Legal principle

In deemed-export supplies from a DTA supplier to an EOU, the DTA supplier — not the EOU as of right — is entitled to refund of Terminal Excise Duty under para 8.3(c) of the applicable FTP, by CENVAT reversal or in cash with 6% simple interest if duty was paid in cash, from the authority implementing the FTP under the 1992 Act, while the EOU's entitlement is limited to ab initio exemption and the benefit of the supplier's Chapter 8 entitlements upon a disclaimer.

Court decision

The Supreme Court partly allowed the EOUs' appeals against the Bombay High Court and also partly allowed the Department's appeals against the Delhi and Karnataka High Court decisions. It held that an EOU is entitled only to ab initio exemption from central excise duty under para 6.11(c)(ii) and is obliged to procure goods from the DTA supplier without payment of duty under para 6.2(b); an EOU is not entitled to refund of TED on its own accord, though it may avail the DTA supplier's entitlements specified in Chapter 8 of the FTP upon obtaining a suitable disclaimer. The DTA supplier of goods to an EOU is entitled to refund of TED under para 8.3(c) read with paras 8.4.2 and 8.5, in the form of reversal of commensurate CENVAT credit if credit was utilized, or in cash with simple interest at 6% per annum under para 8.5.1 if paid in cash, and the authority responsible for implementing the FTP under the 1992 Act must deal with such refund claims.

Facts

Sandoz Private Limited, a 100% Export Oriented Unit (EOU) manufacturing goods under Chapter 30 of the Central Excise Tariff Act, 1985, applied to the Development Commissioner for refund of Terminal Excise Duty (TED) on excisable goods procured from its Domestic Tariff Area (DTA) unit, having received such refunds regularly between 2006 and 2012. Its applications (around Rs.1.90 crore for July–September 2012, Rs.1.36 crore for October–December 2012, and Rs.6.87 crore for November 2011) were rejected pursuant to DGFT policy circular No.16(RE-2012/2009-14) dated 15.03.2013, which clarified that no TED refund should be given because supplies by a DTA unit to an EOU are ab initio exempt from excise duty. The Bombay High Court dismissed the EOUs' writ petitions challenging the circular and rejection orders on 01.08.2016, and related decisions of the Delhi and Karnataka High Courts (favouring DTA suppliers) were also in appeal before the Supreme Court.

Key provisions

• Section 5, The Foreign Trade (Development and Regulation) Act, 1992 — Foreign Trade Policy.