Rule 3 of the 1995 Rules makes it abundantly clear that a drawback may be allowed on the export of goods at such amount or at such rates as may be determined by the Central Government. Further, Rule 14 provides for payment of drawback and interest.
2024 INSC 83
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7238 OF 2009
UNION OF INDIA AND ORS. APPELLANT(S)
VERSUS
M/S. B. T. PATIL AND SONS
BELGAUM (CONSTRUCTION) PVT. LTD. RESPONDENT(S)
J U D G M E N T
UJJAL BHUYAN, J.
Appellants i.e., Union of India, Director General of Foreign
Trade and Joint Director General of Foreign Trade by means of this civil
appeal have taken exception to the judgment and order dated
22.08.2008 passed by a Division Bench of the High Court of Karnataka,
Circuit Bench at Dharwad in Writ Appeal No.356 of 2006 affirming the
judgment and order of the learned Single Judge dated 22.09.2005
allowing Writ Petition No.45525 of 2004 filed by the respondent.
2
2. Facts lie within a narrow compass. Nonetheless, for a
determination of the lis, it would be necessary to briefly narrate the
relevant facts as projected by the respondent in the related writ petition.
2.1. Respondent is a class-I contractor specializing in the field
of civil contract works especially funneling and hydro electric power
projects.
2.2. Central Government had approved funding of a project
called Koyna Hydro Electric Power Project, Maharashtra by the
International Bank for Reconstruction and Development, which is an
arm of the World Bank. In the said project, respondent was awarded a
sub-contract to execute civil works from Lake Intake to the Emergency
Valve Tunnel. Respondent has relied upon a letter dated 08.08.1991
issued by the Chief Engineer of the project. Relevant portion of the letter
reads thus:-
4.2. Information regarding the benefits available
under the “Deemed Export” concept for this World Bank
Aided (Loan) Project may please be obtained by the
contractors from their own sources and the information
gained by them may be utilised, while quoting the rates.
2.3. A deemed export scheme was announced under the
Exim Policy, 1992-1997 by the Ministry of Commerce, Government
of India and the Director General of Foreign Trade under the
Foreign Trade (Development and Regulation) Act, 1992. Certain
3
benefits under ‘deemed export’ were also included in the said Exim
Policy.
2.4. Respondent completed the construction work awarded
to it in the month of March, 1996 and thereafter filed applications
dated 25.03.1996, 13.09.1996 and 20.12.1996 claiming duty
drawback for Rs.35,75,679.00, Rs.88,98,206.00 and
Rs.85,05,853.00 respectively.
2.5. By endorsements dated 10.11.1996, 06.12.1996 and
31.12.1996, Director General of Foreign Trade (for short ‘DGFT’
hereinafter) rejected the applications of the respondent for duty
drawback on the ground that supplies in civil construction work
were not eligible for ‘deemed export’ benefit.
2.6. Notwithstanding such rejection, respondent made
representations for reconsideration of such decision and sought for
duty drawback under the Exim Policy, 1992-1997. One such
representation is dated 05.02.1997. However, the same was
rejected by the DGFT vide the order dated 10.08.1997 stating that
civil construction work did not qualify for drawback.
2.7. On 20.08.1998, DGFT issued a circular under the
successor Exim Policy, 1997-2002 clarifying that supply of goods
under paragraph 10(2)(d) of the 1997-2002 Exim Policy would be
4
entitled for ‘deemed export’ benefit. It may be mentioned that the
Exim Policy of 1992-1997 had expired with effect from 31.03.1997.
2.8. On 05.12.2000, DGFT issued a circular that drawback
was to be paid in respect of excise duty on supply of goods to
projects funded by multilateral agencies.
2.9. In the above scenario, respondent once again addressed
a letter dated 28.08.2001 to the DGFT to finalize the issue.
However, DGFT rejected the claim vide the communication dated
21.06.2002.
2.10. Notwithstanding the same, a Policy Interpretation
Committee was constituted which examined the case of the
respondent in its meeting held on 07.10.2002. It was decided that
the benefit of duty drawback under the ‘deemed export’ scheme
would be extended to the respondent. Consequently, in
supersession of the earlier rejection order dated 21.06.2002 and in
the light of the decision of the Policy Interpretation Committee
dated 07.10.2002, DGFT vide the order dated 01.11.2002
permitted duty drawback of Rs.2,05,79,740.00 to the respondent.
Thereafter cheques for Rs.25,00,000.00, Rs.63,23,575.00,
Rs.81,05,583.00 and Rs.56,50,312.00, totalling Rs.2,25,79,470.00
vide endorsements dated 31.03.2003 and 20.05.2003 were issued.
5
However, it was clarified that duty drawback granted to the
respondent would not be treated as a precedent.
2.11. Respondent thereafter submitted representation
addressed to the appellants dated 06.06.2003, 14.06.2003,
17.07.2003, 29.10.2003 and 10.08.2004 seeking interest on the
duty drawback amount paid on the ground of delayed payment.
However, the request for interest made by the respondent was
rejected by the DGFT.
3. Aggrieved by rejection of the request for interest on the
amount of duty drawback paid, respondent preferred a writ petition
before the High Court which was registered as Writ Petition
No.45525 of 2004. After hearing the parties, a learned Single Judge
of the High Court vide the judgment and order dated 22.09.2005
referred to the notification dated 05.12.2000 and held that
respondent was entitled for duty drawback. After observing that
there was delay in payment of duty drawback, learned Single Judge
held that respondent would be entitled to interest for delayed
payment of duty drawback. Since Customs Act, 1962 provides that
interest has to be paid in such a case in the range of five percent
to thirty percent, learned Single Judge awarded interest at the rate
of fifteen percent. Consequently, directions were issued to the
6
appellants to consider the claim of the respondent for payment of
interest on delayed refund from the date of notification dated
05.12.2000 till the date of payment to the respondent within a
period of three months.
4. This judgment and order of the learned Single Judge
came to be assailed by the appellants before the Division Bench of
the High Court which was registered as Writ Appeal No.356 of
2006. Respondent also filed Writ Appeal No.3699 of 2005 assailing
the direction of the learned Single Judge to pay interest only from
05.12.2000. The Division Bench took note of the fact that since
duty drawback was refunded by the appellants to the respondent,
the only question to be considered was the entitlement of the
respondent to interest for the delayed refund. In this connection,
the Division Bench examined the notification dated 20.08.1998
and observed that this notification had clarified that ‘deemed
export’ would include goods and services of civil construction
projects. Thus, duty drawback under the Exim Policy in force was
extended even to civil construction. This position was further
clarified by the subsequent notification dated 05.12.2000. Such
notification was held by the Division Bench to be clarificatory in
nature, thus having retrospective effect. After referring to Sections
7
27A and 75A of the Customs Act, 1962, the Division Bench held
that respondent would be entitled to interest after expiry of three
months from the date of making the applications for refund of duty
drawback. Vide the judgment and order dated 22.08.2008, the
Division Bench opined that respondent would be entitled to
interest from the date of expiry of three months after submitting
the applications for refund of duty drawback in the year 1996 at
the rate of fifteen percent as awarded by the learned Single Judge.
While the writ appeal of the respondent was allowed, the writ
appeal of the appellants was dismissed.
5. Mr. V. C. Bharathi, learned counsel for the appellants
submitted a short list of dates and events. He pointed out
therefrom that applications filed by the respondent for duty
drawback were repeatedly rejected by the DGFT. Notwithstanding
such rejection, respondent continued to file one representation
after the other claiming duty drawback. It is in such
circumstances that a Policy Interpretation Committee was
constituted by the DGFT which examined the case of the
respondent and vide its decision dated 07.10.2002 decided to
extend the benefit of duty drawback to the respondent as a special
case. It is in this backdrop that DGFT had passed order dated
8
01.11.2002 emphasizing that the duty drawback paid to the
respondent would not be treated as a precedent. He submitted that
duty drawback was extended to the respondent as a special case
which was not available to the respondent under the Exim Policy
of 1992-1997. In such circumstances, question of awarding any
interest to the respondent on the ground of alleged delay in
payment of duty drawback did not arise. There was no provision
under the Exim Policy of 1992-1997 for payment of such interest.
Therefore, learned Single Judge erred in awarding interest to the
respondent, that too, at the high rate of fifteen percent.
5.1. He further argued that the Division Bench had fallen in
error taking the view that circulars dated 20.08.1998 and
05.12.2000 were clarificatory in nature and therefore would have
retrospective effect covering the case of the respondent. According
to him, these circulars were issued under the successor Exim
Policy, 1997-2002 and thus could not be applied to cases like that
of the respondent under the Exim Policy 1992-1997. He, therefore,
submitted that the present is a fit case for interfering with the
decision of the learned Single Judge as affirmed by the Division
Bench.
9
6. Per-contra, Mr. Basuva Prabhu Patil, learned senior
counsel for the respondent supported the orders of the learned
Single Judge and that of the Division Bench. He submitted that the
appellants having granted the benefit of duty drawback to the
respondent though belatedly, it is not open to them to now contend
that respondent was not entitled to such duty drawback which was
only granted as a concession. Admittedly, there was delay in refund
of duty drawback. Respondent is, therefore, entitled to interest on
such delayed refund which was rightly awarded by the High Court.
6.1. Referring to the provisions of Section 27A of the
Customs Act, 1962 (referred to as the ‘Customs Act’ hereinafter),
learned senior counsel submitted that the High Court had taken a
rather conservative figure considering the legislative scheme while
awarding interest at the rate of fifteen percent to the respondent.
He, therefore, submitted that no interference would be called for in
the orders of the High Court and that the civil appeal filed by the
appellants should be dismissed.
7. Submissions made by learned counsel for the parties
have received the due consideration of the Court.
10
8. Before we examine the decisions of the High Court, it
would be apposite to briefly highlight the statutory framework and
the concerned Exim Policy.
9. Section 11A of the Central Excise Act, 1944 (briefly
‘Central Excise Act’ hereinafter) deals with recovery of duties not
levied or not paid or short-levied or short paid or erroneously
refunded. Relevant for our purpose is sub-section (1) which says
that where any duty of excise has not been levied or not paid or
has been short levied or short paid or erroneously refunded, for
any reason other than the reason of fraud or collusion etc. with
intent to evade payment of duty, the Central Excise Officer shall
serve notice on the person so chargeable within two years from the
relevant date requiring him to show cause why he should not pay
the amount specified in the notice. The person chargeable with
duty may either before service of notice pay on the basis of his own
ascertainment or the duty ascertained by the Central Excise
Officer, the amount of duty along with interest payable thereon
under Section 11AA. In the event of fraud, collusion etc. the notice
period gets extended to five years.
9.1 Duty is cast upon the person liable to pay duty either
voluntarily or after determination under Section 11A to pay interest
11
in addition to the duty under sub-section (1) of Section 11AA. As
per sub-section (2), such interest shall not be below ten percent
and shall not exceed thirty six percent per annum, as the Central
Government may by notification in the Official Gazette fix. Such
interest shall be calculated from the date on which the duty
becomes due up to the date of actual payment of the amount due.
9.2. Section 11B of the Central Excise Act entitles any person
claiming refund of any duty of excise and interest to make an
application for refund of such duty and interest before the expiry
of one year from the relevant date (prior to 12.05.2000, it was six
months instead of one year).
9.3. Section 11BB provides for interest on delayed refund. It
says that if any duty ordered to be refunded under sub-section (2)
of Section 11B to any applicant is not refunded within three
months from the date of receipt of the application under subsection (1) of that section, there shall be paid to such applicant
interest at such rate not below five percent and not exceeding thirty
percent per annum as for the time being fixed by the Central
Government, by notification in the Official Gazette. Prior to
11.05.2001, the rate of interest was not below ten percent. The
applicant would be entitled to interest after expiry of three months
12
from the date of receipt of such application till the date of refund
of such duty.
10. Section 27 of the Customs Act deals with claim for
refund of duty. As per sub-section (1), any person claiming refund
of any duty or interest paid by him or borne by him, may make an
application in the prescribed form and manner, for such refund
addressed to the designated authority before the expiry of one year
from the date of payment of such duty or interest. Explanation
below sub-section (1) clarifies that for the purpose of sub-section
(1), the date of payment of duty or interest in relation to a person,
other than an importer, shall be construed as the date of purchase
of goods by such person.
10.1. Sub-section (2) says that if on the receipt of such
application the designated authority is satisfied that the whole or
any part of the duty and interest, if any, paid on such duty, paid
by the applicant is refundable, he may make an order accordingly
and the amount so determined shall be credited to the Consumer
Welfare Fund established under Section 12C of the Central Excise
Act. However, as per the proviso, the amount of duty and interest
so determined shall be paid to the applicant instead of being
credited to the Consumer Welfare Fund if such amount is relatable,
13
amongst others, to drawback of duty payable under Sections 74
and 75 of the Customs Act.
11. Section 27A of the Customs Act provides for interest on
delayed refund. It says that, if any duty ordered to be refunded
under sub-section (2) of Section 27 to an applicant is not refunded
within three months from the date of receipt of the application,
there shall be paid to that applicant interest at such rate not below
five percent and not exceeding thirty percent per annum as is for
the time being fixed by the Central Government, by notification in
the Official Gazette, on such duty from the date immediately after
the expiry of three months from the date of receipt of such
application till the date of refund of such duty.
12. Chapter X of the Customs Act comprising of Sections 74
to 76 deals with drawback. While Section 74 allows drawback on
re-export of duty-paid goods, Section 75 provides for drawback on
imported materials used in the manufacture of goods which are
exported. On the other hand, Section 75A deals with interest on
drawback. Sub-section (1) of Section 75A says that, where any
drawback payable to a claimant under Section 74 or Section 75 is
not paid within a period of one month (earlier it was two months
and prior thereto it was three months) from the date of filing a claim
14
for payment of such drawback, there shall be paid to that claimant
in addition to the amount of drawback, interest at the rate fixed
under Section 27A from the date after the expiry of the said period
of one month till the date of payment of such drawback.
13. In exercise of the powers conferred under Section 3 of
the Imports and Exports (Control) Act, 1947, the Central
Government notified the Export and Import (Exim) Policy for the
period 1992-1997. It came into effect from 01.04.1992 and
remained in force for a period of five years up to 31.03.1997.
14. After the enactment of The Foreign Trade (Development
and Regulation) Act, 1992, the Exim Policy, 1992-1997 was
deemed to have been made under the aforesaid Act. That being the
position, we will briefly refer to the said enactment.
15. The Foreign Trade (Development and Regulation) Act,
1992 (briefly ‘the 1992 Act’ hereinafter) is an act to provide for the
development and regulation of foreign trade by facilitating imports
into and augmenting exports from India and for matters connected
therewith or incidental thereto.
15.1. Section 4 declares that all orders made under the
Imports and Exports (Control) Act, 1947 and in force immediately
before the commencement of the 1992 Act shall so far as they are
15
not inconsistent with the provisions of the 1992 Act would continue
to be in force and shall be deemed to have been made under the
1992 Act.
15.2. Thus, by virtue of Section 4 of the 1992 Act, the Exim
Policy of 1992-1997 continued to be in force and was deemed to
have been made under the 1992 Act.
16. Section 5 of the 1992 Act, as it stood at the relevant
point of time, dealt with export and import policy. As per Section
5, the Central Government may from time to time formulate and
anounce by notification in the Official Gazette, the export and
import policy and may also, in the like manner, amend that policy.
17. Rule 2(e) of the Foreign Trade (Regulation) Rules, 1993,
framed under the 1992 Act, defines the word ‘policy’ to mean export
and import policy formulated and announced by the Central
Government under Section 5.
18. Let us now revert back to the Exim Policy, 1992 – 1997.
Section 7 of the said policy ascribes meaning to the words and
expressions for the purpose of the policy. As per Section 7(13),
‘drawback’ in relation to any goods manufactured in India and
exported means the rebate of duty chargeable on any imported
16
materials or excisable materials used in the manufacture of such
goods in India.
19. Chapter VII of the policy provides for ‘Duty Exemption
Scheme’. Section 47, which is the first section in Chapter VII,
mentions that under the Duty Exemption Scheme, imports of duty
free raw materials, components, intermediates, consumables,
parts, spares including mandatory spares and packing materials
required for the purpose of export production may be permitted by
the competent authority under the five categories of licences
mentioned in the said chapter, including special imprest licence.
As per Section 56 (ii)(3), supplies made to projects financed by
multilateral or bilateral agencies like the International Bank for
Reconstruction and Development would be entitled to duty free
import of raw materials, components, intermediates, consumables,
parts, spares including mandatory spares and packing materials
to main/sub-contractors for the manufacture and supply of
products to such projects.
20. Chapter X introduced the concept of ‘deemed exports’.
Section 120 defines ‘deemed exports’ to mean those transactions
in which the goods supplied did not leave the country and the
payment for the goods was received by the supplier in Indian
17
rupees but the supplies earned or saved foreign exchange for the
country.
21. Under Section 121 (f), supply of goods to projects
financed by multilateral or bilateral agencies, such as, the
International Bank for Reconstruction and Development under
international competitive bidding or under limited tender system
would be regarded as ‘deemed exports’ under the Exim Policy of
1992-1997.
22. Section 122 provides that ‘deemed exports’ shall be
eligible for the benefits in respect of manufacture and supply of
goods qualifying as ‘deemed exports’, including under the Duty
Drawback Scheme.
23. In exercise of the powers conferred by Section 75 of the
Customs Act, Section 37 of the Central Excise Act and Section 93A
read with Section 94 of the Finance Act, 1994, the Central
Government has made a set of rules called the Customs, Central
Excise Duties and Service Tax Drawback Rules, 1995. Rule 2(a)
defines ‘drawback’ in relation to any goods manufactured in India
and exported, to mean the rebate of duty or tax as the case may
be, chargeable on any imported materials or excisable materials
used or taxable services used as input services in the manufacture
18
of such goods. ‘Excisable material’ has been defined under Rule
2(b) to mean any material produced or manufactured in India
subject to a duty of excise under the Central Excise Act. Likewise,
the expression ‘imported material’ has been defined under Rule
2(d) to mean any material imported into India and on which duty
is chargeable under the Customs Act.
23.1. Rule 3 provides for allowance of drawback. Sub-rule (1)
says that subject to the provisions of the Customs Act, Central
Excise Act, the Finance Act, 1994 and the rules made under the
aforesaid three enactments, a drawback may be allowed on the
export of goods at such amount or at such rates as may be
determined by the Central Government.
23.2. Rule 14 deals with payment of drawback and
interest. Sub-rule (1) says that the drawback under the Customs,
Central Excise Duties and Service Tax Drawback Rules, 1995
(briefly ‘the 1995 Rules’ hereinafter) and interest, if any, shall be
paid by the proper officer of customs to the exporter or to the agent
specially authorized by the exporter to receive the said amount of
drawback and interest. Sub-rule (2) clarifies that the officer of
customs may combine one or more claims for the purpose of
payment of drawback and interest, if any, as well as adjustment of
19
any amount of drawback and interest already paid and may issue
a consolidated order for payment. As per sub-rule (3), the date of
payment of drawback and interest, if any, shall be deemed to be,
in the case of payment by cheque, the date of issue of such cheque;
or by credit in the exporter’s account maintained with the Custom
House, the date of such credit.
24. At this stage, we may mention that in exercise of the
powers conferred by Section 27A of the Customs Act, the Central
Board of Excise and Customs had issued notification bearing
No.32/1995 (NT)-Customs dated 26.05.1995 fixing the rate of
interest at fifteen percent for the purposes of Section 27A of the
Customs Act. This was notified by the Central Government in the
Ministry of Finance, Department of Revenue in the Official Gazette
of India dated 26.05.1995.
25. Likewise, in exercise of the powers conferred by Section
11BB of the Central Excise Act, the Central Board of Excise and
Customs issued notification No.22/95-Central Excises (NT) dated
29.05.1995 fixing the rate of interest at fifteen percent per annum
for the purposes of the said section. This was also notified by the
Central Government in the Official Gazette of India on 29.05.1995.
20
26. Though it may not be necessary, still we may refer to the
circulars dated 20.08.1998 and 05.12.2000 issued by the DGFT.
Circular dated 20.08.1998 says that representations had been
received from individual exporters as well as clarifications sought
for by different regional licencing authorities with regard to
availability of deemed export benefit for supply of goods and
services to civil construction projects. Circular dated 20.08.1998
says that the issue as to whether supply of goods and services to
civil construction projects would be entitled for deemed export
benefit or not had been examined in detail, whereafter it was
clarified that supply of goods under paragraph 10(2)(d) of the Exim
Policy would be entitled to deemed export benefit. Therefore, if
within the scope of a work of turn-key civil construction project,
supply of goods is included then supply of such goods would be
entitled to deemed export benefit.
26.1. It appears that representations were continued to be
received by the DGFT regarding admissibility of duty drawback on
supplies made to turn-key projects, considered as deemed export
in terms of the Exim Policy. Circular dated 05.12.2000 mentions
that the matter was deliberated upon by the Policy Review
Committee. It was noted that it was not possible for a single
21
contractor to manufacture himself all the items required for
execution of such projects. Hence certain items, either imported or
indigenous, had necessarily to be procured from other sources. It
was, therefore, clarified that all such directly supplied items,
whether imported or indigenous, and used in the projects, the
condition ‘manufactured in India’, a pre-requisite for grant of
deemed export benefit, was satisfied in view of the fact that such
activities being undertaken at the project site constituted
‘manufacture’ as per the definition provided in the Exim Policy.
Accordingly, it was clarified that the duties, customs and central
excise, suffered on such goods should be refunded through the
duty drawback route. Referring to the previous circular dated
20.08.1998, it was further clarified that excise duty paid on supply
of inputs, such as, cement, steel etc., would be refunded through
the duty drawback route in the same manner as in any other case
of excisable goods being supplied to any other project qualifying for
deemed export benefit, subject to the project authority certifying
the receipt and use of such inputs in the project.
27. As already noted above, a Policy Interpretation
Committee was constituted. The said committee held a meeting on
07.10.2002, chaired by the DGFT. One of the agenda items
22
deliberated upon in the said meeting was the claim of the
respondent regarding inclusion of excise duty component in the
price quoted before the project authority as a case of deemed export
and refund of the same through the duty drawback route. The
Policy Interpretation Committee discussed the case of the
respondent and opined that in case any such firms were still
competitive and able to supply goods at international prices despite
including the component of excise duty in the price quoted before
the project authority, the deemed export benefit could not be
denied to such firms. Hence, the committee decided to permit
deemed export benefit even in cases where the excise duty
component was factored in the pricing quoted provided other
conditions of deemed export benefit were adhered to.
27.1. From a perusal of the minutes of the meeting of the
Policy Interpretation Committee held on 07.10.2002, it is evident
that the committee had opined to extend the deemed export benefit
to those firms which included excise duty component in the tender
pricing quoted before the project authority such as the respondent.
There is nothing in the minutes to indicate that such benefit was
being extended to the respondent as a one off case or by way of
concession.
23
28. Based on the minutes of the Policy Interpretation
Committee meeting held on 07.10.2002, DGFT issued letter dated
01.11.2002, a copy of which was marked to the respondent,
superseding the previous rejection order dated 21.06.2002 and
allowing duty drawback to be paid to the respondent for
materials/goods, such as, steel, cement etc., used in the civil works
of Koyna Hydro Electric Project. The amount of drawback
refundable to the respondent was quantified at Rs.2,05,79,740.00.
In the said letter, it was, however, mentioned that grant of
drawback should not be treated as a precedent. It was thereafter
that cheques were issued paying the aforesaid amount of duty
drawback to the respondent. At that stage, respondent submitted
representations contending that there was delay in the refund of
drawback and therefore, it was entitled to interest from the relevant
date at the rate of fifteen percent in terms of the notification
No.22/95 dated 29.05.1995 (we may mention that the respondent
had placed reliance on the aforesaid notification which fixed
interest at the rate of fifteen percent for delayed refund of duty
under Section 11BB of the Central Excise Act). However, such
representations were rejected by the DGFT on 10.07.2003 and
06.08.2003 respectfully. In the rejection letter dated 10.07.2003,
respondent was informed by the office of DGFT that there was no
24
provision for payment of interest on the deemed export duty
drawback. Therefore, the request for payment of interest could not
be agreed upon.
29. Learned Single Judge referred to the circular dated
05.12.2000 and observed that pursuant thereto appellants had
paid the duty drawback to the respondent. However, there was
delay in payment of duty drawback at least from the date of the
clarificatory circular dated 05.12.2000. Therefore, respondent
would be entitled to interest from the date of the clarification till
the date of payment. After observing that the Customs Act provides
for interest on delayed refund within the range from five percent to
thirty percent, learned Single Judge directed the appellants to pay
interest on the delayed refund from the date of the clarificatory
circular dated 05.12.2000 till the date of payment within a period
of three months.
30. Appellants filed Writ Appeal No.356 of 2006 assailing
the aforesaid decision of the learned Single Judge. On the other
hand, respondent also filed a writ appeal being Writ Appeal
No.3699 of 2005 assailing the directions of the learned Single
Judge to pay interest only from the date of the circular dated
05.12.2000.
25
30.1 Before the Division Bench, it was contended on behalf of
the appellants that it was only under the Foreign Trade Policy,
2004-2009 that for the first time payment of simple interest at the
rate of six percent per annum in the event of delay in refund of duty
drawback was provided. There was no provision for payment of
interest on delayed refund of duty drawback on deemed export
prior thereto. Therefore, respondent was not entitled to interest
even from 05.12.2000 as directed by the learned Single Judge. It
was canvassed before the Division Bench on behalf of the
appellants that only due to magnanimity on the part of the Central
Government refund of duty drawback under deemed export was
paid to the respondent. As such, refund would not carry any
interest.
30.2 The Division Bench repelled such contentions advanced
on behalf of the appellants and held that in view of the circular
dated 05.12.2000, it was clarified that even civil construction
works were entitled to the benefit of deemed export under the Exim
Policy. After saying so, the Division Bench noted that as a matter
of fact, an amount of Rs.2,05,79,740.00 was paid to the respondent
as duty drawback. Thereafter, the Division Bench analysed the
circular dated 05.12.2000 and upon such analysis it was observed
26
that the position vis-à-vis refund of duty drawback in civil
construction work treating it as deemed export was clarified in an
earlier circular dated 20.08.1998. Thus, according to the Division
Bench, by the year 1998 itself, DGFT had clarified that civil
construction work was entitled to the benefit of duty drawback as
deemed export. Having held so, the Division Bench posed a
question as to whether the respondent would be entitled to interest
after expiry of three months from the date of the applications for
refund of duty drawback? Corollary to the above question was an
ancillary question as to whether a clarificatory or declaratory
notification or circular would have retrospective operation? After
referring to decisions of this Court reported in 1993 Supplementary
(3) SCC 234 S. S. Grewal versus State of Punjab, (1995) 2 SCC 630
Rajagopal Reddy (dead) by Lrs. Vs. Padmini Chandrasekharan
(dead) by Lrs., and (2004) 8 SCC 1 Zile Singh versus State of
Haryana, the Division Bench opined that the minute the Exim
Policy came into force the benefit of duty drawback automatically
became available to the respondent and that the clarification was
only with regard to the doubts expressed in some quarters as to
whether civil construction works were also entitled to such benefit.
By virtue of the two circulars dated 20.08.1998 and 05.12.2000,
no new right or benefit came to be created; those two circulars were
27
clarificatory in nature only clarifying that the benefit under the
Exim Policy 1992-1997 was available to civil construction as well.
Therefore, such benefit would take effect from the date of the Exim
Policy. It was thereafter that the Division Bench posed the further
question as to what would be the rate of interest on the delayed
refund. In this connection, the Division Bench referred to Sections
27A and 75A of the Customs Act and came to the conclusion that
the date of payment of interest would have to be on expiry of the
period of three months from the date of making an application for
refund of duty drawback. The Division Bench held that the
respondent would be entitled to interest from the date of expiry of
three months after submission of applications for refund back in
the year 1996 till the time the payment was made at the rate of
fifteen percent as awarded by the learned Single Judge.
Consequently, the appeal of the appellants was dismissed while the
appeal of the respondent was allowed.
31. Reverting back to the Exim Policy of 1992-1997, we
have already noted about the Duty Exemption Scheme. We have
noted that under the Duty Exemption Scheme, import of duty free
raw materials, components, intermediates, consumables, parts,
spares including mandatory spares and packing materials
28
required for the purpose of export production could be permitted
by the competent authority under five categories of licences
mentioned in Chapter VII including special imprest licence.
Section 56 provided that a special imprest licence was granted for
the duty free import of raw materials, components, consumables,
parts, spares including mandatory spares and packing materials
to main/sub-contractors for the manufacture or supply of
products when such supply were made to projects financed by
multilateral or bilateral agencies, such as, the International Bank
for Reconstruction and Development under international
competitive bidding or under limited tender system.
31.1 In Chapter X ‘deemed export’ has been defined. It is a
transaction in which the goods supplied do not leave the country
and the payment for the goods is received by the supplier in Indian
rupees, but the supplies earn or save foreign exchange for the
country. Section 121 declares that the categories of supply of
goods mentioned in the said section would be regarded as ‘deemed
export’ under the Exim Policy provided the goods were
manufactured in India and the payment was received in Indian
rupees. This included supply of goods to projects financed by
multilateral or bilateral agencies or any other agency that may be
29
notified by the Central Government, such as, the International
Bank for Reconstruction and Development under international
competitive bidding or under limited tender system in accordance
with the procedures of those agencies.
31.2 Section 122 clarifies that deemed export would be
eligible for benefits under the Duty Drawback Scheme in respect
of manufacture and supply of goods by treating those as deemed
export.
32. That apart, as already mentioned in the earlier part of
the judgement, the Explanation below sub-section (1) of Section
27 of the Customs Act clarifies that the expression ‘the date of
payment of duty or interest’ in relation to a person other than an
importer shall be construed as ‘the date of purchase of goods’ by
such person.
33. Therefore, on a conjoint and careful reading of the
relevant provisions of the Exim Policy, 1992-1997 in conjunction
with the Central Excise Act and the Customs Act, it is evident that
supply of goods to the project in question by the respondent was a
case of ‘deemed export’ and thus entitled to the benefit under the
Duty Drawback Scheme. The language employed in the policy
30
made this very clear and there was no ambiguity in respect of such
entitlement.
34. Even if there was any doubt, the same was fully
explained by the 1995 Rules. In fact, under the definition clause
of the 1995 Rules, duty drawback, in relation to any goods
manufactured in India and exported has been defined to mean the
rebate of duty or tax chargeable on any imported materials or
excisable materials used or taxable services used in the
manufacture of such goods. In the preceding paragraphs, we have
noted the meaning of the expressions ‘excisable materials’ and
‘manufacture’.
34.1 Rule 3 of the 1995 Rules makes it abundantly clear that
a drawback may be allowed on the export of goods at such amount
or at such rates as may be determined by the Central Government.
Further, Rule 14 provides for payment of drawback and interest.
35. It was, therefore, not correct on the part of the
appellants to contend that there was no provision for payment of
interest on delayed refund of duty drawback. That apart, it is
wholly untenable for the appellants to contend that refund of duty
drawback was granted to the respondent as a concession, not to
be treated as a precedent. As we have seen, respondent is entitled
31
to refund of duty drawback as a deemed export under the Duty
Drawback Scheme. The applications for refund were made in 1996.
Decision to grant refund of duty drawback was taken belatedly on
07.10.2002 whereafter the payments were made by way of cheques
on 31.03.2003 and 20.05.2003. Admittedly, there was
considerable delay in refund of duty drawback.
36. As we have already examined, under sub-section (1) of
Section 75A of the Customs Act, where duty drawback is not paid
within a period of three months from the date of filing of claim, the
claimant would be entitled to interest in addition to the amount of
drawback. This section provides that the interest would be at the
rate fixed under Section 27A from the date after expiry of the said
period of three months till the payment of such drawback. If we
look at Section 27A, the interest rate prescribed thereunder at the
relevant point of time was not below ten percent and not exceeding
thirty percent per annum.
37. The Central Board of Excise and Customs vide its
notification bearing No.32/1995 (NT) – Customs dated 26.5.1995
had fixed the rate of interest at fifteen percent for the purpose of
Section 27A of the Customs Act. The High Court while awarding
interest at the rate of fifteen percent per annum, however, did not
32
refer to such notification; rather, there was no discussion at all as
to why the rate of interest on the delayed refund should be fifteen
percent. Therefore, at the first glance, the rate of interest awarded
by the High Court appeared to be on the higher side and without
any reason.
38. Be that as it may, having regard to our discussions
made above, we have no hesitation in holding that the respondent
was entitled to refund of duty drawback. Appellants had belatedly
accepted the said claim and made the refund. Since there was
belated refund of the duty drawback to the respondent, it was
entitled to interest at the rate which was fixed by the Central
Government at the relevant point of time being fifteen percent.
39. That being the position, we find no good reason to
interfere with the judgment and order of the Division Bench of the
High Court dated 22.8.2008. There is no merit in the appeal, which
is accordingly dismissed. No costs.
.………………………………J.
[ABHAY S. OKA]
…………………………………J.
[UJJAL BHUYAN]
NEW DELHI;
05.02.2024
