SANDOZ PRIVATE LIMITED versus UNION OF INDIA & OTHERS on 4 January 2022

SANDOZ PRIVATE LIMITED

v.

UNION OF INDIA & OTHERS

(Civil Appeal No. 3358 of 2020)

JANUARY 4, 2022

[A. M. KHANWILKAR, DINESH MAHESHWARI ANDKRISHNA MURARI , JJ.]

Foreign Trade (Development and Regulation) Act, 1992: FTP2009-2014 – Chapter 6 and 8 – Claim for refund of TED paid byDTA unit on goods supplied by DTA unit to EOU unit formanufacturing goods cleared for export – Held: If the refund claimis by the EOU, the same needs to be processed by the authoritiesunder the FTP by reckoning the entitlement of DTA supplier specifiedin Chapter 8 of the FTP concerning the goods supplied to it, beinga case of deemed exports – The EOU on its own, however, is notentitled for refund of TED, as the mandate to EOU is to procure orimport goods from DTA supplier, without payment of duty in view ofthe express ab initio exemption provided in terms of para 6.2(b)read with para 6.11(c)(ii) – However, despite such express obligationon the EOU, if the EOU has had imported goods from DTA supplierby paying TED, it can only claim the benefit of refund provided toDTA supplier under para 8.4.2 read with paras 8.3(c) and 8.5 subjectto obtaining disclaimer from DTA supplier in that regard andcomplying with other formalities and requirements – Since theentitlement of exemption and refund of TED flows from the provisionsof 1992 Act and FTP framed thereunder by the Central Government,which is an independent dispensation than the one provided in the1944 Act and the rules framed thereunder, with the avowed purposeof promoting export and earning foreign exchange, it is theobligation of Authority responsible to implement the subject FTP, todeal with refund claim of the concerned entities – For, it is not acase of refund under the 1944 Act or 2002 Rules or 2004 Rules assuch, but under the applicable FTP – Central Excise Act, 1944 –s.5A – Central Excise Rules, 2002 – Central Excise Rules, 2004.

Foreign Trade (Development and Regulation) Act, 1992: FTP2009-2014 – The EOU entities, who had procured and imported

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Aspecified goods from DTA supplier, are entitled to do so withoutpayment of duty [as in para 6.2(b)] having been ab initio exemptedfrom such liability under para 6.11(c)(ii) of the FTP, being deemedexports – Under para 6.11(a) of the FTP, EOU is additionally eligiblemerely to avail of entitlements of DTA supplier as specified in Chapter8 of the FTP upon production of a suitable disclaimer from the DTABsupplier and subject to compliance of necessary formalities andstipulations – It would not be a case of entitlement of EOU, but onlya benefit passed on to EOU for having paid such amount to theDTA supplier, which was otherwise ab initio exempted in terms ofpara 6.11(c)(ii) of the FTP coupled with the obligation to importCthe same without payment of duty under para 6.2(b).

Words and phrases: Benefit and entitlement – Distinctionbetween – Held: “Benefit”, by its very nature, is an advantage,help or aid, while “entitlement” is right to have something.

Disposing of the appeals, the Court

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HELD: 1. Section 5A of the Central Excise Act, 1944empowers the Central Government to grant exemption from dutyof excise in respect of specified excisable goods. The exerciseof power to exempt is a beneficial power — which enables theCentral Government to reduce or waive duty on specified goodsEon such conditions as may be prescribed. The exemptionnotification has statutory force. However, the manufacturers(including DTA Unit) of specified goods are free to disregard,the benefit of exemption so provided when it is laced withfulfilment of pre-conditions by third party (EOU). However, sub-Fsection (1A) of Section 5A came to be inserted by way of anamendment w.e.f. 13.05.2005. It was for removal of doubts. Itdeclared that where an exemption under sub-section (1) in respectof any excisable good from the whole of the duty of excise leviablethereon has been granted absolutely, the manufacturer of suchexcisable goods “shall not pay the duty of excise on such goods”.GThis stipulation ordains that the excise duty is not payable on thespecified goods. However, this stipulation will be attracted if theexcise duty is exempted ab initio (without any pre-condition). Bethat as it may, the governing FTP regime ought to prevail being aspecial dispensation under the 1992 Act. [Para 13][622-D; 623-HA-D]

2. The authorities propounding the FTP were obviouslyconscious of the purport of the provisions of the 1944 Act andthe rules framed thereunder. Despite that, the subject policy hadbeen propounded with the sole objective of promoting exportsand earning foreign exchange. At the relevant time, the goal setforth by the policy makers was to achieve the target of at leastone per cent of the global trade by promoting exports. It is thusclear that the concessions or so to say, benefits and entitlementsprovided under the FTP cannot be constricted by the provisionsof the taxing statute of 1944 and the rules framed thereunder. Toput it tersely, the dispensation provided under the 1992 Act andthe FTP must operate independently and is thus mutuallyexclusive in this regard. Taking any other view would be counter-productive and whittle down the intent behind formulation of aliberal FTP for promoting exports. [Para 14][623-D-F]

3. Under the subject FTP, Chapter 6 deals with EOUs,Electronics Hardware Technology Parks (EHTPs), SoftwareTechnology Parks (STPs) and Bio-Technology Parks (BTPs). Para6.1 provides for the eligibility criterion. It envisages that unitsundertaking to export their entire production of goods andservices (except permissible sales in DTA) may be set up underthe EOU Scheme. Para 6.2 of the FTP specifies the stipulationsfor the EOU to conduct its activities such as export and import ofgoods. From the opening part of Para 6.2 (b) itself, it is amplyclear that it governs specified entities/units, who are engaged inimport and/or procurement of goods from DTA or bondedwarehouses etc., and that they must do so without payment ofduty. Besides, the specified entities are obliged to utilise thegoods imported with actual user condition and to be used orutilised for export production. This twin condition must becomplied by the specified entities without any exception forderiving benefit or availing of entitlements under FTP. Chapter6 of the FTP postulates that supply of goods from DTA Units toEOU must be regarded as deemed exports, as is evident frompara 6.11 of the FTP. [Paras 15, 16][623-G; 624-C, G-H; 625-A]

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A4. The opening part of clause (a) concerns the supplier asit refers to supplies from DTA Unit to EOU to be regarded asdeemed exports. Further, as a consequence of deemed exports,DTA supplier becomes eligible for entitlements specified underChapter 8 of the FTP. To put it differently, in the same Chapter 6,the entitlement of DTA supplier under Chapter 8 of FTP has alsoBbeen adverted to. This provision also deals with the manner ofavailing the entitlements specified under Chapter 8 of FTP —either by the DTA Unit itself or the EOU, the recipient of thegoods and services. For, in terms of this stipulation even theEOU can set up a refund claim in respect of stated transaction, inClieu of the entitlement of DTA Unit after obtaining suitabledisclaimer from DTA supplier. In other words, clause 6.11 [clause(a) thereof in particular] deals with entitlement of DTA supplier,which can be availed by the DTA supplier itself or by the EOU towhom the goods were supplied by it upon giving suitabledisclaimer in that regard. [Para 16][626-A-D]D

5. Clause (c) of para 6.11 is a provision which spells out theentitlement of EOU. It includes reimbursement of Central SalesTax (CST) on goods manufactured in India; exemption frompayment of Central Excise Duty on goods produced from DTAon goods manufactured in India; reimbursement of duty paid onEfuel procured from domestic oil companies/depots of domesticoil public sector undertakings as per drawback rate notified byDGFT from time to time; and lastly, CENVAT Credit on servicetax paid. As regards the Central Excise Duty, para 6.11(c)(ii)postulates exemption from payment of Central Excise Duty onFgoods procured by the EOU from DTA on goods manufactured inIndia. This is in consonance with the stipulation in para 6.2(b),which predicates that the EOU may import goods from DTAwithout payment of duty. [Para 17][626-E-G]

6. There is marked distinction between the expressionG“benefit” and “entitlement”. “Benefit”, by its very nature, is anadvantage, help or aid, while “entitlement” is right to havesomething. Under Chapter 6, the EOU is entitled to importspecified goods from DTA without payment of duty, subject to H

fulfilling other requirements including of actual user conditionand to be utilised for export production, being a case of ab initioexemption qua EOU. The provision in the form of para 6.11(a)merely enables EOU to set up a claim “in respect of” entitlementsof DTA supplier under Chapter 8 of FTP. There is no separateentitlement for EOU under Chapter 8 of FTP. To put it differently,although the heading of para 6.11 is “Entitlement for suppliesfrom the DTA” and clause (a) thereof envisages that EOU shallon production of a suitable disclaimer from DTA supplier beeligible for obtaining entitlements specified in Chapter 8 of FTP,it does not follow that it is the entitlement of EOU. It is, however,only a case of benefit transferred to EOU concerning theentitlement of DTA supplier under Chapter 8 of FTP. [Para19][627-A-D]

7. The heading of Chapter 8 is “Deemed Exports”. Theoriginal para 8.1 specified that deemed exports refer to thosetransactions in which goods supplied do not leave country andpayment for such supplies is received either in Indian rupees orin free foreign exchange. By way of amendment, it furtherprovided that the supply of specified goods (noted in para 8.2)shall be regarded as deemed exports provided goods aremanufactured in India. Para 8.2 of Chapter 8 specifies thecategories of supplies which can be regarded as deemed exports.Clause (b) thereof is applicable to the present appeals. In otherwords, only the specified categories of supplies are regarded asdeemed exports. In that, import of goods, as specified in para8.2(b) from DTA supplier to the EOU is regarded as deemedexports. To put it differently, the supply of goods by DTA Unit toEOU with actual user condition and utilised for export production,are regarded as deemed exports. To such transactions, certainbenefits have been extended, as provided in para 8.3 of the FTPapplicable at the relevant time. [Para 20][627-D-E; 628-B, F-G]

8. In terms of para 6.11(a), the EOU can also avail of thoseentitlements of DTA as specified in Chapter 8 of FTP, as hadbeen earmarked for DTA supplier. That does not mean that EOUis eligible for those entitlements, on its own accord as, amongstother, it is obliged to obtain disclaimer from DTA supplier as a A

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Aprecondition. Para 8.2 lists the categories of supply of goods whichare regarded as deemed exports including supply of goods toEOU [para 8.2 (b)]. The specified transactions are provided certainbenefits mentioned in para 8.3, subject to terms and conditionsin the handbook procedures, volume I, published under FTP.Para 8.3(c), inter alia, envisages that exemption from TED isBavailable for supplies made against International CompetitiveBidding and also to Advance Authorisation Holder to amanufacturer holding another advance authorisation if suchmanufacturer supplies the products to an ultimate exporter. Inother cases, (would include other DTA suppliers of goods toCEOU), however, refund of TED will be given. Further, theexpression “will” is to be construed as a mandate to give refundto such DTA suppliers, being its entitlement under FTP. Thisdoes not whittle down the ab initio exemption of payment of dutygiven to EOU in respect of supply from DTA. [Paras 20, 21][632-E-H; 633-A]D

9. Para 8.3(c) of FTP does not provide in-built eligibility“category” unlike specified in sub-paras (a) and (b) for ICB andAdvance Authorisation Holder. The expression “in other cases”in sub-para (c) needs to be understood in proper perspective.Concededly, paras 8.4.1 to 8.4.7 provide for benefits to theEsupplier of goods to EOU as being deemed export. It is essentiallyan entitlement of DTA supplier — as listed in para 8.3(a), (b) and(c) of FTP, as may be applicable. It is seen that para 8.4.2 wassubstituted by the revised FTP of 2012, wherein a table wasinserted. As per that table, benefits available under para 8.2 to Fspecified categories of supplies including supply to EOU in para8.2(b) had been extended benefits under para 8.3, as applicable.[Para 22][633-B-C; 634-A]

10. The eligibility for refund of TED/drawback in terms ofpara 8.3(c) of FTP is made dependent on the non-availment ofGCENVAT credit/rebate on such goods by the recipient thereof,as is envisaged in original para 8.5. Similarly, benefit under para8.3(b) of FTP regarding deemed export drawback can be availed,provided CENVAT credit/rebate has not been availed by DTAsupplier and subject to complying other formalities. Para 8.4.2 as H

originally stood, is indicative of option given only to supplier(DTA) in connection with supply of goods to EOU, as specified inpara 8.3 (a), (b) and (c) of FTP. That has remained intact despitethe amendment of 2012, until March 2013. Be it noted that thepurport of para 8.5 states that supply of goods will be eligible forTED refund only if CENVAT credit/rebate has not been availedon such goods. These stipulations demonstrate that the schemeof FTP is explicit and not ambiguous nor silent in respect ofbenefits and entitlements of the concerned entities. Thus, anargument having potential of defeating the intent of the applicableFTP, in any manner, ought to be negated. [Paras 23, 24][634-A-B; 635-C-E]

11. Going by the scheme of FTP applicable at the relevantperiod, it is crystal clear that EOUs were entitled to ab initioexemption from payment of Central Excise duty on goodsprocured from DTA on goods manufactured in India, as the importof such goods was to be made without payment of duty. That,however, did not preclude the EOU from availing of theentitlement of DTA supplier under Chapter 8 upon obtaining asuitable disclaimer from DTA supplier, as provided in para 6.11(a).That availment by EOU had been linked to entitlement of DTAsupplier, as specified in Chapter 8. The DTA supplier could(entitled to) take refund of TED in respect of goods supplied byit to EOU being exempted from TED, in light of para 8.3(c). Theeligibility for refund of TED, however, has been circumscribedby formalities and requirements to be adhered to, including asnoted in para 8.5. In that, recipient of goods (EOU) does notavail CENVAT credit or rebate. Similarly, DTA supplier would beeligible for deemed export drawback in terms of para 8.3(b) ofFTP on Central Excise paid on inputs/components, providedCENVAT credit facility/rebate has not been availed. [Para 17][635-F-H; 636-A-B]

12. Upon conjoint reading of the relevant para and itsclauses, it leaves no manner of doubt that the intent of the subjectFTP was to encourage DTA suppliers by providing refund of TEDin terms of para 8.3(c), subject to fulfilment of formalities andstipulations in Chapter 8 of FTP. This was also to generate foreignexchange as a consequence of goods supplied as inputs or ABC

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Aotherwise, were finally exported by the EOU. The EOU, on theother hand, could only avail of the entitlement of the DTA supplierif the DTA supplier had not taken rebate or CENVAT credit facility(as per para 8.5) treating it as deemed export. This dispensationwas uniformly followed until the issue of policy circular dated15.3.2013. This circular proceeds on the assumption that theBgoods supplied by DTA Unit to EOU being a case of deemedexports, it predicates ab initio exemption from payment of exciseduties. It is true that the subject FTP stipulates that EOU mayimport specified goods from DTA or bonded warehouses in DTAor international exhibition held in India, without payment of duty.CBut it is hatched with condition that the goods so imported shallbe with actual user condition and shall be utilised for exportproduction and further, an exemption of TED can be availed onlyif the DTA supplier had not taken rebate or utilised CENVATcredit facility as provided in para 8.5. It is on that understanding,the department had been entertaining refund requests by theDDTA supplier for refund of TED made by it in the past until theissue of stated policy circular. In that sense, it was not an ab initioexemption at least for the DTA supplier. The circular, therefore,introduces a new dimension qua the DTA suppliers. Such a changefor DTA suppliers cannot be introduced by issuing a policy circularEunder the signatures of the Joint Director of Foreign Trade. For,the FTP is formulated by the Central Government in exercise ofpowers conferred by Section 5 of the 1992 Act (as applicable atthe relevant time) read with Para 1.2 of the FTP, which had comeinto force with effect from 27.9.2009. [Para 26][636-B-D; 637-E-H; 638-A-B]F

13. The dispensation, as it obtained prior to March, 2013including the notification issued by the Central Government on18.4.2013 amending the relevant provisions of the existing FTPbeing paras 8.3(c) and 8.4, was materially different qua DTAsuppliers. For, it was not ab initio exemption for them, unlike inGthe case of EOU by virtue of para 6.2(b) read with para 6.11(c)(ii).Accordingly, it became necessary to make it amply clear byamending paras 8.3(c) and 8.4 vide notification dated 18.04.2013,that henceforth it would be regarded as ab initio exemption evenfor DTA supplier. This, indeed, is a change or amendment effectedH

in the FTP. Such a change needs to be given only prospectiveeffect, being introduced by delegated legislation. The policycircular cannot be the basis to deny the vested right of the DTAsuppliers under the applicable FTP. [Para 26][638-B-D; 639-A]

14. As regards the claim for refund of TED by EOU,therefore, need to be governed by the dispensation provided inpara 6.11(a) read with entitlement of DTA supplier under Chapter8 of FTP. However, it may have to be processed by the authoritiesunder the FTP keeping in mind the principle underlying the refundof CENVAT credit granted under Rule 5 of the 2004 Rules and inthe manner provided therefor, though not covered by Rule 5.That is because in law it is a case of deemed export by virtue ofapplicable FTP. If the refund claim is by the EOU, the same needsto be processed by the authorities under the FTP by reckoningthe entitlement of DTA supplier specified in Chapter 8 of theFTP concerning the goods supplied to it, being a case of deemedexports. The EOU on its own, however, is not entitled for refundof TED, as the mandate to EOU is to procure or import goodsfrom DTA supplier, without payment of duty in view of the expressab initio exemption provided in terms of para 6.2(b) read withpara 6.11(c)(ii). However, despite such express obligation on theEOU, if the EOU has had imported goods from DTA supplier bypaying TED, it can only claim the benefit of refund provided toDTA supplier under para 8.4.2 read with paras 8.3(c) and 8.5subject to obtaining disclaimer from DTA supplier in that regardand complying with other formalities and requirements. Thus,the EOU is not entitled to claim refund of TED on its own.However, the Court adds a caveat that EOU may avail of theentitlements of DTA supplier specified in Chapter 8 of FTP oncondition that it will not pass on that benefit back to DTA supplierlater on. In any case, the refund claim needs to be processed bykeeping in mind the procedure underlying the refund of CENVATcredit/rebate of excise duty obligations. If CENVAT credit utilisedby DTA supplier or EOU, as the case may be, cannot be encashed,there is no question of refunding the amount in cash. In that case,the commensurate amount must be reversed to the CENVAT creditaccount of the concerned entity instead of paying cash. If, the A

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Aclaim for refund by DTA supplier under the scheme of FTP isallowed, it can be in cash if TED had been paid in cash. Else, itcan be in the form of reversal of commensurate CENVAT creditamount to the concerned account of DTA supplier. [Paras 27, 28,29, 30][639-A-B; 640-A-D; 641-A-D]

B15. As regards the refund claim of DTA supplier, it needsto be processed by the authorities under the FTP keeping inmind the purport of stipulations spelt out in Chapter 8 of subjectFTP, such as the goods imported or supplied to EOU shall bewith actual user condition and shall be utilised for exportproduction and that the EOU did not avail CENVAT credit orCrebate in relation to the goods supplied to EOU. Similarly, if theDTA supplier has utilised the CENVAT credit, commensurateamount needs to be reversed to its CENVAT credit account, inwhich case, there is no question of refunding the amount in cashto the DTA supplier. [Para 31][641-D-F]

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Raja Crowns and Cans Pvt. Limited v. Union of India2015 (317) ELT 40; Lenovo (India) Pvt. Ltd. v. Unionof India (2017) 346 ELT 12 (Mad.); ManaliPetrochemical Limited v. Additional Director Generalof Foreign Trade, New Delhi & Anr. W.P.No. 23194 ofE2009, decided on 16.9.2019; Union of India v. AlstomIndia Limited 2015 (325) ELT 72 (Del.); Commissionerof Central Excise, Delhi II v. Welspring Universal 2018(359) ELT 635 (Del.); Deepak Enterprises v. Union ofIndia 2018 (360) ELT 905 (Del.); Alstom TransportIndia Ltd. v. Union of India 2018 (363) ELT 69 (Del.);FMotherson Sumi Electric Wires v. Union of India 2018(364) ELT 91 (Del.); Multitex Filtration EngineersLimited v. Union of India 2020 (373) ELT 68 (Del.);Hindustan Tin Works Limited v. Union of India 2020(373) ELT 217 (Del.); Acer India Pvt. Ltd. v. Union ofGIndia 2018 (361) ELT 44 (Kar.) 22 2001 – approved.

IFGL Refractories Limited v. Joint Director General ofForeign Trade 2001 (132) ELT 545 (Cal.);Commissioner of Central Excise and Customs v. NBM

Industries 2012 (276) ELT 9 (Guj.); Commissioner ofCentral Excise v. Shilpa Copper Wire Industries2011(269) ELT 17(Guj.); Kandoi Metal PowdersManufacturing Company Private Limited v. Union ofIndia (2014) 302 ELT 209 (Del.); Joint DirectorGeneral of Foreign Trade v. IFGL Refractories Limited2002 (143) ELT 294 (Cal.) – referred to.

16. The DTA supplier of goods to EOU would be entitledfor refund of TED on the basis of applicable para 6.11(a) readwith paras 8.3(c), 8.4.2 and 8.5 of the FTP under consideration.The modality of refund, however, ought to be in the form ofreversal of commensurate amount in the CENVAT credit accountof the DTA supplier, if the DTA supplier had utilized CENVATcredit account in respect of goods supplied to EOU; and if ithad paid the amount in cash, the DTA supplier would be entitledfor refund of cash with simple interest at the rate of 6% perannum as provided in para 8.5.1 of the applicable FTP on delay inrefund of duty drawback and TED under deemed exports scheme.[Para 39][644-C-E]

17. The next question is: the refund claim should be set upbefore which Authority? Since the entitlement of exemption andrefund of TED flows from the provisions of 1992 Act and FTPframed thereunder by the Central Government, which is anindependent dispensation than the one provided in the 1944 Actand the rules framed thereunder, with the avowed purpose ofpromoting export and earning foreign exchange, it is theobligation of Authority responsible to implement the subject FTP,to deal with refund claim of the concerned entities. For, it is not acase of refund under the 1944 Act or 2002 Rules or 2004 Rulesas such, but under the applicable FTP. The EOU entities, whohad procured and imported specified goods from DTA supplier,are entitled to do so without payment of duty [as in para 6.2(b)]having been ab initio exempted from such liability under para6.11(c)(ii) of the FTP, being deemed exports. Besides this, thereis no other entitlement of EOU under the applicable FTP. Indeed,under para 6.11(a) of the FTP, EOU is additionally eligible merelyto avail of entitlements of DTA supplier as specified in Chapter 8

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Aof the FTP upon production of a suitable disclaimer from the DTAsupplier and subject to compliance of necessary formalities andstipulations. It would not be a case of entitlement of EOU, butonly a benefit passed on to EOU for having paid such amount tothe DTA supplier, which was otherwise ab initio exempted in termsof para 6.11(c)(ii) of the FTP coupled with the obligation to importBthe same without payment of duty under para 6.2(b). Besides, ifthe DTA supplier as well as EOU had utilized its CENVAT creditfor importing goods in question, the refund would be in the form ofreversal of commensurate amount of CENVAT credit to the accountof the concerned entity. However, if TED has been paid in cash byCthe EOU, the EOU may get refund of that amount from Authorityimplementing the applicable FTP in cash with simple interest atthe rate of 6% per annum for the delayed refund of duty (para8.5.1) on condition that it would not pass on that benefit to theDTA supplier owing to such refund/rebate. [Paras 41, 42, 43][645-B-H]D

18. As regards DTA supplier of goods to EOU, it is entitledto receive the refund of TED in terms of para 8.3(c) read withparas 8.4.2 and 8.5 of the applicable FTP subject to complyingnecessary formalities and stipulations provided therein, being acase of deemed exports. Even, in the case of DTA supplier ofEgoods to EOU, if TED has been paid by utilizing CENVAT credit,the refund would be in the form of reversal of commensurateamount in its CENVAT credit account. And if the amount towardsTED has been paid in cash by the DTA supplier to the Authoritiesunder the 1944 Act, the refund of TED amount would be made byFthe Authority implementing the applicable FTP in cash with simpleinterest at the rate of 6% per annum for the delay in refund ofTED as per para 8.5.1. [Para 44][646-A-C]

19. In both cases, responsibility of refund of TED in referenceto applicable FTP would be that of the Authority responsible toGimplement the FTP under the 1992 Act, which has had consciouslyaccorded such entitlements/benefits for promoting export andearning foreign exchange. Further, the fact that the concernedentity had unsuccessfully applied for refund to the Authoritiesunder the 1944 Act and the rules made thereunder, that would H

not denude it of its entitlement to get refund of TED under theFTP, as may be applicable being mutually exclusive remedies. It isso because it is well settled that the assessee is free to take benefitof more beneficial regime. [Para 45][646-C-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No.3358 of

2020.

From the Judgment and Order dated 01.08.2016 of the High Courtof Judicature at Bombay in Writ Petition No.2927 of 2015.

With

Civil Appeal Nos.3359, 3360 and 3705 of 2020.

Balbir Singh, ASG, Arvind Datar, Jay Savla, G. Shivadass, Sr. Advs.,Prakash Shah, Jasdeep Singh Dhillon, Jas Sanghavi, Rahul Gupta, AkshaySharma, Mohd. Akhil, Navanjay Mahapatra, Ms. Sunita Sharma, Mrs.Anil Katiyar, B. K. Prasad, T. Sundar Ramanathan, M. P. Devnath, AbirRoy, Vivek Sharma, Prashant Shivadass, Ishaan Chakrabarti, VivekPandey, Rupesh Kumar, R. Krishnan, Rajeev Sharma, Ms. NeelamSharma, Ms. Pankhuri Shrivastava, Alekshendra Sharma, PraveshBahuguna, Advs. for the appearing parties..

The Judgment of the Court was delivered by

A. M. KHANWILKAR, J.

1. From amongst these four appeals, first two appeals[1] emanatefrom the common judgment and order dated 01.08.2016[2] passed by theHigh Court of Judicature at Bombay[3] in Writ Petition No.2927 of 2015and Writ Petition No.2926 of 2015, whereas, third appeal[4] arises fromthe judgment and order dated 08.10.2018[5 ]passed by the High Court ofDelhi at New Delhi in Writ Petition (C) No.10526 of 2017 and the fourthappeal[6] assails the judgment and order dated 09.12.2019[7] passed by theHigh Court of Karnataka at Bengaluru in Writ Appeal No.286 of 2019(T-TAR).

1 Civil Appeal Nos. 3358 and 3359 of 2020

2 2016 (341) ELT 22 (Bom.)

3 for short, “Bombay High Court”

4 Civil Appeal No.3360 of 2020

6 Civil Appeal No.3705 of 2020

7 2020 (371) ELT 658 (Kar.)

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ACIVIL APPEAL NO. 3358 OF 2020

2a. The appellant in Civil Appeal No.3358 of 2020 claims to behundred per cent Export Oriented Unit[8] engaged in the manufacture ofgoods falling under Chapter 30 of the Schedule to the Central ExciseTariff Act, 1985 and for that purpose, the appellant has a factory, interBalia, at Plot No.8A/2, 8B/2, 8-8A/1/1, Kalwe, MIDC, Dighe, NaviMumbai – 400708. Besides, the appellant has another factory situatedat Plot No. L-1, MIDC, Mahad, Raigad, within the Domestic Tariff AreaUnit[9]. The appellant had applied for refund of Terminal Excise Duty[10] inrespect of excisable goods procured from its unit in DTA, as it did in theCpast and was granted refund from time to time between 2006 and 2012.The instant refund application, however, came to be disallowed, whichdecision is the subject matter of appeal before this Court. It had beenasserted that TED was paid by the DTA Unit from where the goods inquestion were procured or supplied to the appellant for its EOU duringthe relevant period. The application for refund dated 20.04.2012 wasDaccompanied by a declaration given by the appellant that the appellant’sDTA Unit did not claim benefit of TED refund supported by the disclaimercertificate given by DTA Unit in that regard. The refund application wasrequired to be decided within 30 days of receipt of complete application.As it was not so disposed of, the appellant requested the DevelopmentECommissioner to intervene and do the needful. The refund claim for theperiod between July 2012 and September 2012 was aroundRs.1,90,47,437/- (Rupees One Crore Ninety Lakh Forty-Seven ThousandFour Hundred and Thirty-Seven only) and for the period between October2012 and December 2012, it was Rs.1,36,04,814/- (Rupees One CroreThirty-Six Lakh Four Thousand Eight Hundred and Fourteen only).F

2b. In the meantime, a circular purported to be a policy circularbearing No.16 (RE-2012/2009-14) dated 15.03.2013[11] came to be issuedby the Director General of Foreign Trade[12] to clarify that no refund ofTED should be provided by the Office of DGFT/DevelopmentCommissioners, as supplies made by DTA Unit to EOU are ab initioG

8 for short, “EOU”

9 for short, “DTA Unit”

10 for short, “TED”

11 for short, “impugned circular”

H12 for short, “DGFT”

exempted from payment of excise duty. The Development Commissionereventually rejected the refund claim set forth by the appellant and informedthe appellant in that regard vide letter dated 01.04.2013.

2c. Resultantly, the appellant filed Writ Petition No.9312 of 2013before the Bombay High Court challenging the legality and validity ofthe stated policy circular issued by DGFT and two communications ofthe Development Commissioner rejecting the refund application submittedby the appellant.

2d. In the meantime, a notification bearing No.4(RE-2013)/2009-2014 came to be issued by DGFT on 18.04.2013[13], notifying theamendments made by the Central Government in Foreign Trade Policy,2009-2014[14] in exercise of powers conferred by Section 5 of the ForeignTrade (Development and Regulation) Act, 1992[15].

2e. The stated writ petition preferred by the appellant came to bedisposed of on 23.09.2014 whilst directing the competent authority toconsider the refund claim of the appellant afresh after taking into accountall aspects of the matter and give fair opportunity to the appellant.

2f. Pursuant to the remand order, the Development Commissionergranted personal hearing, but eventually rejected the TED refund claimof the appellant vide order bearing No. SEEPZ-SEZ/W.P./TED/SANDOZ/314/2013-14 dated 06.01.2015.

2g. Feeling aggrieved by this decision, the appellant filed freshWrit Petition No.2927 of 2015 before the Bombay High Court assailingthe policy circular dated 15.03.2013 and order dated 06.01.2015 passedby the Development Commissioner. The Bombay High Court negativedthe challenge to the stated policy circular as well as the order passed bythe Development Commissioner and thus, dismissed the writ petitionvide impugned judgment and order dated 01.08.2016. This judgment issubject matter of challenge in Civil Appeal No.3358 of 2020. By thesame judgment, the Bombay High Court dismissed the writ petition filedby the appellant in Civil Appeal No.3359 of 2020 involving the self-sameissue.

13 for short, “said notification”

14 for short, “FTP”

15 for short, “1992 Act”

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ACIVIL APPEAL NO. 3359 OF 2020

3a. Reverting to the factual matrix in Civil Appeal No.3359 of2020, the appellant claims to be identically placed as in the companionappeal being hundred per cent EOU engaged in manufacturing of goodsfalling under Chapter 30 of the Schedule to the Central Excise TariffBAct, 1985 and for that purpose, the appellant has a factory at B-15,Phase 1-A, Verna, Salcette, Goa - 403772. The appellant’s DTA Unithas been supplying goods on payment of CENVAT duty under claim forrebate to the appellant’s EOU. The appellant’s EOU uses the said goodsin the manufacture of goods cleared for export. The appellant assertedthat its DTA Unit did not claim benefit of TED refund and producedCdisclaimer certificate in that regard to enable the appellant’s EOU toclaim the refund of TED on the goods procured by it or supplied by itsDTA Unit. The appellant asserts that even in the past it had claimedrefund of TED paid by its DTA Unit on the goods supplied to theappellant’s EOU and was so granted by the Development Commissioner.DHowever, on this occasion, a different view had been taken in respect ofsubject application dated 08.08.2012 submitted by the appellant for TEDrefund for the month of November 2011 being Rs.6,87,89,737/- (RupeesSix Crore Eighty-Seven Lakh Eighty-Nine Thousand Seven Hundredand Thirty-Seven only). The claim came to be rejected in light of thepolicy (impugned) circular issued by DGFT, without giving any opportunityEto the appellant.

3b. Feeling aggrieved, the appellant filed Writ Petition No.9607 of2013 before the Bombay High Court challenging the legality and validityof the policy circular dated 15.03.2013. That petition was disposed of bydirecting the competent authority to pass a speaking order on the refundFapplication submitted by the appellant. Pursuant to the remand order, thecompetent authority gave personal hearing to the appellant and onceagain rejected the TED refund claim vide order dated 12.01.2015 on theground that the appellant had received supplies of the concerned goodsfrom their DTA Unit to EOU, which were ab initio exempted fromGpayment of duty under para 6.11(c)(ii) of Foreign Trade Policy, 2009-2014. Thus, refund was not admissible to the appellant.

3c. This decision was challenged by the appellant before theBombay High Court by way of fresh Writ Petition No.2926 of 2015wherein the policy circular dated 15.03.2013 issued by DGFT was alsoHchallenged. This writ petition was heard and decided by the Bombay High

Court, along with another writ petition (which is subject matter in thecompanion appeal filed by Sandoz Private Limited) vide common judgmentand order dated 01.08.2016, rejecting the assail to the policy circular andorder passed by the competent authority referred to above. This judgmentis subject matter of challenge in Civil Appeal No. 3359 of 2020.

4. As the factual matrix in both the writ petitions was similar, theHigh Court vide common impugned judgment dated 01.08.2016considered the grounds of challenge to the decision of the DevelopmentCommissioner; and eventually opined that in light of paras 6.2(b) and6.11(c)(ii) of the FTP, no refund of TED could be given by the regionalauthority of DGFT or the Office of the Development Commissionersbecause procurement of excisable goods by the appellants–EOUs wasab initio exempted from payment of excise duty. It went on to observethat there was a clear stipulation in the FTP itself in that regard. TheHigh Court noted that the purport of the impugned circular was only toclarify the obvious position. There was no obligation on the EOU to payduty at the time of procurement of excisable goods. For, FTP plainlypredicates that the procurement of excisable goods should be done byEOU without payment of excise duty. As there is reverse obligation onEOU to procure excisable goods without payment of duty, there is noquestion of claiming refund. Thus, it held that the conclusion reached bythe Development Commissioner was in conformity with the dispensationprovided in the FTP and is not in any manner contrary thereto or to themandate of Section 5 of the 1992 Act. Further, the impugned circularwas only to place on record the correct perspective of the dispensationprovided in the FTP. The argument that the impugned circular can haveprospective effect only, cannot be countenanced in law. In that, the circularwas only to clarify the purport of paras 6.2(b), 6.11(c)(ii) and 8.3(c) ofthe FTP; and if these provisions were read harmoniously and conjointly,leave no manner of doubt that refund request before DGFT under para8.3(c) in relation to excisable goods, even though procured by EOUupon payment of duty, would be inadmissible in law.

5. The Bombay High Court also noted that although in the pastthe regional authority had accepted refund request of EOUs, that cannotbestow any right much less vested right in EOUs so as to issue mandamusto the concerned statutory authorities to act contrary to the provisions ofthe FTP. As a matter of fact, to dispel the doubt entertained by EOUs ifany, the position was restated by the Government vide notification dated18.04.2013 issued in exercise of power conferred under Section 5 of the A

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A1992 Act. In substance, the Bombay High Court observed that theimpugned circular was only to restate and clarify that the regionalauthority of DGFT was not competent to entertain the refund application;and if EOU or the supplier so desired, were free to pursue refund claimbefore the competent excise authorities where amount towards dutyhad been deposited or paid.B

CIVIL APPEAL NO.3360 OF 2020

6a. This appeal by the Union of India assails the judgment andorder dated 08.10.2018 passed by the Division Bench of the High Courtof Delhi in Writ Petition (C) No.10526 of 2017. By that writ petition, therespondent claiming to be a “supplier” of excisable goods to variousCEOUs, who in turn exported their final product outside India, soughtdirection against DGFT to grant TED refund in the sum of Rs.46,54,295(Rupees Forty-Six Lakh Fifty-Four Thousand Two Hundred and Ninety-Five only), towards deemed exports made to EOUs (Vimal Agro ProductsPvt. Ltd. and TATA Coffee Ltd.). These supplies were made betweenDJanuary 2012 and March 2013 and admittedly, before issue of theimpugned circular.

6b. The respondent-Company (DTA Unit) had filed refundapplication before the Joint Director General of Foreign Trade, whichwas returned to it in light of the impugned circular. The appellant thenEpursued the refund application on 11.03.2014 to the Deputy Commissionerof Central Excise Department, which came to be rejected on 29.05.2015.Against this decision, the matter was carried in appeal up to the CustomsExcise and Service Tax Appellate Tribunal[16] unsuccessfully. Afterexhausting that remedy and allowing decision of the statutory authoritiesunder the Central Excise Act, 1944[17] as final, the respondent-CompanyFchose to file writ petition before the High Court of Delhi seeking directionagainst DGFT to consider the refund application regarding TED amountunder FTP. It was urged that the primary responsibility to refund TEDamount paid by the respondent-Company (DTA Unit) being supplier ofexcisable goods to EOU, was that of DGFT. The High Court of DelhiGvide impugned judgment dated 08.10.2018 allowed the writ petition andissued directions to DGFT to consider the refund application filed by therespondent-Company and if found in order, directed refund of TEDamount to the respondent with interest at the rate of 9 % per annum.

16 for short, “the CESTAT”H17 for short, “1944 Act”

The High Court of Delhi essentially relied upon its earlier decision inKandoi Metal Powders Manufacturing Company Private Limitedvs. Union of India[18]which in turn had adverted to the decision of theCalcutta High Court in the case of Joint Director General of ForeignTrade vs. IFGL Refractories Limited[19], to reinforce the view takenby it that the impugned circular invoked by the Department hadprospective effect only. It also noted that Kandoi Metal PowdersManufacturing Company Private Limited[20]was concerned with theclarification issued by the Policy Interpretation Committee vide its decisiondated 04.12.2012 to the effect that refund of CENVAT credit provisionswere available under the Central Excise Act and the Rules framedthereunder. The same should be availed instead of claiming refund. Itwas held that the view taken by DGFT that the respondent could availof the refund under the provisions of the 1944 Act and the Rules framedthereunder, was untenable in law. On facts, it noted that since the supplyof excisable goods was prior to 15.03.2013, the question of invokingcircular against the respondent-Company did not arise. Instead, the HighCourt held that refund application ought to have been processed by theDGFT in terms of para 8.3(c) of the FTP, as it stood prior to 15.03.2013.Accordingly, while allowing the writ petition, the High Court of Delhiissued direction to the appellant (DGFT) to consider the respondent’srefund application and to refund the due amount with interest at the rateof 9 % per annum.

CIVIL APPEAL NO.3705 OF 2020

7. This appeal by Union of India is against the decision dated09.12.2019 of the Division Bench of the High Court of Karnataka inWrit Appeal No.286 of 2019 (T-TAR). The stated appeal was filed bythe appellant-Union of India by way of intra-court appeal against thedecision dated 20.3.2018[21] of the learned Single Judge of the same HighCourt in Acer India Pvt. Ltd. vs. Union of India [Writ Petition No.64539of 2016 (T-TAR)] whereby the respondent-Company — claiming to beengaged in the business of manufacture and sale of computer systemsand supply of goods to hundred per cent EOUs on payment of TED, hadsought a declaration that it was eligible for refund of TED amount in 18 (2014) 302 ELT 209 (Del.)

19 2002 (143) ELT 294 (Cal.)

20 supra at Footnote No.18

21 2018 (361) ELT 44 (Kar.)

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Arespect of goods supplied to EOUs during the period from June 2009 toOctober 2009 in terms of para 8.3 of the FTP. Learned Single Judge ofthe High Court of Karnataka adverted to the decision of the learnedSingle Judge of the Calcutta High Court in IFGL Refractories Limitedvs. Joint Director General of Foreign Trade[22] (later confirmed by theDivision Bench of the same High Court in Joint Director General ofBForeign Trade[23]) and of the High Court of Delhi in Kandoi MetalPowders Manufacturing Company Private Limited[24]wherein it hadbeen held that once the supply of goods fall within the category of deemedexports, the unit would be entitled to refund of TED. Learned SingleJudge also adverted to the decision of the Madras High Court in LenovoC(India) Pvt. Ltd. vs. Union of India[25]and to the decision of the BombayHigh Court in case of Sandoz Private Limited which is impugned in thecognate appeals referred to above. Learned Single Judge, however, notedthat the decision of the Bombay High Court has been distinguished bythe Madras High Court, but then went on to observe that it did not agreewith the view taken by the Bombay High Court in view of the amendmentDto the FTP. Instead, learned Single Judge opined that the policy circulardated 15.03.2013, by no standard, was clarificatory in nature. Resultantly,learned Single Judge allowed the writ petition and was pleased to setaside the communication dated 31.03.2016 issued by the Deputy Directorof Foreign Trade, disallowing the refund claim of the respondent-CompanyE(DTA Unit). Learned Single Judge while setting aside that order relegatedthe respondent-Company before the competent authority under the FTPto consider the refund claim of the respondent-Company in accordancewith the policy. The Division Bench whilst dealing with the appeal filedby the Department, vide impugned judgment noted that the respondent-Company had supplied computer systems to EOU on payment of TEDFfrom June 2009 till October 2009, which in terms of the FTP, in particularpara 8.2(b), was deemed export — entitling the respondent-Company toclaim refund of TED from the regional authority of DGFT in terms ofpara 8.3(c) of the FTP. The Division Bench of the High Court ofKarnataka opined that there was no infirmity in the view taken by theGlearned Single Judge holding that the appellant cannot be heard to retainthe amount which was not payable by way of tax being a case of deemed 22 2001 (132) ELT 545 (Cal.)23 supra at Footnote No.1924 supra at Footnote No.18H25 (2017) 346 ELT 12 (Mad.)

export. As the amount of Rs.1,04,36,945 (Rupees One Crore Four LakhThirty-Six Thousand Nine Hundred and Forty-Five only) was wronglypaid by the respondent-Company, the same needed to be refunded and,therefore, learned Single Judge was justified in relegating the respondent-Company before the competent authority under the FTP to consider therefund claim.

8. We have heard Shri Arvind Datar, Shri Jay Savla, learned seniorcounsel and Shri Prakash Shah, learned counsel appearing for theappellants in the appeals by the Assessee, Shri Balbir Singh, learnedAdditional Solicitor General of India for the Department; and Shri G.Shivadass, learned senior counsel for the respondent-Assessee (writpetitioner), in the appeals by the Department.

CONSIDERATION

9. From the factual matrix delineated above in the respectiveappeals, it is obvious that Civil Appeal Nos.3358 and 3359 of 2020 pertainto EOUs, who had “procured” goods from its unit in Domestic TariffArea (DTA), which transactions were in the nature of deemed exportby the DTA Unit to EOU within the meaning of the applicable FTP. Onthe other hand, the appeals against the decision of the High Court ofDelhi and the High Court of Karnataka pertain to the refund claim setup by the DTA Unit — “suppliers” of goods to concerned EOU, also inreference to self-same Foreign Trade Policy (FTP).

10. The moot question is: whether the entities herein are entitledto refund of amount purportedly towards TED in respect of specifiedgoods procured or supplied, as the case may be, being deemed exportsand from which authority, either under applicable Foreign Trade Policy(FTP) or the 1944 Act? Further, whether Circular No.16 (RE-2012/2009-14) dated 15.03.2013 is merely clarificatory regarding TED refundand exemption and the efficacy thereof?

11. The claim for refund of TED amount of the concerned entitiesbeing the recipient or the supplier of specified goods, as the case maybe, needs to be understood and analysed in two broad silos and in thecontext of nature of transaction and the applicability of the provisions ofthe concerned laws, namely, FTP propounded under the 1992 Act andthe 1944 Act. We will dilate on this aspect at appropriate place. Be itnoted that the refund claim in the respective appeals varies betweenJune 2009 and March 2013 (i.e., Civil Appeal No.3358 of 2020 — July2012 and December 2012; Civil Appeal No.3359 of 2020 — November A

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A2011; Civil Appeal No.3360 of 2020 — January 2012 and March 2013;and Civil Appeal No.3705 of 2020 — June 2009 and October 2009).

12. At the outset, it needs to be borne in mind that the entities in allthese cases are claiming refund founded on the FTP and not in referenceto the provisions of the 1944 Act or the rules framed thereunder, inBparticular, the Central Excise Rules, 2002[26] and the CENVAT CreditRules, 2004[27].

13. Had it been a claim for refund of duty under the 1944 Act, thesame would be governed by the regime predicated in Section 11B of thatAct. The expression “duty” has been defined in Rule 2(e) of the 2002CRules to mean the duty payable under Section 3 of the 1944 Act. Section3 of the 1944 Act envisages that there shall be levied and collected insuch manner as may be prescribed a duty of excise as may be called theCentral Value Added Tax (CENVAT) on all excisable goods (excludinggoods produced or manufactured in special economic zones) which areproduced or manufactured in India as, and at the rates, set forth in theDFourth Schedule. It may be apposite to refer to Section 5A[28] of the 1944Act. It empowers the Central Government to grant exemption from dutyof excise in respect of specified excisable goods. The exercise of power 26 for short, “2002 Rules”

27 for short, “2004 Rules”

E28 5A. Power to grant exemption from duty of excise.— (1) If the Central Governmentis satisfied that it is necessary in the public interest so to do, it may, by notification inthe Official Gazette, exempt generally either absolutely or subject to suchconditions (to be fulfilled before or after removal) as may be specified in thenotification, excisable goods of any specified description from the whole or any partof the duty of excise leviable thereon:

Provided that, unless specifically provided in such notification, no exemption thereinFshall apply to excisable goods which are produced or manufactured—

(i) in a free trade zone or a special economic zone and brought to any other place inIndia; or

(ii) by a hundred per cent. export-oriented undertaking and brought to any other placein India.

Explanation. —In this proviso, “free trade zone”, “special economic zone” and “hundredGper cent. export-oriented undertaking” shall have the same meanings as in Explanation2 to sub-section (1) of Section 3.

(1-A) For the removal of doubts, it is hereby declared that where an exemptionunder sub-section (1) in respect of any excisable goods from the whole of theduty of excise leviable thereon has been granted absolutely, the manufacturer ofsuch excisable goods shall not pay the duty of excise on such goods.

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to exempt is a beneficial power — which enables the Central Governmentto reduce or waive duty on specified goods on such conditions as maybe prescribed. The exemption notification has statutory force. However,the manufacturers (including DTA Unit) of specified goods are free todisregard, the benefit of exemption so provided when it is laced withfulfilment of pre-conditions by third party (EOU). However, sub-section(1A) of Section 5A came to be inserted by way of an amendment w.e.f.13.05.2005. It was for removal of doubts. It declared that where anexemption under sub-section (1) in respect of any excisable good fromthe whole of the duty of excise leviable thereon has been grantedabsolutely, the manufacturer of such excisable goods “shall not pay theduty of excise on such goods”. This stipulation ordains that the exciseduty is not payable on the specified goods. However, this stipulation willbe attracted if the excise duty is exempted ab initio (without any pre-condition). Be that as it may, the governing FTP regime ought to prevailbeing a special dispensation under the 1992 Act.

14. The authorities propounding the FTP were obviously consciousof the purport of the provisions of the 1944 Act and the rules framedthereunder. Despite that, the subject policy had been propounded withthe sole objective of promoting exports and earning foreign exchange.At the relevant time, the goal set forth by the policy makers was toachieve the target of at least one per cent of the global trade by promotingexports. It is thus clear that the concessions or so to say, benefits andentitlements provided under the FTP cannot be constricted by theprovisions of the taxing statute of 1944 and the rules framed thereunder.To put it tersely, the dispensation provided under the 1992 Act and theFTP must operate independently and is thus mutually exclusive in thisregard. Taking any other view would be counter-productive and whittledown the intent behind formulation of a liberal FTP for promoting exports.

15. Under the subject FTP, Chapter 6 deals with EOUs, ElectronicsHardware Technology Parks (EHTPs), Software Technology Parks(STPs) and Bio-Technology Parks (BTPs). Para 6.1 provides for theeligibility criterion. It envisages that units undertaking to export theirentire production of goods and services (except permissible sales in DTA)may be set up under the EOU Scheme. Similar provision is made regardingother Parks referred to therein. It is, however, made clear that tradingunits are not covered under these schemes. Para 6.1 (Eligibility) readsthus: - AB

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A“6.1 Eligibility

Units undertaking to export their entire production of goods andservices (except permissible sales in DTA), may be set up underthe Export Oriented Unit (EOU) Scheme, Electronics HardwareTechnology Park (EHTP) Scheme, Software Technology ParkB(STP) Scheme or Bio-Technology Park (BTP) Scheme formanufacture of goods, including repair, re-making, reconditioning,re-engineering and rendering of services. Trading units are notcovered under these schemes.”

16. Para 6.2 of the FTP specifies the stipulations for the EOU toCconduct its activities such as export and import of goods. Amongst others,the clause relevant for considering the present appeals is para 6.2(b),which reads thus: - “6.2 Export and Import of Goods (a) …..

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D(b) An EOU/EHTP/STP/BTP unit may import and/orprocure, from DTA or bonded warehouses in DTA/international exhibition held in India, without payment of duty,all types of goods, including capital goods, required for itsactivities, provided they are not prohibited items of import inthe ITC (HS). Any permission required for import under anyEother law shall be applicable. Units shall also be permitted toimport goods including capital goods required for approvedactivity, free of cost or on loan/lease from clients. Import ofcapital goods will be on a self-certification basis. Goodsimported by a unit shall be with actual user conditionFand shall be utilized for export production.

…..”

From the opening part of this provision itself, it is amply clear thatit governs specified entities/units, who are engaged in import and/orGprocurement of goods from DTA or bonded warehouses etc., and thatthey must do so without payment of duty. Besides, the specified entitiesare obliged to utilise the goods imported with actual user condition and tobe used or utilised for export production. This twin condition must becomplied by the specified entities without any exception for derivingHbenefit or availing of entitlements under FTP. Chapter 6 of the FTP

SANDOZ PRIVATE LIMITED v. UNION OF INDIA & OTHERS[A. M. KHANWILKAR, J.]

postulates that supply of goods from DTA Units to EOU must be regardedas deemed exports, as is evident from para 6.11 of the FTP. The samereads thus: - “6.11 Entitlement for supplies from the DTA

(a) Supplies from DTA to EOU/EHTP/STP/BTP units willbe regarded as “deemed exports” and DTA supplier shallbe eligible for relevant entitlements under chapter 8 ofFTP, besides discharge of export obligation, if any, on thesupplier. Notwithstanding the above, EOU/EHTP/STP/BTP units shall, on production of a suitable disclaimerfrom DTA supplier, be eligible for obtaining entitlementsspecified in chapter 8 of FTP. For claiming deemed exportduty drawback, they shall get brand rates fixed by DC whereverAll Industry Rates of Drawback are not available.

(b) Suppliers of precious and semi-precious stones, syntheticstones and processed pearls from DTA to EOU shall be eligiblefor grant of Replenishment Authorisations at rates and for itemsmentioned in HBP v1.

(c) In addition, EOU/EHTP/STP/BTP units shall beentitled to following:-

(i) Reimbursement of Central Sales Tax (CST) on goodsmanufactured in India.

Simple interest @ 6% per annum will be payable on delayin refund of CST, if the case is not settled within 30 days ofreceipt of complete application (as in paragraph 9.10.1 ofHBP v1).

(ii) Exemption from payment of Central Excise Dutyon goods procured from DTA on goods manufacturedin India.

(iii) Reimbursement of duty paid on fuel procured fromdomestic oil companies/Depots of domestic oil Public SectorUndertakings as per drawback rate notified by DGFT fromtime to time. Reimbursement of additional duty of exciselevied on fuel under the Finance Acts would also beadmissible.

(iv) CENVAT Credit on service tax paid.”

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AThe opening part of clause (a) concerns the supplier as it refersto supplies from DTA Unit to EOU to be regarded as deemed exports.Further, as a consequence of deemed exports, DTA supplier becomeseligible for entitlements specified under Chapter 8 of the FTP. To put itdifferently, in the same Chapter 6, the entitlement of DTA supplier underChapter 8 of FTP has also been adverted to. This provision also dealsBwith the manner of availing the entitlements specified under Chapter 8of FTP — either by the DTA Unit itself or the EOU, the recipient of thegoods and services. For, in terms of this stipulation even the EOU canset up a refund claim in respect of stated transaction, in lieu of theentitlement of DTA Unit after obtaining suitable disclaimer from DTACsupplier. In other words, clause 6.11 [clause (a) thereof in particular]deals with entitlement of DTA supplier, which can be availed by theDTA supplier itself or by the EOU to whom the goods were supplied byit upon giving suitable disclaimer in that regard. The entitlements of theDTA supplier have been delineated in Chapter 8 of FTP, to which wewill advert to a little later. Clause (a) of Chapter 6.11 also provides thatDDTA supplier and EOU may claim deemed export duty drawback aswell, as per the rates fixed by DC wherever All Industry Rates ofDrawback are not available.

17. Clause (c) of para 6.11 is a provision which spells out theentitlement of EOU. It includes reimbursement of Central Sales TaxE(CST) on goods manufactured in India; exemption from payment ofCentral Excise Duty on goods produced from DTA on goodsmanufactured in India; reimbursement of duty paid on fuel procuredfrom domestic oil companies/depots of domestic oil public sectorundertakings as per drawback rate notified by DGFT from time to time;Fand lastly, CENVAT Credit on service tax paid. As regards the CentralExcise Duty, para 6.11(c)(ii) postulates exemption from payment ofCentral Excise Duty on goods procured by the EOU from DTA on goodsmanufactured in India. This is in consonance with the stipulation in para6.2(b), which predicates that the EOU may import goods from DTAwithout payment of duty.G

18. From the scheme of Chapter 6 of FTP, it is thus clear that theEOU can import goods from DTA supplier, which transaction de jure istreated as deemed export; and it can do so without payment of duty, asit has been exempted vide para 6.11(c)(ii) of the FTP. On its own, theEOU is not eligible for any other entitlement.H

19. Needless to observe that there is marked distinction betweenthe expression “benefit”[29] and “entitlement”[30]. “Benefit”, by its very nature,is an advantage, help or aid, while “entitlement” is right to have something.Under Chapter 6, the EOU is entitled to import specified goods fromDTA without payment of duty, subject to fulfilling other requirementsincluding of actual user condition and to be utilised for export production,being a case of ab initio exemption qua EOU. The provision in theform of para 6.11(a) merely enables EOU to set up a claim “in respectof” entitlements of DTA supplier under Chapter 8 of FTP. There is noseparate entitlement for EOU under Chapter 8 of FTP. To put it differently,although the heading of para 6.11 is “Entitlement for supplies from theDTA” and clause (a) thereof envisages that EOU shall on production of asuitable disclaimer from DTA supplier be eligible for obtaining entitlementsspecified in Chapter 8 of FTP, it does not follow that it is the entitlementof EOU. It is, however, only a case of benefit transferred to EOUconcerning the entitlement of DTA supplier under Chapter 8 of FTP.

20. That brings us to Chapter 8 of FTP. The heading of Chapter 8is “Deemed Exports”. The original para 8.1 specified that deemed exportsrefer to those transactions in which goods supplied do not leave countryand payment for such supplies is received either in Indian rupees or infree foreign exchange. By way of amendment, it further provided thatthe supply of specified goods (noted in para 8.2) shall be regarded asdeemed exports provided goods are manufactured in India. The originalpara 8.1 reads thus: - “8.1. Deemed Exports “Deemed Exports” refer to those transactions in which goodssupplied do not leave country, and payment for such supplies isreceived either in Indian rupees or in free foreign exchange.”

[Para 8.1, after amendment, in 2012-2013 reads thus: - “8.1. Deemed Exports Deemed Exports” refer to those transactions in which goodssupplied do not leave country, and payment for such supplies is 29 In Black’s Law Dictionary (11th Edition): benefit, n. (14c) 1. The advantage orprivilege something gives; the helpful or useful effect something has <the benefit ofowning a car>. 2. Profit or gain; esp., the consideration that moves to the promise <abenefit received from the sale>. — Also termed legal benefit; legal value.

30 In Black’s Law Dictionary (11th Edition): entitlement. (19c) An absolute right to a(usu. monetary) benefit, such as social security, granted immediately upon meeting alegal requirement.

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Areceived either in Indian rupees or in free foreign exchange.Supply of goods as mentioned in Paragraph 8.2 belowshall be regarded as “Deemed Exports” provided goodsare manufactured in India.”]

(amendment highlighted)

BPara 8.2 of Chapter 8 specifies the categories of supplies whichcan be regarded as deemed exports. Clause (b) thereof is applicable tothe present appeals. Relevant extract of original para 8.2 is as under: - “8.2. Categories of Supply Following categories of supply of goods by main/sub-contractorsCshall be regarded as “Deemed Exports” under FTP, provided goodsare manufactured in India:

(a) xxxxxxxxx

(b) Supply of goods to EOU/STP/EHTP/BTP;

…..”

D[Para 8.2, after amendment, in 2012-2013 reads thus: - “8.2. Categories of Supply Following categories of supply of goods by main/sub-contractorsshall be regarded as “Deemed Exports”:

(c) xxxxxxxxxE

(d) Supply of goods to EOU/STP/EHTP/BTP;

…..”]

In other words, only the specified categories of supplies areregarded as deemed exports. In that, import of goods, as specified inpara 8.2(b) from DTA supplier to the EOU is regarded as deemedFexports. To put it differently, the supply of goods by DTA Unit to EOUwith actual user condition and utilised for export production, are regardedas deemed exports. To such transactions, certain benefits have beenextended, as provided in para 8.3 of the FTP applicable at the relevanttime, which reads thus:G“8.3 Benefits for Deemed Exports Deemed exports shall be eligible for any/all of following benefitsin respect of manufacture and supply of goods qualifying asdeemed exports subject to terms and conditions as in HBP v1:- (a)Advance Authorisation/Advance Authorisation forHannual requirement/DFIA.

(b) Deemed Export Drawback.

(c) Exemption from terminal excise duty where supplies aremade against ICB. In other cases, refund of terminalexcise duty will be given. Exemption from TED shallalso be available for supplies made by an AdvanceAuthorisation holder to a manufacturer holding anotherAdvance Authorization if such manufacturer, in turn,supplies the product(s) to an ultimate exporter.”

And original para 8.4 of the FTP providing benefits to the suppliers,as applicable at the relevant time, reads thus: - “8.4 Benefits to the Supplier 8.4.1(i) In respect of supplies made against AdvanceAuthorisation / DFIA in terms of paragraph 8.2(a) ofFTP, supplier shall be entitled to Advance Authorisation/ DFIA for intermediate supplies.

(ii) If supplies are made against Advance ReleaseOrder (ARO) or Back to Back Letter of Credit issuedagainst Advance Authorisation / DFIA in terms ofparagraphs 4.1.11 and 4.1.12 of FTP, suppliers shallbe entitled to benefits listed in paragraphs 8.3(b) and(c) of FTP, whichever is applicable.

8.4.2In respect of supply of goods to EOU / EHTP /STP / BTP in terms of paragraph 8.2(b) of FTP,supplier shall be entitled to benefits listed inparagraphs 8.3(a), (b) and (c) of FTP, whicheveris applicable.

8.4.3In respect of supplies made under paragraph 8.2(c)of FTP, supplier shall be entitled to the benefits listedin paragraphs 8.3(a), (b) and (c) of the Policy,whichever is applicable.

8.4.4(i) In respect of supplies made under paragraphs 8.2(d),(f) and (g) of FTP, supplier shall be entitled to benefitslisted in paragraphs 8.3(a), (b) and (c), whichever isapplicable.

(ii) In respect of supplies mentioned in paragraph8.2(d), supplies to projects funded by such Agenciesalone, as may be notified by DEA, MoF, shall be eligible A

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for deemed export benefits. A list of such Agencies /Funds is given in Appendix 13 of HBP v1.

(iii) Benefits of deemed exports under para 8.2(f) ofFTP shall be applicable in respect of items, import ofwhich is allowed by DoR at zero customs duty, subjectto fulfillment of conditions specified under NotificationNo. 21/2002-Customs dated 1.3.2002, as amendedfrom time to time.

(iv) Supply of Capital goods and spares upto 10% ofFOR value of capital goods to power projects in termsof paragraph 8.2(g), shall be entitled for deemed exportbenefits provided the ICB procedures have beenfollowed at Independent Power Producer (IPP) /Engineering and Procurement Contract (EPC) stage.Benefit of deemed exports shall also be available forrenovation/modernization of power plants. Suppliershall be eligible for benefits listed in paragraph 8.3(a)and (b) of FTP, whichever is applicable. However,supply of goods required for setting up of any megapower project as specified in S.No. 400 of DoRNotification No. 21/2002- Customs dated 1.3.2002, asamended, shall be eligible for deemed export benefitsas mentioned in paragraph 8.3(a), (b) and (c) of FTP,whichever is applicable, if such mega power projectcomplies with the threshold generation capacityspecified therein, in Customs Notification.

[Para 8.4.4(iv), after amendment, in 2010-2011 reads thus: - “(iv) Supply of Capital goods and spares upto 10% ofFOR value of capital goods to power projects in termsof paragraph 8.2(g), shall be entitled for deemed exportbenefits provided the ICB procedures have beenfollowed at Independent Power Producer (IPP) /Engineering and Procurement Contract (EPC) stage.However, in regard to mega power projects, therequirement of ICB would not be mandatory, ifthe requisite quantum of power has been tied upthrough tariff based competitive bidding or if theproject has been awarded through tariff based competitive bidding. Benefit of deemed exportsshall also be available for renovation / modernizationof power plants. Supplier shall be eligible for benefitslisted in paragraph 8.3(a) and (b) of FTP, whicheveris applicable. However, supply of goods required forsetting up of any mega power project as specified inS.No. 400 of DoR Notification No. 21/2002- Customsdated 1.3.2002, as amended, shall be 88 eligible fordeemed export benefits as mentioned in paragraph8.3(a), (b) and (c) of FTP, whichever is applicable, ifsuch mega power project complies with the thresholdgeneration capacity specified therein, in CustomsNotification. Further, supply of goods required forthe expansion of existing mega power project asspecified in Sl. no 400A of DoR Notification 21/2002- Customs dated 1.3.2002, as amended shallalso be eligible for deemed export benefits asmentioned in paragraph 8.3 (a), (b) and (c) of FTP,whichever is applicable.”]

(amendments highlighted)

(v) Supplies under paragraph 8.2(g) of FTP to newrefineries being set up during Ninth Plan period andspilled over to Tenth Plan period, shall be entitled fordeemed export benefits in respect of goods mentionedin list 17 specified in S.No. 228 of Notification No.21/2002-Customs dated 1.3.2002, as amended fromtime to time. Supplier shall be eligible for benefits listedin paragraphs 8.3(a) and (b) of FTP, whichever isapplicable.

8.4.5In respect of supplies made under paragraph 8.2(e)of FTP, supplier shall be eligible for benefits listed inparagraph 8.3(a) and (b) of FTP, whichever isapplicable. Benefit of deemed exports shall beavailable in respect of supplies of capital goods andspares to Fertilizer Plants which are set up or expanded/ revamped / retrofitted / modernized during Ninth Planperiod. Benefit of deemed exports shall also beavailable on supplies made to Fertilizers Plants, which AB

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have started in the 8th / 9th Plan periods and spilledover to 10th Plan period.

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8.4.6Supplies of goods to projects funded by UN Agenciescovered under para 8.2(i) of FTP are eligible forbenefits listed in paragraph 8.3(a) and (b) of FTP,whichever is applicable.

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8.4.7In respect of supplies made to Nuclear Power Projectsunder para 8.2(j) of FTP, the supplier would be eligiblefor benefits given in para 8.3(a), (b) and (c) of FTP,whichever is applicable. Supply of only those goodsCrequired for setting up any Nuclear Power Projectspecified in list 43 at S.No. 401 of Notification No.21/2002-Customs dated 1.3.2002, as amended fromtime to time, having a capacity of 440MW or more ascertified by an officer not below rank of Joint Secretaryto Government of India in Department of AtomicDEnergy, shall be entitled for deemed export benefits incases where procedure of competitive bidding (andnot ICB) has been followed.

Though couched as benefits, these are essentially entitlements, toEbe availed by DTA supplier in terms of para 8.4.2. As noted earlier, interms of para 6.11(a), the EOU can also avail of those entitlements ofDTA as specified in Chapter 8 of FTP, as had been earmarked for DTAsupplier. That does not mean that EOU is eligible for those entitlements,on its own accord as, amongst other, it is obliged to obtain disclaimerFfrom DTA supplier as a precondition.

21. As aforementioned, para 8.2 lists the categories of supply ofgoods which are regarded as deemed exports including supply of goodsto EOU [para 8.2 (b)]. The specified transactions are provided certainbenefits mentioned in para 8.3, subject to terms and conditions in thehandbook procedures, volume I, published under FTP. Para 8.3(c), interGalia, envisages that exemption from TED is available for supplies madeagainst International Competitive Bidding[31] and also to AdvanceAuthorisation Holder to a manufacturer holding another advanceauthorisation if such manufacturer supplies the products to an ultimateexporter. In other cases, (would include other DTA suppliers of goods toHEOU), however, refund of TED will be given. Further, the expression “will” is to be construed as a mandate to give refund to such DTAsuppliers, being its entitlement under FTP. This does not whittle downthe ab initio exemption of payment of duty given to EOU in respect ofsupply from DTA.

22. Notably, para 8.3(c) of FTP does not provide in-built eligibility“category” unlike specified in sub-paras (a) and (b) for ICB and AdvanceAuthorisation Holder. The expression “in other cases” in sub-para (c)needs to be understood in proper perspective. Concededly, paras 8.4.1to 8.4.7 provide for benefits to the supplier of goods to EOU as beingdeemed export. It is essentially an entitlement of DTA supplier — aslisted in para 8.3(a), (b) and (c) of FTP, as may be applicable. It is seenthat para 8.4.2 was substituted by the revised FTP of 2012, wherein atable was inserted[32]. As per that table, benefits available under para 8.2

31 for short, “ICB”

32 Para 8.4, after amendment, in 2012-2013 reads thus:- “8.4 Benefits to the Supplier Following table shows the benefits available to different categories of supplies asmentioned in Para 8.2 above. In respect of such supplies supplier shall be entitledto the benefits listed in paragraphs 8.3 (a), (b) & (c) of the Policy, whichever isapplicable.

(a) (b) (c) (a) (b)(c) (d) (h)

8.4.1 This paragraph is deleted because the contents of this paragraph reflected in table given in paragraph 8.4 above.

8.4.4 (i) This paragraph is deleted because the contents of this paragraph reflected intable given in paragraph 8.4 above.

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Ato specified categories of supplies including supply to EOU in para 8.2(b)had been extended benefits under para 8.3, as applicable.

23. The eligibility for refund of TED/drawback in terms of para8.3(c) of FTP is made dependent on the non-availment of CENVATcredit/rebate on such goods by the recipient thereof, as is envisaged inBoriginal para 8.5. The same reads thus:

“8.5 Eligibility for refund of terminal excise duty/drawback Supply of goods will be eligible for refund of terminal excise dutyin terms of para 8.3(c) of FTP, provided recipient of goods doesnot avail CENVAT credit / rebate on such goods. Similarly, suppliesCwill be eligible for deemed export drawback in terms of para 8.3(b)of FTP on Central Excise paid on inputs/components, providedCENVAT credit facility/rebate has not been availed by applicant.Such supplies will however be eligible for deemed export drawbackon customs duty paid on inputs/components.

D[Para 8.5, after amendment, in 2012-2013 reads thus:- “8.5 Eligibility for refund of terminal excise duty/drawback Supply of goods will be eligible for refund of terminal exciseduty in terms of Para 8.3(c) of FTP, provided recipient of goodsEdoes not avail CENVAT credit/rebate on such goods. Adeclaration to this effect, in Annexure II of ANF 8, fromrecipient of goods, shall be submitted by applicant.Similarly, supplies will be eligible for deemed export drawbackin terms of para 8.3 (b) of FTP of Central Excise duty paid onFinputs/components, provided CENVAT credit /rebate has not E

(ii) This paragraph is deleted because the contents of this paragraph reflected inparagraphs 8.2(d) and 8.4 above.

(iii) This paragraph is deleted because the contents of this paragraph reflected inparagraph 8.2 (f) above.G

(iv) This paragraph is deleted because the contents of this paragraph reflected inparagraphs 8.2 and 8.4 above.

(v) Deleted 8.4.5 Deleted.

8.4.7 This paragraph is deleted because the contents of this paragraph reflected inHparagraphs 8.2 and 8.4 above.”

been availed of such duty paid by supplier of goods. Adeclaration to this effect, in Annexure III of ANF 8, fromsupplier of goods, shall be submitted by applicant. Suchsupplies shall however be eligible for deemed export drawbackon customs duty paid on inputs/components.

(amendments highlighted)

8.5.1 Simple interest @ 6% per annum will be payable on delayin refund of duty drawback and terminal excise duty under deemedexport scheme, if the case is not settled within 30 days of receiptof complete application (as in paragraph 9.10.1 of HBP v1).”

24. Similarly, benefit under para 8.3(b) of FTP regarding deemedexport drawback can be availed, provided CENVAT credit/rebate hasnot been availed by DTA supplier and subject to complying otherformalities. Para 8.4.2 as originally stood, is indicative of option givenonly to supplier (DTA) in connection with supply of goods to EOU, asspecified in para 8.3 (a), (b) and (c) of FTP. That has remained intactdespite the amendment of 2012, until March 2013. Be it noted that thepurport of para 8.5 states that supply of goods will be eligible for TEDrefund only if CENVAT credit/rebate has not been availed on such goods.These stipulations demonstrate that the scheme of FTP is explicit andnot ambiguous nor silent in respect of benefits and entitlements of theconcerned entities. It needs no elaboration. Thus, an argument havingpotential of defeating the intent of the applicable FTP, in any manner,ought to be negated.

25. Going by the scheme of FTP applicable at the relevant period,it is crystal clear that EOUs were entitled to ab initio exemption frompayment of Central Excise duty on goods procured from DTA on goodsmanufactured in India, as the import of such goods was to be madewithout payment of duty. No more and no less. That, however, did notpreclude the EOU from availing of the entitlement of DTA supplier underChapter 8 upon obtaining a suitable disclaimer from DTA supplier, asprovided in para 6.11(a). That availment by EOU had been linked toentitlement of DTA supplier, as specified in Chapter 8. The DTA suppliercould (entitled to) take refund of TED in respect of goods supplied by itto EOU being exempted from TED, in light of para 8.3(c). The eligibilityfor refund of TED, however, has been circumscribed by formalities andrequirements to be adhered to, including as noted in para 8.5. In that,recipient of goods (EOU) does not avail CENVAT credit or rebate.

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ASimilarly, DTA supplier would be eligible for deemed export drawbackin terms of para 8.3(b) of FTP on Central Excise paid on inputs/components, provided CENVAT credit facility/rebate has not beenavailed.

26. Upon conjoint reading of the relevant para and its clauses, itBleaves no manner of doubt that the intent of the subject FTP was toencourage DTA suppliers by providing refund of TED in terms of para8.3(c), subject to fulfilment of formalities and stipulations in Chapter 8 ofFTP. This was also to generate foreign exchange as a consequence ofgoods supplied as inputs or otherwise, were finally exported by the EOU.The EOU, on the other hand, could only avail of the entitlement of theCDTA supplier if the DTA supplier had not taken rebate or CENVATcredit facility (as per para 8.5) treating it as deemed export. Thisdispensation was uniformly followed until the issue of policy circulardated 15.3.2013. That circular reads thus:- “Government of India DMinistry of Commerce and Industry Directorate General of Foreign Trade Udyog Bhawan, New Delhi Policy Circular No. 16 (RE-2012/2009-14)

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Dated: 15[th] March, 2013

To,

All Regional Authorities

All Development Commissioners, SEZ.

FSubject: Clarification regarding TED Refund where TEDexemption is available.

It has come to the notice of this Directorate that some RAsof DGFT and the Officers of Development Commissioners ofSEZ are providing refund of TED even in those cases whereGsupplies of goods, under deemed exports, is ab-initio exempted.

2. There are three categories of supplies where supply of goods,under deemed exports, are ab-initio exempted from payment ofexcise duties. These are as follows:

(i) Supply of goods under Invalidation letter issued againstHAdvance Authorisation [Para 8.3(c) of FTP];

(ii) Supply of goods under ICB [Para 8.3(c) of FTP]; and

(iii) Supply of goods to EOUs [Para 6.11(c)(ii) of FTP]

3. Prudent financial management and adherence to discipline ofbudget would be compromised if refund is provided, in cases,where exemption is mandated. In fact, in such cases the relevanttaxes should not have been collected to begin with. And if, therehas been an error/oversight committed, then the agencycollecting the tax would refund it, rather than seekingreimbursement from another agency. Accordingly, it is clarifiedthat in respect of supplies, as stated at Para 2 above, no refund ofTED should be provided by RAs of DGFT/Office of DevelopmentCommissioners, because such supplies are ab-initio exempted frompayment of excise duty.

4. This issue with the approval of DGFT.

(Jay Karan Singh)Joint Director of Foreign Trade

…..”

This circular proceeds on the assumption that the goods suppliedby DTA Unit to EOU being a case of deemed exports, it predicates abinitio exemption from payment of excise duties. Reading the provisionsof the FTP very closely as interpreted hitherto, we need to hold that theexemption provided to DTA supplier from payment of excise duties,was subject to complying with certain formalities and stipulations. It istrue that the subject FTP stipulates that EOU may import specified goodsfrom DTA or bonded warehouses in DTA or international exhibition heldin India, without payment of duty. But it is hatched with condition thatthe goods so imported shall be with actual user condition and shall beutilised for export production and further, an exemption of TED can beavailed only if the DTA supplier had not taken rebate or utilised CENVATcredit facility as provided in para 8.5. It is on that understanding, thedepartment had been entertaining refund requests by the DTA supplierfor refund of TED made by it in the past until the issue of stated policycircular. In that sense, it was not an ab initio exemption at least for theDTA supplier. The circular, therefore, introduces a new dimension quathe DTA suppliers. Such a change for DTA suppliers cannot be introduced A

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Aby issuing a policy circular under the signatures of the Joint Director ofForeign Trade. For, the FTP is formulated by the Central Government inexercise of powers conferred by Section 5[33] of the 1992 Act (as applicableat the relevant time) read with Para 1.2 of the FTP, which had come intoforce with effect from 27.9.2009. We do not intend to say that thedepartment/Central Government is estopped from altering theBdispensation in vogue. But, it is clear to us that the dispensation, as itobtained prior to March, 2013 including the notification issued by theCentral Government on 18.4.2013 amending the relevant provisions ofthe existing FTP being paras 8.3(c) and 8.4, was materially differentqua DTA suppliers. For, it was not ab initio exemption for them, unlikeCin the case of EOU by virtue of para 6.2(b) read with para 6.11(c)(ii).Accordingly, it became necessary to make it amply clear by amendingparas 8.3(c) and 8.4 vide notification dated 18.04.2013, that henceforthit would be regarded as ab initio exemption even for DTA supplier.This, indeed, is a change or amendment effected in the FTP. Such a change needs to be given only prospective effect, being introduced byDdelegated legislation. We are not required to nor called upon to ponderover the justness and validity of notification dated 18.4.2013[34]. Suffice it 33Section 5, as it existed before amendment in 2010:

5. Export and import policy. — The Central Government may, from time to timeEformulate and announce, by notification in the Official Gazette, the export and importpolicy and may also, in the like manner, amend that policy.Section 5, as substituted by Act 25 of 2010 w.e.f. 27.8.2010:

5. Foreign Trade Policy. — The Central Government may, from time to time, formulateand announce, by notification in the Official Gazette, the foreign trade policy andmay also, in like manner, amend that policy:FProvided that the Central Government may direct that, in respect of the SpecialEconomic Zones, the foreign trade policy shall apply to the goods, services andtechnology with such exceptions, modifications and adaptations, as may bespecified by it by notification in the Official Gazette.

34 To be published in the Gazette of India Extraordinary Part II, Section 3, Sub-Section (II)

Government of India

GMinistry of Commerce and IndustryDepartment of Commerce Udyog Bhawan Notification No. 4 (RE-2013)/2009-2014

Dated: the 18th April, 2013

Subject: Amendments in Paragraph 8.3(c) and Paragraph 8.4 of FTP pertaining todeemed exports scheme – Regarding.H

to observe that the policy circular cannot be the basis to deny the vestedright of the DTA suppliers under the applicable FTP.

27. As regards the claim for refund of TED by EOU, therefore,need to be governed by the dispensation provided in para 6.11(a) readwith entitlement of DTA supplier under Chapter 8 of FTP. However, itmay have to be processed by the authorities under the FTP keeping in S.O (E): In exercise of the powers conferred by Section 5 of the Foreign Trade(Development & Regulation) Act, 1992, as amended, read with paragraph 1.3 of theForeign Trade Policy, 2009-2014, the Central Government hereby makes the followingamendments in Foreign Trade Policy, 2009-2014.

2. The existing paragraphs 8.3 (c) and 8.4 in the FTP are substituted by amendedparagraphs 8.3(c) and 8.4 as given below:

(i) Existing Paragraph 8.3 (c)

“Exemption from terminal excise duty where supplies are made against ICB. In othercases, refund of terminal excise duty will be given. Exemption from TED shall also beavailable for supplies made by an Advance Authorisation holder to a manufacturerholding another Advance Authorisation if such manufacturer, in turn, supplies theproduct(s) to an ultimate exporter.”

Amended Paragraph 8.3 (c)

“Refund of terminal excise duty will be given if exemption is not available. Exemption from TED is available to the following categories of supplies:

(i) Supplies against ICB;

(ii) Supplies of intermediate goods, against invalidation letter, made by an AdvanceAuthorisation holder to another Advance Authorisation holder; and

(iii) Supplies of goods by DTA unit to EOU / EHTP / STP / BTP unitThus such categories of supply which are exempt ab initio will not be eligible toreceive refund of TED”.

(ii) Existing Paragraph 8.4

“Following table shows the benefits available to different categories of supplies asmentioned in Para 8.2 above. In respect of such supplies supplier shall be entitled tothe benefits listed in paragraphs 8.3 (a), (b) & (c) of the Policy, whichever is applicable.

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Amind the principle underlying the refund of CENVAT credit granted underRule 5 of the 2004 Rules and in the manner provided therefor, thoughnot covered by Rule 5. That is because in law it is a case of deemedexport by virtue of applicable FTP.

28. If the refund claim is by the EOU, the same needs to beBprocessed by the authorities under the FTP by reckoning the entitlementof DTA supplier specified in Chapter 8 of the FTP concerning the goodssupplied to it, being a case of deemed exports. The EOU on its own,however, is not entitled for refund of TED, as the mandate to EOU is toprocure or import goods from DTA supplier, without payment of duty inview of the express ab initio exemption provided in terms of para 6.2(b)Cread with para 6.11(c)(ii). However, despite such express obligation onthe EOU, if the EOU has had imported goods from DTA supplier bypaying TED, it can only claim the benefit of refund provided to DTAsupplier under para 8.4.2 read with paras 8.3(c) and 8.5 subject toobtaining disclaimer from DTA supplier in that regard and complyingDwith other formalities and requirements.

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Amended Paragraph 8.4

“Following table shows the benefits available to different categories of supplies asmentioned in Para 8.2 above. In respect of such supplies supplier shall be entitled tothe benefits listed in paragraphs 8.3 (a), (b) & (c) of the Policy, whichever is applicable.”

3. Effect of this amendment:

When ab initio exemption is available, benefit of TED refund will not be given.

(Anup K. Pujari)Director General of Foreign Trade

29. We thus agree with the conclusion reached by the BombayHigh Court that the EOU is not entitled to claim refund of TED on itsown. However, we add a caveat that EOU may avail of the entitlementsof DTA supplier specified in Chapter 8 of FTP on condition that it willnot pass on that benefit back to DTA supplier later on. In any case, therefund claim needs to be processed by keeping in mind the procedureunderlying the refund of CENVAT credit/rebate of excise duty obligations.If CENVAT credit utilised by DTA supplier or EOU, as the case maybe, cannot be encashed, there is no question of refunding the amount incash. In that case, the commensurate amount must be reversed to theCENVAT credit account of the concerned entity instead of paying cash.

30. If, the claim for refund by DTA supplier under the scheme ofFTP is allowed, it can be in cash if TED had been paid in cash. Else, itcan be in the form of reversal of commensurate CENVAT credit amountto the concerned account of DTA supplier.

31. As regards the refund claim of DTA supplier, as noted earlier,it needs to be processed by the authorities under the FTP keeping inmind the purport of stipulations spelt out in Chapter 8 of subject FTP,such as the goods imported or supplied to EOU shall be with actual usercondition and shall be utilised for export production and that the EOUdid not avail CENVAT credit or rebate in relation to the goods suppliedto EOU. Similarly, if the DTA supplier has utilised the CENVAT credit,commensurate amount needs to be reversed to its CENVAT creditaccount, in which case, there is no question of refunding the amount incash to the DTA supplier.

32. We shall now revert to the judicial pronouncements dealingwith the subject FTP. Except the decision of the Bombay High Courtcommended to us, which is under challenge in the first two appealspertaining to refund claim by EOU, all other reported decisions are inrespect of DTA supplier of specified goods/services.

33. The earliest decision is that of the learned Single Judge of theCalcutta High Court in IFGL Refractories Limited[35]. The High Courtnoted that the Export and Import Policy for the relevant years wasadopted amongst other to promote export of Indian products to foreigncountries aiming at to earn foreign exchange and to increase global 35 supra at Footnote No.22

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Amarket. The scheme was propounded to encourage indigenous supplierby providing certain benefits and entitlements, either by way of exemptionfrom payment of excise duty or to get refund of excise duty, if alreadypaid. The object of the scheme was to provide exporters duty-free inputfor production of export materials and for that reason, it exempted supplierfrom payment of any excise duty and, if paid, to provide for refund ofBTED. The High Court further noted that merely because such refundwas not permissible to the DTA supplier under the 1944 Act and therules framed thereunder, that would not deprive the DTA supplier toavail of the entitlements and benefits under the FTP. It held that it isopen to the assessee to take advantage of any law, particularly which isCmore beneficial. Accordingly, learned Single Judge issued directions topay the refundable amount along with interest at the rate of 12 % perannum. The appeal filed by the Department against the said decisionwas rejected by the Division Bench of the Calcutta High Court in JointDirector General of Foreign Trade[36]. The Division Bench, however,directed the DGFT to refund TED amount as it was the concernedDAuthority under the FTP, subject to assessee completing necessaryformalities as provided for in the FTP. This decision was then affirmedby this Court consequent to dismissal of special leave petition being S.L.P.(C) No.5368 of 2002, on 7.10.2002.

34. The next decision is of the High Court of Gujarat in the caseEof Commissioner of Central Excise and Customs vs. NBMIndustries[37]. The Division Bench of the High Court considered thequestion whether DTA supplier of goods to EOU is entitled for refund ofthe CENVAT credit despite Rule 5 of the 2004 Rules, dealing with refundof CENVAT credit. The Authorities had held that not being a case ofFexport of goods out of India, the assessee was not entitled for refund ofCENVAT credit amount utilised in respect of subject goods supplied toEOU. The High Court relying on its earlier decision in Commissionerof Central Excise vs. Shilpa Copper Wire Industries[38], negatived thatstand of the Department. Instead, the High Court held that the claim forrefund was in reference to the applicable FTP and not on the basis ofGthe provisions of the 1944 Act and the rules framed thereunder. Theentitlement of DTA supplier was specified in the applicable FTP being 36 supra at Footnote No.1937 2012 (276) EaLT 9 (Guj.)H38 2011 (269) ELT 17 (Guj.)

deemed exports which in law are regarded as physical exports for thepurpose of entitling refund of unutilised CENVAT credit.

35. Then came the decision of the High Court of Delhi in KandoiMetal Powders Manufacturing Company Private Limited[39]. Even,this was a case of supplier manufacturing goods supplied to EOU inreference to the applicable FTP. The High Court not only relied on thedecision of the Division Bench of the Calcutta High Court in JointDirector General of Foreign Trade[40], but independently opined thatDGFT having formulated the FTP, the claim of the assessee wasgoverned by the entitlements specified therein in paras 8.2, 8.3, 8.4 and8.5 as applicable at the relevant time. Accordingly, the High Court allowedthe writ petition and relegated the writ petitioner before the Authorityconcerned for deciding the refund claim of the petitioner. This judgmenthas been followed in subsequent decisions, not only by the coordinateBenches of the High Court of Delhi, but also by other High Courts.

36. The Madras High Court in the case of Raja Crowns andCans Pvt. Limited vs. Union of India[41] dealt with similar claim of theDTA supplier of goods to EOU and whilst following the decisions of theHigh Court of Delhi and Calcutta High Court referred to above, opinedthat the assessee was entitled to maintain an application for refund ofTED. The High Court, accordingly, directed the Authorities concernedto consider the refund application of the writ petitioner. Later on, theMadras High Court took the same view in Lenovo (India) Pvt. Ltd.[42]and Manali Petrochemical Limited vs. Additional Director Generalof Foreign Trade, New Delhi & Anr.[43].

37. As aforesaid, the decision in Kandoi Metal PowdersManufacturing Company Private Limited[44]has been subsequentlyfollowed by the High Court of Delhi in Union of India vs. Alstom IndiaLimited[45], Commissioner of Central Excise, Delhi II vs. WelspringUniversal[46], Deepak Enterprises vs. Union of India[47], Alstom 39 supra at Footnote No.18

40 supra at Footnote No.19

41 2015 (317) ELT 40 (Mad.)

42 supra at Footnote No.25

43 W.P. No.23194 of 2009, decided on 16.9.2019

44 supra at Footnote No.18

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ATransport India Ltd. vs. Union of India[48], Motherson Sumi ElectricWires vs. Union of India[49], Multitex Filtration Engineers Limitedvs. Union of India[50]and Hindustan Tin Works Limited vs. Union ofIndia[51].

38. The view taken by the Calcutta High Court and followed byBthe High Court of Delhi commended even to the High Court of Karnatakain Acer India Pvt. Ltd.[52]

39. The view taken in these decisions at the instance of the DTAsupplier of specified goods to EOU is in consonance with the view takenby us in this judgment. To that extent, we affirm these decisions and holdCthat the DTA supplier of goods to EOU would be entitled for refund ofTED on the basis of applicable para 6.11(a) read with paras 8.3(c),8.4.2 and 8.5 of the FTP under consideration. The modality of refund,however, ought to be in the form of reversal of commensurate amount inthe CENVAT credit account of the DTA supplier, if the DTA supplierhad utilized CENVAT credit account in respect of goods supplied toDEOU; and if it had paid the amount in cash, the DTA supplier would beentitled for refund of cash with simple interest at the rate of 6% perannum as provided in para 8.5.1 of the applicable FTP on delay in refundof duty drawback and TED under deemed exports scheme.

40. Reverting to the case of EOU considered by the BombayEHigh Court in the impugned judgment, we hold that EOU is entitled onlyfor ab initio exemption from payment of central excise duty in terms ofpara 6.11(c)(ii) of the FTP; and obliged to import the goods from DTAsupplier without payment of duty in terms of para 6.2(b) of the FTP. Thearrangement provided in para 6.11(a) is, however, in the nature of “benefit”Fgiven to EOU in the event it had paid the amount towards TED in relationto goods procured by it to DTA supplier. In that case, EOU will beeligible only for obtaining entitlements of DTA supplier as specified inChapter 8 of the FTP upon obtaining a suitable disclaimer from DTAsupplier. Accordingly, in addition to ab initio exemption, the EOU isadditionally eligible to receive entitlements of DTA supplier as specifiedGin Chapter 8 of the FTP subject to complying with necessary requirements 48 2018 (363) ELT 69 (Del.)49 2018 (364) ELT 91 (Del.)50 2020 (373) ELT 68 (Del.)51 2020 (373) ELT 217 (Del.)H52 supra at Footnote No.21

and formalities. In other words, EOU is not entitled for refund of TEDon its own accord, but can avail of the entitlements of DTA supplier oncomplying essential procedure. As mentioned earlier, the interest on therefundable amount, if paid in cash ought to be refunded with simpleinterest at the rate of 6% per annum as provided in para 8.5.1 of theapplicable FTP, even in the case of application for refund by EOU.

41. The next question is: the refund claim should be set up beforewhich Authority? As noted earlier, since the entitlement of exemptionand refund of TED flows from the provisions of 1992 Act and FTPframed thereunder by the Central Government, which is an independentdispensation than the one provided in the 1944 Act and the rules framedthereunder, with the avowed purpose of promoting export and earningforeign exchange, it is the obligation of Authority responsible to implementthe subject FTP, to deal with refund claim of the concerned entities. For,it is not a case of refund under the 1944 Act or 2002 Rules or 2004 Rulesas such, but under the applicable FTP.

42. In conclusion, we hold that the EOU entities, who had procuredand imported specified goods from DTA supplier, are entitled to do sowithout payment of duty [as in para 6.2(b)] having been ab initioexempted from such liability under para 6.11(c)(ii) of the FTP, beingdeemed exports. Besides this, there is no other entitlement of EOU underthe applicable FTP. Indeed, under para 6.11(a) of the FTP, EOU isadditionally eligible merely to avail of entitlements of DTA supplier asspecified in Chapter 8 of the FTP upon production of a suitable disclaimerfrom the DTA supplier and subject to compliance of necessary formalitiesand stipulations. It would not be a case of entitlement of EOU, but onlya benefit passed on to EOU for having paid such amount to the DTAsupplier, which was otherwise ab initio exempted in terms of para6.11(c)(ii) of the FTP coupled with the obligation to import the samewithout payment of duty under para 6.2(b).

43. Besides, if the DTA supplier as well as EOU had utilized itsCENVAT credit for importing goods in question, the refund would be inthe form of reversal of commensurate amount of CENVAT credit to theaccount of the concerned entity. However, if TED has been paid in cashby the EOU, the EOU may get refund of that amount from Authorityimplementing the applicable FTP in cash with simple interest at the rateof 6% per annum for the delayed refund of duty (para 8.5.1) on conditionthat it would not pass on that benefit to the DTA supplier owing to suchrefund/rebate.

A

B

C

DE

F

G

H

A44. As regards DTA supplier of goods to EOU, it is entitled toreceive the refund of TED in terms of para 8.3(c) read with paras 8.4.2and 8.5 of the applicable FTP subject to complying necessary formalitiesand 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 byutilizing CENVAT credit, the refund would be in the form of reversal ofBcommensurate amount in its CENVAT credit account. And if the amounttowards TED has been paid in cash by the DTA supplier to the Authoritiesunder the 1944 Act, the refund of TED amount would be made by theAuthority implementing the applicable FTP in cash with simple interestat the rate of 6% per annum for the delay in refund of TED as per paraC8.5.1.

A

45. In both cases, as aforesaid, responsibility of refund of TED inreference to applicable FTP would be that of the Authority responsibleto implement the FTP under the 1992 Act, which has had consciouslyaccorded such entitlements/benefits for promoting export and earningDforeign exchange. Further, the fact that the concerned entity hadunsuccessfully applied for refund to the Authorities under the 1944 Actand the rules made thereunder, that would not denude it of its entitlementto get refund of TED under the FTP, as may be applicable being mutuallyexclusive remedies. It is so because it is well settled that the assessee isfree to take benefit of more beneficial regime.

E

E

46. Learned counsel for the parties had referred to other decisions,which in our opinion need not be dealt with as the same are not directlydealing with the issue(s) answered in these cases, in particulardispensation provided under the applicable FTP.

47. In view of the above, the appeals filed by the assessee (EOU)against the decision of the Bombay High Court partly succeed in theabove terms; and the appeals filed by the Department against the decisionof the High Court of Delhi and High Court of Karnataka are also partlyallowed in the aforementioned terms. There shall be no order as to costs.

F

GPending application(s), if any, are disposed of accordingly.

Devika Gujral

Appeals disposed of.

H