thus: -
“8.1. Deemed Exports
“Deemed Exports” refer to those transactions in which goods
supplied do not leave country, and payment for such supplies is
received either in Indian rupees or in free foreign exchange.”
[Para 8.1, after amendment, in 2012-2013 reads thus: -
“8.1. Deemed Exports
Deemed Exports” refer to those transactions in which goods
supplied do not leave country, and payment for such supplies is
29 In Black’s Law Dictionary (11th Edition): benefit, n. (14c) 1. The advantage or
privilege something gives; the helpful or useful effect something has <the benefit of
owning a car>. 2. Profit or gain; esp., the consideration that moves to the promise <a
benefit received from the sale>. — Also termed legal benefit; legal value.
30 In Black’s Law Dictionary (11th Edition): entitlement. (19c) An absolute right to a
(usu. monetary) benefit, such as social security, granted immediately upon meeting a
legal requirement.
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received either in Indian rupees or in free foreign exchange.
Supply of goods as mentioned in Paragraph 8.2 below
shall be regarded as “Deemed Exports” provided goods
are manufactured in India.”]
(amendment highlighted)
Para 8.2 of Chapter 8 specifies the categories of supplies which
can be regarded as deemed exports. Clause (b) thereof is applicable to
the present appeals. Relevant extract of original para 8.2 is as under: -
“8.2. Categories of Supply
Following categories of supply of goods by main/sub-contractors
shall be regarded as “Deemed Exports” under FTP, provided goods
are manufactured in India:
(a) xxx
xxx
xxx
(b) Supply of goods to EOU/STP/EHTP/BTP;
…..”
[Para 8.2, after amendment, in 2012-2013 reads thus: -
“8.2. Categories of Supply
Following categories of supply of goods by main/sub-contractors
shall be regarded as “Deemed Exports”:
(c) xxx
xxx
xxx
(d) Supply of goods to EOU/STP/EHTP/BTP;
…..”]
In other words, only the specified categories of supplies are
regarded as deemed exports. In that, import of goods, as specified in
para 8.2(b) from DTA supplier to the EOU is regarded as deemed
exports. To put it differently, the supply of goods by DTA Unit to EOU
with actual user condition and utilised for export production, are regarded
as deemed exports. To such transactions, certain benefits have been
extended, as provided in para 8.3 of the FTP applicable at the relevant
time, which reads thus:
“8.3 Benefits
for Deemed Exports
Deemed exports shall be eligible for any/all of following benefits
in respect of manufacture and supply of goods qualifying as
deemed exports subject to terms and conditions as in HBP v1:-
(a)
Advance Authorisation/Advance Authorisation for
annual requirement/DFIA.
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(b)
Deemed Export Drawback.
(c)
Exemption from terminal excise duty where supplies are
made against ICB. In other cases, refund of terminal
excise duty will be given. Exemption from TED shall
also be available for supplies made by an Advance
Authorisation holder to a manufacturer holding another
Advance Authorization if such manufacturer, in turn,
supplies the product(s) to an ultimate exporter.”
And original para 8.4 of the FTP providing benefits to the suppliers,
as applicable at the relevant time, reads thus: -
“8.4 Benefits to the Supplier
8.4.1
(i) In respect of supplies made against Advance
Authorisation / DFIA in terms of paragraph 8.2(a) of
FTP, supplier shall be entitled to Advance Authorisation
/ DFIA for intermediate supplies.
(ii) If supplies are made against Advance Release
Order (ARO) or Back to Back Letter of Credit issued
against Advance Authorisation / DFIA in terms of
paragraphs 4.1.11 and 4.1.12 of FTP, suppliers shall
be entitled to benefits listed in paragraphs 8.3(b) and
(c) of FTP, whichever is applicable.
8.4.2
In respect of supply of goods to EOU / EHTP /
STP / BTP in terms of paragraph 8.2(b) of FTP,
supplier shall be entitled to benefits listed in
paragraphs 8.3(a), (b) and (c) of FTP, whichever
is applicable.
8.4.3
In respect of supplies made under paragraph 8.2(c)
of FTP, supplier shall be entitled to the benefits listed
in paragraphs 8.3(a), (b) and (c) of the Policy,
whichever is applicable.
8.4.4
(i) In respect of supplies
made under paragraphs 8.2(d),
(f) and (g) of FTP, supplier shall be entitled to benefits
listed in paragraphs 8.3(a), (b) and (c), whichever is
applicable.
(ii) In respect of supplies mentioned in paragraph
8.2(d), supplies to projects funded by such Agencies
alone, as may be notified by DEA, MoF, shall be eligible
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for deemed export benefits. A list of such Agencies /
Funds is given in Appendix 13 of HBP v1.
(iii) Benefits of deemed exports under para 8.2(f) of
FTP shall be applicable in respect of items, import of
which is allowed by DoR at zero customs duty, subject
to fulfillment of conditions specified under Notification
No. 21/2002-Customs dated 1.3.2002, as amended
from time to time.
(iv) Supply of Capital goods and spares upto 10% of
FOR value of capital goods to power projects in terms
of paragraph 8.2(g), shall be entitled for deemed export
benefits provided the ICB procedures have been
followed at Independent Power Producer (IPP) /
Engineering and Procurement Contract (EPC) stage.
Benefit of deemed exports shall also be available for
renovation/modernization of power plants. Supplier
shall be eligible for benefits listed in paragraph 8.3(a)
and (b) of FTP, whichever is applicable. However,
supply of goods required for setting up of any mega
power project as specified in S.No. 400 of DoR
Notification No. 21/2002- Customs dated 1.3.2002, as
amended, shall be eligible for deemed export benefits
as mentioned in paragraph 8.3(a), (b) and (c) of FTP,
whichever is applicable, if such mega power project
complies with the threshold generation capacity
specified therein, in Customs Notification.
[Para 8.4.4(iv), after amendment, in 2010-2011 reads thus: -
“(iv) Supply of Capital goods and spares upto 10% of
FOR value of capital
goods to power projects in terms
of paragraph 8.2(g), shall be entitled for deemed export
benefits provided the ICB procedures have been
followed at Independent Power Producer (IPP) /
Engineering and Procurement Contract (EPC) stage.
However, in regard to mega power projects, the
requirement of ICB would not be mandatory, if
the requisite quantum of power has been tied up
through tariff based competitive bidding or if the
project has been awarded through tariff based
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competitive bidding. Benefit of deemed exports
shall also be available for renovation / modernization
of power plants. Supplier shall be eligible for benefits
listed in paragraph 8.3(a) and (b) of FTP, whichever
is applicable. However, supply of goods required for
setting up of any mega power project as specified in
S.No. 400 of DoR Notification No. 21/2002- Customs
dated 1.3.2002, as amended, shall be 88 eligible for
deemed export benefits as mentioned in paragraph
8.3(a), (b) and (c) of FTP, whichever is applicable, if
such mega power project complies with the threshold
generation capacity specified therein, in Customs
Notification. Further, supply of goods required for
the expansion of existing mega power project as
specified in Sl. no 400A of DoR Notification 21/
2002- Customs dated 1.3.2002, as amended shall
also be eligible for deemed export benefits as
mentioned in paragraph 8.3 (a), (b) and (c) of FTP,
whichever is applicable.”]
(amendments highlighted)
(v) Supplies under paragraph 8.2(g) of FTP to new
refineries being set up during Ninth Plan period and
spilled over to Tenth Plan period, shall be entitled for
deemed export benefits in respect of goods mentioned
in list 17 specified in S.No. 228 of Notification No.
21/2002-Customs dated 1.3.2002, as amended from
time to time. Supplier shall be eligible for benefits listed
in paragraphs 8.3(a) and (b) of FTP, whichever is
applicable.
8.4.5
In respect of supplies made under paragraph 8.2(e)
of FTP,
supplier shall be eligible for benefits listed in
paragraph 8.3(a) and (b) of FTP, whichever is
applicable. Benefit of deemed exports shall be
available in respect of supplies of capital goods and
spares to Fertilizer Plants which are set up or expanded
/ revamped / retrofitted / modernized during Ninth Plan
period. Benefit of deemed exports shall also be
available on supplies made to Fertilizers Plants, which
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have started in the 8th / 9th Plan periods and spilled
over to 10th Plan period.
8.4.6
Supplies of goods to projects funded by UN Agencies
covered under para 8.2(i) of FTP are eligible for
benefits listed in paragraph 8.3(a) and (b) of FTP,
whichever is applicable.
8.4.7
In respect of supplies made to Nuclear Power Projects
under para 8.2(j) of FTP, the supplier would be eligible
for benefits given in para 8.3(a), (b) and (c) of FTP,
whichever is applicable. Supply of only those goods
required for setting up any Nuclear Power Project
specified in list 43 at S.No. 401 of Notification No.
21/2002-Customs dated 1.3.2002, as amended from
time to time, having a capacity of 440MW or more as
certified by an officer not below rank of Joint Secretary
to Government of India in Department of Atomic
Energy, shall be entitled for deemed export benefits in
cases where procedure of competitive bidding (and
not ICB) has been followed.
(emphasis supplied)
Though couched as benefits, these are essentially entitlements, to
be availed by DTA supplier in terms of para 8.4.2. As noted earlier, in
terms of para 6.11(a), the EOU can also avail of those entitlements of
DTA as specified in Chapter 8 of FTP, as had been earmarked for DTA
supplier. That does not mean that EOU is eligible for those entitlements,
on its own accord as, amongst other, it is obliged to obtain disclaimer
from DTA supplier as a precondition.
21. As aforementioned, para
8.2 lists the categories of supply of
goods which are regarded as deemed exports including supply of goods
to EOU [para 8.2 (b)]. The specified transactions are provided certain
benefits mentioned in para 8.3, subject to terms and conditions in the
handbook procedures, volume I, published under FTP. Para 8.3(c), inter
alia, envisages that exemption from TED is available for supplies made
against International Competitive Bidding31 and also to Advance
Authorisation Holder to a manufacturer holding another advance
authorisation if such manufacturer supplies the products to an ultimate
exporter. In other cases, (would include other DTA suppliers of goods to
EOU), however, refund of TED will be given. Further, the expression
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“will” is to be construed as a mandate to give refund to such DTA
suppliers, being its entitlement under FTP. This does not whittle down
the ab initio exemption of payment of duty given to EOU in respect of
supply from DTA.
22. Notably, para 8.3(c) of FTP does not provide in-built eligibility
“category” unlike specified in sub-paras (a) and (b) for ICB and Advance
Authorisation Holder. The expression “in other cases” in sub-para (c)
needs to be understood in proper perspective. Concededly, paras 8.4.1
to 8.4.7 provide for benefits to the supplier of goods to EOU as being
deemed export. It is essentially an entitlement of DTA supplier — as
listed in para 8.3(a), (b) and (c) of FTP, as may be applicable. It is seen
that para 8.4.2 was substituted by the revised FTP of 2012, wherein a
table was inserted32. As per that table, benefits available under para 8.2
31 for short, “ICB”
32 Para 8.4, after amendment, in 2012-2013 reads thus:-
 “8.4 Benefits to the Supplier
Following table shows the benefits available to different categories of supplies as
mentioned in Para 8.2 above. In respect of such supplies supplier shall be entitled
to the benefits listed in paragraphs 8.3 (a), (b) & (c) of the Policy, whichever is
applicable.
8.4.1 This paragraph is deleted because the contents of this paragraph reflected in table
given in paragraph 8.4 above.
8.4.2 This paragraph is deleted because the contents of this paragraph reflected in table
given in paragraph 8.4 above.
8.4.3 This paragraph is deleted because the contents of this paragraph reflected in table
given in paragraph 8.4 above.
8.4.4 (i) This paragraph is deleted because the contents of this paragraph reflected in
table given in paragraph 8.4 above.
(a) 
(b) 
(c) 
(a) 
(b) 
(c) 
(d) 
(h) 
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to specified categories of supplies including supply to EOU in para 8.2(b)
had been extended benefits under para 8.3, as applicable.
23. The eligibility for refund of TED/drawback in terms of para
8.3(c) of FTP is made dependent on the non-availment of CENVAT
credit/rebate on such goods by the recipient thereof, as is envisaged in
original para 8.5. The same reads thus:
“8.5 Eligibility for refund of terminal excise duty/drawback
Supply of goods will be eligible for refund of terminal excise duty
in terms of para 8.3(c) of FTP, provided recipient of goods does
not avail CENVAT credit / rebate on such goods. Similarly, supplies
will be eligible for deemed export drawback in terms of para 8.3(b)
of FTP on Central Excise paid on inputs/components, provided
CENVAT credit facility/rebate has not been availed by applicant.
Such supplies will however be eligible for deemed export drawback
on customs duty paid on inputs/components.
[Para 8.5, after amendment, in 2012-2013 reads thus:-
“8.5 Eligibility for refund of terminal excise duty/
drawback
Supply of goods will be eligible for refund of terminal excise
duty in terms of Para 8.3(c) of FTP, provided recipient of goods
does not avail CENVAT credit/rebate on such goods. A
declaration to this effect, in Annexure II of ANF 8, from
recipient of goods, shall be submitted by applicant.
Similarly, supplies will be eligible for deemed export drawback
in terms of para 8.3 (b) of FTP
of Central Excise duty paid on
inputs/components, provided CENVAT credit /rebate has not
(ii) This paragraph is deleted because the contents of this paragraph reflected in
paragraphs 8.2(d) and 8.4 above.
(iii) This paragraph is deleted because the contents of this paragraph reflected in
paragraph 8.2 (f) above.
(iv) This paragraph is deleted because the contents of this paragraph reflected in
paragraphs 8.2 and 8.4 above.
(v) Deleted 8.4.5 Deleted.
8.4.6 This paragraph is deleted because the contents of this paragraph reflected in table
given in paragraph 8.4 above.
8.4.7 This paragraph is deleted because the contents of this paragraph reflected in
paragraphs 8.2 and 8.4 above.”
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been availed of such duty paid by supplier of goods. A
declaration to this effect, in Annexure III of ANF 8, from
supplier of goods, shall be submitted by applicant. Such
supplies shall however be eligible for deemed export drawback
on customs duty paid on inputs/components.
(amendments highlighted)
8.5.1 Simple interest @ 6% per annum will be payable on delay
in refund of duty drawback and terminal excise duty under deemed
export scheme, if the case is not settled within 30 days of receipt
of complete application (as in paragraph 9.10.1 of HBP v1).”
24. Similarly, benefit under para 8.3(b) of FTP regarding deemed
export drawback can be availed, provided CENVAT credit/rebate has
not been availed by DTA supplier and subject to complying other
formalities. Para 8.4.2 as originally stood, is indicative of option given
only to supplier (DTA) in connection with supply of goods to EOU, as
specified in para 8.3 (a), (b) and (c) of FTP. That has remained intact
despite the amendment of 2012, until March 2013. Be it noted that the
purport of para 8.5 states that supply of goods will be eligible for TED
refund only if CENVAT credit/rebate has not been availed on such goods.
These stipulations demonstrate that the scheme of FTP is explicit and
not ambiguous nor silent in respect of benefits and entitlements of the
concerned entities. It needs no elaboration. Thus, an argument having
potential of defeating the intent of the applicable FTP, in any manner,
ought to be
negated.
25. Going by the scheme of FTP applicable at the relevant period,
it is crystal clear that EOUs were entitled to ab initio exemption from
payment of Central Excise duty on goods procured from DTA on goods
manufactured in India, as the import of such goods was to be made
without payment of duty. No more and no less. That, however, did not
preclude the EOU from availing of the entitlement of DTA supplier under
Chapter 8 upon obtaining a suitable disclaimer from DTA supplier, as
provided in para 6.11(a). That availment by EOU had been linked to
entitlement of DTA supplier, as specified in Chapter 8. The DTA supplier
could (entitled to) take refund of TED in respect of goods supplied by it
to EOU being exempted from TED, in light of para 8.3(c). The eligibility
for refund of TED, however, has been circumscribed by formalities and
requirements to be adhered to, including as noted in para 8.5. In that,
recipient of goods (EOU) does not avail CENVAT credit or rebate.
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Similarly, DTA supplier would be eligible for deemed export drawback
in terms of para 8.3(b) of FTP on Central Excise paid on inputs/
components, provided CENVAT credit facility/rebate has not been
availed.
26. Upon conjoint reading of the relevant para and its clauses, it
leaves no manner of doubt that the intent of the subject FTP was to
encourage DTA suppliers by providing refund of TED in terms of para
8.3(c), subject to fulfilment of formalities and stipulations in Chapter 8 of
FTP. This was also to generate foreign exchange as a consequence of
goods supplied as inputs or otherwise, were finally exported by the EOU.
The EOU, on the other hand, could only avail of the entitlement of the
DTA supplier if the DTA supplier had not taken rebate or CENVAT
credit facility (as per para 8.5) treating it as deemed export. This
dispensation was uniformly followed until the issue of policy circular
dated 15.3.2013. That circular reads thus:-
“Government of India
Ministry of Commerce and Industry
Directorate General of Foreign Trade
Udyog Bhawan, New Delhi
Policy Circular No. 16 (RE-2012/2009-14)
Dated: 15th March, 2013
To,
All Regional Authorities
All Development Commissioners, SEZ.
Subject: Clarification regarding TED Refund where TED
exemption is available.
It has come to the notice of this Directorate that some RAs
of DGFT and the Officers of Development Commissioners of
SEZ are providing refund of TED even in those cases
where
supplies of goods, under deemed exports, is ab-initio exempted.
2. There are three categories of supplies where supply of goods,
under deemed exports, are ab-initio exempted from payment of
excise duties. These are as follows:
(i)
Supply of goods under Invalidation letter issued against
Advance Authorisation [Para 8.3(c) of FTP];
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(ii)
Supply of goods under ICB [Para 8.3(c) of FTP]; and
(iii)
Supply of goods to EOUs [Para 6.11(c)(ii) of FTP]
3. Prudent financial management and adherence to discipline of
budget would be compromised if refund is provided, in cases,
where exemption is mandated. In fact, in such cases the relevant
taxes should not have been collected to begin with. And if, there
has been an error/oversight committed, then the agency
collecting the tax would refund it, rather than seeking
reimbursement from another agency. Accordingly, it is clarified
that in respect of supplies, as stated at Para 2 above, no refund of
TED should be provided by RAs of DGFT/Office of Development
Commissioners, because such supplies are ab-initio exempted from
payment of excise duty.
4. This issue with the approval of DGFT.
(Jay Karan Singh)
Joint Director of Foreign Trade
…..”
(emphasis supplied)
This circular proceeds on the assumption that the goods supplied
by DTA Unit to EOU being a case of deemed exports, it predicates ab
initio exemption from payment of excise duties. Reading the provisions
of the FTP very closely as interpreted hitherto, we need to hold that the
exemption provided to DTA supplier from payment of excise duties,
was subject to complying with certain formalities and stipulations. It is
true that the subject FTP stipulates that EOU may import specified goods
from DTA or bonded warehouses in DTA or international exhibition held
in India, without payment of duty. But it
is hatched with condition that
the goods so imported shall be with actual user condition and shall be
utilised for export production and further, an exemption of TED can be
availed only if the DTA supplier had not taken rebate or utilised CENVAT
credit facility as provided in para 8.5. It is on that understanding, the
department had been entertaining refund requests by the DTA supplier
for refund of TED made by it in the past until the issue of stated policy
circular. In that sense, it was not an ab initio exemption at least for the
DTA supplier. The circular, therefore, introduces a new dimension qua
the DTA suppliers. Such a change for DTA suppliers cannot be introduced
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by issuing a policy circular under the signatures of the Joint Director of
Foreign Trade. For, the FTP is formulated by the Central Government in
exercise of powers conferred by Section 533 of the 1992 Act (as applicable
at the relevant time) read with Para 1.2 of the FTP, which had come into
force with effect from 27.9.2009. We do not intend to say that the
department/Central Government is estopped from altering the
dispensation in vogue. But, it is clear to us that the dispensation, as it
obtained prior to March, 2013 including the notification issued by the
Central Government on 18.4.2013 amending the relevant provisions of
the existing FTP being paras 8.3(c) and 8.4, was materially different
qua DTA suppliers. For, it was not ab initio exemption for them, unlike
in the case of EOU by virtue of para 6.2(b) read with para 6.11(c)(ii).
Accordingly, it became necessary to make it amply clear by amending
paras 8.3(c) and 8.4 vide notification dated 18.04.2013, that henceforth
it would be regarded as ab initio exemption even for DTA supplier.
This, indeed, is a change or amendment effected in the FTP. Such a
change needs to be given only prospective effect, being introduced by
delegated legislation. We are not required to nor called upon to ponder
over the justness and validity of notification dated 18.4.201334. Suffice it
33
Section 5, as it existed before amendment in 2010:
5. Export and import policy. — The Central
Government may, from time to time
formulate and announce, by notification in the Official Gazette, the export and import
policy and may also, in the like manner, amend that policy.
Section 5, as substituted by Act 25 of 2010 w.e.f. 27.8.2010:
5. Foreign Trade Policy. — The Central Government may, from time to time, formulate
and announce, by notification in the Official Gazette, the foreign trade policy and
may also, in like manner, amend that policy:
Provided that the Central Government may direct that, in respect of the Special
Economic Zones, the foreign trade policy shall apply to the goods, services and
technology with such exceptions, modifications and adaptations, as may be
specified by it by notification in the Official Gazette.
34                 To be published in the Gazette of India Extraordinary
Part II, Section 3, Sub-Section (II)
Government of India
Ministry of Commerce and Industry
Department of Commerce
Udyog Bhawan
Notification No. 4 (RE-2013)/2009-2014
Dated: the 18th April, 2013
Subject: Amendments in Paragraph 8.3(c) and Paragraph 8.4 of FTP pertaining to
deemed exports scheme – Regarding.
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to observe that the policy circular cannot be the basis to deny the vested
right of the DTA suppliers under the applicable FTP.
27. As regards the claim for refund of TED by EOU, therefore,
need to be governed by the dispensation provided in para 6.11(a) read
with entitlement of DTA supplier under Chapter 8 of FTP. However, it
may have to be processed by the authorities under the FTP keeping in
S.O (E): In exercise of the powers conferred by Section 5 of the Foreign Trade
(Development & Regulation) Act, 1992, as amended, read with paragraph 1.3 of the
Foreign Trade Policy, 2009-2014, the Central Government hereby makes the following
amendments in Foreign Trade Policy, 2009-2014.
2. The existing paragraphs 8.3 (c) and 8.4 in the FTP are substituted by amended
paragraphs 8.3(c) and 8.4 as given below:
(i) Existing Paragraph 8.3 (c)
“Exemption from terminal excise duty where supplies are made against ICB. In other
cases, refund of terminal excise duty will be given. Exemption from TED shall also be
available for supplies made by an Advance Authorisation holder to a manufacturer
holding another Advance Authorisation if such manufacturer, in turn, supplies the
product(s) to an ultimate exporter.”
Amended Paragraph 8.3 (c)
“Refund of terminal excise duty will be given if exemption is not available. Exemption
from TED is available to the following categories of supplies:
(i)
Supplies against ICB;
(ii)
Supplies of intermediate goods, against invalidation letter,
made by an Advance
Authorisation holder to another Advance Authorisation holder; and
(iii)
Supplies of goods by DTA unit to EOU / EHTP / STP / BTP unit
Thus such categories of supply which are exempt ab initio will not be eligible to
receive refund of TED”.
(ii) Existing Paragraph 8.4
“Following table shows the benefits available to different categories of supplies as
mentioned in Para 8.2 above. In respect of such supplies supplier shall be entitled to
the benefits listed in paragraphs 8.3 (a), (b) & (c) of the Policy, whichever is applicable.
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mind the principle underlying the refund of CENVAT credit granted under
Rule 5 of the 2004 Rules and in the manner provided therefor, though
not covered by Rule 5. That is because in law it is a case of deemed
export by virtue of applicable FTP.
28. If the refund claim is by the EOU, the same needs to be
processed by the authorities under the FTP by reckoning the entitlement
of DTA supplier specified in Chapter 8 of the FTP concerning the goods
supplied to it, being a case of deemed exports. The EOU on its own,
however, is not entitled for refund of TED, as the mandate to EOU is to
procure or import goods from DTA supplier, without payment of duty in
view of the express ab initio exemption provided in terms of para 6.2(b)
read with para 6.11(c)(ii). However, despite such express obligation on
the EOU, if the EOU has had imported goods from DTA supplier by
paying TED, it can only claim the benefit of refund provided to DTA
supplier under para 8.4.2 read with paras 8.3(c) and 8.5 subject to
obtaining disclaimer from DTA supplier in that regard and complying
with other formalities and requirements.
Amended Paragraph 8.4
“Following table shows the benefits available to different categories of supplies as
mentioned in Para 8.2 above. In respect of such supplies supplier shall be entitled to
the benefits listed in paragraphs 8.3 (a), (b) & (c) of the Policy, whichever is applicable.”
3. Effect of this amendment:
When ab
initio exemption is available, benefit of TED refund will not be given.
(Anup K. Pujari)
Director General of Foreign Trade
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29. We thus agree with the conclusion reached by the Bombay
High Court that the EOU is not entitled to claim refund of TED on its
own. However, we add a caveat that EOU may avail of the entitlements
of DTA supplier specified in Chapter 8 of FTP on condition that it will
not pass on that benefit back to DTA supplier later on. In any case, the
refund claim needs to be processed by keeping in mind the procedure
underlying the refund of CENVAT credit/rebate of excise duty obligations.
If CENVAT credit utilised by DTA supplier or EOU, as the case may
be, cannot be encashed, there is no question of refunding the amount in
cash. In that case, the commensurate amount must be reversed to the
CENVAT credit account of the concerned entity instead of paying cash.
30. If, the claim for refund by DTA supplier under the scheme of
FTP is allowed, it can be in cash if TED had been paid in cash. Else, it
can be in the form of reversal of commensurate CENVAT credit amount
to the concerned account of DTA supplier.
31. As regards the refund claim of DTA supplier, as noted earlier,
it needs to be processed by the authorities under the FTP keeping in
mind the purport of stipulations spelt out in Chapter 8 of subject FTP,
such as the goods imported or supplied to EOU shall be with actual user
condition and shall be utilised for export production and that the EOU
did not avail CENVAT credit or rebate in relation to the goods supplied
to EOU. Similarly, if the DTA supplier has
utilised the CENVAT credit,
commensurate amount needs to be reversed to its CENVAT credit
account, in which case, there is no question of refunding the amount in
cash to the DTA supplier.
32. We shall now revert to the judicial pronouncements dealing
with the subject FTP. Except the decision of the Bombay High Court
commended to us, which is under challenge in the first two appeals
pertaining to refund claim by EOU, all other reported decisions are in
respect of DTA supplier of specified goods/services.
33. The earliest decision is that of the learned Single Judge of the
Calcutta High Court in IFGL Refractories Limited35. The High Court
noted that the Export and Import Policy for the relevant years was
adopted amongst other to promote export of Indian products to foreign
countries aiming at to earn foreign exchange and to increase global
35 supra at Footnote No.22
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market. The scheme was propounded to encourage indigenous supplier
by providing certain benefits and entitlements, either by way of exemption
from payment of excise duty or to get refund of excise duty, if already
paid. The object of the scheme was to provide exporters duty-free input
for production of export materials and for that reason, it exempted supplier
from payment of any excise duty and, if paid, to provide for refund of
TED. The High Court further noted that merely because such refund
was not permissible to the DTA supplier under the 1944 Act and the
rules framed thereunder, that would not deprive the DTA supplier to
avail of the entitlements and benefits under the FTP. It held that it is
open to the assessee to take advantage of any law, particularly which is
more beneficial. Accordingly, learned Single Judge issued directions to
pay the refundable amount along with interest at the rate of 12 % per
annum. The appeal filed by the Department against the said decision
was rejected by the Division Bench of the Calcutta High Court in Joint
Director General of Foreign Trade36. The Division Bench, however,
directed the DGFT to refund TED amount as it was the concerned
Authority under the FTP, subject to assessee completing necessary
formalities as provided for in the FTP. This decision was then affirmed
by this Court consequent to dismissal of special leave petition being S.L.P.
(C) No.5368 of 2002, on 7.10.2002.
34. The next decision is of the High Court of Gujarat in the case
of Commissioner of Central Excise and Customs vs. NBM
Industries37. The Division Bench of the High Court considered the
question whether DTA supplier of goods to EOU is entitled for refund of
the CENVAT credit despite Rule 5 of the 2004 Rules, dealing with refund
of CENVAT credit. The Authorities had held that not being a case of
export of goods out of India, the assessee was not entitled for refund of
CENVAT credit amount utilised in respect of subject goods supplied to
EOU. The High Court relying on its earlier decision in Commissioner
of Central Excise vs. Shilpa Copper Wire Industries38, negatived that
stand of the Department. Instead, the High Court held that the claim for
refund was in reference to the applicable FTP and not on the basis of
the provisions of the 1944 Act and the rules framed thereunder. The
entitlement of DTA supplier was specified in the applicable FTP being
36 supra at Footnote No.19
37 2012 (276) EaLT 9 (Guj.)
38 2011 (269) ELT 17 (Guj.)
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deemed exports which in law are regarded as physical exports for the
purpose of entitling refund of unutilised CENVAT credit.
35. Then came the decision of the High Court of Delhi in Kandoi
Metal Powders Manufacturing Company Private Limited39. Even,
this was a case of supplier manufacturing goods supplied to EOU in
reference to the applicable FTP. The High Court not only relied on the
decision of the Division Bench of the Calcutta High Court in Joint
Director General of Foreign Trade40, but independently opined that
DGFT having formulated the FTP, the claim of the assessee was
governed by the entitlements specified therein in paras 8.2, 8.3, 8.4 and
8.5 as applicable at the relevant time. Accordingly, the High Court allowed
the writ petition and relegated the writ petitioner before the Authority
concerned for deciding the refund claim of the petitioner. This judgment
has been followed in subsequent decisions, not only by the coordinate
Benches of the High Court of Delhi, but also by other High Courts.
36. The Madras High Court in the case of Raja Crowns and
Cans Pvt. Limited vs. Union of India41 dealt with similar claim of the
DTA supplier of goods to EOU and whilst following the decisions of the
High Court of Delhi and Calcutta High Court referred to above, opined
that the assessee was entitled to maintain an application for refund of
TED. The High Court, accordingly, directed the Authorities concerned
to consider the refund application of the writ
petitioner. Later on, the
Madras High Court took the same view in Lenovo (India) Pvt. Ltd.42
and Manali Petrochemical Limited vs. Additional Director General
of Foreign Trade, New Delhi & Anr.43.
37. As aforesaid, the decision in Kandoi Metal Powders
Manufacturing Company Private Limited44 has been subsequently
followed by the High Court of Delhi in Union of India vs. Alstom India
Limited45, Commissioner of Central Excise, Delhi II vs. Welspring
Universal46, Deepak Enterprises vs. Union of India47, Alstom
39 supra at Footnote No.18
40 supra at Footnote No.19
41 2015 (317) ELT 40 (Mad.)
42 supra at Footnote No.25
43 W.P. No.23194 of 2009, decided on 16.9.2019
44 supra at Footnote No.18
45 2015 (325) ELT 72 (Del.)
46 2018 (359) ELT 635 (Del.)
47 2018 (360) ELT 905 (Del.)
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Transport India Ltd. vs. Union of India48, Motherson Sumi Electric
Wires vs. Union of India49, Multitex Filtration Engineers Limited
vs. Union of India50 and Hindustan Tin Works Limited vs. Union of
India51.
38. The view taken by the Calcutta High Court and followed by
the High Court of Delhi commended even to the High Court of Karnataka
in Acer India Pvt. Ltd.52
39. The view taken in these decisions at the instance of the DTA
supplier of specified goods to EOU is in consonance with the view taken
by us in this judgment. To that extent, we affirm these decisions and hold
that the DTA supplier of goods to EOU would be entitled for refund of
TED on the basis of applicable para 6.11(a) read with paras 8.3(c),
8.4.2 and 8.5 of the FTP under consideration. The modality of refund,
however, ought to be in the form of reversal of commensurate amount in
the CENVAT credit account of the DTA supplier, if the DTA supplier
had utilized CENVAT credit account in respect of goods supplied to
EOU; and if it had paid the amount in cash, the DTA supplier would be
entitled for refund of cash with simple interest at the rate of 6% per
annum as provided in para 8.5.1 of the applicable FTP on delay in refund
of duty drawback and TED under deemed exports scheme.
40. Reverting to the case of EOU considered by the Bombay
High Court in the impugned judgment, we hold that EOU is entitled only
for ab initio exemption from payment of central
excise duty in terms of
para 6.11(c)(ii) of the FTP; and obliged to import the goods from DTA
supplier without payment of duty in terms of para 6.2(b) of the FTP. The
arrangement provided in para 6.11(a) is, however, in the nature of “benefit”
given to EOU in the event it had paid the amount towards TED in relation
to goods procured by it to DTA supplier. In that case, EOU will be
eligible only for obtaining entitlements of DTA supplier as specified in
Chapter 8 of the FTP upon obtaining a suitable disclaimer from DTA
supplier. Accordingly, in addition to ab initio exemption, the EOU is
additionally eligible to receive entitlements of DTA supplier as specified
in Chapter 8 of the FTP subject to complying with necessary requirements
48 2018 (363) ELT 69 (Del.)
49 2018 (364) ELT 91 (Del.)
50 2020 (373) ELT 68 (Del.)
51 2020 (373) ELT 217 (Del.)
52 supra at Footnote No.21
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and formalities. In other words, EOU is not entitled for refund of TED
on its own accord, but can avail of the entitlements of DTA supplier on
complying essential procedure. As mentioned earlier, the interest on the
refundable amount, if paid in cash ought to be refunded with simple
interest at the rate of 6% per annum as provided in para 8.5.1 of the
applicable FTP, even in the case of application for refund by EOU.
41. The next question is: the refund claim should be set up before
which Authority? As noted earlier, since the entitlement of exemption
and refund of TED flows from the provisions of 1992 Act and FTP
framed thereunder by the Central Government, which is an independent
dispensation than the one provided in the 1944 Act and the rules framed
thereunder, with the avowed purpose of promoting export and earning
foreign exchange, it is the obligation of Authority responsible to implement
the subject FTP, to deal with refund claim of the concerned entities. For,
it is not a case of refund under the 1944 Act or 2002 Rules or 2004 Rules
as such, but under the applicable FTP.
42. In conclusion, we hold that the EOU entities, who had procured
and imported specified goods from DTA supplier, are entitled to do so
without payment of duty [as in para 6.2(b)] having been ab initio
exempted from such liability under para 6.11(c)(ii) of the FTP, being
deemed exports. Besides this, there is no other entitlement of EOU under
the applicable FTP. Indeed, under
para 6.11(a) of the FTP, EOU is
additionally eligible merely to avail of entitlements of DTA supplier as
specified in Chapter 8 of the FTP upon production of a suitable disclaimer
from the DTA supplier and subject to compliance of necessary formalities
and stipulations. It would not be a case of entitlement of EOU, but only
a benefit passed on to EOU for having paid such amount to the DTA
supplier, which was otherwise ab initio exempted in terms of para
6.11(c)(ii) of the FTP coupled with the obligation to import the same
without payment of duty under para 6.2(b).
43. Besides, if the DTA supplier as well as EOU had utilized its
CENVAT credit for importing goods in question, the refund would be in
the form of reversal of commensurate amount of CENVAT credit to the
account of the concerned entity. However, if TED has been paid in cash
by the EOU, the EOU may get refund of that amount from Authority
implementing the applicable FTP in cash with simple interest at the rate
of 6% per annum for the delayed refund of duty (para 8.5.1) on condition
that it would not pass on that benefit to the DTA supplier owing to such
refund/rebate.
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44. As regards DTA supplier of goods to EOU, it is entitled to
receive the refund of TED in terms of para 8.3(c) read with paras 8.4.2
and 8.5 of the applicable FTP subject to complying necessary formalities
and stipulations provided therein, being a case of deemed exports. Even,
in the case of DTA supplier of goods to EOU, if TED has been paid by
utilizing CENVAT credit, the refund would be in the form of reversal of
commensurate amount in its CENVAT credit account. And if the amount
towards TED has been paid in cash by the DTA supplier to the Authorities
under the 1944 Act, the refund of TED amount would be made by the
Authority implementing the applicable FTP in cash with simple interest
at the rate of 6% per annum for the delay in refund of TED as per para
8.5.1.
45. In both cases, as aforesaid, responsibility of refund of TED in
reference to applicable FTP would be that of the Authority responsible
to implement the FTP under the 1992 Act, which has had consciously
accorded such entitlements/benefits for promoting export and earning
foreign exchange. Further, the fact that the concerned entity had
unsuccessfully applied for refund to the Authorities under the 1944 Act
and the rules made thereunder, that would not denude it of its entitlement
to get refund of TED under the FTP, as may be applicable being mutually
exclusive remedies. It is so because it is well settled that the assessee is
free to take benefit of
more beneficial regime.
46. Learned counsel for the parties had referred to other decisions,
which in our opinion need not be dealt with as the same are not directly
dealing with the issue(s) answered in these cases, in particular
dispensation provided under the applicable FTP.
47. In view of the above, the appeals filed by the assessee (EOU)
against the decision of the Bombay High Court partly succeed in the
above terms; and the appeals filed by the Department against the decision
of the High Court of Delhi and High Court of Karnataka are also partly
allowed in the aforementioned terms. There shall be no order as to costs.
Pending application(s), if any, are disposed of accordingly.
Devika Gujral
Appeals disposed of.