A two Judge Bench of the Hon’ble Supreme Court comprising of Justice Abhay S. Oka and Justice Ujjal Bhuyan passed a Judgment dated 05-02-2024 in the matter of Union of India and Ors. vs M/S. B. T. Patil and Sons Belgaum (Construction) Pvt. Ltd. Civil Appeal No. 7238 of 2009 and observed that as there was considerable delay of 6-7 years in allowing duty drawback to the Respondent, the Bench directed the Appellant- Director General of Foreign Trade to pay interest for delay in refund of duty drawback to the Respondent.
i) In the present case, the Respondent- M/S. B. T. Patil and Sons Belgaum (Construction) Pvt. Ltd. is a Class-I Contractor that specialises in civil contract works and funnelling and hydro electric power projects.
ii) The Central Government had approved funding of a project, namely, Koyna Hydro Electric Power Project, Maharashtra (Project) by the International Bank for Reconstruction and Development, which is an arm of the World Bank. It was a World Bank Aided (Loan) Project.
iii) In the said Project, the Respondent was awarded a Sub-Contract to execute civil works from lake intake to the emergency valve tunnel.
iv) The Respondent, accordingly, completed the construction work in March 1996 and thereafter, applied for duty drawback benefits under the Deemed Export Scheme incorporated in the EXIM Policy of 1992-1997 under the Foreign Trade (Development and Regulation) Act, 1992 (FTDR Act).
v) “Deemed Exports” refer to those transactions in which the goods supplied do not leave the country, and the payment for such supplies is received either in Indian rupees or in free foreign exchange. For instance, in case of supply of goods to export oriented units / software technology parks / projects funded by multilateral agencies, etc, for such deemed exports, the Scheme provides deemed export drawback benefits, etc.
vi) But the Director General of Foreign Trade (DGFT), vide, Endorsements dated 10-11-1996, 06-12-1996 and 31-12-1996, 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.
vii) The Respondent, vide Representation dated 05-02-1997 to the DGFT, sought for reconsideration of their decision. However, the same was rejected by DGFT, vide Order dated 10-08-1997 stating that civil construction work did not qualify for drawback.
viii) Meanwhile, DGFT issued a Circular dated 20-08-1998 under the EXIM Policy, 1997-2002 clarifying that supply of goods under 1997-2002 Exim Policy would be entitled for ‘deemed export’ benefit.
ix) Thereafter, the DGFT issued a Circular dated 05-12-2000 that stated that drawback was to be paid in respect of excise duty on supply of goods to projects funded by multilateral agencies.
x) But eventually, a Policy Interpretation Committee was constituted that examined the Respondent’s case in its Meeting held on 07-10-2002 and allowed duty drawback to the Respondent. But the Respondent’s request for interest on duty drawback was rejected by the Committee.
xi) Aggrieved, the Respondent filed a Writ Petition No. 45525 of 2004 before the High Court of Karnataka, Circuit Bench at Dharwad, which was allowed, vide Order dated 22-09-2005, on the ground that as per the DGFT Circular dated 05-12-2000, the Respondent was entitled to duty drawback and considering the delay in payment of duty drawback by DGFT, interest was payable on such duty drawback amount. As a result, the Single Judge Bench of the High Court allowed 15% interest on delayed payment of duty drawback from the date of Circular i.e. w.e.f. 05.12.2000 till the date of payment to the Respondent within a period of three months.
xii) Aggrieved, (a) the Appellant-DGFT filed Writ Appeal No. 356 of 2006 before the Division Bench of the High Court and (b) the Respondent also filed Writ Appeal No. 3699 of 2005, assailing the direction of the Ld. Single Judge to pay interest only from the date of the Circular i.e. w.e.f. 05.12.2000.
xiii) The Division Bench of the High Court, vide Order dated 22-08-2008, allowed the Writ Appeal filed by the Respondent and dismissed the Writ Appeal filed by the Appellants. The Division Bench relied upon the DGFT Circulars dated 20-08-1998 and 05-12-2000 and observed that (a) ‘deemed export’ would include goods and services of civil construction projects as well and (b) as per Section 27A of the Customs Act 1962 (Customs Act) (Interest on delayed refunds) and Sections 75A of the Customs Act (Interest on drawback), the Respondent would be entitled to interest after expiry of three months from the date of making the Applications for refund of duty drawback i.e. w.e.f. 1996.
Supreme Court Observations
Aggrieved, the Appellant-DGFT filed Civil Appeal No. 7238 of 2009 before the Hon’ble Supreme Court. The Apex Court, vide Order dated 05-02-2024, made the following observations:
1) That the FTDR Act, 1992 was enacted 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”.
2) As per Clause 7 (13) of the EXIM Policy 1992-97, ‘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 manufacture of such goods in India.
3) However, Chapter VII of the said Policy provides for ‘Duty Exemption Scheme’, whereunder, “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.”
4) Further, as per Chapter X of the said Policy, ‘deemed exports’ 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 such supplies earn or save foreign exchange for the country.
5) Further, under Clause 121 (f) of the EXIM Policy, the projects financed by multilateral or bilateral agencies came under the category of ‘Deemed Exports’ and that such projects will be entitled to benefits such as duty drawback, provided the goods were manufactured in India and the payment was received in Indian rupees. In the present case, although payment was being done by foreign agency, but the Project was being undertaken in India. Hence, the same would fall under the category of ‘Deemed Exports’.
6) That as per Customs Act, 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, as has been held by the Division Bench of the High Court in its Order dated 22-08-2008.
7) Thus, on a combined reading of the aforementioned provisions of law, EXIM Policy and the DGFT Circulars dated 20-08-1998 and 05-12-2000, it is established that supply of goods to civil construction projects undertaken in India but funded by multilateral or bilateral agencies, would be entitled to deemed export benefits. “Accordingly, it was clarified that the duties, customs and central excise, suffered on such goods should be refunded through the duty drawback route.”
8) Further, as per Rule 3 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 (1995 Rules) (Drawback) read with Rule 14 of the 1995 Rules (Payment of drawback and interest), interest on delayed refund of duty drawback is permitted.
9) In the present case, there has been considerable delay of 6-7 years in allowing duty drawback to the Respondent. Hence, the Respondent is entitled to receive interest for delay in refund of drawback.
Thus, based on the aforesaid observations, the Supreme Court held that the Respondent is entitled to duty drawback with interest thereon at the rate of 15% as fixed by the Single Judge Bench of the High Court and w.e.f. 1996 as determined by the Division Bench of the High Court. As a result, the Appeal filed by the Appellants was dismissed and the Order dated 22-08-2008 passed by the Division Bench of the High Court was upheld.
The Indian Lawyer