Supreme Court rules on TED refunds for Export Oriented Units

The Supreme Court partially allowed the appeals of Export Oriented Units (EOUs) and the Department, directing that refund claims for Terminal Excise Duty (TED) should be processed in accordance with the Foreign Trade Policy (FTP) provisions. EOUs are entitled to procure goods from Domestic Tariff Area (DTA) units without duty payment under specific FTP provisions. The Court clarified that TED refunds for EOUs should be handled by FTP authorities, not under the Central Excise Act, 1944. The circular dated 15.03.2013 has prospective application only.

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Issues Involved:
1. Entitlement for refund of Terminal Excise Duty (TED) for Export Oriented Units (EOUs) and Domestic Tariff Area (DTA) units under the Foreign Trade Policy (FTP).
2. Applicability and interpretation of Circular No.16 (RE-2012/2009-14) dated 15.03.2013 issued by the Director General of Foreign Trade (DGFT).
3. Jurisdiction of authorities under FTP and the Central Excise Act, 1944 regarding TED refunds.
4. Legal precedents and their applicability to the current case.

Detailed Analysis:

1. Entitlement for Refund of Terminal Excise Duty (TED) for EOUs and DTA Units:
- Civil Appeal Nos. 3358 and 3359 of 2020: The appellants, EOUs engaged in manufacturing goods under Chapter 30 of the Central Excise Tariff Act, 1985, sought refunds of TED for goods procured from their DTA units. The Bombay High Court dismissed their writ petitions, holding that EOUs are not entitled to TED refunds as their procurement is ab initio exempt from excise duty under paras 6.2(b) and 6.11(c)(ii) of the FTP.
- Civil Appeal No. 3360 of 2020: The respondent, a DTA unit, supplied goods to EOUs and sought TED refunds. The Delhi High Court allowed the writ petition, directing DGFT to consider the refund application, noting that the impugned circular had prospective effect only.
- Civil Appeal No. 3705 of 2020: The Karnataka High Court upheld the entitlement of a DTA unit to TED refunds for supplies made to EOUs, distinguishing it from the Bombay High Court's decision.

2. Applicability and Interpretation of Circular No.16 (RE-2012/2009-14) dated 15.03.2013:
- The circular clarified that no TED refund should be provided for supplies to EOUs as such supplies are ab initio exempt from excise duty. The Bombay High Court upheld this circular, stating it merely clarified the existing FTP provisions.
- The Delhi and Karnataka High Courts, however, held that the circular could only have prospective effect and did not apply to transactions made before its issuance.

3. Jurisdiction of Authorities under FTP and the Central Excise Act, 1944 regarding TED Refunds:
- The Supreme Court held that the FTP regime, being a special dispensation under the Foreign Trade (Development and Regulation) Act, 1992, operates independently of the Central Excise Act, 1944. The refund claims should be processed by authorities under the FTP.
- EOUs can avail of the entitlements of DTA suppliers under Chapter 8 of the FTP upon obtaining a suitable disclaimer from the DTA supplier. However, EOUs are not entitled to TED refunds on their own.

4. Legal Precedents and Their Applicability:
- The Supreme Court affirmed the decisions of the Calcutta High Court in IFGL Refractories Limited and the Delhi High Court in Kandoi Metal Powders Manufacturing Company Private Limited, which held that DTA suppliers are entitled to TED refunds under the FTP.
- The Court distinguished the Bombay High Court's decision, noting that while EOUs are not entitled to TED refunds on their own, they can claim the entitlements of DTA suppliers upon obtaining a disclaimer.

Conclusion:
- EOUs are entitled to procure goods from DTA units without payment of duty under paras 6.2(b) and 6.11(c)(ii) of the FTP.
- EOUs can claim the entitlements of DTA suppliers under Chapter 8 of the FTP upon obtaining a suitable disclaimer.
- The refund claims should be processed by authorities under the FTP, not under the Central Excise Act, 1944.
- The impugned circular dated 15.03.2013 is clarificatory and applies prospectively.
- The Supreme Court partly allowed the appeals of the EOUs and the Department, directing that the refund claims be processed in accordance with the FTP provisions and the principles laid down in this judgment.

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