2022 (1) TMI 225 - SC - Customs

Supreme Court rules on TED refunds for Export Oriented Units

Sandoz Private Limited Versus Union Of India & Others

The Supreme Court partially allowed the appeals of Export Oriented Units (EOUs) and the Department, directing that refund claims for Terminal Excise Duty ... Refund of Terminal Excise Duty - deemed exports - It had been asserted that TED was paid by the DTA Unit from where the goods in question were procured or supplied to the appellant for its EOU during the relevant period - whether the entities herein are entitled to refund of amount purportedly towards TED in respect of specified goods procured or supplied, as the case may be, being deemed exports and from which authority, either under applicable Foreign Trade Policy (FTP) or the 1944 Act? - Circular No.16 (RE­2012/2009­14) dated 15.03.2013 - whether the circular is merely clarificatory regarding TED refund and exemption and the efficacy thereof or not? HELD THAT:- Going by the scheme of FTP applicable at the relevant period, it is crystal clear that EOUs were entitled to ab initio exemption from payment of Central Excise duty on goods procured from DTA on goods manufactured in India, as the import of such goods was to be made without payment of duty. No more and no less. That, however, did not preclude the EOU from availing of the entitlement of DTA supplier under Chapter 8 upon obtaining a suitable disclaimer from DTA supplier - Upon conjoint reading of the relevant para and its clauses, it leaves no manner of doubt that the intent of the subject FTP was to encourage DTA suppliers by providing refund of TED in terms of para 8.3(c), subject to fulfilment of formalities and stipulations in Chapter 8 of FTP. This was also to generate foreign exchange as a consequence of goods supplied as inputs or otherwise, were finally exported by the EOU. The EOU, on the other hand, could only avail of the entitlement of the DTA supplier if the DTA supplier had not taken rebate or CENVAT credit facility (as per para 8.5) treating it as deemed export. This dispensation was uniformly followed until the issue of policy circular dated 15.3.2013. EOU is entitled only for ab initio exemption from payment of central excise duty in terms of para 6.11(c)(ii) of the FTP; and obliged to import the goods from DTA supplier without payment of duty in terms of para 6.2(b) of the FTP. The arrangement provided in para 6.11(a) is, however, in the nature of “benefit” given to EOU in the event it had paid the amount towards TED in relation to goods procured by it to DTA supplier. In that case, EOU will be eligible only for obtaining entitlements of DTA supplier as specified in Chapter 8 of the FTP upon obtaining a suitable disclaimer from DTA supplier - EOU is not entitled for refund of TED on its own accord, but can avail of the entitlements of DTA supplier on complying essential procedure. As mentioned earlier, the interest on the refundable amount, if paid in cash ought to be refunded with simple interest at the rate of 6% per annum as provided in para 8.5.1 of the applicable FTP, even in the case of application for refund by EOU. As regards DTA supplier of goods to EOU, it is entitled to receive the refund of TED in terms of para 8.3(c) read with paras 8.4.2 and 8.5 of the applicable FTP subject to complying necessary formalities and stipulations provided therein, being a case of deemed exports. Even, in the case of DTA supplier of goods to EOU, if TED has been paid by utilizing CENVAT credit, the refund would be in the form of reversal of commensurate amount in its CENVAT credit account. And if the amount towards TED has been paid in cash by the DTA supplier to the Authorities under the 1944 Act, the refund of TED amount would be made by the Authority implementing the applicable FTP in cash with simple interest at the rate of 6% per annum for the delay in refund of TED. The responsibility of refund of TED in reference to applicable FTP would be that of the Authority responsible to implement the FTP under the 1992 Act, which has had consciously accorded such entitlements/benefits for promoting export and earning foreign exchange. Further, the fact that the concerned entity had unsuccessfully applied for refund to the Authorities under the 1944 Act and the rules made thereunder, that would not denude it of its entitlement to get refund of TED under the FTP, as may be applicable being mutually exclusive remedies. It is so because it is well settled that the assessee is free to take benefit of more beneficial regime. Appeal allowed in part. 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.