If Domestic Tariff Area Supplier as well as Export Oriented Unit have utilized CENVAT credit for importing goods, then refund of Terminal Excise Duty would be in form of reversal of commensurate amount of CENVAT credit: SC

Read Judgment: Sandoz Private Limited vs. Union of India & Others

Pankaj Bajpai

New Delhi, January 7, 2022: The Supreme Court has ruled that if the DTA supplier as well as EOU had utilized its CENVAT credit for importing goods in question, the refund would be in the form of reversal of commensurate amount of CENVAT credit to the account of the concerned entity. 

However, if TED has been paid in cash by the EOU, the EOU may get refund of that amount from Authority implementing the applicable FTP in cash with simple interest at the rate of 6% per annum for the delayed refund of duty on condition that it would not pass on that benefit to the DTA supplier owing to such refund/rebate, added the Court.  

A Larger Bench of Justice A.M. Khanwilkar, Justice Dinesh Maheshwari and Justice Krishna Murari observed that the fact that the concerned entity had unsuccessfully applied for refund to the Authorities under the 1944 Act and the rules made thereunder, that would not denude it of its entitlement to get refund of TED under the FTP, as may be applicable being mutually exclusive remedies.

Going by the background of the case, a policy circular bearing No.16 (RE-2012/2009-14) dated March 15, 2013 came to be issued by the Director General of Foreign Trade (DGFT) to clarify that no refund of Terminal Excise Duty (TED) should be provided by the Office of DGFT/Development Commissioners, as supplies made by DTA Unit to EOU are ab initio exempted from payment of excise duty. The Development Commissioner eventually rejected the refund claim. 

The Bombay High Court negatived the challenge to the stated policy circular as well as the order passed by the Development Commissioner. The High Court also noted that although in the past the regional authority had accepted refund request of EOUs, that cannot bestow any right much less vested right in EOUs so as to issue mandamus to the statutory authorities concerned to act contrary to the provisions of Foreign Trade Policy (FTP). In substance, the Bombay High Court observed that the circular was only to restate and clarify that the regional authority of DGFT was not competent to entertain the refund application. 

In next appeal, the Union of India assailed the judgment, whereby the Division Bench of the Delhi High Court held that the view taken by DGFT that Sandoz (Respondent) could avail of the refund under the provisions of the 1944 Act (CEA, 1944) and the Rules framed thereunder, was untenable in law. High Court noted that since the supply of excisable goods was prior to March 15, 2013, the question of invoking circular against the respondent-Company did not arise. Instead, the High Court held that the refund application ought to have been processed by the DGFT in terms of para 8.3(c) of the FTP, as it stood prior to March 15, 2013.

In the next appeal, the Union of India challenged the judgment, whereby the High Court noted that the respondent Company had supplied computer systems to EOU on payment of TED from June 2009 till October 2009, which in terms of the FTP, in particular para 8.2(b), was deemed export, entitling the respondent-Company to claim refund of TED from the regional authority of DGFT in terms of para 8.3(c) of the FTP. 

After considering the submissions, the Top Court noted that since the entitlement of exemption and refund of TED flows from the provisions of 1992 Act and FTP framed thereunder by the Central Government, which is an independent dispensation than the one provided in the 1944 Act and the rules framed thereunder, with the avowed purpose of promoting export and earning foreign exchange, it is the obligation of Authority responsible to implement the 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 Rules as such, but under the applicable FTP, and EOU entities, who had procured and imported specified goods from DTA supplier, are entitled to do so without payment of duty having been ab initio exempted from such liability under para 6.11(c)(ii) of the FTP, being deemed exports, added the Court. 

Speaking for the Bench, Justice Khanwilkar noted that it would not be a case of entitlement of EOU, but only a benefit passed on to EOU for having paid such amount to the DTA supplier, which was otherwise ab initio exempted in terms of para 6.11(c)(ii) of the FTP coupled with the obligation to import the same without payment of duty under para 6.2(b).

As regards DTA supplier of goods to EOU, it is entitled to receive the refund of TED in terms of para 8.3(c) read with paras 8.4.2 and 8.5 of the applicable FTP subject to complying necessary formalities and stipulations provided therein, being a case of deemed exports, added the Bench.

The Larger Bench found that even, in the case of DTA supplier of goods to EOU, if TED has been paid by utilizing CENVAT credit, the refund would be in the form of reversal of commensurate amount in its CENVAT credit account. 

And if the amount towards TED has been paid in cash by the DTA supplier to the Authorities under the 1944 Act, the refund of TED amount would be made by the Authority implementing the applicable FTP in cash with simple interest at the rate of 6% per annum for the delay in refund of TED, added the Bench. 

Hence, the appeals filed by the assessee (EOU) against the decision of the Bombay High Court partly succeed; and the appeals filed by the Department against the decision of the Delhi High Court and Karnataka High Court are also partly allowed.