Supreme Court: In a civil appeal by the Union of India, Director General of Foreign Trade and Joint Director General of Foreign Trade, (‘appellants’) against the decision of the Division Bench of the Karnataka High Court, whereby, the Single Judge’s decision of granting 15 per cent interest on delayed duty drawback under Exim Policy to B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd. (‘respondent’) was affirmed, the Division Bench of Abhay S. Oka and Ujjal Bhuyan*, JJ. upheld the impugned decision and dismissed the appeal.
Background
The respondent is a class-I contractor specializing in the field of civil contract works especially funnelling and hydroelectric power projects. A sub-contract to execute civil works at Koyna Electric Power Project was awarded to the respondent.
The Ministry of Commerce, Government of India and the Director General of Foreign Trade (‘DGFT’) under the Foreign Trade (Development and Regulation) Act, 1992 announced a deemed export scheme under the Exim Policy, 1992-1997. Certain benefits under ‘deemed export’ were also included in the said Exim Policy. The respondent filed applications claiming duty drawback under the Exim Policy, for Rs.35,75,679.00, Rs.88,98,206.00 and Rs.85,05,853.00 respectively. However, the DGFT rejected the applications for duty drawback on the ground that supplies in civil construction work were not eligible for ‘deemed export’ benefit.
On 20-08-1998, the DGFT issued a circular under the successor Exim Policy, 1997-2002 clarifying that supply of goods under paragraph 10(2)(d) of the 1997-2002 Exim Policy would be entitled for ‘deemed export’ benefit. On 05-12-2000, DGFT issued another circular that drawback was to be paid in respect of excise duty on supply of goods to projects funded by multilateral agencies.
A Policy Interpretation Committee was constituted which examined the respondent’s case and it was decided that the benefit of duty drawback under the ‘deemed export’ scheme would be extended to the respondent. However, it was clarified that duty drawback granted to the respondent would not be treated as a precedent.
The Respondent sought interest on the duty drawback amount paid on the ground of delayed payment. However, the request for interest made by the respondent was rejected by the DGFT.
Aggrieved by the rejection, a writ petition before the High Court was filed. It was held that respondent was entitled for 15 per cent interest on duty drawback as there was delay in payment of duty drawback.
Division Bench’s decision
The Division Bench affirmed the Single Judge’s decision and dismissed the appellant’s appeal. It was held that in view of the DGFT’s circular dated 05-12-2000, even civil construction works were entitled to the benefit of deemed export under the Exim Policy. It was also said that that the position in relation to the refund of duty drawback in civil construction work treating it as deemed export was clarified in an earlier circular dated 20-08-1998. Therefore, it was held that by the year 1998 itself, the DGFT had clarified that civil construction work was entitled to the benefit of duty drawback as deemed export. It was also opined that the minute the Exim Policy came into force the benefit of duty drawback automatically became available to the respondent and that the clarification was only with regard to the doubts expressed in some quarters as to whether civil construction works were also entitled to such benefit.
Analysis and Decision
Statutory framework on Exim Policy
The Court perused Section 11-A of the Central Excise Act, 1944 (‘Central Excise Act’) which deals with recovery of duties not levied or not paid or short-levied or short paid or erroneously refunded. The Court noted that Section 11A(1) lays down that where any duty of excise has not been levied or not paid or has been short levied or short paid or erroneously refunded, for any reason other than the reason of fraud or collusion etc. with intent to evade payment of duty, the Central Excise Officer shall serve notice on the person so chargeable within two years from the relevant date requiring him to show cause why he should not pay the amount specified in the notice. The person chargeable with duty may either before service of notice pay on the basis of his own ascertainment or the duty ascertained by the Central Excise Officer, the amount of duty along with interest payable thereon under Section 11AA.
The Court also perused Section 11B, which entitles any person claiming refund of any duty of excise and interest to make an application for refund of such duty and interest before the expiry of one year from the relevant date, and Section 11BB which provides for interest on delayed refund.
The Court said that the Export and Import (Exim) Policy for the period 1992-1997, which came into effect from 01-04-1992 and remained in force for a period of five years up to 31-03-1997, by virtue of the Section 4 of the Foreign Trade (Development and Regulation) Act, 1992, (‘1992 Act’), the Exim Policy of 1992-1997 continued to be in force and was deemed to have been made under the 1992 Act.
Duty Drawback
On perusal of the Section 7(13) Exim Policy 1992-1997, the Court noted that ‘drawback’ in relation to any goods manufactured in India and exported means the rebate of duty chargeable on any imported 16 materials or excisable materials used in the manufacture of such goods in India. The Court noted that Section 120 defines ‘deemed exports’ as those transactions in which the goods supplied did not leave the country and the payment for the goods was received by the supplier in Indian rupees, but the supplies earned or saved foreign exchange for the country. The Court also perused Section 122 which provides that ‘deemed exports’ shall be eligible for the benefits in respect of manufacture and supply of goods qualifying as ‘deemed exports’, including under the Duty Drawback Scheme.
Further, the Court noted that Rule 2(a) of the Central Excise Duties and Service Tax Drawback Rules, 1995, (‘1995 Rules’) defines ‘drawback’ in relation to any goods manufactured in India and exported, as the rebate of duty or tax as the case may be, chargeable on any imported materials or excisable materials used or taxable services used as input services in the manufacture of such goods.
Regarding the duty exemption scheme, the Court noted that under the said scheme, import of duty-free raw materials, components, intermediates, consumables, parts, spares including mandatory spares and packing materials required for the purpose of export production could be permitted by the competent authority under five categories of licences mentioned in Chapter VII including special imprest licence. The Court also noted that Section 121 of the Exim-Policy 1992-1997 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. The Court explained that the supply of goods to projects financed by multilateral or bilateral agencies or any other agency that may be notified by the Central Government, such as, the International Bank for Reconstruction and Development under international competitive bidding or under limited tender system in accordance with the procedures of those agencies, are also included.
Further, the Court said that Section 27(1) of the Customs Act, 1962 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.
Decision
Therefore, the Court held that on conjoint reading of provisions under the Exim Policy, 1992-1997, the Central Excise Act and the Customs Act, the 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 Court also said that it was clarified by the Rule 3 of the 1995 Rules 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. The Court also said that it was not justified on the part of the appellants to say that the refund of duty drawback was granted to the respondent as a concession and cannot be treated as a precedent.
Regarding the interest on the delayed duty drawback, the Court said that by virtue of 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. The Court also said that this provision provides for interest, which 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 Court noted that the interest rate prescribed under Section 27A at the relevant point of time was not below ten per cent and not exceeding thirty per cent per annum.
Thus, the Court held that the respondent was entitled to refund of duty drawback and 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 per cent. The impugned judgment was upheld by the Court. Hence, the appeal was dismissed.
[Union of India v. B. T. Patil & Sons Belgaum (Construction) (P) Ltd., 2024 SCC OnLine SC 100, Decided on: 05-02-2024]
Judgment Authored by: Justice Ujjal Bhuyan
Know Thy Newly Appointed Supreme Court Judge: Justice Ujjal Bhuyan
