2018 (7) TMI 713 - HC - Customs

Refund of Terminal Excise Duty - Deemed Exports - Supplies made under ICB - Petitioner contends that contents of Para 8.3 of the old FTP are more or less identical to Para 7.05(ii) of the new FTP - denial of refund on the ground that the supply was under ICB, which was ab-initio exempted in terms of para 7.02-B(e)(i) & (ii) of the FTP, 2015-20 read with para 7.05(ii)(a) of the FTP, 2015-20 - validity of Para 7.05(ii)(a) of the Foreign Trade Policy 2015-2020 - Para 8.3(c) and Para 8.4(d) of the New FTP. Held that - Both the central excise and customs exemption notifications would spell out that no customs duty exemption to goods supplied to the Chennai Metro Rail Project was given to the petitioner; it cannot be said that such exemption was ever enjoyed by it. Therefore, the respondents argument that excise duty was exempt ab initio in respect of supplies made under the contracts funded by JICA, to the Chennai Metro, are factually incorrect. The exemption was not ab initio (i.e. per se) exempt; it was conditional upon availability of customs duty exemption, by virtue of Note 41 to the Excise Duty exemption notification. However, the customs duty exemption notification restricted duty exemption only to supplies made to specified contracts relating to the Delhi Metro Rail Corporation. Thus, the respondent authorities, in the opinion of the court, proceeded on an entirely erroneous premise. The Supreme Court s ruling in Director General of Foreign Trade and Ors. v. Kanak Exports and Ors. 2015 (11) TMI 80 - SUPREME COURT OF INDIA has now authoritatively settled the issue that provisions of the Export Import Policy and the related Handbook are statutory. Therefore, any clarification issued by any official howsoever high in rank she or he might be, cannot override the policy. In the present case, a combined reading of the central excise exemption notification and the customs duty exemption notification made it clear that such unconditional exemption was not extended to the goods. Rather, unconditional exemption was given only to goods supplied under contracts funded to the Delhi Metro Rail Corporation. This meant that the goods in question, supplied by the petitioner were dutiable. Clearly, therefore it was entitled to terminal excise duty refund, on a plain analysis of Para 8.3 of FTP 2009-2014. The supplies were made to Chennai Metro during the period 31.10.2014 to 04-03-2015. Para 7.05(ii)(a) of the new FTP is applicable from the date FTP 2015-2010 came into force. The restrictive condition in regard to denial of TED refund is to be considered in the light of the new FTP. Para 7.05(ii) of the new FTP provides however supply of goods which are exempted ab initio from payment of terminal excise duty would be ineligible to get refund of TED - The relevant Customs Notification namely Notification No. 12/2012-Cus dated 17.03.2012 at S. No. 354 (subject to condition 40) only provides an exemption from customs duty to goods supplied to Delhi Metro Rail Corporation Ltd ( DMRC ). Condition 40 in turn prescribes for relevant certificates to be issued by the concerned personnel of DMRC certifying that the goods concerned were used in Phase-I and specific corridors of Phase-II. It is clear, here again that no customs Duty exemption to goods supplied to the Chennai Metro Rail Project was ever given. Such exemption is the basis for excise duty exemption. Consequently, there is no question of any ab initio excise exemption operating in the Petitioner s favor under Notification 12/2012 dated 17.03.2012 in respect of the supplies made by it - the bar prescribed under Para 7.05(ii) is inapplicable. The impugned orders/letters denying refund of TED are hereby quashed - Respondents are directed to process the petitioners claim for TED refund for the concerned period and release the amounts which they are entitled to in respect of supplies made - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:

1. Eligibility for Terminal Excise Duty (TED) refund under the Foreign Trade Policy (FTP) 2009-2014.
2. Applicability of FTP 2015-2020 provisions to supplies made prior to its enactment.
3. Interpretation of "ab initio" exemption from TED under the relevant notifications.

Detailed Analysis:

1. Eligibility for TED Refund under FTP 2009-2014:

The petitioner, a subcontractor for the Chennai Metro Rail Project (CMR Project), sought a refund of ?12,42,18,219/- for TED paid on train sets supplied between 26.02.2014 and 30.08.2014. The project was funded by the Japan International Cooperation Agency (JICA) and was eligible for 'Deemed Export' benefits under the FTP 2009-2014. According to Para 8.2(d) of the old FTP, supplies to projects financed by multilateral or bilateral agencies like JICA, under International Competitive Bidding (ICB), were considered 'Deemed Exports'. Para 8.3(c) of the old FTP stated that a "Refund of terminal excise duty will be given if exemption is not available." The petitioner argued that since there was no customs duty exemption for supplies to the CMR Project, the supplies were not exempt from excise duty, and thus, they were entitled to a TED refund.

2. Applicability of FTP 2015-2020 Provisions:

The petitioner contended that the FTP 2015-2020, which came into effect on 01.04.2015, should not apply to supplies made before this date. The supplies in question were made between 26.02.2014 and 30.08.2014, and the application for TED refund was filed on 29.10.2014. Therefore, the petitioner argued that the provisions of the old FTP 2009-2014 should govern their claim. The respondents, however, rejected the refund application based on the new FTP provisions, specifically Para 7.02-B(e)(i) & (ii) and Para 7.05(ii)(a), which stated that supplies under ICB were ab initio exempt from TED.

3. Interpretation of "Ab Initio" Exemption:

The court examined whether the supplies were "ab initio" exempt from TED under the relevant notifications. The Central Excise Notification No. 12/2012-CE dated 17.03.2012 provided an excise duty exemption for goods supplied against ICB, provided they were also exempt from customs duties. The corresponding Customs Notification No. 12/2012-Cus dated 17.03.2012 only provided customs duty exemption for supplies to the Delhi Metro Rail Corporation (DMRC), not the CMR Project. Therefore, the court concluded that the supplies to the CMR Project were not "ab initio" exempt from excise duty, as the customs duty exemption condition was not met.

Conclusion:

The court held that the petitioner was entitled to a TED refund under the FTP 2009-2014, as the supplies were not "ab initio" exempt from excise duty. The court quashed the impugned orders denying the refund and directed the respondents to process and release the TED refund within eight weeks. The judgment clarified that the provisions of the FTP 2015-2020 could not be retroactively applied to supplies made before its enactment, and the conditions for TED exemption must be strictly interpreted based on the specific notifications governing excise and customs duties.