Interest payable on delayed return of ‘Duty Drawback’
What is EXIM Policy?
EXIM or Export-Import Policy or as now called, the Foreign Trade Policy of India is a set of guidelines to govern the imports and exports of services and products in and out of India. It is issued and implemented by the Central Government of India through the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry.
What is ‘Duty’ levied on imports?
Import duty is a tax collected on imports by a country’s customs authorities. In India, import duty is levied by the Central Board of Indirect Taxes and Customs (CBIC) and collected by the DGFT under the provisions of The Customs Act, 1962 and The Customs Tariff Act, 1975. The duty levied on import depends majorly the nature of good or service being imported and the value of such goods or services.
What is ‘Duty Drawback’?
Duty Drawback is a scheme of the CBIC wherein, the Customs and Central Excise duties and Internal Taxes levied on import of goods is refunded if such goods are used as inputs for goods to be exported. This scheme was introduced to encourage and incentivize export of goods from India. Goods that are imported to manufacture other goods which are then exported, even though, the goods initially imported are not exported, are also eligible under this scheme and such transactions are called ‘deemed exports’. Deemed exports are defined as “those transactions in which the goods supplied did not leave the country and the payment for goods was received by the supplier in Indian Rupees but the supplies earned or saved foreign exchange for the country.” under the Section 120 of EXIM Policy, 1992-1997.
Is interest payable by the authorities if the return of ‘Duty Drawback’ is delayed?
Case – Union of India & Ors. vs. M/s B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd.
Court – Supreme Court of India
Key Issue – Whether interest if payable by the concerned authorities if return of ‘Duty Drawback’ was delayed?
Bench – Justice Mr. Abhay S. Oka and Justice Mr. Ujjal Bhuyan
Date of Pronouncement of Order – 05.02.2024
Prayer of the Appellant – To set aside the order issued by the Division Bench of the High Court of Karnataka, Circuit Bench at Dharwad, affirming the judgement and order of the learned Single Judge of the High Court of Karnataka wherein, the Respondent was awarded interest at the rate of 15% from the date of notification till the date of payment to the Respondent within a period of three months.
Facts of the matter –
The Respondent was awarded a sub-contract to execute civil work for reconstruction and development in a project called Koyna Hydro Electric Power Project in Maharashtra which was funded by the International Bank, an arm of the World Bank in 1991. Under the Foreign Trade (Development and Regulation) Act, 1992, an EXIM Policy was announced by the Ministry of Commerce and DGFT which provided certain benefits under ‘deemed exports’. The Respondent, post completion of work in 1996, filed three applications claiming duty drawback for a cumulative sum of Rs. 2,09,79,738/-. The said applications were rejected by DGFT on the grounds that supplies in civil construction work were not eligible for ‘deemed export’ benefit. Thereafter, the Respondent made requests for reconsideration but all such requests were rejected on the same grounds.
On 05.12.2000, DGFT issued a circular that drawback was to be paid in respect of excise duty on supply of goods to projects funded by multilateral agencies. In the furtherance of this notification, the Respondent again requested DGFT for reconsideration but the same was rejected. However, in a meeting held on 07.10.2002, it was decided by the Policy Interpretation Committee that the benefit of duty drawback under the ‘deemed export’ scheme would be extended to the Respondent and in light of this decision, DGFT permitted duty drawback of Rs. 2,25,79,740/- to the Respondent. However, it was clarified that duty drawback granted to the Respondent would not be treated as a precedent.
Thereafter, the Respondent submitted representations addressed to the Appellants seeking interest on the duty drawback amount paid on the ground of delayed payment. The same was rejected by DGFT and in the furtherance of this rejection, the Respondent filed a writ petition in the High Court of Karnataka. The Hon’ble High Court held Respondent entitled to interest and directed the appellants to pay an interest at the rate of 15% from the date of notification dated 05.12.2000 till the date of payment to the Respondent.
The Respondent then filed a Writ Appeal assailing the direction of the Single Judge to pay interest only from 05.12.2000. After perusal of Sections 27A and 75A of the Customs Act, 1962, the Bench held that the Respondent would be entitled to interest after expiry of three months from the date of making the applications for refund of duty drawback in 1996 and directed payment of same at the rate of 15%. The Appellants, aggrieved by this order, filed an appeal before the Supreme Court of India.
The Hon’ble Supreme Court observed that no new right or benefit was created by the notifications issued by DGFT in 1998 and 2000 as those circulars were only clarificatory in nature and that the minute the EXIM Policy came into force, the benefit of duty drawback automatically became available to the Respondent. The Court held that Section 75A of the Customs Act makes it clear that where duty drawback is not paid within a period of 3 months from the date of filing of claim, the claimant would be entitled to interest in addition to the amount of drawback and that the Section 27A provides the interest rate shall not below 10% and not exceeding 30% p.a.
Thus, the Hon’ble Supreme Court held that the Respondent was entitled to refund of duty drawback and since the refund of duty drawback was delayed, the Respondent was entitled to interest at the rate of 15% and hence, the Hon’ble Court found no good reason to interfere with the judgement of the Division Bench of the High Court.
To read the complete order, click here.
Duty Drawback Scheme provided for under the Foreign Trade Policies issued by the DGFT are introduced with the motive of promotion of exports and strengthening of India’s economy. Such drawback or refund is a matter of right if the importer is eligible to claim drawback under the scheme. The Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 clearly provide that drawback and interest, if any, shall be paid by the proper officer of the Customs to the exporter or to the agent of the exporter. This judgement of the Hon’ble Supreme Court has brought light to the tactics used by the authorities such as rejection of claims, issuance of circulars and notices and then using the legal system to prolong the delivery of justice. The Court also clarified that the interest shall be payable from the end of three months from the date of submission of claims for drawback by the Respondent and not from the date of decision of committee that the Respondent was entitled to the drawback. It was clearly held that a right vests in the stakeholder the moment the law creating that right comes into force and any clarifications or explanations issued related to that law in the form of notifications or circulars are just for clarification of doubts and they neither create any new rights or destroy any rights that already existed.
i)This opinion/clarification note is based on the facts provided to us and the same is being issued without any knowledge of intent, prejudice, non-disclosure, misrepresentation, or concealment of facts if any.
ii)We have not done investigation of correctness of facts and the limited opinion represents our understanding of the provisions of the law on the matter. The compliance mentioned above is not exhaustive and other compliance may also be involved depending on case to case basis.
iii)The conclusions reached and views expressed are matters of opinion based on our understanding of the related laws, rules, notifications, Citations, circulars, etc.
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