2014 (4) TMI 1057 - HC - Customs

Benefit of deemed export - Held that - Benefit of deemed export is available for renovation and complete modernisation of power plants. The supplier is eligible for benefits listed in Paragraph 8.3(a) and (b) of the Foreign Trade Policy, whichever is applicable. However, supply of goods for setting up any mega power project, as specified in Serial No. 400 of DoR Notification No. 21/2002-Customs, dated 1-3-2002, as amended, are eligible for deemed export benefits as mentioned in Paragraph 8.3(a), (b) or (c) of the Foreign Trade Policy, whichever is applicable, if such mega power project complies with the threshold generation capacity specified in the said Customs notification. - Cement and steel have been excluded from deemed export by amendment of the Foreign Trade Policy in June, 2012 by insertion of Paragraphs 8.8.1 and 8.8.2 as observed above. Prior to the amendment these items were not excluded. No reasons have been disclosed for the finding of the DGFT that deemed export benefits would not be available in respect of steel and cement. On the other hand, the very fact that the Foreign Trade Policy had to be amended in June, 2012 to introduce specific provisions for exclusion of cement and steel makes it clear that cement and steel were included prior to the amendment in June, 2012. - The petitioner shall not be required to pay back the deemed export benefit received in the form of refund of Terminal Excise Duty paid by the petitioner on steel and cement supplied to the concerned projects. - Decided in favour of assessee.

Issues Involved:
1. Validity and legality of the decisions dated 15 March 2011 and 9 September 2011 regarding deemed export benefits for cement and steel.
2. Legality of notices dated 20 July 2012/14 July 2012 demanding repayment of deemed export benefits with interest.
3. Interpretation of the Foreign Trade Policy 2009-14 regarding deemed export benefits.
4. Jurisdiction and authority of the Director General of Foreign Trade (DGFT) in interpreting and amending the Foreign Trade Policy.

Detailed Analysis:

1. Validity and legality of the decisions dated 15 March 2011 and 9 September 2011 regarding deemed export benefits for cement and steel:
The petitioner, a public sector undertaking, challenged the decisions of the respondent No. 5, which held that cement and steel were not eligible for deemed export benefits except under Paragraph 8.2(d) of the Foreign Trade Policy 2009-14. The court found that the Foreign Trade Policy, specifically Paragraphs 8.2(g) and 8.3(c), did include supplies to power projects as deemed exports, making them eligible for Terminal Excise Duty refunds. The court noted that the policy was amended in June 2012 to exclude cement and steel, indicating that these items were previously included.

2. Legality of notices dated 20 July 2012/14 July 2012 demanding repayment of deemed export benefits with interest:
The petitioner also contested the notices demanding repayment of the deemed export benefits received, along with 15% interest. The court quashed these notices, stating that the benefits were granted based on the existing policy at the time of supply. The amendment excluding cement and steel from deemed export benefits was prospective, effective from June 5, 2012, and could not be applied retroactively to supplies made before this date.

3. Interpretation of the Foreign Trade Policy 2009-14 regarding deemed export benefits:
The court examined the relevant provisions of the Foreign Trade Policy, including Paragraphs 8.1, 8.2, 8.3, and 8.4.4(iv). It was established that supplies to power projects were considered deemed exports and eligible for benefits such as Terminal Excise Duty refunds. The court emphasized that the policy's interpretation should align with legislative intent to facilitate exports and imports, as per Section 3 of the Foreign Trade (Development and Regulation) Act, 1992.

4. Jurisdiction and authority of the Director General of Foreign Trade (DGFT) in interpreting and amending the Foreign Trade Policy:
The court clarified that while the DGFT has the authority to interpret the Foreign Trade Policy, it does not have the power to amend it. This power rests solely with the Central Government, as specified in Section 5 of the Foreign Trade Act. The court found that the DGFT's decisions lacked a valid basis and were not supported by the policy's provisions. Consequently, the court ruled that the DGFT's interpretation excluding cement and steel from deemed export benefits was incorrect and beyond its jurisdiction.

Conclusion:
The court allowed the writ application, setting aside the decisions dated 15 March 2011 and 9 September 2011, as well as the notices dated 20 July 2012/14 July 2012. The petitioner was not required to repay the deemed export benefits received for the supply of cement and steel to the concerned projects. The judgment reaffirmed the interpretation of the Foreign Trade Policy in favor of the petitioner, ensuring that the benefits granted under the policy at the time of supply were upheld.

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