w w w . L a w y e r S e r v i c e s . i n



M/s Hospira Health Care India Pvt Ltd, represented by the Deputy General Manager v/s Development Commissioner MEPZ Special Economic Zone & HEOUs

    W.P. Nos. 15646 & 26004 of 2014 & MP No. 1 of 2014 in WP No. 26004 of 2014

    Decided On, 30 March 2016

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE M. DURAISWAMY

    For the Petitioner: N. Venkataraman, Senior Counsel, J. Shankar Raman, For the Respondents: V.P. Sengottuvel, SCGSC.



Judgment Text

(Prayer: W.P.No.15646 of 2014: Writ Petition filed under Article 226 of the Constitution of India praying this court to issue a Writ of Certiorarified Mandamus to call for the records relating to the communication dated 28.04.2014 to the first respondent, pursuant to the communication dated 11.04.2014 of the third respondent and quash the same and direct the first respondent to grant refund.

W.P.No.26004 of 2014: Writ Petition filed under Article 226 of the Constitution of India praying this court to issue a Writ of Certiorari to call for the records relating to the communication No.13/8/2013/EOU dated 11.04.2014 of the first respondent and quash the same.)

1. In W.P.No.15646 of 2014, the petitioner has prayed for issuance of a Writ of Certiorarified Mandamus to call for the records relating to the communication dated 28.04.2014 to the 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 referred to as " EOU" ) from another EOU would qualify for reimbursement of Central Sales Tax as applicable, in terms of the extant provisions of the law.

3. Since the issues involved in both these writ petitions are common, by consent of both sides, both the writ petitions are disposed of by this common order.

4. According to the petitioner, it is an 100% Export Oriented Unit (100% EOU), duly registered with the Development Commissioner, Madras Export Processing Zone (MEPZ), Tambaram, Chennai-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 preparations such as Meropenem Injections, Cefepime Injections, Cefoxitin Injections, Biapenem, Cefazoline Injection etc and the entire product range is exported to countries like U.S.A, Netherlands etc.,

5. According to the petitioner, the petitioner Company is issued with Letter of Permission (LOP) to operate as an 100% EOU in terms of the provisions contained in Foreign Trade Police, issued with Green Card after execution of Letter of Undertaking (LUT) to procure duty free capital goods, raw materials, 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 Excise exemption dated 31.03.2003. The petitioner has been periodically filing quarterly and annual returns with the Development Commissioner, MEPZ, Chennai, who is an authority coming under the control of the third respondent.

6. According to the petitioner, the imported raw materials are normally subject to aggregate customs levy such as Basic Customs Duty (BCD), Counter veiling Duty (CVD), Special Additional Duty (SAD) and Education Cess, which are however not collected when imported by 100% EOU. 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 free in terms of the Notification issued by Central Excise dated 31.03.2003 on the strength of C.T 3 certificate issued by the jurisdictional central excise authorities.

7. According to the petitioner, the exemptiion notification are in line with the Foreign Trade Policy provisions forumlated from time to time and tax exemption is allowed to EOU as per the framework and policy guidelines of Commerce Ministry, notified by the Mnistry of Finance, New Delhi. The customs/central excise duties are exempted 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 they are procured domestically by the Petitioner Company. However, the VAT paid by the Petitioner Company is cenvatable as the same is allowed as input tax credit (ITC) under TNVAT Act, 2006, which can be used for discharging the output tax on finished goods, or claimed as refund in terms of the said Act.

8. Further, according to the petitioner, as regards the levy of CST when the purchase/sale takes place during the course of inter-state sale there is no exemption available under CST Act, 1956. 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 refund of CST to the EOU on quarterly basis. The provisions are enumerated in paragraph 6.11 of Foreign Trade Policy issued/formulated from time to time.

9. The petitioner were procuring raw materials, packing materials and consumables locally with local tax and from other State with concessional rate of tax at 2% against C form from the supplier of DTA as well as from 100% EOU by name M/s Orchid Chemicals & Pharmaceutials Limited, situated in Aurangabad, Maharashtra, who is supplying the goods 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 petitioner Company had filed claims for refund of CST for the Assessment years 2010-2011 and 2011-2012, which were sanctioned. The refund claims, filed by the petitioner Company from January 2012 to March 2012 onwards were not sanctioned and were kept pending by the third respondent without assigning any reason.

10. When the petitioner company requested the third respondent to sanction the refund claims, filed by the petitioner, they were informed orally that the claims were not released on the ground 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 respondent, vide their Official Memorandum dated 26.02.2013 sought for clarification from the Ministry of Commerce, New Delhi, on the subject issue. By communication dated 11.06.2013, the second respondent has again sought for clarification from the Director, Special Economic Zone, Department of Commerce, New Delhi.

11. The petitioner company were constantly purusing the matter and making representations by periodically communicating to the respondents. The petitioner reeived a communication dated 28.04.2014 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 respondent. Challenging the communication dated 28.4.2014, issued by the Development Commissioner, MEPZ, Chennai and the communication dated 11.04.2014, issued by the Secretary, Ministry of Commerce and Industry, New Delhi, the petitioner has filed the above writ petitions.

12. According to the respondents 1 to 3, the claim of the Export Oriented Units (EOUs) is for reimbursement of Central Sales Tax (CST) suffered while procuring inputs from another EOU and the same was questionable as the Hand Book 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 one EOU to another EOU. The Ministry of Commerce has rightly clarified the Rule Position in their letter dated 11.04.2014 to the Director General of Foreign Trade to consider amendment to the Foreign Trade Policy.

13. Mr.N. Venkataraman, learned Senior Counsel, appearing for the petitioner submitted that paragraph-6.11 of the Foreign Trade Policy provides for certain entitlements/benefits for EOU units and Appendix 14.I-I is an application form providing for particulars, as required by the second 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 the category of the selling unit. Further, the learned Senior Counsel also submitted that the selling unit can either be a DTA unit or an EOU unit and the substantive right under the Policy allows for reimbursement of CST paid by EOU units on inter-state purchases, irrespective of the constitution of the manufacturer. Therefore, the procedure for effecting this right, however, is restricted only to the purchases made from units in DTA.

14. Further, the learned Senior Counsel submtited that the 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 the Policy and further submitted that not allowing the reimbursement claims of CST of the petitioner, would fall afoul of Article 14 of the Constitution of India since the action of the respondents is arbtirary and violation of Article 14 of the Constitution.

15. In support of his contention, the learned Senior Counsel relied on the following judgments:

(i) 2013 10 SCC 772 (Union of India (UOI) and anor vs National Federation of the Blind and others, wherein the Apex Court has held as follows:

45) 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 a crucial role, when the Section is clear and unambiguous.

(ii) 1989 (2) SCC 285 (Ayurveda Pharmacy and another vs State of Tamil Nadu), wherein the Apex Court has held as follows:

It is open to t he Legislature, or the State Government if it is authorised in that behalf by the Legislature, to select different rates of tax for different commodities. But where the commoditi es belong' to the same class or category, there must be a rational basis for discriminating between one commodity and another 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 choi ce of the rate of sales tax, and so long as there is go od reason for making the distinction from other commodities no complaint can be made. What the actual rate should be is n ot a matter for the courts to determine generally, but where a distinction is made between commodities fairing in the sa me category a question arises at once before a Court whether there is justification for the discrimination.

(iii) 2015 (7) SCC 58 (M.P. Steel Corporation vs Commissioner of Central Excise, wherein the Apex Court has held as follows:

23. Substantive law refers to a body 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 that every statute is prospective unless it is expressly or by necessary implication made to have retrospective operation.

24. Right of appeal may be a substantive right but the procedure for filing the appeal including the period of limitation cannot be called a substantive right, and an aggrieved person cannot claim any vested right claiming that he should be governed by the old provision pertaining to period of limitation. Procedural law is retrospective meaning thereby that it will apply even to 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 16] and Shyam Sunder v. Ram Kumar [(2001) 8 SCC 24] , has elaborately discussed the scope and ambit of an amending legislation and its retrospectivity and held that every litigant has a vested right in substantive law but no such right exists in procedural law. This Court has held that the law relating to forum and limitation is procedural in nature whereas law relating to right of appeal even though remedial is substantive in nature.

26. Therefore, unless the language used plainly manifests in express 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, there is no specific provision, which prescribes a procedure for applying for refund in such a case. But the rules or procedures are hand maids of justice not its mistress.

(v)AIR 1975 3 SCC 602, (State of Bihar and Ors vs Dr.Asis Kumar Mukherjee and Ors), wherein the Apex Court has held as follows:

15. ......

"When a defect appears a Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament.... and then he 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 Ltd), wherein the Apex Court has held as follows:

21. We may also refer to the following perceptive observations in the decision of Lord Denning is Seaford Court Estates Ltd. v. Asher [1949 (2) K.B. 481]:

"Whenever a statute comes up for consideration it must be remembered that it is not within human power to foresee 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 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 and perfect clarity. In the absence of it, when a defect appears a judge cannot simply fold his hands and blame the 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 language 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 writter word so 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 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 material of which it is woven, but he can and should iron out the creases.

(vii) 1949 (2) ALL ER 155 (Seaford Court Estates Ltd vs Asher), wherein the Court of Appeal held as follows:

The question for decision in this case is whether we are at liberty to extend the ordinary meaning of " burden" so as to include a contingent burden of the kind I have described. Now this Court has already held that this sub-section is to be liberally construed so as to give effect to the governing principles embodied 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 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 draftsmen 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 devine prescience and perfect clarity. In the absence of it, when a defect appears a judge cannot simply fold his hands and blame the 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 the safest guide to-day. Good practical advice on the subject was given about the same time by Plowden in his second volume Eyston vs Studd. 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 straingtened it out? He must then do as they would have done. A judge must not alter the material of which it is woven, but he can and should iron out the creases".

(viii) 2000 (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) (Narendra Udeshi vs Union of India), wherein the Bombay High Court held as follows:

15. The procedures to be prescribed by an authority in implementing the policy 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. In the instant case, since the impugned circulars and the public notice issued by DGFT are in conflict 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 apart, the learned Standing Counsel submitted that since paragraphs 6.11 and 9.21 of the Foreign Trade Policy read with Appendix 14.I-I do not provide for reimbursement of CST paid on goods supplied from one EOU to another EOU, therefore, the petitioner is not entitled to get refund of the tax.

17. In support of his contention, the learned Standing Counsel for the respondents relied upon the following judgments:

(i) 2004 (11) SCC 798 (Commissioner of Central Excise, Chandigarh-I vs Mahaan Dairies), 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 have already overruled the decision in that case. In this case also we hold the decision of the Tribunal is unsustainable. It is accordingly set aside.

(ii) 2009 (5) SCC 46 (Atul Commodities Private Limited and others vs Commissioner of Customs, Cochin-9), wherein the Apex Court held as follows:

29. Before coming to the circulars, one needs to understand the Scheme of the 1992 Act. The said Act is enacted to provide for development and regulation of Foreign Trade by facilitating imports into, and 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 formulate and announce by notification in the Official Gazette the Exim Policy and it may also amend that policy from time to time. Under Section 6, DGFT is empowered to advise the Central Government in the formulation of Exim Policy and shallbe responsible for carrying out that Policy. Under Section 6(3) of the 1992 Act only Central Government is empowered to amend the FTP.

31. Under para 2.3 of the FTP (2004-09) DGFT is empowered to interpret the Policy. If any doubt or question arises in respect of 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 than in other matters. The Court cannot sit in judgment over the wisdom of the policy of the legislature or the executive.Thus in Balco Employees' Union (Regd.) vs. Union of India and Ors. 2002(2) SCC 333 it was observed (vide paragraph 92 and 93) :

"92. In a democracy, it is the prerogative of each elected Government to follow its own policy. Often a change in Government may result in the shift in focus or change in economic policies. Any such change may result in adversely affecting 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 economic policies and consider whether a wiser or better one can be evolved."................

In the same decision in paragraph 39 it was observed :

"39. In Premium Granites vs. State of T.N., 1994(2) SCC 691 while considering the Court's powers in interfering with the policy decision, it was observed at page 715 as under: (SCC para 54)

"54. It is not the domain of the Court to embark upon the unchartered ocean of public policy in an exercise to consider as to whether a particular 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 Notification No.1/200902014 dated 27.08.2009; the Central Government has notified the Foreign Trade Policy 2009-2014. The Policy contains various incentive schems such as Advance Authoristion, Export Promotion Capital Goods (EPCG) Scheme etc. The provisions relating to the EOU scheme have been enumerated in Chapter 6 of the Policy. Paragraph 6.11 of the Policy provides for certain entitlements/benefits for Export Oriented Units. It would be useful to extract paragraph-6.11 of the Foreign Trade Policy 2009-2014.

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 claiming deemed export duty drawback, they shall get brand rates fixed by DC wherever All Industry Rates of Drawback are not available.

(b) ......

(c) In addition, EOU/EHTP/STP/BTP units shall be entitled to following:

(i) Reimbursement of Central Sales Tax (CST) on goods manufactured in India. Simple interest @ 6% per annum will be payable on delay in refund of CST, if the case is not settled within 30 days of receipt of complete application (as in paragraph 9.10.1 of HBP v1)

(ii) Exemption from 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 paragraph 2.4 of the Policy, the second respodent has notified the "Handbook of Procedures" 2009-2014 . Insofar as paragraph 6.11 of the policy is concerned, the second respondent has notified the Appendix 14.I.I. It would be approrpriate to extract the relevant portion of Appendix 14.I-I which reads as follows:

APPENDIX – 14-I-I

Procedure to be followed for reimbursement of Central Sales Tax (CST) on supplies made to Export Oriented Units (EOUs) and units in Electronic Hardware Technology Par (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 services as per EOU scheme on the following terms and conditions:

(a).......

21. On a perusal of paragraph 6.11 of the Policy, it could be seen that sub clause (i) deals with reimbursement of Central Sales Tax in respect of goods manufactured in India. Sub clause (ii) provides for exemption from payment of Central Excise Duty on goods procured from DTA on goods manufactured in India, sourced or procured from Domestic Tariff Area.

22. Insofar as Central Excise Duty is concerned, exemption is available 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 to a duty of excise under Central Excise and Salt Act, 1944. Since the Central Excise has been referred to in the policy, it would be relevant to pursue the provisions of Central Excise and Salt Act, 1944.

24. As per Sec.3 of the Central Excise Act, 1944; viz., the charging section levies a duty of excise on all goods manufactured in "India" except specifically Special Economic Zones".

25. The objective of the Hand Book as per paragraph 1.2 is to implement provisions of FT (D&R) 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 same is applicable only for the purchases made by EOUs from units in DTA, the substantive right under the policy allows for reimbursement of CST paid by EOU units on inter-state purchases, irrespective of the constitution of the manufacturer. When the policy contemplates reimbursement of CST paid by EOU units on inter-state purchases, irrespective of the constitution of the manufacturer, the procedure for effecting this right, however, is restricted only to the purchases made from units in DTA.

27. 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 Appendix cannot restrict the substantive right provided in the policy and the Appendix is meant for effectuating the rights contained in the policy and cannot be a tool for narrowing or frustrating the objective and operation of the substantive right granted to the petitioner.

29. On comparing the New Foreign Trade Policy 2015-2020 with that of Foreign Trade Policy 2009-2014 it is clear that the substantive provision has remained identical and unc

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hanged as was originally provided in paragraph 6.11 of 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 regard to paragraph 6.17 of the Hand Book of procedures and also in Appendix 6-H. Paragraph 6.11 in the new policy, is verbatim reproduction of paragraph 6.11 of the old policy. 31. Since the substantive provision has remained identical and unchanged, the conditions stated in Appendix 14.I-I cannot be pressed into service, for the reason that it runs contrary to the terms of the policy. Even as per Appendix 6-H, it is clear that CST paid on the purchases made by an EOU from another EOU qualifies for 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 the interference of the Court over the wisdom of the policy of the legislatiion or the executive. In the judgment reported in 2004 (11) SCC 798 (Commissioner of Central Excise, Chandigarh-I vs Mahaan Dairies), the Hon'ble Supreme Court held that in order to claim benefit of a notifiation, a party must strictly comply with the terms of the notification and the wording of the Notification cannot be added or stretched. 33. In the present case, when the policy provides for reimbursement under paragraph 6.11, the said objective was prevented or diluted by the Appendix. As already stated, 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 for reaching the objective and definitely should not be meant for defeating a person from getting the fruits of the substantive right provided in the policy. A procedure should not run contrary to the substantive right in the policy. In the case on hand, it is only a procedural amendment and not a policy amendment. When the policy gives a right to the petitioner for claiming refund of taxes, it cannot be prevented by making an amendment in the procedure. The petitioner can be prevented only if the policy is amended 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. 34. In the instant case, since the impugned communciations are in conflict with paragraph 6.11 of the Foreign Trade Policy, the same are liable to be set aside. 35. Accordingly, the impugned communication dated 28.04.2014, issued by the Development Commissioner, Madras Export Processing Zone, Chennai and the communication dated 11.04.2014 issued by the The Secretary, Ministry of Commerce and Industry are set aside. Consequently, the Development Commissioner, Madras Export Processing Zone, Chennai is directed to grant refund of claims, on the purchases made by the petitioner from an 100% EOU by viz., M/s Orchid Chemicals & Pharmaceutials Limited. In fine, both the writ pteitions are allowed. No costs. Consequently, connected MP is closed.
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