Where duty drawback is not paid within 3 months from the date of filing of claim, claimant would be entitled to interest in addition to the amount of drawback: Top Court interprets Sec.75A(1) of Customs Act
Justices Abhay S. Oka & Ujjal Bhuyan [05-02-2024]

Read Order: UNION OF INDIA AND ORS v. M/S. B. T. PATIL AND SONS -BELGAUM (CONSTRUCTION) PVT. LTD [SC-CIVIL APPEAL NO. 7238 OF 2009]

Tulip Kanth

New Delhi, February 6, 2024: In a case pertaining to the 1992-1997Exim Policy, where a contractor was awarded a sub-contract to execute civil works in the Koyna Hydro Electric Power Project, the Supreme Court has held that the supply of goods to the project was a case of ‘deemed export’ and the respondent-contractor was entitled to the benefit under the Duty Drawback Scheme.

The factual background of this case was such that in the Koyna Hydro Electric Power-Maharashtra project, respondent was awarded a sub-contract to execute civil works from Lake Intake to the Emergency Valve Tunnel. A deemed export scheme was announced under the Exim Policy, 1992-1997 by the Ministry of Commerce. The Respondent completed the construction work awarded to it in the month of March, 1996 and thereafter filed applications claiming duty drawback for Rs.35,75,679.00, Rs.88,98,206.00 and Rs.85,05,853.00 respectively but yhr same was rejected by the Director General of Foreign Trade (DGFT) on the ground that supplies in civil construction work were not eligible for ‘deemed export’ benefit.

Respondent’s representations for reconsideration of such decision was rejected by the DGFT stating that civil construction work did not qualify for drawback.DGFT issued circulars clarifying that supply of goods under paragraph 10(2)(d) of the 1997-2002 Exim Policy would be entitled for ‘deemed export’ benefit and drawback was to be paid in respect of excise duty on supply of goods to projects funded by multilateral agencies.

The respondent once again addressed a letter to the DGFT to finalize the issue but the same was rejected. A Policy Interpretation Committee was also constituted which examined the case of the respondent. In the light of the decision of the Committee, DGFT permitted the duty drawback of Rs.2,05,79,740.00 to the respondent. Respondent thereafter submitted representation seeking interest on the duty drawback amount but it was rejected.

The Single-Judge Bench of the High Court awarded interest at the rate of fifteen percent. Consequently, directions were issued to the appellants to consider the claim of the respondent for payment of interest on delayed refund from the date of notification dated 05.12.2000 till the date of payment to the respondent within a period of three months.This is how the Appellants i.e., Union of India, Director General of Foreign Trade and Joint Director General of Foreign Trade had challenged the judgment of the Division Bench of the Karnataka High Court before the Top Court.

The Division Bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan defined the tern “deemed export” by explaining that it is a transaction in which the goods supplied do not leave the country and the payment for the goods is received by the supplier in Indian rupees, but the supplies earn or save foreign exchange for the country. Section 121, declares that the categories of supply of goods mentioned in the said section would be regarded as ‘deemed export’ under the Exim Policy provided the goods were manufactured in India and the payment was received in Indian rupees. This included supply of goods to projects financed by multilateral or bilateral agencies or any other agency that may be notified by the Central Government.

It was further noted that Section 122 clarifies that deemed export would be eligible for benefits under the Duty Drawback Scheme in respect of manufacture and supply of goods by treating those as deemed export. Moreover, the explanation below Section 27(1) of the Customs Act clarifies that the expression ‘the date of payment of duty or interest’ in relation to a person other than an importer shall be construed as ‘the date of purchase of goods’ by such person.

“Therefore, on a conjoint and careful reading of the relevant provisions of the Exim Policy, 1992-1997 in conjunction with the Central Excise Act and the Customs Act, it is evident that supply of goods to the project in question by the respondent was a case of ‘deemed export’ and thus entitled to the benefit under the Duty Drawback Scheme. The language employed in the policy made this very clear and there was no ambiguity in respect of such entitlement”, the Top Court said.

The Bench rejected the contention of the appellants there was no provision for payment of interest on delayed refund of duty drawback as Rule 3 of the 1995 Rules makes it abundantly clear that a drawback may be allowed on the export of goods at such amount or at such rates as may be determined by the Central Government. Further, Rule 14 provides for payment of drawback and interest.According to the Bench, the respondent was entitled to refund of duty drawback as a deemed export under the Duty Drawback Scheme and there was considerable delay in such refund.

It was also clarified that as per Section 75A(1)  of the Customs Act, where duty drawback is not paid within a period of three months from the date of filing of claim, the claimant would be entitled to interest in addition to the amount of drawback. This section provides that the interest would be at the rate fixed under Section 27A from the date after expiry of the said period of three months till the payment of such drawback. The interest rate prescribed thereunder at the relevant point of time was not below ten percent and not exceeding thirty percent per annum.

Thus, the Bench dismissed the appeal and held, “…we have no hesitation in holding that the respondent was entitled to refund of duty drawback. Appellants had belatedly accepted the said claim and made the refund. Since there was belated refund of the duty drawback to the respondent, it was entitled to interest at the rate which was fixed by the Central Government at the relevant point of time being fifteen percent.”