Court upholds Export Oriented Unit's CST refunds, rejects restrictions under Foreign Trade Policy. Recovery proceedings quashed.

The court ruled in favor of the writ applicant, an Export Oriented Unit (EOU), in a case concerning the validity of CST refunds on inputs procured from EOUs and used in the production of final products cleared into the Domestic Tariff Area (DTA). The court held that CST refunds were permissible under the Foreign Trade Policy (FTP) 2004-2009, rejecting restrictions imposed by the Handbook of Procedures (HBP). Additionally, the court found recovery proceedings initiated after a significant delay impermissible, citing lack of willful suppression or misrepresentation by the applicant. The impugned order was quashed, and the applicant's entitlement to CST refunds was upheld.

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Issues Involved:
1. Validity of CST refunds on inputs procured from EOUs.
2. Validity of CST refunds on inputs used in production of final products cleared into DTA.
3. Applicability of Public Notice No. 81 (RE2008)/2004-2009 dated 16.09.2008.
4. Timeliness and admissibility of recovery proceedings initiated after a significant delay.

Detailed Analysis:

1. Validity of CST refunds on inputs procured from EOUs:

The writ applicant, an Export Oriented Unit (EOU), challenged the denial of CST refunds on goods supplied by EOUs to EOUs. The court referred to the decision in *Asahi Songwan Colors Ltd and Ors vs. Union of India and Ors* (2017 (356) ELT 532 (Guj)), which held that the Foreign Trade Policy (FTP) 2004-2009 did not limit CST reimbursement to purchases made only from Domestic Tariff Area (DTA) units. The court ruled that the FTP's language did not restrict CST refunds to DTA supplies, thus supporting the applicant's claim.

2. Validity of CST refunds on inputs used in production of final products cleared into DTA:

The court examined paragraph 6.11(c)(i) of the FTP 2004-2009, which entitles EOUs to CST reimbursement on goods manufactured in India. The court found that the Handbook of Procedures (HBP) appendix 14-II, which restricted CST refunds to goods meant for export, conflicted with the FTP. The court held that the FTP provisions, being the primary statutory scheme, should prevail over the HBP, thus validating the CST refunds on inputs used in products cleared into DTA.

3. Applicability of Public Notice No. 81 (RE2008)/2004-2009 dated 16.09.2008:

The court noted that Public Notice No. 81, which amended the HBP to allow CST reimbursement for goods cleared into DTA from 16.09.2008 onwards, had only prospective effect. The court ruled that the FTP provisions already provided for CST reimbursement on goods manufactured in India, and the HBP could not override these provisions. Therefore, the amendment did not affect the applicant's entitlement to CST refunds for the period before the notice.

4. Timeliness and admissibility of recovery proceedings initiated after a significant delay:

The court addressed the issue of delayed recovery proceedings, noting that the show cause notice was issued in 2015 for refunds granted in 2007-08. The court referred to *Asahi Songwan* (supra), which held that recoveries could not be made after an unduly long period without any misrepresentation or suppression of facts by the applicant. The court found no allegations of willful suppression or misrepresentation by the applicant and ruled that the delayed recovery proceedings were impermissible.

Conclusion:

The court quashed the impugned order dated 07.09.2018, upholding the applicant's entitlement to CST refunds on inputs procured from EOUs and used in production of final products cleared into DTA, as per the FTP 2004-2009. The court also ruled against the delayed recovery proceedings initiated by the respondent. The writ application was allowed, and the rule was made absolute.

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