2019 (8) TMI 1258 - HC - Customs

Grant of CST Refunds - goods supplied by EOUs to EOUs - HELD THAT - This Court ruled that the Foreign Trade Policy 20042009 did not limit the benefit of CST reimbursement to an EOU on the purchases made only from a DTA unit. Prima facie , it appears that this decision has been overlooked by the appellate authority. The decision of this Court in Asahi Songwon 2017 (7) TMI 512 - GUJARAT HIGH COURT is dated 6th July 2017. When the show cause notice was issued, the orderinoriginal was passed, this judgement was not pronounced. When the appeal was being heard, this judgement was already pronounced. As observed by us, prima facie, it appears that the appellate authority has overlooked the position of law, as explained by this Court. We also take notice of the fact that the contention of Mr. Iyer with regard to the delay and recovery after a period of almost eight years is also taken care of by this Court in the case of Asahi Songwon . This Court, in Asahi Songwong, made it clear that it was not permissible for the respondent to make recovery after unduly long period of time. In Asahi Songwon, the delay was almost seven years. Whereas in the case on hand, it is almost more than eight years. Grant of CST refunds - DTA clearance - HELD THAT - We may look into paragraph 6.11 of the Foreign Trade Policy 20042009. This policy provides for the refund of the CST suffered on the inputs used for the production of final product cleared into the DTA by an EOU - The reading of the Foreign Trade Policy referred to above as well as the condition in appendix 14-I-I of the Handbook of Procedures 20042-009 as it existed until 16th September 2008 appears to be in conflict with each other. The Foreign Trade Policy, more particularly, para 6.11(c)(i) makes it clear that an EOPU shall be entitled to the reimbursement of the CST goods manufactured in India. If that be so, then, in our opinion, the appendix of the Handbook of Procedures could not have been relied upon. There is merit in the submission of Mr. Iyer that the provisions in the FTP govern the statutory scheme of the policy, and in such circumstances, the appendix or the Handbook of Procedures cannot override the FTP provisions. In case of a conflict, the FTP provisions should prevail vis-a-vis the appendix in Handbook of Procedures, which are nothing but a subordinate legislation. The impugned order passed by the Director General of Foreign Trade dated 7th September 2018 is hereby quashed and set aside - Petition allowed.

Summary

Issues Involved:
1. Validity of CST refunds on inputs procured from EOUs.
2. Validity of CST refunds on inputs used in production of final products cleared into DTA.
3. Applicability of Public Notice No. 81 (RE2008)/2004-2009 dated 16.09.2008.
4. Timeliness and admissibility of recovery proceedings initiated after a significant delay.

Detailed Analysis:

1. Validity of CST refunds on inputs procured from EOUs:

The writ applicant, an Export Oriented Unit (EOU), challenged the denial of CST refunds on goods supplied by EOUs to EOUs. The court referred to the decision in *Asahi Songwan Colors Ltd and Ors vs. Union of India and Ors* (2017 (356) ELT 532 (Guj)), which held that the Foreign Trade Policy (FTP) 2004-2009 did not limit CST reimbursement to purchases made only from Domestic Tariff Area (DTA) units. The court ruled that the FTP's language did not restrict CST refunds to DTA supplies, thus supporting the applicant's claim.

2. Validity of CST refunds on inputs used in production of final products cleared into DTA:

The court examined paragraph 6.11(c)(i) of the FTP 2004-2009, which entitles EOUs to CST reimbursement on goods manufactured in India. The court found that the Handbook of Procedures (HBP) appendix 14-II, which restricted CST refunds to goods meant for export, conflicted with the FTP. The court held that the FTP provisions, being the primary statutory scheme, should prevail over the HBP, thus validating the CST refunds on inputs used in products cleared into DTA.

3. Applicability of Public Notice No. 81 (RE2008)/2004-2009 dated 16.09.2008:

The court noted that Public Notice No. 81, which amended the HBP to allow CST reimbursement for goods cleared into DTA from 16.09.2008 onwards, had only prospective effect. The court ruled that the FTP provisions already provided for CST reimbursement on goods manufactured in India, and the HBP could not override these provisions. Therefore, the amendment did not affect the applicant's entitlement to CST refunds for the period before the notice.

4. Timeliness and admissibility of recovery proceedings initiated after a significant delay:

The court addressed the issue of delayed recovery proceedings, noting that the show cause notice was issued in 2015 for refunds granted in 2007-08. The court referred to *Asahi Songwan* (supra), which held that recoveries could not be made after an unduly long period without any misrepresentation or suppression of facts by the applicant. The court found no allegations of willful suppression or misrepresentation by the applicant and ruled that the delayed recovery proceedings were impermissible.

Conclusion:

The court quashed the impugned order dated 07.09.2018, upholding the applicant's entitlement to CST refunds on inputs procured from EOUs and used in production of final products cleared into DTA, as per the FTP 2004-2009. The court also ruled against the delayed recovery proceedings initiated by the respondent. The writ application was allowed, and the rule was made absolute.