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2016 (12) TMI 77 - DELHI HIGH COURT

2016 (12) TMI 77 - DELHI HIGH COURT - TMI - Denial of the benefit of refund of terminal excise duty in relation to capital goods supplied to power projects - vires of of the Foreign Trade (Development and Regulation) Act, 1992 - Held that: - It is quite clear that firstly the eligibility called entitlement by the petitioner to the refund and terminal duty as a deemed export benefit was introduced for the first time through an amendment of the Hand Book of Procedures. Thus, the question of its be .....

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tween payment of excise by the supplier and entitlement of the deemed export for duty refund was clearly established even before the entering into of contractual bargain and issuance of the letter of intent. In other words when the petitioner issued the letter of intent on 26.4.1999, it was fully aware of the fact that the benefit was introduced on 22.4.1999 and further that this was conditioned upon the existence of the excise duty incidence that could be refunded to the tune of 3% - if any add .....

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s of the opinion that since the duty refund eligibility was linked to the payment of duty, to offset the competitive additions that imported goods would have over domestically manufactured ones, the parity achieved by another policy compelled the government to amend the Hand Book of Procedures in the manner it did. There is clearly neither any arbitrariness nor violation of doctrine of promissory estoppel - petition dismissed. - W.P. (C) 6064/2000 - Dated:- 28-11-2016 - MR. S. RAVINDRA BHAT MS. .....

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onally it is urged that the amendment is ultra vires provisions of the Foreign Trade (Development and Regulation) Act, 1992 (hereafter referred to as "Act"). 2. Under Section 5 of the Act, the Central Government is empowered to notify the Export Import Policy ( ExIm Policy ). Traditionally, the Central Government has been resorting to this power and notifying Export Import Policies for a block period of 5 years each. The policy (hereafter referred to as " ExIm Policy ") was p .....

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s terminal excise duty refund [paragraph 10.3 (c)]. The paragraph 4.11 of the policy - effective for 1999-2000 is reproduced below: - "Procedure 4.11 The Director General of Foreign Trade may, in any case or class of cases, specify the procedure to be followed by an exporter or importer or by any licensing, competent or other authority for the purpose of implementing the provisions of the Act, the Rules and Orders made thereunder and this Policy. Such procedures shall be included in the Han .....

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paragraph 10.2 (g) shall be entitled for deemed export benefits provided the same is certified by the Central Electricity Authority and the International Competitive Bidding procedures have been followed for supply of such capital goods to the power projects. The domestic supplier shall be eligible for the benefits given in paragraphs 10.3(c) and (d) only." 4. On 26.4.1999, the petitioner issued a letter of intent to the third respondent Bharat Heavy Electricals Limited (BHEL) for supply o .....

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- "10.2 The following categories of supply of goods by the main/sub-contractors shall be regarded as "deemed Exports" under this Policy, provided the goods are manufactured in India: (a) supply of goods against Advance Licence/DFRC under the Duty Exemption/Remission Scheme; (b) supply of goods to Export Oriented Units (EOUs) or units located in Export Processing Zones (EPZs) or Special Economic Zones (SEZs) or Software Technology Parks (STPs) or to Electronic Hardware Technology P .....

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g the customs duty; (e) supply of capital goods, including in unassembled/disassembled condition as well as plants, machinery, accessories, tools, dies and such goods which are used for installation purposes till the stage of commercial production and spares to the extent of 10% of the FOR value to fertiliser plants; (f) supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty coupled with the .....

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itted by the Customs; and (i) supply to projects funded by UN agencies. The benefits of deemed exports shall be available under paragraph (d) (e) (f) and (g) only if the supply is made under the procedure of International Competitive Bidding (ICB). 10.3 Deemed exports shall be eligible for the following benefits in respect of manufacture and supply of goods qualifying as deemed exports; (a) Advance Licence for Intermediate supply/deemed export; (b) Deemed Exports Drawback; (c) Refund of terminal .....

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y and the International Competitive Bidding Procedures have been followed, at IPP stage, for supply of such capital goods to the power projects. The domestic supplier shall be eligible for the benefits listed in paragraphs 10.3 (a) or (b) of the Policy. The benefits of deemed exports shall also be available for renovation/modernization of power plants. However, supply of goods required for setting up of any mega power projects specified in S.No.338 of Department of Revenue notification No.16/200 .....

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refineries being set up during the Ninth plan period, shall be entitled for deemed export benefits provided items and equipments are covered under S.No.204 of Customs Notification No.16/2000 dated 1.3.2000, as amended from time to time. The domestic supplier shall be eligible for the benefits given in paragraph 10.3 (a) or (b) of the Policy. 10.11A. The supplies of goods to projects funded by UN agencies shall be eligible for the benefits given in paragraph 10.3(a) or (b) of the Policy." 6 .....

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excise duty. The petitioner submits that it repeatedly sought clarification from the DGFT but was unsuccessful in eliciting any appropriate response. In this premise, it is urged that the withdrawal of terminal excise duty refund benefit is both beyond the power conferred under paragraph 4.11 of the ExIm Policy and Section 5 of the Act. It is besides urged that such alteration is arbitrary and violative of the principle of promissory estoppel which is part of article 14 of the Constitution of I .....

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April 21, 2004, read with Notification dated April 28, 2004, seeking to exclude the export performance related to class of goods covered by para 2 of the Public Notice dated April 28, 2004, by way of Notes 6 to para 3.7.2.1 of the EXIM Policy, would relate back to the date of Public Notice dated January 28, 2004 or is to be given prospective effect from the date of issuance of Notifications on April 21 and 23, 2004. 98. It is no doubt that the Central Government has the power to amend the Policy .....

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." 8. The Central Government in its counter affidavit as well as through the counsel appearing on its behalf highlighted that in the present case, the letter of intent was issued on by the petitioner 26.4.1999 and that the deemed benefit under paragraph 10.2 of the ExIm policy of 1997-2002 relating to the power sector enumerated in paragraph 10.11 of the Hand Book of Procedure was corrected by a public notice dated 22.4.1999 to read as follows: - "The supply of capital goods alone to t .....

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export" and further categorized and enumerated what shall be regarded as deemed export and what set of benefits are to be available for what category of exports, it is stated that the sector specific benefits have to be spelt out because the nature of transactions are co-related with the duty. It is further stated that the five years policy was announced in 1992 for the first time; the second five-year policy was announced in 1997. Both these contain certain basic policy elements and detail .....

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PB benefits. Only those listed in the Appendix apply. For instance REP license through the scheme for gems and jewellery is given in the policy but REP rates are given in Appendix 30 of the Handbook. It is submitted that deemed export benefits are co-related with the incidence of duty. In this regard, it is stated that since under the policy three benefits of deemed exports were given, i.e., 10.3 (a) (b) and (c) to supplies against advance intermediate license and for supplies of EoUs/EPZ units .....

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ndreds of crores of rupees would become eligible for refund irrespective of whether the unit did or did not suffer any duty liability. 11. The short question involved, therefore, is whether paragraph 10.11 of the Hand Book of Procedures to the extent it is challenged is to be declared as arbitrary and ultra vires. The previous discussion would show that the letter of intent in this case was issued on 26.4.1999. The definition of deemed export applied to supplies made to the Power, Oil and Gas se .....

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ise @ 3%. It reads as under: - "5. The paragraph 10.11 shall be corrected to read as under: - "The supply of capital goods alone to the power projects in terms of paragraph 10.2 (g) shall be entitled for deemed export benefits provided the same is certified by the Central Electricity Authority and the International Competitive Bidding procedures have been followed for supply of such capital goods to the power projects. The domestic supplier shall be eligible for the benefits given in p .....

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The domestic supplier shall be eligible for the benefits given in paragraph 10.3 (c) and (d) only with further stipulation that the refund of Terminal Excise Duty under paragraph 10.3 (c) would be restricted to the amount that would have been payable as excise @ 3%. Supplies under paragraph 10.2 (g) of the policy to the new refineries being set up during the Ninth plan period, shall be entitled for deemed export benefits provided items and equipments are covered under customs notification No.55 .....

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ocedures. Thus, the question of its being ultra vires the Act or the Policy would not arise. Secondly, paragraph 10.11 which spelt out the eligibility to receive refund of terminal excise duty itself established the linkage i.e. payment of excise duty as an existing condition and further restricted the quantum to 3%. 13. In this case, the question is whether the withdrawal of benefit under 10.3, i.e., of refund of terminal excise duty is arbitrary or violates the principle of promissory estoppel .....

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unded to the tune of 3%. 14. The Central Government's counter affidavit recounts that the withdrawal of terminal excise duty refund benefits arose because of the report of the Committee. The Committee has stated that imports for a particular sector were exempted for basic custom duty. The corresponding suppliers of domestic goods too had to be provided duty free access to raw materials needed for the manufacture of such goods in the form of Special Imprest License. Alternatively, the domesti .....

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