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M/s Hospira Health Care India Pvt. Ltd. Versus Development Commissioner, MEPZ Special Economic Zone & HEOUs, Director General of Foreign Trade (DGFT) And Others

2016 (4) TMI 185 - MADRAS HIGH COURT

Rejection of refund claim - Reimbursement of Central sales Tax - Inter-state purchase made by an EOU from another EOU - Manufacture and export of injectable drugs and infusion technologies - Held that:- when the policy provides for reimbursement under paragraph 6.11, the said objective was prevented or diluted by the Appendix. The Appendix is meant for effectuating the rights contained in the policy and not to frustrate the operation of the substantive right. The Appendix should be meant only fo .....

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ded prohibiting refund of tax for the purchases made from an 100% EOU. The procedure was to be prescribed by an authority in implementing the policy and must be in consonance with the policy. If the procedural norms are in conflict with the policy, then the policy will prevail and the procedural norms to the extent they are in conflict with the policy, are liable to be held to be bad in law. Since the impugned communciations are in conflict with paragraph 6.11 of the Foreign Trade Policy, the sa .....

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first respondent, pursuant to the communication daed 11.04.2014 of the third respondent and quash the same and direct the first respondent to grant refund. In W.P.No.26004 of 2014, the petitioner has sought for issuance of a Writ of Certiorari to call for the records relating to the communciation dated 11.04.2014 of the first respodnent and to quash the same. 2. Since the issue involved in both these writ petitions is whether inter-state purchase made by an Export Oriented Unit (hereinafter ref .....

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ennai-45, the third respondent herein, as a 100% Export Oriented Unit to manufacture and export of injectable drugs and infusion technologies formed in the year 2009 and is a subsidiary of Hospira Inc, Lake Forest, Illinois, U.S.A. According to the petitioiner, Hospira group is one of the world's largest producer of generic injectable pharmaceuticals, manufacturing generic acute-care and oncology injectables. The petitioner Company is engaged in production and export of pharmacopeia preparat .....

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s, consumables etc., The petitioner is also duly registered with the Central Excise Department and are issued with Private Bonded Warehouse Licence and In-Bond Manufacture permission in terms of Secs.58 and 65 of the Customs Act, 1962 respectively. The petitioner is importing from time to time, customs duty free capital goods, raw materials and consumables in terms of exemption Notification No.52/2003 Cus dated 31.03.2003 and also procuring indigenous raw materials/consumables under Central Exci .....

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When the raw materials are imported, in terms of Customs Notification dated 31.03.2003 the petitioner Company, being an 100% EOU was allowed to import duty free on the strength of the Procurement Certifcate (PC) issued by the jurisdictional Central Excise Authorities to the customs authorities who allowed such clearances at the Port of import. Similarly, the raw materials procured indigenously, from local manufacturers including 100% EOU situated in India, are also allowed to be procured duty f .....

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mpted by virtue of exemption notifications issued by Government of India, Ministry of Finance, New Delhi for imported as well as indigenous raw materials/capital goods. The imported goods are not subject to sales tax or Value Added Tax (VAT) or Central Sales Tax (CST) in terms of the provisions contained in CST Act 1956. However, the taxes on sale of goods imposed by States, is not exempted under various State enactments, including the Tamil Nadu Value Added Tax Act, 2006, (TNVAT Act 2006) when .....

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The supplier of raw material therefore charge CST at concessionial rate of 2% on the strength of Form-C issued by the petitioner. The said CST is not cenvatable or can be availed as input tax credit, and therefore is a cost to petitioner as well as similar buyers. Taking this cost of CST which is not exempt for EOUs a special provision has been brought in the Foreign Trade Policy to the effect that CST is either exempt on purchases, when made from units in Domestic Tariff Area-DTA or by way of .....

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ods by charging CST 2% against Form-C for a long time. According to the petitioner, in terms of Para 6.11 of Foreign Trade Policy read with provisions contained in the Hand Book of Procedures (HBP), the petiitoner has been filing periodical refund claims every quarter for refund of CST paid on purchase made from the said 100% EOU. The quarterly claims are to be filed with the Development Commissioner, MEPZ, Chennai, who is the authority empowered to admit, process and sanction the claims. The pe .....

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ound that the procurements were made from another 100% EOU by the petitioner company and the objection is raised as to the eligibility of the same under Foreign Trade Policy which only allows reimbursement for procuremetns from a Company in Domestic Tariff Area. The petitioner informed the third respondent that the sanction of their earlier claims were also procurements from 100% EOU and the sanction of similar CST refunds in other regions for purchases were also from other EOUs. The second resp .....

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8.04.2014 from the Assistant Development Commissioner, MEPZ, Chennai, wherein, it was informed that the third respondent was not in a position to consider their request for reimbursement of CST claims for the inputs procured from another EOU, M/s Orchid Chemicals & Pharmaceuticals limited, Aurangabad, for the period from January 2012 to September 2013. Further, the petitioner was informed that the decision was taken based on the communication letter dated 11.04.2014, issued by the first resp .....

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k of Procedure Vol-I had allowed Central Sales Tax (CST) reimbursement for only supplies from Domestic Tariff Area (DTA). The Ministry of Commerce by letter dated 11.4.2014 has suggested to Director General of Foreign Trade (DGFT) to consider a suitable amendment in the Foreign Trade Policy (FTP) as deemed fit. According to the respondents, paragraphs 6.11 and para 9.21 of the Foreign Trade Policy read with Appendix 14.I-I does not provide for reimbursement of CST, paid on goods supplied from on .....

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respondent for granting reimbursement of CST. Further, the learned Senior Counsel contended that paragraph 6.11 of the Policy provides for benefit basis goods manufactured in "India" and there is no restriction or qualification as provided for exemption from Central Excise Duty under Sub-clause (ii) of sub para (c) of Para 6.11 of the Policy. Therefore, as long as the goods are manufactured in "India", the purchasing EOU is entitled to get reimbursement of CST irrespective of .....

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Appendix 14.1I-I is solely a procedural provision notified in exercise of delegted legislative powers by the second respondent and the same is meant for effectuating the rights contained in the Policy and cannot be a handle for narrowing or frustrating the objective and operation of the substantive right granted to the petitioner. Further, the learned Senior Counsel submitted that the Foreign Trade Policy 2015-2010 is identical and unchanged, as was originally provided for in paragraph 6.11 of t .....

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) The heading of a Section or marginal note may be relied upon to clear any doubt or ambiguity in the interpretation of the provision and to discern the legislative intent. However, when the Section is clear and unambiguous, there is no need to traverse beyond those words, hence, the headings or marginal notes cannot control the meaning of the body of the section. Therefore, the contention of Respondent No. 1 herein that the heading of Section 33 of the Act is Reservation of posts will not play .....

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her for the purpose of imposing tax. It is commonly known that considerations of economic policy constitute a basis for levying different rates of sales tax. For instance, the object may be to encourage a certain trade or industry in the context of the State policy for economic growth, and a lower rate would be considered justified in the case of such a commodity. There may be several such considerations bearing directly on the choice of the rate of sales tax, and so long as there is go od reaso .....

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dy of rules that creates, defines and regulates rights and liabilities. Right conferred on a party to prefer an appeal against an order is a substantive right conferred by a statute which remains unaffected by subsequent changes in law, unless modified expressly or by necessary implication. Procedural law establishes a mechanism for determining those rights and liabilities and a machinery for enforcing them. Right of appeal being a substantive right always acts prospectively. It is trite law tha .....

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o acts or transactions under the repealed Act. 25. Law on the subject has also been elaborately dealt with by this Court in various decisions and reference may be made to a few of those decisions. This Court in Garikapati Veeraya v. N. Subbiah Choudhry [AIR 1957 SC 540] , New India Insurance Co. Ltd. v. Shanti Misra [(1975) 2 SCC 840], Hitendra Vishnu Thakur v. State of Maharashtra [(1994) 4 SCC 602 : 1994 SCC (Cri) 1087] , Maharaja Chintamani Saran Nath Shahdeo v. State of Bihar [(1999) 8 SCC 1 .....

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xpress terms or by necessary implication a contrary intention a statute divesting vested rights is to be construed as prospective, a statute merely procedural is to be construed as retrospective and a statute which while procedural in its character, affects vested rights adversely is to be construed as prospective. (iv) 1986 (25) ELT 867 (SC) (Commissioner of Sales Tax, U.P vs Auriaya Chambe of Commerce, Allahabad, wherein the Apex Court has held that it is true that except special provisions, t .....

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e must supplement the written words so as/to give 'force and life' to the intention of legislature .... A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out? He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases." (vi) AIR 1997 SC 1511 (State of Bihar and Others vs Bihar Distillery .....

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ument of mathematical precision. Our literature would be much the poorer if it were. This is where the draftsmen of Acts of Parliament have often been unfairly criticized. A judge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else, laments that the draftsman have not provided for this or that, or have been guilty of some or other ambiguity. It would certainly save the judges trouble if Acts of Parliament were drafted with divine prescience a .....

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f the legislature. That was clearly laid down by the resolution of the judges in Heydon's case, and it is the safest guide today. Good practical advice on the subject was given about the same time by Plowden. . . . . . Put into homely metaphor it is this: A judge should ask himself the question: If the makers of the Act had themselves come across this ruck in the texture of it, how would they have straightened it out? He must then do as they would have done. A judge must not alter the materi .....

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mbodied in the legislation (Winchester Court Ld v Miller); and I think we should do the same. Whenever a statute comes up for consideration it must be remembered *499 that it is not within human powers to fresee the manifold sets of facts which may arise, and even if it were, it is not possible to provide for them in terms free from all ambiguity. The English language is not an instrument of mathematical precision. Our literature would be much the poorer if it were. This is where the draftmen of .....

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draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from the langug of the statute, but also from a consideration of the social conditions which gave rise to it and of the mischief which it was passed to remedy, and then he must supplement the written word sc as to give " force and life" to the intention of the legislature. That was clearly laid down by the resolution of the judges in Heydon's cse, and it is t .....

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000 (3) SCC 40 (Kunj Behai Lal Butail vs State of H.P, whrein the Apex Court has held as follows: "15. We are also of the opinion that a delegated power to legislate by making rules 'for carrying out the purposes of the Act' is a general delegation without laying down any guidelines; it cannot be so exercised as to bring into existence substantive rights or obligations or disabilities not contemplated by the provisions of the Act itself ". (ix) 2003 (156) ELT 819 (Bom) (Narendr .....

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with the policy, the same are liable to be quashed and set aside. 16. Countering the submissions made by the learned Senior Counsel for the petitioner, Mr.V.P.Sengottuvel, learned Standing Counsel appearing for the respondents, submitted that paragraphs 6.11 and 9.21 would clearly establish that the petitioner is not entitled to claim refund of CST. Further, the learned Standing Counsel submitted that the letters dated 11.04.2014 and 28.04.2014 are in accordance with Foreign Trade Policy. That a .....

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), wherein the Apex Court has held as follows: 8. It is settled law that in order to claim benefit of a Notification a party must strictly comply with the terms of the Notification. If on wordings of the Notification the benefit is not available then by stretching the words of the Notification or by adding words to the Notification benefit cannot be conferred. The Tribunal has based its decision on a decision delivered by it in Rukmani Pakkwell Traders v. CCE, Trichy [1999 (109) E.L.T. 204]. We .....

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d augmenting exports from India. Under Section 3, the Central Government is empowered by Order published in the Official Gazette to make provision for the development and regulation of foreign trade. Under sub-section (2) of Section 3 the Central Government may by Order published in the Official Gazette prohibit, restrict or otherwise regulate import/export of goods subject to such exceptions as it may deem fit. 30. Under Section 5, the Central Government is empowered from time to time to formul .....

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f interpretation of any provision in FTP or in the matter of classification of any item in the ITC (HS) or in the Handbook, the said question or doubt shall be referred to the DGFT, whose decision thereon shall be final and binding. (iii) 2011 (1) SCC 640 (Bajaj Hindustan Limited vs Sir Shadi Lal Enterprises Limited and another), wherein, the Apex Court has held as follows: 21. It is settled law that in the areas of economics and commerce, there is far greater latitude available to the executive .....

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some vested interests. Unless any illegality is committed in the execution of the policy or the same is contrary to law or mala fide, a decision bringing about change cannot per se be interfered with by the court. 93. Wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. In other words, it is not for the courts to consider relative merits of different ec .....

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ar public policy is wise or a better public policy can be evolved. Such exercise must be left to the discretion of the executive and legislative authorities as the case may be. 18. On a careful consideratioin of the materials available on record, the submissions made by the learned counsel on either side and considering the judgments relied upon by the learned counsel on either side, it could be seen that under Sec.5 of The Foreign Trade (Development and Regulation) Act, 1992 read with Notificat .....

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9-2014. 6.11 Entitlement for supplies from the DTA (a) Supplies from DTA to EOU/EHTP/STP/BTP from the DTA units will be regarded as " deemed exports" and DTA supplier shall be eligible for relevant entitlements under chapter 8 of FTP, besides discharge of export obligation, if any, on the supplier. Notwithstanding the above, EOU/EHTP/STP/BTP units shall, on production of a sutiable disclaimer from DTA supplier, be eligible for obtaining entitlements specified in chapter 8 of FTP. For c .....

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payment of Central Excise Duty on goods procured from DTA on goods manufactured in India. (iii) ... (iv).... 19. Under paragraph 2.4 of the Policy, the Directorate General of Foreign Trade (DGFT) may, specify the procedure to be followed by an exporter or importer or by any licensing/regional authority or by any other authority for purposes of implementing provisions of FIDR Act, the Rules and the orders made there under and Policy. 20. In pursuance of the delegated powers, provided under parag .....

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r (EHTP) and Software Technology Park (STP). Note: Please see para 6.11(c)(i) of the Chapter 6 of Foreign Trade Policy. 1. The procedure given hereunder shall be applicable for reimbursement of Central Sales, 2. The Export Oriented Units (EOUs) and units in Electronic Hardware Technology park (EHTP) and Software Technology Park (STP) will be entitled to full reimbursement of Central Sales Tax (CT) paid by them on purchases made from the Domestic Tariff Area (DTA), for production of goods and ser .....

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le if the goods are manufactured in India and if the goods are procured from DTA, whereas for reimbursement of CST, the only requirement is that the goods must be manufactured in India. There is no requirement of a specific place of procurement, such as DTA. 23. In Paragraph 9.21 DTA has been defined as " area within India, which is outside SEZs and EOU/EHTP/STP/BTP". Similarly, paragraph 9.25 defines " Excisable Goods" as goods produced or manufactured in India and subject t .....

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) Act, Rules and Orders made thereunder and FTP (2009-14) by laying down simple, transparant and EDI compatible procedures, which are easy to comply with and administer, for effacious management of foreign trade. Therefore, as per paragraph 1.2 of the Hand Book, the Handbook and the Appendix are procedural instruments, required and notified to operationalise the substantive rights contained in the policy. 26. Though a bare reading of the Appendix would give rise to a prima-facie view that the sa .....

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. It is a settled position that the procedure formulated under any Policy is ony to operationalise the right and not to prevent the same. If a statute is workable even without framing of the rules, the same has to be given effect to When the petitioner had stated that in respect of the purchases made from EOUs was earlier allowed by the respondents, the same would establish that the respondents had followed the provisions of paragraph 6.11. 28. When the Policy gives a substantive right, the Appe .....

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f the 2009-2014 Policy. In the case of any amendment made in 2015-2020 Foreign Trade Policy, with regard to paragraph 6.11 of 2009-2014 policy, in that case, the respondents can take a stand that the Appendix 14-I-I and 6-H are in consonance with the terms of the policy. 30. On a perusal of both the policies i.e., 2009-2014 and 2015-2020, it is clear that the authorities have not made any change in the new policy, which came into effect on 1.4.2015 in respect of paragraph 6.11 and also with rega .....

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reimbursement in terms of paragraph 6.11(c)(ii) of the new policy. Appendix 6-H makes it clear that the purchases made by an EOU from another EOU qualifies for reimbursement, which is also the case of the petitioner. 32. Though there is absolutely no dispute with regard to the ratios laid down in the judgments, relied upon by the learned counsel for the respondents, the same are not applicable to the facts and circumstances of the present case, for the reason that the judgments are relating to .....

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