Sandoz Private Limited vs Union of India & Others

8 of the FTP upon production of a suitable disclaimer from the DTA supplier and subject to compliance of necessary formalities and stipulations – 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). Words and phrases: Benefit and entitlement – Distinction between – Held: “Benefit”, by its very nature, is an advantage, help or aid, while “entitlement” is right to have something.

Disposing of the appeals, the Court

HELD: 1. Section 5A of the Central Excise Act, 1944 empowers the Central Government to grant exemption from duty of excise in respect of specified excisable goods. The exercise of power to exempt is a beneficial power — which enables the Central Government to reduce or waive duty on specified goods on such conditions as may be prescribed. The exemption notification has statutory force. However, the manufacturers (including DTA Unit) of specified goods are free to disregard, the benefit of exemption so provided when it is laced with fulfilment of pre-conditions by third party (EOU). However, subsection (1A) of Section 5A came to be inserted by way of an amendment w.e.f. 13.05.2005. It was for removal of doubts. It declared that where an exemption under sub-section (1) in respect of any excisable good from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods “shall not pay the duty of excise on such goods”. This stipulation ordains that the excise duty is not payable on the specified goods. However, this stipulation will be attracted if the excise duty is exempted ab initio (without any pre-condition). Be that as it may, the governing FTP regime ought to prevail being a special dispensation under the 1992 Act. [Para 13][622-D; 623A-D]

2. The authorities propounding the FTP were obviously conscious of the purport of the provisions of the 1944 Act and the rules framed thereunder. Despite that, the subject policy had been propounded with the sole objective of promoting exports and earning foreign exchange. At the relevant time, the goal set forth by the policy makers was to achieve the target of at least one per cent of the global trade by promoting exports. It is thus clear that the concessions or so to say, benefits and entitlements provided under the FTP cannot be constricted by the provisions of the taxing statute of 1944 and the rules framed thereunder. To put it tersely, the dispensation provided under the 1992 Act and the FTP must operate independently and is thus mutually exclusive in this regard. Taking any other view would be counterproductive and whittle down the intent behind formulation of a liberal FTP for promoting exports. [Para 14][623-D-F]

3. Under the subject FTP, Chapter 6 deals with EOUs, Electronics Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs). Para

6.1 provides for the eligibility criterion. It envisages that units undertaking to export their entire production of goods and services (except permissible sales in DTA) may be set up under the EOU Scheme. Para 6.2 of the FTP specifies the stipulations for the EOU to conduct its activities such as export and import of goods. From the opening part of Para 6.2 (b) itself, it is amply clear that it governs specified entities/units, who are engaged in import and/or procurement of goods from DTA or bonded warehouses etc., and that they must do so without payment of duty. Besides, the specified entities are obliged to utilise the goods imported with actual user condition and to be used or utilised for export production. This twin condition must be complied by the specified entities without any exception for deriving benefit or availing of entitlements under FTP. Chapter

6 of the FTP postulates that supply of goods from DTA Units to EOU must be regarded as deemed exports, as is evident from para 6.11 of the FTP. [Paras 15, 16][623-G; 624-C, G-H; 625-A]

4. The opening part of clause (a) concerns the supplier as it refers to supplies from DTA Unit to EOU to be regarded as deemed exports. Further, as a consequence of deemed exports, DTA supplier becomes eligible for entitlements specified under Chapter 8 of the FTP. To put it differently, in the same Chapter 6, the entitlement of DTA supplier under Chapter 8 of FTP has also been adverted to. This provision also deals with the manner of availing the entitlements specified under Chapter 8 of FTP — either by the DTA Unit itself or the EOU, the recipient of the goods and services. For, in terms of this stipulation even the EOU can set up a refund claim in respect of stated transaction, in lieu of the entitlement of DTA Unit after obtaining suitable disclaimer from DTA supplier. In other words, clause 6.11 [clause

(a) thereof in particular] deals with entitlement of DTA supplier, which can be availed by the DTA supplier itself or by the EOU to whom the goods were supplied by it upon giving suitable disclaimer in that regard. [Para 16][626-A-D]

5. Clause (c) of para 6.11 is a provision which spells out the entitlement of EOU. It includes reimbursement of Central Sales Tax (CST) on goods manufactured in India; exemption from payment of Central Excise Duty on goods produced from DTA on goods manufactured in India; reimbursement of duty paid on fuel procured from domestic oil companies/depots of domestic oil public sector undertakings as per drawback rate notified by DGFT from time to time; and lastly, CENVAT Credit on service tax paid. As regards the Central Excise Duty, para 6.11(c)(ii) postulates exemption from payment of Central Excise Duty on goods procured by the EOU from DTA on goods manufactured in India. This is in consonance with the stipulation in para 6.2(b), which predicates that the EOU may import goods from DTA without payment of duty. [Para 17][626-E-G]

6. There is marked distinction between the expression “benefit” and “entitlement”. “Benefit”, by its very nature, is an advantage, help or aid, while “entitlement” is right to have something. Under Chapter 6, the EOU is entitled to import specified goods from DTA without payment of duty, subject to fulfilling other requirements including of actual user condition and to be utilised for export production, being a case of ab initio exemption qua EOU. The provision in the form of para 6.11(a) merely enables EOU to set up a claim “in respect of” entitlements of DTA supplier under Chapter 8 of FTP. There is no separate entitlement for EOU under Chapter 8 of FTP. To put it differently, although the heading of para 6.11 is “Entitlement for supplies from the DTA” and clause (a) thereof envisages that EOU shall on production of a suitable disclaimer from DTA supplier be eligible for obtaining entitlements specified in Chapter 8 of FTP, it does not follow that it is the entitlement of EOU. It is, however, only a case of benefit transferred to EOU concerning the entitlement of DTA supplier under Chapter 8 of FTP. [Para 19][627-A-D]

7. The heading of Chapter 8 is “Deemed Exports”. The original para 8.1 specified that deemed exports refer to those transactions in which goods supplied do not leave country and payment for such supplies is received either in Indian rupees or in free foreign exchange. By way of amendment, it further provided that the supply of specified goods (noted in para 8.2) shall be regarded as deemed exports provided goods are manufactured in India. Para 8.2 of Chapter 8 specifies the categories of supplies which can be regarded as deemed exports. Clause (b) thereof is applicable to the present appeals. In other words, only the specified categories of supplies are regarded as deemed exports. In that, import of goods, as specified in para 8.2(b) from DTA supplier to the EOU is regarded as deemed exports. To put it differently, the supply of goods by DTA Unit to EOU with actual user condition and utilised for export production, are regarded as deemed exports. To such transactions, certain benefits have been extended, as provided in para 8.3 of the FTP applicable at the relevant time. [Para 20][627-D-E; 628-B, F-G]

8. In terms of para 6.11(a), the EOU can also avail of those entitlements of DTA as specified in Chapter 8 of FTP, as had been earmarked for DTA supplier. That does not mean that EOU is eligible for those entitlements, on its own accord as, amongst other, it is obliged to obtain disclaimer from DTA supplier as a precondition. Para 8.2 lists the categories of supply of goods which are regarded as deemed exports including supply of goods to EOU [para 8.2 (b)]. The specified transactions are provided certain benefits mentioned in para 8.3, subject to terms and conditions in the handbook procedures, volume I, published under FTP. Para 8.3(c), inter alia, envisages that exemption from TED is available for supplies made against International Competitive Bidding and also to Advance Authorisation Holder to a manufacturer holding another advance authorisation if such manufacturer supplies the products to an ultimate exporter. In other cases, (would include other DTA suppliers of goods to EOU), however, refund of TED will be given. Further, the expression “will” is to be construed as a mandate to give refund to such DTA suppliers, being its entitlement under FTP. This does not whittle down the ab initio exemption of payment of duty given to EOU in respect of supply from DTA. [Paras 20, 21][632E-H; 633-A]

9. Para 8.3(c) of FTP does not provide in-built eligibility “category” unlike specified in sub-paras (a) and (b) for ICB and Advance Authorisation Holder. The expression “in other cases” in sub-para (c) needs to be understood in proper perspective. Concededly, paras 8.4.1 to 8.4.7 provide for benefits to the supplier of goods to EOU as being deemed export. It is essentially an entitlement of DTA supplier — as listed in para 8.3(a), (b) and

(c) of FTP, as may be applicable. It is seen that para 8.4.2 was substituted by the revised FTP of 2012, wherein a table was inserted. As per that table, benefits available under para 8.2 to specified categories of supplies including supply to EOU in para 8.2(b) had been extended benefits under para 8.3, as applicable. [Para 22][633-B-C; 634-A]

10. The eligibility for refund of TED/drawback in terms of para 8.3(c) of FTP is made dependent on the non-availment of CENVAT credit/rebate on such goods by the recipient thereof, as is envisaged in original para 8.5. Similarly, benefit under para 8.3(b) of FTP regarding deemed export drawback can be availed, provided CENVAT credit/rebate has not been availed by DTA supplier and subject to complying other formalities. Para 8.4.2 as originally stood, is indicative of option given only to supplier (DTA) in connection with supply of goods to EOU, as specified in para 8.3 (a), (b) and (c) of FTP. That has remained intact despite the amendment of 2012, until March 2013. Be it noted that the purport of para 8.5 states that supply of goods will be eligible for TED refund only if CENVAT credit/rebate has not been availed on such goods. These stipulations demonstrate that the scheme of FTP is explicit and not ambiguous nor silent in respect of benefits and entitlements of the concerned entities. Thus, an argument having potential of defeating the intent of the applicable FTP, in any manner, ought to be negated. [Paras 23, 24][634-AB; 635-C-E]

11. Going by the scheme of FTP applicable at the relevant period, it is crystal clear that EOUs were entitled to ab initio exemption from payment of Central Excise duty on goods procured from DTA on goods manufactured in India, as the import of such goods was to be made without payment of duty. That, however, did not preclude the EOU from availing of the entitlement of DTA supplier under Chapter 8 upon obtaining a suitable disclaimer from DTA supplier, as provided in para 6.11(a). That availment by EOU had been linked to entitlement of DTA supplier, as specified in Chapter 8. The DTA supplier could (entitled to) take refund of TED in respect of goods supplied by it to EOU being exempted from TED, in light of para 8.3(c). The eligibility for refund of TED, however, has been circumscribed by formalities and requirements to be adhered to, including as noted in para 8.5. In that, recipient of goods (EOU) does not avail CENVAT credit or rebate. Similarly, DTA supplier would be eligible for deemed export drawback in terms of para 8.3(b) of FTP on Central Excise paid on inputs/components, provided CENVAT credit facility/rebate has not been availed. [Para 17][635F-H; 636-A-B]

12. Upon conjoint reading of the relevant para and its clauses, it leaves no manner of doubt that the intent of the subject FTP was to encourage DTA suppliers by providing refund of TED in terms of para 8.3(c), subject to fulfilment of formalities and stipulations in Chapter 8 of FTP. This was also to generate foreign exchange as a consequence of goods supplied as inputs or otherwise, were finally exported by the EOU. The EOU, on the other hand, could only avail of the entitlement of the DTA supplier if the DTA supplier had not taken rebate or CENVAT credit facility (as per para 8.5) treating it as deemed export. This dispensation was uniformly followed until the issue of policy circular dated 15.3.2013. This circular proceeds on the assumption that the goods supplied by DTA Unit to EOU being a case of deemed exports, it predicates ab initio exemption from payment of excise duties. It is true that the subject FTP stipulates that EOU may import specified goods from DTA or bonded warehouses in DTA or international exhibition held in India, without payment of duty. But it is hatched with condition that the goods so imported shall be with actual user condition and shall be utilised for export production and further, an exemption of TED can be availed only if the DTA supplier had not taken rebate or utilised CENVAT credit facility as provided in para 8.5. It is on that understanding, the department had been entertaining refund requests by the DTA supplier for refund of TED made by it in the past until the issue of stated policy circular. In that sense, it was not an ab initio exemption at least for the DTA supplier. The circular, therefore, introduces a new dimension qua the DTA suppliers. Such a change for DTA suppliers cannot be introduced by issuing a policy circular under the signatures of the Joint Director of Foreign Trade. For, the FTP is formulated by the Central Government in exercise of powers conferred by Section 5 of the 1992 Act (as applicable at the relevant time) read with Para 1.2 of the FTP, which had come into force with effect from 27.9.2009. [Para 26][636-B-D; 637-EH; 638-A-B]

13. The dispensation, as it obtained prior to March, 2013 including the notification issued by the Central Government on 18.4.2013 amending the relevant provisions of the existing FTP being paras 8.3(c) and 8.4, was materially different qua DTA suppliers. For, it was not ab initio exemption for them, unlike in the case of EOU by virtue of para 6.2(b) read with para 6.11(c)(ii). Accordingly, it became necessary to make it amply clear by amending paras 8.3(c) and 8.4 vide notification dated 18.04.2013, that henceforth it would be regarded as ab initio exemption even for DTA supplier. This, indeed, is a change or amendment effected in the FTP. Such a change needs to be given only prospective effect, being introduced by delegated legislation. The policy circular cannot be the basis to deny the vested right of the DTA suppliers under the applicable FTP. [Para 26][638-B-D; 639-A]

14. As regards the claim for refund of TED by EOU, therefore, need to be governed by the dispensation provided in para 6.11(a) read with entitlement of DTA supplier under Chapter

8 of FTP. However, it may have to be processed by the authorities under the FTP keeping in mind the principle underlying the refund of CENVAT credit granted under Rule 5 of the 2004 Rules and in the manner provided therefor, though not covered by Rule 5. That is because in law it is a case of deemed export by virtue of applicable FTP. If the refund claim is by the EOU, the same needs to be processed by the authorities under the FTP by reckoning the entitlement of DTA supplier specified in Chapter 8 of the FTP concerning the goods supplied to it, being a case of deemed exports. The EOU on its own, however, is not entitled for refund of TED, as the mandate to EOU is to procure or import goods from DTA supplier, without payment of duty in view of the express ab initio exemption provided in terms of para 6.2(b) read with para 6.11(c)(ii). However, despite such express obligation on the EOU, if the EOU has had imported goods from DTA supplier by paying TED, it can only claim the benefit of refund provided to DTA supplier under para 8.4.2 read with paras 8.3(c) and 8.5 subject to obtaining disclaimer from DTA supplier in that regard and complying with other formalities and requirements. Thus, the EOU is not entitled to claim refund of TED on its own. However, the Court adds a caveat that EOU may avail of the entitlements of DTA supplier specified in Chapter 8 of FTP on condition that it will not pass on that benefit back to DTA supplier later on. In any case, the refund claim needs to be processed by keeping in mind the procedure underlying the refund of CENVAT credit/rebate of excise duty obligations. If CENVAT credit utilised by DTA supplier or EOU, as the case may be, cannot be encashed, there is no question of refunding the amount in cash. In that case, the commensurate amount must be reversed to the CENVAT credit account of the concerned entity instead of paying cash. If, the claim for refund by DTA supplier under the scheme of FTP is allowed, it can be in cash if TED had been paid in cash. Else, it can be in the form of reversal of commensurate CENVAT credit amount to the concerned account of DTA supplier. [Paras 27, 28, 29, 30][639-A-B; 640-A-D; 641-A-D]

15. As regards the refund claim of DTA supplier, it needs to be processed by the authorities under the FTP keeping in mind the purport of stipulations spelt out in Chapter 8 of subject FTP, such as the goods imported or supplied to EOU shall be with actual user condition and shall be utilised for export production and that the EOU did not avail CENVAT credit or rebate in relation to the goods supplied to EOU. Similarly, if the DTA supplier has utilised the CENVAT credit, commensurate amount needs to be reversed to its CENVAT credit account, in which case, there is no question of refunding the amount in cash to the DTA supplier. [Para 31][641-D-F]

Raja Crowns and Cans Pvt. Limited v. Union of India 2015 (317) ELT 40; Lenovo (India) Pvt. Ltd. v. Union of India (2017) 346 ELT 12 (Mad.); Manali

Petrochemical Limited v. Additional Director General of Foreign Trade, New Delhi & Anr. W.P.No. 23194 of 2009, decided on 16.9.2019; Union of India v. Alstom India Limited 2015 (325) ELT 72 (Del.); Commissioner of Central Excise, Delhi II v. Welspring Universal 2018

(359) ELT 635 (Del.); Deepak Enterprises v. Union of India 2018 (360) ELT 905 (Del.); Alstom Transport India Ltd. v. Union of India 2018 (363) ELT 69 (Del.); Motherson Sumi Electric Wires v. Union of India 2018

(364) ELT 91 (Del.); Multitex Filtration Engineers Limited v. Union of India 2020 (373) ELT 68 (Del.); Hindustan Tin Works Limited v. Union of India 2020

(373) ELT 217 (Del.); Acer India Pvt. Ltd. v. Union of India 2018 (361) ELT 44 (Kar.) 22 2001 – approved. IFGL Refractories Limited v. Joint Director General of Foreign Trade 2001 (132) ELT 545 (Cal.);

Commissioner of Central Excise and Customs v. NBM Industries 2012 (276) ELT 9 (Guj.); Commissioner of Central Excise v. Shilpa Copper Wire Industries 2011(269) ELT 17(Guj.); Kandoi Metal Powders

Manufacturing Company Private Limited v. Union of India (2014) 302 ELT 209 (Del.); Joint Director General of Foreign Trade v. IFGL Refractories Limited 2002 (143) ELT 294 (Cal.) – referred to.

16. The DTA supplier of goods to EOU would be entitled for refund of TED on the basis of applicable para 6.11(a) read with paras 8.3(c), 8.4.2 and 8.5 of the FTP under consideration. The modality of refund, however, ought to be in the form of reversal of commensurate amount in the CENVAT credit account of the DTA supplier, if the DTA supplier had utilized CENVAT credit account in respect of goods supplied to EOU; and if it had paid the amount in cash, the DTA supplier would be entitled for refund of cash with simple interest at the rate of 6% per annum as provided in para 8.5.1 of the applicable FTP on delay in refund of duty drawback and TED under deemed exports scheme. [Para 39][644-C-E]

17. The next question is: the refund claim should be set up before which Authority? 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. The EOU entities, who had procured and imported specified goods from DTA supplier, are entitled to do so without payment of duty [as in para 6.2(b)] having been ab initio exempted from such liability under para 6.11(c)(ii) of the FTP, being deemed exports. Besides this, there is no other entitlement of EOU under the applicable FTP. Indeed, under para 6.11(a) of the FTP, EOU is additionally eligible merely to avail of entitlements of DTA supplier as specified in Chapter 8 of the FTP upon production of a suitable disclaimer from the DTA supplier and subject to compliance of necessary formalities and stipulations. 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). Besides, 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 (para 8.5.1) on condition that it would not pass on that benefit to the DTA supplier owing to such refund/rebate. [Paras 41, 42, 43][645B-H]

18. 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. 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 as per para 8.5.1. [Para 44][646-A-C]

19. In both cases, responsibility of refund of TED in reference to applicable FTP would be that of the Authority responsible to implement the FTP under the 1992 Act, which has had consciously accorded such entitlements/benefits for promoting export and earning foreign exchange. Further, 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. It is so because it is well settled that the assessee is free to take benefit of more beneficial regime. [Para 45][646-C-E]