|"Non derogation of grant" - Fresh approach to old problem of denial of deemed exports benefits||Tax|| Sujit Ghosh | Partner
Kanupriya Bhargava | Senior Associate
|26 February, 2015|
An industry-wide issue as to “whether refund can be claimed by an assessee under Foreign Trade Policy (“FTP”) in cases where upfront exemption is available under the Central Excise Act” had led to a huge amount of money being blocked with the Government. With the recent decision of the Delhi High Court1 holding that prior to 18.04.2013, the assessee had an option to either claim upfront exemption from the payment of excise duty or claim refund of the same under the FTP, the assessees should breathe a sigh of relief. The above decision has put into play the doctrine of “derogation from the grant”, a long-standing legal principle that holds that if a person agrees to confer a particular benefit on another, he or she must not do anything which substantially deprives the other of the enjoyment of that benefit because, as stated by Lord Denning in McCall v Abelesz , that would be to take away with one hand what is given with the other.
In India, up to 18.04.2013, the Foreign Trade Policy (FTP) granted the benefit of refund of terminal excise duty (TED) to various deemed exports. The relevant provision pertaining to refund of TED read as under:
8.3 Benefits for deemed exports
Deemed exports shall be eligible for any/all benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to terms and conditions as in HBP v1:-
a) Advance Authorization
b) Deemed Export drawback
c) Exemption from Terminal Excise Duty where supplies are made against ICB. In other cases, refund of terminal excise duty will be given. Exemption from TED shall also be available for supplies made by an advance authorization holder to a manufacturer holding another authorization or both if such manufacturer, in turn, supplies the product(s) to an ultimate exporter.
The Central Excise Act, 1944 (“Excise Act”) in terms of Notification No. 6/ 2006 CE (entry 91) and subsequently under Notification 12/2012 (entry 336) exempted goods supplied to mega power projects against international competitive bidding subject to various conditions. In other words, upfront exemption was granted to goods supplied to mega power projects, under the Excise Act.
The FTP prior to 18.04.2013, independent of Excise Act granted exemption from payment of excise duty on supplies made against ICB. Since FTP cannot grant upfront exemption from payment of excise duty, the same can only be exercised by way of a refund. Therefore, the correct interpretation would have been: “wherever upfront exemption has been claimed by the assessee on supplies made against ICB, no refund situation arises (and rightly so) and hence no refund shall be granted. In all other cases, a refund shall be granted”.
Upto 2013, if the assessee did not avail upfront exemption under the Central Excise Act, refund was granted to the assessee under the FTP.
However, the DGFT vide the Policy Circular dated 15.03.2013, sought to clamp down the deemed export benefits under the pretext of prudent financial management and adherence to discipline of budget. The DGFT clarified vide this circular that if the assessee had the option of availing the upfront exemption under the Central Excise Act but did not exercise the option, no refund should be granted under the FTP.
In other words, at one hand, the DGFT officials recognize that FTP grants exemption from payment of TED and on the other hand refuses to grant the refund (which is the only method for claiming the benefit).
Thereafter, the FTP was amended w.e.f. 18.04.2013 wherein the benefit of TED refund was restricted to those cases where the Central Excise Act does not grant upfront exemption. The DGFT by the Policy circular dated 15.03.2013 sought to amend the FTP retrospectively, which it does not have the power to do.
After 2013, almost all the TED refund applications were either rejected or returned without processing based on the above interpretation. In Alstom’s case, the DGFT officials did not even bother to pass a proper reasoned order and merely returned the file by directing them; vide a file noting, to approach the DGFT if they wish against the Circular dated 15.03.2013. The Delhi High Court instructed the officials to pass a proper reasoned order. Though the Delhi High Court did not deal with the Circular dated 15.03.2013 directly, however, the Hon’ble High Court has interpreted the provisions of FTP, as they stood prior to 18.04.2013, to mean that the assessee has an option to either claim upfront exemption under the Central Excise Act or refund under FTP (if upfront exemption benefit has not been opted by the assessee). FTP did not debar the assessee from claiming the refund of TED, if the upfront exemption has not been availed, subject to fulfillment of various conditions. The relevant excerpt of the order is reproduced as under:
“17. As indicated above, the common case of parties before me, is that, exemption was not availed of by the petitioner, instead the petitioner ended paying TED. Therefore, the petitioner had two options: First, to seek refund of the Excise Duty from the Excise Department. Second to seek refund from the respondent herein. The petitioner has chosen the latter. The FTP, as it then existed, did not de-bar the petitioner from seeking a refund from one of the two departments, subject to fulfillment of other conditions.”
Till now, the authorities have been seeking to deny the eligible benefits to the assessee by interpreting the provisions in the narrowest sense. Even earlier, the Gujarat High Court in Alstom’s own case2 has specifically held that the DGFT officials have no power to issue notices to recover the refund already granted, if the order allowing the refund claim has not been challenged before the higher judicial forums by DGFT.
The present decision, therefore, is a landmark as it shall restrain the departmental authorities from returning the file by merely putting a file noting and by a non-speaking order. It has also upheld that if similar benefits are granted to an assessee under Central Excise Act as well as under the Foreign Trade Policy (FTP), then the assessee has an option to avail the benefit under either of them and Government cannot force it to choose one. Though the Hon’ble High Court did not refer to the proposition of “Non derogation of grant”, it has applied the same principle to grant relief to the assessee.
1 Alstom India limited v. UOI, order dated 11.02.2015[TS-38-HC-2015(DEL)-FTP]
2 Alstom India Limited v. UOI [TS-33-HC-2014 (GUJ)-FTP]
*This article originally appeared in Tax Sutra.
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