2022 (1) TMI 225 - SC - Customs

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 ... Entitlement to refund of terminal excise duty under the Foreign Trade Policy - ab initio exemption from payment of excise duty for EOUs - deemed exports and entitlements of DTA suppliers under Chapter 8 of FTP - availability of refund in cash or by reversal of CENVAT credit - authority and forum for refund claims under the Foreign Trade (Development & Regulation) Act, 1992 - clarificatory effect and validity of DGFT Policy Circular No.16 dated 15.03.2013Ab initio exemption from payment of excise duty for EOUs - entitlement to refund of terminal excise duty under the Foreign Trade Policy - deemed exports and entitlements of DTA suppliers under Chapter 8 of FTP - Whether an Export Oriented Unit (EOU) is independently entitled to refund of Terminal Excise Duty (TED) under the FTP or is limited to ab initio exemption and only a transferred benefit of the DTA supplier's entitlements. - HELD THAT: - The Court held that under the FTP the EOU is entitled to import/procure goods from DTA without payment of excise duty (paras 6.2(b) and 6.11(c)(ii)) and that this constitutes an ab initio exemption for the EOU. Clause 6.11(a) allows the EOU, upon production of a suitable disclaimer from the DTA supplier, to avail the entitlements that are expressly provided to the DTA supplier in Chapter 8; this is a benefit transferred to the EOU and not a standalone entitlement of the EOU. Where an EOU has nonetheless paid TED, it cannot claim an independent entitlement to refund under FTP; it can only claim the DTA supplier's entitlement under Chapter 8 subject to the formalities (including the disclaimer and para 8.5 conditions). If CENVAT credit was utilised, refund will be by reversal to the CENVAT account; if TED was paid in cash and refund is allowed, refund is payable with simple interest at 6% per annum for delay as provided in para 8.5.1 (paras 16-19, 21, 24-31, 40-43). [Paras 28, 29, 40, 42, 43]EOU is not independently entitled to TED refund; it has ab initio exemption and may only avail, subject to procedural conditions, the DTA supplier's entitlements under Chapter 8 of the FTP.Deemed exports and entitlements of DTA suppliers under Chapter 8 of FTP - entitlement to refund of terminal excise duty under the Foreign Trade Policy - availability of refund in cash or by reversal of CENVAT credit - Whether a Domestic Tariff Area (DTA) supplier of goods to an EOU is entitled to refund of TED under the FTP and the mode of such refund. - HELD THAT: - The Court affirmed that supplies from DTA to EOU are regarded as deemed exports (para 6.11) and that Chapter 8 of the FTP grants entitlements to the DTA supplier, including refund of TED under para 8.3(c), subject to the conditions in paras 8.4 and 8.5. The entitlement to refund under FTP is independent of remedies under the Central Excise Act, 1944; accordingly a DTA supplier may pursue refund under FTP even if relief under the 1944 Act was unsuccessful. Where the supplier has utilised CENVAT credit, the proper mode of restitution is reversal of the commensurate CENVAT credit to its account; where TED was paid in cash, refund in cash is available with simple interest at 6% per annum for delayed refund as per para 8.5.1. The Court endorsed prior High Court decisions holding DTA suppliers entitled to TED refund under FTP, subject to compliance with formalities (paras 20-26, 30-31, 39-44). [Paras 24, 30, 31, 39, 44]DTA suppliers of goods to EOUs are entitled to TED refund under Chapter 8 of the FTP subject to specified formalities; refund is by reversal of CENVAT credit if CENVAT was used, or in cash with 6% simple interest for delay if TED was paid in cash.Clarificatory effect and validity of DGFT Policy Circular No.16 dated 15.03.2013 - authority and forum for refund claims under the Foreign Trade (Development & Regulation) Act, 1992 - Whether DGFT Policy Circular No.16 dated 15.03.2013 is merely clarificatory regarding TED exemption/refund and whether the authority implementing the FTP is the proper forum to decide refund claims arising under FTP. - HELD THAT: - The Court accepted that the impugned circular was issued to clarify that where supplies are ab initio exempted under FTP (including supplies to EOUs), Regional Authorities of DGFT/Development Commissioners should not provide TED refund (para 26). The Court held that entitlement and refund under FTP flow from the 1992 Act and FTP and therefore claims must be processed by the Authority tasked with implementing the FTP (DGFT/Development Commissioner) rather than under the Central Excise Act; the FTP regime is an independent dispensation and remedies under the 1944 Act do not preclude relief under FTP (paras 14, 41). The court also observed that earlier inconsistent practices of refund did not vest a right to continue such practice contrary to FTP (para 5). However, timing and applicability of the circular to pre circular supplies was considered in light of the FTP and prior judicial decisions deciding particular factual windows (paras 4, 6, 33-38). [Paras 5, 14, 26, 41]DGFT Policy Circular No.16 is a clarificatory restatement of FTP position that supplies ab initio exempted shall not attract TED refund by DGFT authorities; claims under FTP must be adjudicated by the Authority implementing the FTP.Final Conclusion: The appeals resolve that under the FTP supplies from DTA to EOUs are deemed exports: EOUs enjoy ab initio exemption from TED and cannot independently claim TED refund, but may (on disclaimer and compliance) avail the DTA supplier's Chapter 8 entitlements; DTA suppliers are entitled to TED refund under FTP subject to formalities, with refund by CENVAT reversal if CENVAT was used or in cash with 6% simple interest for delay; refund claims arising under FTP must be decided by the Authority implementing the FTP, and DGFT's Policy Circular No.16 (15.03.2013) is a valid clarification of that FTP position. 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.