* Author
[2024] 2 S.C.R. 91 : 2024 INSC 83
Union of India and Ors.
v.
M/S. B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
(Civil Appeal Nos. 7238 of 2009)
05 February 2024
[Abhay S. Oka and Ujjal Bhuyan,* JJ.]
Issue for Consideration
Entitlement of the respondent to refund of duty drawback and
interest for delayed payment thereof.
Headnotes
Customs Act, 1962 – ss.75A, 27A – Central Excise Act, 1944
– Foreign Trade (Development and Regulation) Act, 1992 –
Foreign Trade (Regulation) Rules, 1993 – Customs, Central
Excise Duties and Service Tax Drawback Rules, 1995 – Exim
Policy of 1992-1997 – Duty Exemption Scheme – Duty Drawback
Scheme – Supplies in civil construction work, eligibility for
‘deemed export’ benefit under the Exim Policy – Respondent,
a class-I contractor specializing in the field of civil contract
works especially funneling and hydro-electric power projects
had completed the work awarded to it in 1996 in a project called
Koyna Hydro Electric Power Project, Maharashtra funded by
the International Bank for Reconstruction and Development, an
arm of the World Bank – Respondent claimed duty drawback
and interest for the delayed refund thereof – Entitlement:
Held: On a conjoint 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 made this very clear and there
was no ambiguity in respect of such entitlement – Even if there
was any doubt, the same was fully explained by the 1995 Rules –
It is 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 – It is also 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 – Respondent entitled
92 [2024] 2 S.C.R.
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to refund of duty drawback as a deemed export under the Duty
Drawback Scheme – 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 – Under s.75A(1)
of the Customs Act, where duty drawback is not paid within three
months from the date of filing of claim, the claimant would be entitled
to interest in addition to the amount of drawback – It provides that
the interest would be at the rate fixed u/s.27A from the date after
expiry of the said period of three months till the payment of such
drawback – The interest rate prescribed u/s.27A at the relevant
point of time was not below ten percent and not exceeding thirty
percent per annum – The Central Board of Excise and Customs vide
its notification bearing No.32/1995 (NT)- Customs dtd. 26.5.1995
had fixed the rate of interest at fifteen percent for the purpose of
s.27A – 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 – Order of the Division Bench of the High Court
not interfered with. [Paras 33-39]
Case Law Cited
S. S. Grewal v. State of Punjab [1993] 3 SCR 593 : 1993
Suppl. 3 SCC 234; Rajagopal Reddy (dead) by Lrs. v.
Padmini Chandrasekharan (dead) by Lrs. [1995] 1 SCR
715 : (1995) 2 SCC 630; Zile Singh v. State of Haryana
[2004] 5 Suppl. SCR 272 : (2004) 8 SCC 1 – referred to.
List of Acts
Central Excise Act, 1944; Customs Act, 1962; Finance Act,
1994, Imports and Exports (Control) Act, 1947; Foreign Trade
(Development and Regulation) Act, 1992; Foreign Trade
(Regulation) Rules, 1993; Customs, Central Excise Duties and
Service Tax Drawback Rules, 1995.
List of Keywords
Drawback; Duty drawback; Duty Drawback Scheme; Exim Policy
of 1992-1997; Duty Exemption Scheme; Deemed export; Delayed
refund of duty drawback; Interest; Multilateral or bilateral agencies;
International Bank for Reconstruction and Development; World Bank;
Central Board of Excise and Customs; Imports of duty free material;
Notification declaratory/clarificatory; Retrospective operation.
[2024] 2 S.C.R. 93
Union of India and Ors. v.
M/S. B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
Case Arising From
CIVIL APPELLATE JURISDICTION : Civil Appeal No.7238 of 2009
From the Judgment and Order dated 22.08.2008 of the High Court
of Karnataka at Bangalore in WA No.356 of 2006
Appearances for Parties
V C Bharathi, Raj Bahadur Yadav, Shashank Bajpai, Mrs. Sweta
Singh Verma, A. K. Kaul, Praneet Pranab, Advs. for the Appellants.
Basuva Prabhu Patil, Sr. Adv., Amit Sharma, Dipesh Sinha, Ms.
Pallavi Barua, Ms. Aparna Singh, Advs. for the Respondent.
Judgment / Order of the Supreme Court
Judgment
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. 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:-
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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
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
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.
[2024] 2 S.C.R. 95
Union of India and Ors. v.
M/S. B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
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. 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 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.
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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
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 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
[2024] 2 S.C.R. 97
Union of India and Ors. v.
M/S. B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
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.
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.
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.
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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 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.
[2024] 2 S.C.R. 99
Union of India and Ors. v.
M/S. B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
The applicant would be entitled to interest after expiry of three
months 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, 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 subsection (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-
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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 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 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.
[2024] 2 S.C.R. 101
Union of India and Ors. v.
M/S. B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
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 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 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.
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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 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. Subrule (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 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
[2024] 2 S.C.R. 103
Union of India and Ors. v.
M/S. B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
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.
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 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
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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 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.
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
[2024] 2 S.C.R. 105
Union of India and Ors. v.
M/S. B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
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 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.
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
106 [2024] 2 S.C.R.
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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 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
[2024] 2 S.C.R. 107
Union of India and Ors. v.
M/S. B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
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 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 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.
108 [2024] 2 S.C.R.
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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 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 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
[2024] 2 S.C.R. 109
Union of India and Ors. v.
M/S. B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
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 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 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.
110 [2024] 2 S.C.R.
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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.
Headnotes prepared by: Divya Pandey Result of the case: Appeal dismissed.
