Supreme Court clarifies Terminal Excise Duty refunds for Export Oriented Units and Domestic Tariff Area Suppliers: Sandoz vs. Union of India (2022) INSC 82 (4 January 2022)

Arguments of the Export Oriented Units (EOUs)

• EOUs’ Claim: EOUs argued that they were entitled to a refund of the Terminal Excise Duty (TED) paid on goods procured from their Domestic Tariff Area (DTA) units, as they were ultimately exporting the finished products.
• Past Practice: They highlighted that the Development Commissioner had previously granted them refunds of TED, establishing a precedent that should be followed.
• Deemed Exports: EOUs contended that the supplies from DTA to EOU are considered deemed exports, and therefore, they should be eligible for the benefits associated with exports, including a refund of TED.
• Disclaimers: They submitted that their DTA Units did not claim the benefit of TED refund and produced disclaimer certificates to that effect, entitling them to the refund.
• FTP Provisions: EOUs referred to para 6.11(a) of the FTP, arguing that it allows them, upon providing a disclaimer from the DTA supplier, to obtain entitlements specified in Chapter 8 of the FTP, which includes TED refunds.

Arguments of the Government

• Ab Initio Exemption: The government argued that supplies from DTA to EOU were ab initio exempted from payment of excise duty under para 6.11(c)(ii) of the FTP. Therefore, no TED should have been paid in the first place, and consequently, no refund was due.
• DGFT Circular: The government relied on the DGFT policy circular dated 15.03.2013, which clarified that no refund of TED should be provided for supplies to EOUs, as these supplies were ab initio exempted from excise duty.
• FTP Interpretation: The government contended that the FTP clearly stipulates that EOUs should procure goods without payment of excise duty, and therefore, the question of refund does not arise.
• Refund under Central Excise Act: The government stated that if any refund was due, it should be claimed under the Central Excise Act, 1944, and not under the FTP.
• Clarificatory Circular: The government argued that the DGFT circular was merely clarificatory in nature, restating the existing position under the FTP, and therefore, it could be applied retrospectively.

Summary of Arguments

Cases Relied Upon

Legal Provisions Considered

How Authorities Were Considered

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

TheCourt followed the judgments of various High Courts in the cases of IFGL Refractories Limited vs. Joint Director General of Foreign Trade, Joint Director General of Foreign Trade vs. IFGL Refractories Limited, Commissioner of Central Excise and Customs vs. NBM Industries, Kandoi Metal Powders Manufacturing Company Private Limited vs. Union of India, Raja Crowns and Cans Pvt. Limited vs. Union of India, Lenovo (India) Pvt. Ltd. vs. Union of India and Acer India Pvt. Ltd. vs. Union of India.

The Court considered and interpreted the relevant provisions of the Foreign Trade Policy, the Foreign Trade (Development and Regulation) Act, 1992, the Central Excise Act, 1944, and the Central Excise Rules, 2002, and the CENVAT Credit Rules, 2004.

Final Ruling

The Supreme Court held that:

• EOUs: Are entitled to ab initio exemption from payment of Central Excise Duty on goods procured from DTA. They can also avail of DTA supplier’s entitlements under Chapter 8 of FTP, subject to a disclaimer from the DTA supplier.
• DTA Suppliers: Are entitled to a refund of TED under the FTP, subject to compliance with formalities and stipulations.
• Authority for Refunds: Refund claims should be processed by the authority responsible for implementing the FTP, not under the Central Excise Act.
• DGFT Circular: The circular dated 15.03.2013 is not merely clarificatory and cannot be applied retrospectively to deny vested rights of DTA suppliers under the applicable FTP.

Implications for EOUs

The judgment clarifies that EOUs are entitled to procure goods from DTA without payment of excise duty. If they have paid TED, they can avail the benefits available to the DTA supplier under Chapter 8 of the FTP, provided the DTA supplier gives a disclaimer that they have not claimed the TED refund. This ensures that EOUs can operate without being burdened by upfront excise duty payments, promoting their export activities.

Implications for DTA Suppliers

The ruling affirms that DTA suppliers are entitled to a refund of TED for goods supplied to EOUs. This is a significant relief for DTA suppliers, as it ensures they can claim the benefits of deemed exports under the FTP. The Court has clarified that these benefits are available under the FTP and not under the Central Excise Act.

Implications of the DGFT Circular

The Supreme Court has held that the DGFT circular dated 15.03.2013 is not merely clarificatory, and therefore, it cannot be applied retrospectively to deny the vested rights of DTA suppliers. This means that DTA suppliers are entitled to TED refunds for supplies made to EOUs before the issuance of the circular.

Authority for Refunds

The judgment clarifies that the authority for processing TED refund claims is the authority responsible for implementing the FTP, and not the authorities under the Central Excise Act. This ensures a streamlined process for refund claims.

Overall Impact

The ruling promotes the export-oriented policies of the government by ensuring that both EOUs and DTA suppliers receive the benefits they are entitled to under the FTP. It provides a clear legal framework for TED refunds, resolving the ambiguities that had arisen due to conflicting interpretations of the FTP and the DGFT circular.