Refund of Terminal Excise Duty to the unit clearing 100% of its goods to EOU.

PJ/Case Law/2014-15/2369

Case:- KANDOI METAL POWDERS MFG CO PVT LTD Vs UNION OF INDIA AND OTHERS

Citation:- 2014-TIOL-230-HC-DEL-EXIM

Brief facts:- The petitioner challenged the respondents’ action in denying its refund claim in terms of the provisions of the Foreign Trade Policy 2009-14 framed under the Foreign Trade (Development and Regulation) Act, 1992. The brief facts were that the petitioner inter alia manufactured metal powders which suffered excise duty. It claimed to have supplied manufactured goods to 100% Export-oriented Units (EOUs) in consonance with the said Foreign Trade Policy (FTP). Claiming that it was entitled to refund of Terminal Excise Duty (TED) for the supplies made during two relevant periods - January 2012 to March 2012 and April 2012 to June 2012 - the writ petitioner made applications in this regard to the third respondent. The applications for refund were made on 29.08.2012 and 16.11.2012. The third respondent denied these refund claims by separate orders dated 19.10.2012 and 02.11.2012. In compliance with the provisions of the policy, the petitioner wrote to the second respondent, claiming relaxation, by two letters dated 27.12.2012 and 28.12.2012. These two were turned down on 14.05.2013.

Appellant’s contentions:- It was contended by the petitioner that its unit and the supplies were entitled to be treated as "deemed export" - as defined by para 6.11 of the 2009 policy in question. Elaborating on this, it was submitted that by para 8.1, "deemed export" refers to categories of supplies outlined in para 8.2. The petitioner in this context relies on para 8.2(b) and goes on to claim the benefits of deemed export unit in terms of para 8.3(c). It was submitted that the benefit entitled to such deemed export units was spelt out in para 8.4. The relevant provision, i.e. the first column deals with para 8.2 mentions the category falling within para 8.2(b). It was submitted that the benefit of exemption outlined in para 8.3(c) followed as a consequence of the affirmative mentioned in column (c) of para 8.4. Learned counsel highlighted that with effect from 01.04.2013, the policy had been further relaxed in that such category of units did not have to even deposit or pay TED but were entitled to claim complete exemption. He relied upon the relevant notification, i.e. 22/2003 dated 31.03.2003 in this regard. The relevant amendment carried-out by this circular to the earlier Foreign Trade Policy of 2009 in material particulars, i.e. para 8.4(b) clearly stated in the last column that the unit was entitled to claim exemption from payment of TED.

Respondent’s contentions:- Learned counsel for the respondents relied upon the averments in the counter affidavit as well as the letter addressed by the third respondent, of 31.05.2013, directing consequential instructions to be issued to field formations in the light of the amended circular dated 15.03.2013. It was submitted that in case the petitioner wishes to seek refund, the relevant statutory regime would be under the concerned provisions of Central Excise Act.

Reasons of judgment:- As was evident from the above discussion, the petitioner claimed to be engaged in entirely deemed export - an assertion which was not essentially disputed. The entitlement of such units which supply goods to export oriented units was spelt-out in paras 6.11 and 8.1 of the 2009 policy. Para 8.2 to the extent it was relevant reads as follows:
"8.2 Categories of Supply
Following categories of supply of goods by main-sub-contractors shall be regarded as "Deemed Exports":
(a)   Supply of goods against Advance Authorisation/Advance Authorisation for annual requirement/DFIA;
(b) Supply of goods to EOU/STP/EHTP/BTP;
(c)   Supply of capital goods to EPCG Authorisation holders;
XXXXXX XXXXXX XXXXXX"
The benefits for deemed export before its amendment from 01.04.2013 are outlined in paras 8.3 and 8.4 which read as follows:
"8.3 Benefits for Deemed Exports
Deemed exports shall be eligible for any/all of following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to terms and conditions as in HBPv1:-
(a)   Advance Authorisation/Advance Authorisation for annual requirement/DFIA.
(a)   Deemed Export Drawback.
(b) Exemption from terminal excise duty where supplies are made against ICB. In other cases, refund of terminal excise duty will be given. Exemption from TED shall also be available for supplies made by an Advance Authorization holder to a manufacturer holding another Advance Authorization if such manufacturer, in turn, supplies the product(s) to an ultimate exporter.
8.4 Benefits to the Supplier
Following table shows the benefits available to different categories of supplies as mentioned in Para 8.2 above. In respect of such supplies supplier shall be entitled to the benefits listed in paragraphs 8.3(a), (b) and (c) of the Policy, whichever is applicable.

Relevant sub-para of 8.2	Benefit available as given in Para 8.3, whichever is applicable
Relevant sub-para of 8.2	(a)	(b)	(c)
(a)	Yes (for intermediate supplies)	Yes (against ARO or Back to Back letter of credit)	Yes (Against ARO or Back to Back letter of credit)
(b)	Yes	Yes	Yes
(c)	Yes	Yes	Yes
(d)	Yes	Yes	Yes
(f)	Yes	Yes	Yes
(h)	No	Yes	Yes
(i)	Yes	Yes	No
(j)	Yes	Yes	Yes

The eligibility for refund is provided by para 8.5 in the following terms:
"8.5 Eligibility for refund of terminal excise duty/drawback
Supply of goods will be eligible for refund of terminal excise duty in terms of Para 8.3(c) of FTP, provided recipient of goods does not avail CENVAT credit/rebate on such goods. A declaration to this effect, in Annexure II of ANF 8, from recipient of goods, shall be submitted by applicant. Similarly, supplies will be eligible for deemed export drawback in terms of para 8.3(b) of FTP of Central Excise Duty paid on inputs/components, provided CENVAT credit/rebate has not been availed of such duty paid by supplier of goods. A declaration to this effect, in Annexure III of ANF 8, from supplier of goods, shall be submitted by applicant. Such supplies shall however be eligible for deemed export drawback on customs duty paid on inputs/components.
XXXXXX XXXXXX "
It would thus be seen that supplies made to EOUs in terms of para 8.2(b) were entitled to be regarded as deemed exports. The benefits for deemed exports include inter alia exemption from TED where supplies were made against ICD (a term which means "International Competitive Bidding"). In the present case, concededly, the petitioner did not make any supplies against the ICD. Therefore, it would be covered by latter part of para 8.3(c), i.e. cases where refund of TED will be given. This intention was given effect by the second entry in column (a) of para 8.4 read with corresponding benefits spelt-out in column (c) which stated that entitlement in terms of para 8.3 to refund was permissible. The eligibility for refund, therefore, would be in terms of these provisions and the unit had to apply for such refund under para 8.5.
The authorities in this case appear to have proceeded to make an order adverse to the petitioner and proceeded to hold that the petitioner was disentitled to the benefit of refund in view of some clarification given by the Policy Interpretation Committee, in its meeting of 04.12.2012 to the effect that "refund of CENVAT credit provisions were available under Excise rules and CENVAT rules which should be availed of rather than claiming refund". This reasoning appeared to have prevailed with the Policy Relaxation Committee as well in this case. The Court was unable to comprehend the rationale of the decision of the second and third respondents who also seem to have suggested that the petitioner should approach the DGFT for appropriate relief or clarification. Neither of the authorities dispute that the petitioner supplied goods to the EOU at the relevant time. Its entitlement, therefore, was defined in terms of the existing policy, i.e. refund in terms of paras 8.2, 8.3, 8.4 and 8.5 of the 2009 policy as discussed above. A subsequent amendment was made to the existing regime which in effect liberalized the position further and exempted payment of TED altogether could not surely be a reason for denying the scheme for refund of payment already made. The Court also was unable to see the reason why the respondents were of the view that refund claim or benefit under the CENVAT regime under the Central Excise Act or the other statutory schemes framed under it was available. In this Court’s opinion, that regime operateed in its own terms and was independent of the rights and liabilities of the petitioner and the respondents under the import-export policies framed under the 1992 Act. This Court noticed that its reasoning was fortified by the decision of the Division Bench of the Calcutta High Court in JDGFT v. IFGL Refractories Limited, 2002 (143) ELT 294 (Cal). There, the Court ruled that once the supply of goods falls within the category of deemed export, the unit would be entitled to refund of TED.
In view of the above discussion, the impugned orders were hereby quashed. The respondents were hereby directed to process and pass appropriate orders in accordance with the 2009 policy in respect of the petitioner’s refund claims made through its applications dated 29.08.2012 and 16.11.2012 within three months from today. The writ petition was allowed in the above terms. No costs.

Decision:- Impugned order was set aside and petition was allowed.

Comment:- The analogy drawn from the case is that supplies made to EOUs in terms of para 8.2(b) are entitled to be regarded as deemed exports. The benefits for deemed exports include inter alia refund of TED. Entitlement for refund of TED, therefore, is defined in terms of the existing policy, i.e. refund in terms of paras 8.2, 8.3, 8.4 and 8.5 of the 2009 policy. Hence, refund of TED cannot be denied to any unit clearing 100% of its goods to an EOU.

Comments

PJ/Case Law/2014-15/2369

Post a Comment

Query