2016 (4) TMI 185 - HC - Customs

EOUs entitled to CST reimbursement on inter-state purchases despite procedural restrictions

M/s Hospira Health Care India Pvt. Ltd. Versus Development Commissioner, MEPZ Special Economic Zone & HEOUs, Director General of Foreign Trade (DGFT) And Others

The court held that Export Oriented Units (EOUs) are eligible for reimbursement of Central Sales Tax (CST) on inter-state purchases from another EOU, ... Rejection of refund claim - Reimbursement of Central sales Tax - Inter-state purchase made by an EOU from another EOU - Manufacture and export of injectable drugs and infusion technologies - Held that:- when the policy provides for reimbursement under paragraph 6.11, the said objective was prevented or diluted by the Appendix. The Appendix is meant for effectuating the rights contained in the policy and not to frustrate the operation of the substantive right. The Appendix should be meant only for reaching the objective and definitely should not be meant for defeating a person from getting the fruits of the substantive right provided in the policy. A procedure should not run contrary to the substantive right in the policy. Here, it is only a procedural amendment and not a policy amendment. When the policy gives a right to the petitioner for claiming refund of taxes, it cannot be prevented by making an amendment in the procedure. The petitioner can be prevented only if the policy is amended prohibiting refund of tax for the purchases made from an 100% EOU. The procedure was to be prescribed by an authority in implementing the policy and must be in consonance with the policy. If the procedural norms are in conflict with the policy, then the policy will prevail and the procedural norms to the extent they are in conflict with the policy, are liable to be held to be bad in law. Since the impugned communciations are in conflict with paragraph 6.11 of the Foreign Trade Policy, the same are liable to be set aside. - Decided in favour of appellant Issues Involved:1. Eligibility of an Export Oriented Unit (EOU) for reimbursement of Central Sales Tax (CST) on inter-state purchases from another EOU.2. Interpretation of Foreign Trade Policy (FTP) provisions and Handbook of Procedures (HBP) regarding CST reimbursement.3. Validity of procedural norms conflicting with substantive rights under the FTP.Issue-wise Detailed Analysis:1. Eligibility of an EOU for Reimbursement of CST on Inter-State Purchases from Another EOU:The core issue in both writ petitions was whether inter-state purchases made by an EOU from another EOU qualify for CST reimbursement under the extant provisions of the law. The petitioner, a 100% EOU, argued that they were entitled to CST reimbursement for purchases made from another EOU, citing past instances where such claims were sanctioned. However, the respondents contended that the Handbook of Procedures Vol-I allowed CST reimbursement only for supplies from Domestic Tariff Area (DTA) units, not from EOUs.2. Interpretation of FTP Provisions and HBP Regarding CST Reimbursement:The petitioner relied on paragraph 6.11 of the FTP, which provides for certain entitlements for EOUs, including CST reimbursement on goods manufactured in India. The petitioner argued that the substantive right under the policy allows for CST reimbursement irrespective of the seller's category (DTA or EOU). The respondents, however, maintained that the Handbook of Procedures and Appendix 14.I-I only provided for CST reimbursement on purchases from DTA units, not from EOUs.3. Validity of Procedural Norms Conflicting with Substantive Rights Under the FTP:The court held that procedural norms (Appendix 14.I-I) should not restrict the substantive rights provided in the policy. It emphasized that the Handbook and Appendix are procedural instruments meant to operationalize the substantive rights in the FTP, not to prevent them. The court noted that the substantive provision in paragraph 6.11 of the FTP remained unchanged in the new FTP (2015-2020), which continued to allow CST reimbursement for goods manufactured in India without specifying the seller's category. Therefore, the procedural norms conflicting with this substantive right were held to be invalid.Judgment:The court set aside the impugned communications dated 28.04.2014 and 11.04.2014, issued by the Development Commissioner, Madras Export Processing Zone, Chennai, and the Secretary, Ministry of Commerce and Industry, respectively. It directed the Development Commissioner to grant the refund claims for CST on purchases made by the petitioner from another EOU, M/s Orchid Chemicals & Pharmaceuticals Limited. The writ petitions were allowed, and the connected miscellaneous petition was closed.