2026 (1) TMI 289 - HC - Customs

Exporter interest subvention for pre/post-shipment rupee export credit tenor beyond 30 Sep 2021 upheld; bank refund ordered

The dominant issue was whether an eligible exporter was entitled under the IE Scheme to 5% interest subvention for the entire tenor of pre/post-shipment ... Entitlement to interest subvention at the rate of 5% for the entire duration of the credit or the interest subvention would stand reduced to 3% with effect from 1st October, 2021 - HELD THAT:- The expression “only for the period upto 30th September, 2021” has been used in respect of benefits passed on by the Bank to the exporter and would not apply to the period of the credit. This becomes apparent from the subsequent words “irrespective of whether the tenor of the advance transcended beyond September 30, 2021” - The clarification of DGFT makes it clear that the tenor of the credit is not a relevant factor for determining the benefit to be paid to the eligible exporter. It is important to bear in mind that the IE Scheme was launched to alleviate the interest burden on manufacturer exporters by providing subsidised pre and post shipment rupee export credit and thereby enhance the global competitiveness of Indian exports by lowering the cost of finance. Therefore, Clause 2(e) of the IE Scheme required the banks to completely pass on the interest subvention benefit upfront to the exporters and claim the same from RBI. The position taken by the Defendant Bank would completely defeat the objective of the IE Scheme. The explanation given on behalf of the Defendant Bank that the benefit was given by the Defendant Bank to the plaintiff on the assumption or belief that the Scheme would be extended beyond 30th September, 2021, cannot be accepted. If the defendant was of the view that the subvention amount has wrongly been given to the plaintiff, it would have taken steps to recover the said amount soon after 30th September, 2021, when the Scheme was not extended. But it was only on 23rd February, 2022 that the Defendant Bank forwarded a clarification that it received from RBI. Even in the said letter, the Defendant Bank did not raise any demand on the plaintiff. The demand was made by the Defendant Bank for the first time only on 8th June, 2022, after the 8th March, 2022 Circular was issued by the RBI. The relevant date for subvention would be the date when the plaintiff approached the Defendant Bank for discounting the Export Bills and the bills were discounted by the Defendant Bank, passing on the entire subvention benefit upfront to the plaintiff, knowing fully well that the term of the credit was till 17th June, 2022. The plaintiff would be entitled to interest subvention at the rate of 5% for the entire duration of the credit. Resultantly, the Defendant Bank has incorrectly recovered the amount of Rs. 3,45,37,097/- from the account of the plaintiff - the Defendant Bank has wrongfully recovered the sum from the plaintiff, and the plaintiff is entitled to recover a sum of Rs. 3,45,37,097/- from the Defendant Bank. The plaintiff is also entitled to interest @ 8% per annum from the date of making such recovery i.e. 22nd June, 2022, till the actual payment. A decree is passed in favour of the plaintiff and against the defendant for recovery of a sum of Rs. 3,45,37,097/- along with interest @ 8% per annum from 22nd June, 2022 till the actual realisation of the amount. The plaintiff shall also be entitled to costs of the suit. Issues: (i) Whether the Defendant Bank correctly deducted Rs. 3,45,37,097/- by reclaiming a 2% differential interest subvention and whether the plaintiff was entitled to interest subvention at 5% for the entire duration of the credit where disbursement occurred before September 30, 2021 but the tenor extended beyond that date.Analysis: The Court examined the terms of the DGFT Interest Equalisation Scheme (effective April 1, 2015) and the RBI operational circulars including the RBI circular of December 4, 2015 governing reimbursement claims and the RBI circular of March 8, 2022. Clause 2(e) of the IE Scheme requires banks to completely pass on the interest equalisation benefit upfront to eligible exporters. The December 4, 2015 RBI circular prescribes that interest equalisation is available from date of disbursement up to date of repayment but only while the Scheme is in force and requires banks to submit reimbursement claims within 15 days from the end of the respective month. The Court analysed the March 8, 2022 RBI circular and the DGFT clarification dated July 8, 2022, and interpreted the change in subvention rate as prospective for availing credit after October 1, 2021, rather than authorising reclamation of benefits already passed on upfront when disbursement occurred prior to September 30, 2021. The Court also considered that the Defendant Bank did not make timely reimbursement claims for the full 5% subvention and that the Bank's later limited reimbursement filings did not amount to rejection by RBI of the earlier 5% pass-on; accordingly the plaintiff could not be penalised for the Bank's failure to claim reimbursement timely.Conclusion: The plaintiff is entitled to interest subvention at 5% for the entire duration of the credit where disbursement occurred prior to September 30, 2021 and the Defendant Bank wrongly recovered Rs. 3,45,37,097/-. The plaintiff is entitled to recover Rs. 3,45,37,097/- and interest thereon at 8% per annum from June 22, 2022 until actual realisation; costs awarded to plaintiff.