Title: Navigating Legal Labyrinths: The TED Refund Conundrum
Facts
- The claim for refund of Terminal Excise Duty was rejected without giving the appellant an opportunity, citing an impugned circular by DGFT.
- The appellant had a history of successfully receiving refunds for Terminal Excise Duty between 2006 and 2012.
- The appellant pursued the matter through writ petitions challenging the circular and subsequent rejections.
- A notification with amendments to the Foreign Trade Policy was issued in 2013 by DGFT.
- The appellant has both an EOU and a DTA unit, engaging in the manufacturing and supply of goods.
- The refund claims in question amounted to significant sums for specific periods in 2012.
- Subsequent refund applications were rejected despite the appellant’s assertions and clarifications.
- Policy circulars and communications from the DGFT and Development Commissioner played a crucial role in the rejection of refund claims.
- Various writ petitions and appeals were filed to challenge the decisions and seek refund eligibility.
- The High Court of Delhi allowed the writ petition and directed the DGFT to consider the refund application filed by the respondent-Company for TED amount.
- The Bombay High Court noted past acceptance of refund requests by the regional authority but emphasized that this does not confer a vested right to EOUs.
- The Division Bench of the High Court of Karnataka affirmed the decision of the learned Single Judge, stating that EOUs are entitled to refund of TED for deemed exports.
- The Bombay High Court upheld a policy circular stating that regional DGFT authorities cannot entertain refund applications, advising EOUs and suppliers to seek refunds from excise authorities.
- Learned Single Judge in Karnataka referred to various High Court decisions supporting the refund of TED for deemed exports and directed DGFT to consider refund application.
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Arguments
- Shri Arvind Datar, Shri Jay Savla, and Shri Prakash Shah appeared for the appellants in the appeals by the Assessee.
- Shri Balbir Singh represented the Department as learned Additional Solicitor General of India.
- Shri G. Shivadass, learned senior counsel, represented the respondent-Assessee (writ petitioner) in the appeals by the Department.
- The appeals under consideration relate to the refund claims made by DTA Unit suppliers of goods to concerned EOU as per the Foreign Trade Policy (FTP).
- The main question is whether these entities are eligible for a refund of TED amounts for specified goods deemed as exports and the authority under FTP or the 1944 Act responsible for this.
- The High Courts of Delhi and Karnataka decisions on these refund claims are being appealed against in this context.
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Analysis
- The Exports Oriented Units (EOUs) are entitled to import specified goods from Domestic Tariff Area (DTA) without payment of duty, as provided in para 6.2(b) of the Foreign Trade Policy (FTP), being deemed exports.
- The exemption from payment of Central Excise Duty for EOUs procuring goods from DTA is an ab initio exemption under para 6.11(c)(ii) of the FTP.
- The entitlement of EOUs to concessions and benefits under the FTP is contingent upon compliance with the actual user condition and utilization of the goods for export production.
- EOUs do not have an independent entitlement to claim refund of terminal excise duty (TED) but are eligible to avail the entitlements of the DTA supplier specified in Chapter 8 of the FTP upon fulfilling necessary requirements and formalities.
- Any refund claim by the EOU in relation to TED should be governed by para 6.11(a) read with the entitlement of DTA supplier under Chapter 8 of the FTP.
- Suppliers are entitled to benefits such as Advance Authorisation/DFIA for intermediate supplies
- Suppliers making supplies against ARO or Back to Back Letter of Credit are entitled to benefits listed in paragraphs 8.3(b) and (c) of FTP
- Deemed Exports refer to transactions where goods supplied do not leave the country and payment is received in Indian rupees or free foreign exchange
- Supply of goods to EOU/STP/EHTP/BTP is regarded as Deemed Exports
- Only specified categories of supplies are regarded as deemed exports
- High Court directed Authorities to consider refund application of Kandoi Metal Powders Manufacturing Company Private Limited
- Court relied on decision of Division Bench of Calcutta High Court in Joint Director General of Foreign Trade
- Court opined that claim of assessee governed by entitlements specified in FTP at relevant time
- Writ petition allowed and petitioner referred back to Authority for refund claim decision
- View taken by Calcutta High Court followed by Delhi High Court and Karnataka High Court in various cases
- Single Judge issued directions to pay refundable amount with 12% interest per annum
- Madras High Court also took similar view in Lenovo (India) Pvt. Ltd. and Manali Petrochemical Limited cases
- Decision in Kandoi Metal Powders Manufacturing Company Private Limited followed by Delhi High Court in several cases
- Earliest decision by Single Judge of Calcutta High Court in IFGL Refractories Limited
- Madras High Court in Raja Crowns and Cans Pvt. Limited case held DTA supplier entitled to refund of TED as per scheme encouraging indigenous suppliers
- Other decisions referred to by the parties were not directly relevant to the issue addressed in the case.
- Unsuccessful application for refund under the 1944 Act does not affect entitlement to refund under the FTP, as the remedies are mutually exclusive.
- Assessee can avail of the more beneficial regime.
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Decision
- Pending applications have been disposed of and there is no order as to costs.
- The appeals filed by the assessee (EOU) against the Bombay High Court decision partly succeed.
- The appeals filed by the Department against the High Court of Delhi and High Court of Karnataka decisions are partly allowed.
Case Title: SANDOZ PRIVATE LTD. Vs. THE UNION OF INDIA (2022 INSC 8)
Case Number: C.A. No.-003358-003358 / 2020
