Court quashes tax recovery order on oil purchases by Export Unit

The Court allowed the petition challenging the order seeking recovery of Central Sales Tax and duty drawback on oil purchases by a 100% Export Oriented Unit. The Court found the objections unjustified, emphasizing that the Foreign Trade Policy did not impose restrictions on goods sold in the local market or duty drawback conditions. It criticized the delayed show cause notice and highlighted the Department's failure to provide adequate explanation for the prolonged action. The impugned order was set aside, emphasizing adherence to policy provisions and limitations on procedural restrictions beyond policy mandates.

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Issues:
Challenge to order dated 16th July 2018 by respondent no. 2 regarding reimbursement of Central Sales Tax and duty drawback on oil purchases by a 100% Export Oriented Unit (EOU).

Analysis:
The petitioners, a registered company engaged in manufacturing and export, challenged the respondent's objections to reimbursement of Central Sales Tax and duty drawback on oil purchases. The respondent issued a show cause notice in 2017 seeking recovery of amounts paid many years back. The petitioners argued that the objections were unjustified as the Foreign Trade Policy did not impose restrictions on goods sold in the local market or duty drawback conditions. They also contended that the grievances were time-barred. Reference was made to a previous case, Asahi Songwon Colours Limited v. Union of India, to support their arguments.

The Department opposed the petition, citing conditions in the Handbook of Procedures for claiming reimbursement and duty drawback. They highlighted specific conditions not met by the petitioners, justifying the refund demands. The Department also referred to a Government Circular regarding duty drawback eligibility based on oil procurement sources.

The Court noted that the show cause notice for recovery of Central Sales Tax and duty drawback related to transactions from 2007, issued almost ten years later. Citing the Asahi Songwon Colours Limited case, the Court emphasized that the Foreign Trade Policy did not limit benefits based on procurement sources. It critiqued the introduction of conditions not present in the policy through procedures. The Court also discussed the separation of powers and legislative authority, emphasizing that procedures could not restrict benefits beyond policy provisions.

The Court found the issue of Central Sales Tax reimbursement covered by the Asahi Songwon Colours Limited judgment. Regarding duty drawback on oil purchases, the Court highlighted the Department's delay and lack of explanation for the prolonged action. The Court allowed the petition, setting aside the impugned order, while leaving the duty drawback eligibility question open.

In conclusion, the Court disposed of the petition, emphasizing the importance of adherence to policy provisions and the limitations on procedural restrictions beyond policy mandates.

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