Case Law Details
M/s. Hubergroup India Private Limited Vs Union of India (Gujarat High Court)
Gujarat High Court has allowed a writ petition filed against denial of refund of Central Sales Tax (CST) to an EOU in a case when the inputs procured from the DTA were used in the production of goods cleared in the DTA during 2007-09. The Court observed that there was conflict between Para 6.11 of the Foreign Trade Policy and Appendix 14I-I of the Handbook of Procedures Vol. 1, during the relevant period. It held that FTP provisions govern the statutory scheme and Appendix cannot override FTP, which shall prevail in case of any conflict.
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
1. Rule returnable forthwith. Mr. Nikunt Raval, the learned standing counsel appearing for the Union of India waives service of notice of rule.
2 By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs:
“A. Your Lordships be pleased to issue a writ of mandamus or in the nature of mandamus or certiorari or any other appropriate writ quashing the impugned order dated 07.09.2018 in Annexure A hereto holding that the impugned order in AnnexureA is arbitrary, issued in violation of the principles of natural justice, nonspeaking, vague, omits relevant provisions of the FTP, going beyond the FTP, discriminatory, time barred and therefore illegal with consequential relief to petitioner company herein.
B. Your Lordships be pleased to hold that CST refunds granted to petitioner company’s EOU (1) in respect of inputs procured from other EOUs and (2) in respect of inputs used in production of final products cleared into DTA are in order and in accordance with Exim Policy 200409.
C. Your Lordships be pleased to hold that Public Notice No.81(RE2008) / 20042009 dated 16.09.2008 amending Appendix 141 of Handbook of Procedures is only clarificatory as it only accords with them existing paragraph 6.11 (c) of Exim Policy 2004-2009.
D. Pending hearing and final disposal of this Special Civil Application, ad-interim order staying the operation of the impugned order at Annexure A with a direction to respondent NO.3 Development Commissioner and officers under him not to initiate any recovery proceedings against the petitioner may kindly be granted.
E. As exparte ad interim relief in terms of prayer (D) above may kindly be granted; and
F. Such other and further or incidental reliefs as may be deemed just and proper in the fats and circumstances of the present case may kindly be granted.”
2. It appears from the materials on record that the writ applicant is a company having an Export Oriented Unit (‘EOU’ for short) functioning under a letter of permission granted by the respondent No.3 – Development Commissioner, Kandla. The EOU is engaged in the business of manufacture and export of the goods falling under chapter 32 of the Central Excise Tariff.
3 During 2007-09, the EOU had availed the refund of the Central Sales Tax (‘CST’ for short) suffered on the inputs procured from the Domestic Tariff Area (DTA) unit and used in the production of the finished goods cleared for the exports as well as cleared to other units in the Domestic Tariff Area (DTA) as per the permission granted under the Foreign Trade Policy (‘FTP’ for short).
4 A show cause notice dated 7th July 2015 came to be issued to the EOU under Sections 8, 9, 13 and 14D of the Foreign Trade (Development and Regulation) Act, 1992. The show cause notice reads thus:
“No.KASEZ/ACCTS/CRA/01/1313/Vol.II/4725 Date: 07/07/2015
Subject : Show Cause Notice under Section 8, 9, 13 and 14D of Foreign Trade (Development & Regulation) Act, 1992 as amended
Whereas M/s. Micro Inks Ltd was granted CST on the basis of declaration / undertaking and document furnished for the relevant period.
Whereas during the CRA review/ Audit on Deemed export benefits like DBK/TED and CSI conducted by CAG, Ahmedabad during the year 2012, it was observed that an amount of Rs.83,91,196/ against the claims for the period OD06,AJ07.AM08 had been erroneously paid to your company.
Whereas we have issued demand notice dated 30/10/2013 and reminder dated 21/11/2014 and you have given your comments vide your letters dated 18.12.14 which have not been found acceptable for the following reasons :
1) Grant of CST on goods supplied by EOUs to EOUs was inadmissible.
2) Grant of CST refund on DTA clearances was inadmissible.
In view of the above, you may us show cause within 21 days from the issue of this letter why the action against your company as per Foreign Trade (Development & Regulation) Act, 1992, as amended may not be taken by the undersigned in terms of powers vested in me vide Sub Section 4 Section 9 of Foreign Trade (Development & Regulation) Act. 1992, as amended.
Your reply to this show cause notice along with corroborative evidence in support of explanation should reach this office within 21 days, from the date of issue of this Show Cause Notice failing which the case will be decided exparte on merits without any further reference to them. If they want to be heard in person to explain their case, the proprietor or duly authorized representative of the firm may appear for personal bearing before the Jt. Development Commissioner (Mr. Krishan Kumar) in this office on 7th August,2015 at 1530 hrs.
This show cause notice is without prejudice to any other action which may be taken against them under the Foreign Trade (Development & Regulation) Act, 1992 and Rules, cancellation / suspension of IEC and imposition of penalty.
Sd/
(Krishan Kumar)
Joint Development Commissioner
Kandla Special Economic Zone.”
5 In response to the above referred show cause notice, the EOU filed its reply dated 19th August 2015 addressed to the Joint Development Commissioner, Kandla Special Economic Zone, Ministry of Commerce and Industries, Kandla, Kutch. In the reply, the EOU invited the attention of the Commissioner to paragraph 6.11 of the Foreign Trade Policy 200409. The attention of the Commissioner was drawn, more particularly, to clause – (c). The relevant portion of the reply is as follows:
“(C) In addition, EOU / EHTP / STP / BTP units shall be entitled to following:
i) Reimbursement of Central Sales Tax (CST) on goods manufactured in India.
Simple interest @ 6% per annum will be payable on delay in refund of CST on supplies made to EOUs in respect of reimbursement / refunds that have become due on or after 01.04.2007 but which have not been settled within 30 days of its final approval for payment by the office of Development Commissioner, SEZ.
ii) Exemption from payment of Central Excise Duty on goods procured from DTA on goods manufactured in India.”
6. The reply of the EOU did not find favour with the Development Commissioner. Ultimately, an orderinoriginal came to be passed dated 27th October 2016 by the Development Commissioner, by which, the EOU was directed to deposit an amount of Rs.83,91,196/ (Eighty Three Lakh Ninety One Thousand One Hundred Ninety Six only) in the government account under Section 13 of the Foreign Trade (Development and Regulation) Act, 1992, as amended, read with Section 11 of the Act, 1992. A penalty of Rs.25,00,000/ (Twenty Five Lakh only) was also imposed for delaying the refund of amount. The EOU being dissatisfied with the order passed by the Development Commissioner preferred an appeal before the Appellate Tribunal namely Director General of Foreign Trade. The appeal preferred by the EOU also came to be dismissed vide order dated 7th July 2018. The conclusions drawn by the Appellate Authority, while dismissing the appeal, are as follows:
“(i) They placed reliance on the some recent judgements pertaining to CST refund in respect of goods received by an EOU from the DTA. The CAG objection is in respect of CST refund in the respect of the supplies made before the amendment carried out by Public Notice No. 81 (RE2008) dated 16.09.08 and also such reimbursement in respect of procurements made by an EOU from another EOU.
(ii) The CAG during the audit pointed out that at the relevant time of supply of goods by the firm, EOUs were eligible to get CST refund on raw material,components etc., utilised for their production meant for exportation and out on the whole value of goods cleared (i.e. Export + DTA sale). The EOUs should have claimed the CST refund on proportionate basis on the exported goods and not on the goods cleared in DTA.
(iii) Appendix 14II of HBP Vol.I contains the procedure to be followed for reimbursement of the CST on supplies made to EOU. Para2 of the said appendix before Public Notice No.81(RE2008) dated 16.09.08 clearly states that an EOU is entitled to reimbursement to CST paid on only those purchases made from DTA which are used for production on goods meant for export and/or utilised for exports/services. The supplied in the present case pertains to the period before issuance of the said public notice.
(iv) Vide Public Notice No. 81 dated 16.9.2008, the word ‘meant for ‘export’ was deleted from 2 of Appendix 14II of HBP Vol. I Which was applicable from the date of issuance of the said public notice. Hence, with the issuance of the said public notice, the reimbursement of CST on supply of goods by EQU into DTA/EOU made available w. e. f. 16.9.2008.
(v) It is true that even though provision contained in para 6.11(c)(i) of the Policy permits for DTA sale of goods but it does not ipso facto implies that reimbursement of CST shall also be available on such goods supplied into DTA Public Notice No. 81 (RE2008) dated 16.09.08 had only prospective effect.
(vi) It is correct to note that the provisions of FTP and HBP are to be read in harmony and CST to be reimbursed as per provisions mentioned in the Appendix 14II of HBP applicable at the time of supply.
(vii) As per the scheme of EOUs, the units which are undertaking to export their entire production of goods and services (except permissible sales in DTA) are considered as EOU. As per Para 6.8(a) the unit is allowed to sell goods upto 50% of FOB value of exports subject to fulfilment of NFE on payment of concession of duties. Hence, supplies from EOU are counted for fulfilment of positive NFE only.
(viii) Further Para 6.15(a) (ii) of extent FTP clearly states that in case an EOU unit is unable to utilise goods and services, imported or procured from DTA with the approval of customs authority on payment of applicable duties and submissions of import of authorizations. Hence, the clearance of goods from into DTA / EOU were subject to payment of applicable CST.
(ix) As such, the contention of the Audit that “EOUs should claim the CST refund on proportionate bases on the exported goods and goods cleared in DTA” is correct. Also, during the relevant period, CST reimbursement was available for procurement of goods from DTA only. The para 9. 21 of FTP 200409 clearly stated that “Domestic Tariff Area (DTA)” means area within India which is outside SEZs and EOU/EHTP/STP/BTP. ’
7. In view of the above, in exercise of the powers vested in us under Section 15 of the Foreign Trade (Development & Regulation) Act, 1992 (as amended in 2010) read with Notification No. 101 (RE2013)/20092014, dated the 5th December 2014, we pass the following order:
ORDER
F.No.01/92/171/32/AN 17/PCVI/ Dated : 07.09.2018
Order in Original No.5/16/17 [issued from F.No.KASEZ/ ACCTS/CRA/01/1314(Vol.III)/0265] dated 27.10.2016 passed by the Development Commissioner, KASEZ, Gandhidham, Gujrat is upheld and the appeal is rejected.”
7. Being dissatisfied with the order passed by the Appellate Authority, the writ applicant is here before this Court with the present writ application.
8. Mr. S.S. Iyer, the learned counsel appearing for the writ applicant has three fold submissions to canvass. His first submission is that the show cause notice was issued substantially on two counts. First, the grant of CST on the goods supplied by EOUs to EOUs was inadmissible, and secondly, the grant of CST refund on the DTA clearance was inadmissible. He would submit that the issue with regard to the goods supplied by EOUs to EOUs is concerned, is no longer res integra in view of the decision of this Court in the case of Asahi Songwan Colors Ltd and Ors vs. Union of India and Ors reported in 2017 (356) ELT 532 (Guj).
9. Mr. Iyer submitted that so far as the second issue with regard to the grant of the CST refund on the DTA clearance is concerned, the authority committed a serious error in placing reliance on the condition in appendix 14 II of the Handbook of Procedures 2004-09 as it existed until 16th September 2008. He would submit that in fact, no such reliance could have been placed by the CRA audit. He submitted that such condition would not override the Foreign Trade Policy, more particularly, the clause 6.11 which provides for the entitlement for supplies from the DTA. Mr. Iyer invited the attention of this Court to paragraph 6.11(c)(i), which provides that the EOU units shall be entitled to the reimbursement of the CST on goods manufactured in India. He submitted that this aspect also has been impliedly taken care of by this Court in the case of Asahi Songwon (supra).
10 In the last, Mr. Iyer submitted that even otherwise, the issue could not have been reopened after a period of almost eight years. He submitted that the refund was granted by the authority way back in the year 200708. The show cause notice came to be issued in the year 2015. He submitted that there are no allegations at the end of the department of any willful suppression of fact or any misrepresentation.
11. In such circumstances referred to above, Mr. Iyer prays that there being merit in this writ application, the same be allowed and the impugned order be quashed.
12. On the other hand, this writ application has been vehemently opposed by Mr. Nikunt Raval, the learned standing counsel appearing for the Union of India. Mr. Raval, with his usual fairness, pointed out that the issue with regard to the goods supplied by the EOUs to EOUs is concerned, is no longer res integra in view of the decision of this Court in the case of Asahi Songwan (supra). However, Mr. Raval vehemently argued that the impugned order deserves to be affirmed on the ground that the CST could not have been refunded on the DTA clearance. Mr. Raval, in his own way, tried to explain the policy in this regard. According to Mr. Raval, what was done at the relevant point of time by the writ applicant if approved would frustrate the very policy framed by the Government. Being an Export Oriented Unit, it was not expected to clear the goods in the domestic market. Mr. Raval submitted that the reliance placed by the audit on the appendix 14 II of the Handbook of Procedures clearly states that the EOU shall be entitled to the reimbursement of the CST paid on only those purchases made from the DTA which are used for the production of goods actually exported. Mr. Raval also placed reliance on the following avermenets made in the affidavitinreply filed on behalf of the respondent:
“7 With respect to the averments made in paral, it is stated that the provisions in Foreign Trade Policy and Hand Book of Procedures are to be read in harmony and CST to be reimbursed as per provisions mentioned in the Appendix 14II of HBP. At the relevant time, the provision was clear that reimbursement of CST was applicable only on goods meant for export. Public Notice No.81/RE2008 dated 16.09.08 which made reimbursement of CST applicable on goods clearedÇ into DTA had only prospective effect. Even though provision contained in Para 6.11(c) (i) of an the Policy permits for DTA sale of goods but it does not ipso facto imply that reimbursement of CST shall also be available on such goods supplied into DTA. Public Notice No.81 (RE2008) dated 16.09.08 had only prospective effect. Vide Public Notice No.81 dated 16.09.2008, the word “meant for export was deleted from para 2 of Appendix 14II of HBP Vol.I which was applicable from the date of issuance of the said public Notice. Hence, with issuance of the said public notice, the reimbursement of CST on supply of goods by EOU into DTA/EOU made available w.e.f. 16.09.2008. Appendix 14II of Hand Book of Procedures clearly states that EOU is entitled to reimbursement of CST paid on only those purchases made from DTA which are used for production of goods actually exported. Para2 of the said appendix before Public Notice No.81(RE2008) dated 16.09.08 clearly states that an EOU is entitled to reimbursement to CST paid on only those purchases made from DTA which are used for production on goods meant for export and/or utilized for exports/services. The supplies in the present case pertains to the period before issuance of the said public notice.
EOUs were eligible to get CST refund on raw material, components etc., utilized for their production meant for exportation and out on the whole value of goods (i.e. Export + DTA sale). The EOUs should have claimed the CST refund on proportionate basis on the exported goods and not on the goods cleared in DTA.
As per the Scheme of EOUs, the unit which are undertaking to export their entire production of goods and services (except permissible sales in DTA) are considered as EOU. As per Para 6.8(a) the unit is allowed to sell goods to 50% of FOB value of exports subject to fulfilment of NFE on payment of concession of duties. Hence, supplies from EOU are counted for fulfilment of positive NFE only.
As per FTP/HBP, EOU has to pay applicable customs, Special Additional Duty etc., as excise duty if goods are to be cleared in to DTA since the goods were procured Duty free. Reimbursement of CST cannot be considered as to offset these duties since Central Sales tax falls under separate Government revenue account. Further, the unit was not made to pay CST and SAD on some goods. CST was levied on goods procured, viz. raw material and SAD is levied on finished goods cleared into DTA.
Further Para 6.15(a) (ii) of extent FTP clearly states that in case an EOU unit is unable to utilize goods and services, imported or procured from DTA, it may be disposed off in DTA with the approval of customs authority on payment of applicable duties and submissions of import authorizations. Hence, the clearance of goods into DTA/ EOU were subject to payment of applicable CST.
Therefore, the contention of the Audit that “EOU should claim the CST refund on proportionate basis on the exported goods and not on the goods cleared in DTA” is correct. Also, during the relevant period, CST reimbursement was available for procurement of goods from DTA only. The para 9.21 of FTP 200409 clearly stated that “Domestic Tariff Area” means within India is outside SEZs and EOU/EHTP/STP/BTP”.
In view of the above submissions, the Order in Original No.5/1617 passed by the Development Commissioner, KASEZ, Gandhidham was upheld by the DGFT, Appellate Authority is correct and as per provisions of the FTP/ HBP of the relevant period.
8 With respect to the averments made in para2 to 13, it is stated that the same relate to the matter of records and hence not responded to at present.
9 With respect to the submissions made in Ground 14(A), it is stated that the Order-in-Original No.5/1617 passed by the Development Commissioner, KASEZ, Gandhidham was upheld by the DGFT, Appellate Authority is correct and as per provisions of FTP/HBP of the relevant period. The Order-in-Appeal passed by the DGFT is as per the provisions of FTP/HBP of the relevant period.
10 With respect to the submissions made in Ground 14(B) to (G), it is stated that even though provision contained in Para 6.11(c) (I) of the Policy permits for DTA sale of goods but it does not ipso facto imply that reimbursement of CST shall also be available on such goods supplied into DTA.
Public Notice No.81 (RE2008) dated 16.09.08 had only prospective effect. Vide Public Notice No.81 dated 16.09.2008, the word “meant for export was deleted from para 2 of Appendix 14II of HBP Vol. I which was applicable from the date of issuance of the said public Notice. Hence, with issuance of the said public notice, the reimbursement of CST on supply of goods by EOU into DTA/EOU made available w.e.f. 16.09.2008. Vide Public Notice No.81 dated 16.09.2008, the word “meant for export” was deleted from para 2 of Appendix 14 II of HBP Vol. I which was applicable from the date of issuance of the said Public Notice. Hence, with the issuance of the said public notice, the reimbursement of CST on supply of goods by EOU into DTA/EOU made available w.e.f. 16.09.2008.
The main heading of para 6.11 states that “Entitlement for Supplies from DTA”. As per Para 9.21 of FTP Domestic Tariff Area means area within India which is outside SEZs and EOU/EHTP/STP/BTP. Therefore, CST reimbursement was admissible on goods manufactured in India which are supplied by DTA units. The para 6.11(c)(I) is to be read in harmony with head note.
EOUs were eligible to get CST refund on raw material, components etc., utilized for their production meant for exportation and out on the whole value of goods (i.e. Export + DTA sale). The EOUs should have claimed the CST refund on proportionate basis on the exported goods and not on the goods cleared in DTA.
As per the Scheme of EOUs, the unit which are undertaking to export their entire production of goods and services (except permissible sales in DTA) are considered as EOU. As per Para 6.8(a) the unit is allowed to sell goods to 50% of FOB value of exports subject to fulfillment of NFE on payment of concession of duties. Hence, supplies from EOU are counted for fultîlment of positive NFE only.
As per FTP/HBP, EOU has to pay applicable customs, Special Additional Duty etc., as excise duty if goods are to be cleared in to DTA since the goods were procured Duty free. Reimbursement of CST cannot be considered as to offset these duties since Central Sales tax falls under separate Government revenue account. Further, the unit was not made to pay CST and SAD on some goods. CST was levied on goods procured, viz; raw material and SAD is levied on finished goods cleared into DTA. Further Para 6.15(a) (ii) of extent FTP clearly states that in case an EOU unit is unable to utilize goods and services, imported or procured from DTA, it may be disposed off in DTA with the approval of customs authority on payment of applicable duties and submissions of import authorizations. Hence, the clearance of goods into DTA/EOU were subject to payment of applicable CST.
11 With respect to the submissions made in Ground 14(H), it is stated that the same relate to the matter of records and hence not responded to at present.
12 With respect to the submissions made in Ground 14(I), it is submitted that CAG review for the period 200708 to 201011 was done during the period MayJune 2012 and demand notices were issued during the period October 2013. The Development Commissioner’s office has been in the process of recovery proceedings since October/November 2013 and there are large number of units involved in the audit conducted by the CAG. Since there are large number of units involved, naturally, it will take considerable time/long time to complete recovery proceedings. It may be noted that CAG review was conducted by the Comptroller and Audit Genera1(C&AG) which is supreme audit institution of India for the claims belonging to the period 2007 i.e. after five years. They had completed the Audit and was also fully aware of the time factor. CAG has delayed in conducting CAG review for the period 2007-08 to 2010-11. However, main intention of audit was that inadmissible Government revenue would be recovered.
It is also noted that notice firm has given undertaking and declaration in all the claims, as mentioned in the Appendix14II, that in case excess CST/DBK amount is paid, the same will be refunded after receipt of demand notice from the Development Commissioner.
13 With respect to the submissions made in Ground 14(J), I reiterate what is stated in response to Grounds 14(B) to (G) above and hence not dealt with at this juncture.
14 With respect to the averments made in para 15, it is stated that the same relate to the matter of records and hence not responded to at present.
15 With respect to the averments made in para 16 and 17, it is stated that the same being formal in nature and hence no comment is offered at present.”
13 In such circumstances referred to above, Mr. Raval prays that there being no merit in this writ application, the same be rejected.
14 We may straightway go to the decision of this Court in the case of Asahi Songwon (supra). We quote the relevant observations made therein as follows:
“18 A minute scrutiny of these provisions contained in para. 6.11 would reveal that the language used in clauses (a), (b) and (c), in general, was not made limited to the supplies from a DTA unit. As noted, clauses(a) and (b) both confined their application to the supplies made by the DTA unit. Clause(c) itself contained two situations. In sub-clause(i) what was envisaged was reimbursement of CST on goods manufactured in India. Subclause (ii) envisaged exemption from payment of CST on goods purchased from DTA on goods manufactured in India. Thus the policy wherever intended to limit the benefit of an EOU on procurement made from a DTA unit, it was so specifically provided. When therefore, sub-clause(i) of clause (c) of para 6.11 did not make any such reference to the procurement from a DTA unit but used the expression goods manufactured in India, it must be understood that this clause would govern the goods purchased by EOU unit from any unit as long as the condition of goods being manufactured in India is satisfied. In plain terms, therefore, the Foreign Trade Policy 2004-2009 did not limit the benefit of CST reimbursement to a EOU on purchases made only from a DTA unit.
19 If this be the conclusion, the immediate question that would arise is, could the authorities have restricted the benefit only in case of procurement from a DTA unit through the procedure laid down for implementation of Foreign Trade Policy? We have noticed that the Director General of Foreign Trade in terms of section 6 of the Act has certain delegated powers which would include powers to frame such procedures. Subsection(3) of section 6 however, excludes the delegation of such powers to those contained under sections 3, 5, 15, 16 and 19 of the Act. In exercise of powers under section 6, the Director General of Foreign Trade could not have framed or altered the Foreign Trade Policy. We may refer to the Division Bench judgment of this Court in case of Alstom India Ltd. v. Union of India reported in 2014 (301) E.L.T. 446 (Guj.), in which it was observed as under :
“28. We find that the Respondent No.2, namely, DGFT, through Para 8.3.6 of the HOP has incorporated by reference the provisions of Duty Drawback Rules mutatis mutandis to the FTP and HOP. We find substance in the contention of Mr Ghosh that the HOP is nothing but an administrative guideline as would appear from a combined reading of Para 2.4 of the FTP and Section 6 of the FTDR Act. We have already pointed out that Section 3 of the FTDR Act grants power to the Respondent No.1 to make provisions relating to imports and exports and the Respondent No.1 under Section 5 of the FTDR Act can formulate and announce the foreign trade policy. It further appears from Section 6(3) of the FTDR Act that of the powers conferred upon the Respondent No.1 under the FTDR Act, except those provided in Sections 3,5,15,16 and 19, all others can be delegated to the Respondent No.2 by order published in the Official Gazette. We find that the Respondent No.2 through Para 8.3.6 of the HOP has sought to incorporate the provisions of Duty Drawback Rules to deemed exports mutatis mutandis which is not permissible in view of the fact that no power has been granted to the DGFT under the FTDR Act to legislate either directly or by way of incorporation by reference. It is now a settled law that the separation of power between the legislature and executive forms part of the basic structure of the Constitution of India and any attempts by the executives to legislate without appropriate authority under the law would amount to violation of the basic structure of the Constitution of India. The power to legislate is incorporated under Article 246 of the Constitution of India and such power has been conferred on the Parliament and the State Legislature. Moreover, the power to frame Duty Draw Back Rules under the FTDR Act can be legislated by the Central Government only in exercise of power conferred under Section 19 in the manner prescribed under the FTDR Act and the same cannot be delegated to the Respondent no. 2 as expressly prohibited by Section 6(3) of the above Act.
29. We, thus, find that any attempt by the executives to legislate without the authority of law should be branded as a colourable device and therefore, the same is in violation of Article 246 of the Constitution of India. If we accept the contention of Mr Raval that the Respondent No.2 is authorized to incorporate the duty drawback Rules by reference, it would amount to acceptance of the proposition that the Respondent No.2 is authorized to deal with under the FTDR Act, the similar matters relating to duty and tax refunds as provided under Section 75 of the Customs Act, Section 37 of the Central Excise Act and Section 93A read with Section 94 of the Finance Act, 1994 although not authorized under the FTDR Act. We are in agreement with Mr Ghosh, the learned advocate for the petitioner, that the conferment of such power to the Respondent No.2 to adopt the duty drawback rules without any power to legislate either expressly or otherwise would amount to permitting the levy or collection of tax without authority of law in violation of Article 265 of the Constitution of India.
20 Our attention was also drawn to the decision of learned Single Judge of Madras High Court in case of Hospira Health Care India Pvt. Ltd v. Development Commissioner, MEPZ Special Economic Zone & Heous and ors. reported in (2016) 4 MLJ 179, in which similar issue had come up for consideration and it was held that the demand for refund of the reimbursement benefits were in conflict with para. 6.11 of the Foreign Trade Policy.
21 Even otherwise, the Hand Book of Procedures and in particular Appendix14II contained therein nowhere aims to lay down any policy but prescribes the procedure to be followed for reimbursement of CST. It is undoubtedly true that para.2 of this Appendix restricts the CST reimbursement on purchases made by an EOU from a DTA unit. However, this restriction in our opinion would run counter to the terms of FTP itself and ultra vires the powers of the Director General of Foreign Trade. The title of the Appendix itself provides that it is a procedure to be followed for reimbursement of Central Sales Tax. Para.1 further clarifies that the procedure given in the said annexure shall be applicable for reimbursement of CST. There is little doubt therefore, that Appendix 14II aimed to lay down the procedure for claiming the benefit. In any case, such procedure could not have restricted the benefit by excluding the purchases from certain source which exclusion did not flow from the Foreign Trade policy itself.
22 Perhaps a contention could have been raised by the respondents that the Foreign Trade Policy itself envisaged such a restriction since only when the goods are manufactured in a DTA area, it may be stated that same are manufactured in India and by a deeming fiction any manufacturing activity taking place in an EOU should be excluded from such expression. The respondents would draw our attention to subsection(1) of section 3 of the Central Excise Act, 1944, which besides others, envisages levy of excise duty on manufacture by a hundred per cent export unit undertaking which goods are brought to any other place in India. In other words, on the goods manufactured in an EOU, excise duty would be leviable, only when such goods are brought to any other place in India. We would have certainly considered this angle further, but for the fact that in the later year, the Government of India itself has recognised the benefit of CST reimbursement on the purchases made by the EOU from another EOU. It was for this purpose that we had referred to and noted relevant portion of the Foreign Trade Policy 2015-2020 and the procedure for claiming the CST reimbursement. We may recall that insofar as base policy is concerned for grant of such CST reimbursement, no change has been brought about in the Foreign Trade Policy 20152020 as compared to the Foreign Trade Policy 20042009. Despite this, base policy being the same, the procedure for claiming reimbursement of CST on supplies made to EOU under the current policy now envisages such reimbursement on any sales made to a EOU not only from DTA but also from EOU, SEZ, etc.
23 Once again the contention of the Union of India was that the policy itself does not envisage grant of such reimbursement on procurement from an EOU, the question would immediately arise is whether such benefits could have been recognized through a procedure framed for claiming such a benefit? This further development would effectively prevent the respondents from contending that the original Foreign Trade Policy 20042009 did not envisage CST reimbursement by an EOU upon procurement of goods manufactured in another EOU.”
15 Thus, this Court ruled that the Foreign Trade Policy 2004-2009 did not limit the benefit of CST reimbursement to an EOU on the purchases made only from a DTA unit. Prima facie, it appears that this decision has been overlooked by the appellate authority. The decision of this Court in Asahi Songwon (supra) is dated 6th July 2017. When the show cause notice was issued, the orderinoriginal was passed, this judgement was not pronounced. When the appeal was being heard, this judgement was already pronounced. As observed by us, prima facie, it appears that the appellate authority has overlooked the position of law, as explained by this Court. We also take notice of the fact that the contention of Mr. Iyer with regard to the delay and recovery after a period of almost eight years is also taken care of by this Court in the case of Asahi Songwon (supra). In the said decision, in para 24, the following has been observed:
“There is yet another angle why we would not permit the respondents to make recoveries. As noted, the claim pertained to period between 2006 and 2008. They were made at the relevant time and granted by the respondents without any dispute. Such reimbursements are now sought to be recovered for which show cause notice came to be issued on 10.7.2015. It is not the case of the respondents that the petitioner was responsible for any misrepresentation or misstatement of facts which resulted into such erroneous reimbursement being granted and which came to the notice later on. That being the position, it was not possible for the respondents to make recoveries after unduly long period of time which in the present case happens to be more than seven years, that too, without any explanation for such delayed action.”
16 This Court, in Asahi Songwong (supra), made it clear that it was not permissible for the respondent to make recovery after unduly long period of time. In Asahi Songwon (supra), the delay was almost seven years. Whereas in the case on hand, it is almost more than eight years.
17 We now come to the third contention with the regard to the grant of CST refund on the DTA clearance. According to the respondent, the same was inadmissible. In this regard, we may look into paragraph 6.11 of the Foreign Trade Policy 20042009. This policy provides for the refund of the CST suffered on the inputs used for the production of final product cleared into the DTA by an EOU. The paragraph 6.11 of the FTP as it stood during the relevant period is as follows:
“6.11 Entitlement for supplies from the DTA
(a) Supplies from DTA to EOU/EHTP/STP/BTP units will be regarded as “deemed exports” and the DTA supplier shall be eligible for relevant entitlements under chapter 8 of FTP besides discharge of export obligation, if any, on the supplier. Notwithstanding the above, EOU/EHTP/STP/BTP units shall, on production of a suitable disclaimer from the DTA supplier, be eligible for obtaining entitlements specified in chapter 8 of FTP. For claiming deemed export duty drawback, they shall get Brand Rates fixed by the Development Commissioner wherever All Industry Rates of Drawback are not available.
(b) Suppliers of precious and semiprecious stones, synthetic stones and processed pearls from DTA to EOU shall be eligible for grant of Replenishment authorisations at rates and for items mentioned in HBP vl.
(c) In addition, EOU/EHTP/STP/BTP units shall be entitled to the following:
(i) Reimbursement of Central Sales Tax (CST) on goods manufactured in India.
Simple interest @, 6% per annum will be payable on delay in refund of CST on supplies made to EOUs in respect of reimbursement/refunds that have become due on or after 01.04.2007 but which have not been settled within 30 days of its final approval for payment by the Office of Development Commissioner, SEZ.
(ii) Exemption from payment of Central Excise Duty on goods procured from DTA on goods manufactured in India
(iii) Deleted
(iv) Reimbursement of Duty paid on fuels procured from domestic oil companies as per Drawback rate notified by the DGFT from time to time.
(V) Cenvat Credit on service tax paid.”
18 On the other hand, we may also look into the appendix 14 II of the Handbook of Procedures on which reliance is sought to be placed by the respondent :
“Condition in appendix 14 II of the Handbook of Procedures 200409 as it existed until 16.09.2008 and relied upon by the CRA audit
2 ……….
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(a) The supplies from DTA to EOU/EHTP/STP unit! Must be utilised by them for production of goods meant for export and/or utilised for export of services and may include raw material, components, consumables, packing materials, capital goods, spares, material handling equipment etc. on which CST has been actually paid by the EOU/EHTP/STP]
(b) While dealing with the application for reimbursement of CST, the Development Commissioner or the designated Officer of EHTP/STP shall see, inter alia, that the purchases are essential for the production of goods meant for export and/or to be utílised for export of services by the units.] “
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Public Notice No. 81 (RE2008)/200409 Dated 16/9/2008
Amendment in Appendix14II Procedure to be followed for Reimbursement of CST on supplies made to EOUS and units in EHTP and STPreg.
In exercise of powers conferred under paragraph 2.4 ofthe Foreign Trade Polity 200409, Director General of Foreign Trade hereby makes Ç the following amendment in the Handbook of Procedures v 1:
1. Para 2 (a) & 2 (b) of the Appendix14II are replaced by the following:
“2(a) The supplies from DTA to EOU/EHTP/STP units must be utilized by them for production of goods/services and may include raw material, components, consumables, packing materials, capital goods, spares, material handling equipment etc. on which CST has been actually paid by the EOU/EHTP/STP.”
“2(b) While dealing Çwith the application for reimbursement of CST, the Development Commissioner or the designated Officer of the EHTP/STP shall see, inter alla, that the purchases are essential for the production of goods/ services by the units.”
2. Clause (a) of undertaking and declaration below Annexure 1 in Appendix 14II is also replaced by the following:
“a) The goods for which the claim has been made are meant for utilization / production of goods/services of the EOU/EHTP/STP unit and will be utilized only in our factory and we shall not divert or dispose off the material procured without obtaining prior permission of the concerned Development Commissioner.”
19 The reading of the Foreign Trade Policy referred to above as well as the condition in appendix 14 II of the Handbook of Procedures 20042009 as it existed until 16th September 2008 appears to be in conflict with each other. The Foreign Trade Policy, more particularly, para 6.11(c)(i) makes it clear that an EOPU shall be entitled to the reimbursement of the CST goods manufactured in India. If that be so, then, in our opinion, the appendix of the Handbook of Procedures could not have been relied upon. This aspect also to a certain extent, has been taken care of by this Court in the case of Asahi Songwon (supra).
20 At the cost of repetition, we once again reproduce the observations made in para 18 of Asahi Songwon (supra). The same reads as under:
“A minute scrutiny of these provisions contained in para. 6.11 would reveal that the language used in clauses (a), (b) and (c), in general, was not made limited to the supplies from a DTA unit. As noted, clauses(a) and (b) both confined their application to the supplies made by the DTA unit. Clause(c) itself contained two situations. In subclause(i) what was envisaged was reimbursement of CST on goods manufactured in India. Subclause (ii) envisaged exemption from payment of CST on goods purchased from DTA on goods manufactured in India. Thus the policy wherever intended to limit the benefit of an EOU on procurement made from a DTA unit, it was so specifically provided. When therefore, subclause(i) of clause (c) of para 6.11 did not make any such reference to the procurement from a DTA unit but used the expression goods manufactured in India, it must be understood that this clause would govern the goods purchased by EOU unit from any unit as long as the condition of goods being manufactured in India is satisfied. In plain terms, therefore, the Foreign Trade Policy 20042009 did not limit the benefit of CST reimbursement to a EOU on purchases made only from a DTA unit.”
21 We find merit in the submission of Mr. Iyer that the provisions in the FTP govern the statutory scheme of the policy, and in such circumstances, the appendix or the Handbook of Procedures cannot override the FTP provisions. In case of a conflict, the FTP provisions should prevail visavis the appendix in Handbook of Procedures, which are nothing but a subordinate legislation. It was also pointed out by Mr. Iyer that in the appendix 14 II of the Handbook of Procedures, the following condition existed:
“(a) The goods for which the claim has been made are meant for utilization / production of goods / services of the EOU / EHTP / STP unit and will be utilised only in our factory and we shall not divert or dispose off the material procured without obtaining prior permission of the concerned Development Commissioner.”
22 Relying on the aforesaid, it is submitted that the policy making authority never invited to distinguish the raw materials used for the production of goods cleared into the DTA visavis the raw materials used in the final product used for other clearance for the grant of refund of the CST products on the same raw materials.
23 For the foregoing reasons, this petition succeeds and is hereby allowed. The impugned order passed by the Director General of Foreign Trade dated 7th September 2018 is hereby quashed and set aside. Rule is made absolute.
