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2017 (7) TMI 512 - HC - Customs100% EOU - The Development Commissioner, KASEZ, issued a show cause notice dated 10.7.2015 in which it was pointed out that the petitioner had not refunded the amount of ₹ 55.75 lacs which was erroneously paid to the company and, therefore, to show cause why action should not be taken against the petitioner in terms of Foreign Trade (Development & Regulation) Act, 1992 - why on the purchases made by an EOU from another EOU, same would not qualify for Central Sales Tax reimbursement? Held that - A minute scrutiny of these provisions contained in para. 6.11 would reveal that the language used in clauses (a), (b) and (c), in general, was not made limited to the supplies from a DTA unit. As noted, clauses(a) and (b) both confined their application to the supplies made by the DTA unit. Clause(c) itself contained two situations. In subclause( i) what was envisaged was reimbursement of CST on goods manufactured in India. Subclause (ii) envisaged exemption from payment of CST on goods purchased from DTA on goods manufactured in India. Thus the policy wherever intended to limit the benefit of an EOU on procurement made from a DTA unit, it was so specifically provided. When therefore, subclause( i) of clause (c) of para 6.11 did not make any such reference to the procurement from a DTA unit but used the expression goods manufactured in India , it must be understood that this clause would govern the goods purchased by EOU unit from any unit as long as the condition of goods being manufactured in India is satisfied. In plain terms, therefore, the Foreign Trade Policy 20042-009 did not limit the benefit of CST reimbursement to a EOU on purchases made only from a DTA unit. We have noticed that the Director General of Foreign Trade in terms of section 6 of the Act has certain delegated powers which would include powers to frame such procedures. Subsection( 3) of section 6 however, excludes the delegation of such powers to those contained under sections 3, 5, 15, 16 and 19 of the Act. In exercise of powers under section 6, the Director General of Foreign Trade could not have framed or altered the Foreign Trade Policy. On the goods manufactured in an EOU, excise duty would be leviable, only when such goods are brought to any other place in India. We would have certainly considered this angle further, but for the fact that in the later year, the Government of India itself has recognised the benefit of CST reimbursement on the purchases made by the EOU from another EOU. It was for this purpose that we had referred to and noted relevant portion of the Foreign Trade Policy 2015-2020 and the procedure for claiming the CST reimbursement. We may recall that insofar as base policy is concerned for grant of such CST reimbursement, no change has been brought about in the Foreign Trade Policy 2015-2020 as compared to the Foreign Trade Policy 2004-2009. Despite this, base policy being the same, the procedure for claiming reimbursement of CST on supplies made to EOU under the current policy now envisages such reimbursement on any sales made to a EOU not only from DTA but also from EOU, SEZ, etc. The claim pertained to period between 2006 and 2008. They were made at the relevant time and granted by the respondents without any dispute. Such reimbursements are now sought to be recovered for which show cause notice came to be issued on 10.7.2015. It is not the case of the respondents that the petitioner was responsible for any misrepresentation or misstatement of facts which resulted into such erroneous reimbursement being granted and which came to the notice later on. That being the position, it was not possible for the respondents to make recoveries after unduly long period of time which in the present case happens to be more than seven years, that too, without any explanation for such delayed action. Petition allowed - decided in favor of petitioner.
Issues Involved:
1. Challenge to Appendix 14II of Hand Book Procedures of Foreign Trade Policy 2004-2009. 2. Challenge to circular dated 11.4.2014 as ultra vires the Foreign Trade Policy 2004-2009. 3. Challenge to order dated 22.8.2016 by Development Commissioner, KASEZ. 4. Legality of CST reimbursement on purchases made by an EOU from another EOU. 5. Validity of recovery actions after a long delay. Issue-wise Detailed Analysis: 1. Challenge to Appendix 14II of Hand Book Procedures of Foreign Trade Policy 2004-2009: The petitioner contended that the limitation of CST reimbursement to purchases made from Domestic Tariff Area (DTA) units, as specified in Appendix 14II, was ultra vires the Foreign Trade Policy 2004-2009. The Court observed that the Foreign Trade Policy itself did not restrict CST reimbursement to purchases from DTA units. Para 6.11(c)(i) of the policy stated that EOUs are entitled to reimbursement of CST on goods manufactured in India, without specifying any restriction to DTA units. The Court concluded that the restriction in Appendix 14II was beyond the powers of the Director General of Foreign Trade and contrary to the policy. 2. Challenge to circular dated 11.4.2014 as ultra vires the Foreign Trade Policy 2004-2009: The circular dated 11.4.2014 issued by the Ministry of Commerce and Industry clarified that CST reimbursement was not available for goods supplied from one EOU to another. The Court held that this circular did not lay down the correct legal position because it imposed a restriction not found in the Foreign Trade Policy 2004-2009. The circular was therefore quashed. 3. Challenge to order dated 22.8.2016 by Development Commissioner, KASEZ: The Development Commissioner, KASEZ, demanded a refund of CST reimbursement and imposed a penalty for delayed return of the amount. The Court set aside this order, noting that the Foreign Trade Policy did not restrict CST reimbursement to purchases from DTA units. The Court found that the order was based on an incorrect interpretation of the policy and the ultra vires circular. 4. Legality of CST reimbursement on purchases made by an EOU from another EOU: The Court analyzed the relevant provisions of the Foreign Trade Policy and concluded that the policy did not restrict CST reimbursement to purchases from DTA units. The expression "goods manufactured in India" in para 6.11(c)(i) included goods manufactured in EOUs. The Court referred to subsequent policies (2015-2020) which explicitly allowed CST reimbursement for purchases from EOUs, confirming that the original policy intended to cover such transactions. The Court held that the procedure in Appendix 14II, which restricted reimbursement to DTA purchases, was ultra vires the policy. 5. Validity of recovery actions after a long delay: The Court noted that the claims for CST reimbursement were made and granted between 2006 and 2008, and the demand for recovery was issued in 2015. The Court found that there was no misrepresentation or misstatement by the petitioner that justified such a delayed recovery. The Court held that it was impermissible for the respondents to recover the amount after an undue delay of more than seven years without any explanation. Conclusion: The petition was allowed, setting aside the impugned order dated 22.8.2016 and quashing the circular dated 11.4.2014. The Court declared that the circular did not lay down the correct legal position and that the restriction in Appendix 14II was ultra vires the Foreign Trade Policy 2004-2009. The Court also highlighted the impermissibility of delayed recovery actions.
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