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Sandoz Private Ltd. vs. The Union of India

Civil Appeal · 2022 INSC 8Decided 4 Jan 2022
Civil Appeal Nos. 3358-3360 and 3705 of 2020
A.M. Khanwilkar · Dinesh Maheshwari · Krishna Murari · C.T. Ravikumar as the second judge does not match the bench that actually signed the judgment

Background

Four connected appeals raised a common question under India's Foreign Trade Policy (FTP): when a Domestic Tariff Area (DTA) unit supplies excisable goods to a 100% Export Oriented Unit (EOU), treated as a "deemed export", who is entitled to claim a refund of the Terminal Excise Duty (TED) paid on those goods, the DTA supplier or the EOU that received them? Sandoz, an EOU, had received TED refunds for years before a 2013 policy circular from the Director General of Foreign Trade (DGFT) declared that no such refunds should be given because EOU supplies are ab initio exempt from excise duty; its subsequent refund claims were rejected and the Bombay High Court upheld the rejection. In the connected appeals, the Union of India challenged Delhi and Karnataka High Court rulings that had instead allowed DTA suppliers (not EOUs) to claim such refunds.

Decision Breakdown

The Supreme Court harmonized the conflicting High Court rulings by holding that an EOU is not independently entitled to a TED refund: its only automatic benefit is the ab initio exemption from paying excise duty in the first place when importing goods from a DTA supplier. However, if an EOU had actually paid TED in cash to a DTA supplier, it could step into the DTA supplier's shoes and access the DTA supplier's own refund entitlement under Chapter 8 of the FTP, provided it obtained a proper disclaimer certificate from that supplier. The Court affirmed the line of High Court decisions (Calcutta, Delhi, Madras, Karnataka) holding that the DTA supplier itself is entitled to a TED refund under the FTP as a deemed exporter, to be given as cash refund with 6% simple interest if TED was paid in cash, or as a reversal of CENVAT credit if credit was used, and clarified that the FTP refund mechanism is independent of, and not barred by, an unsuccessful refund claim under ordinary excise law. The four appeals were disposed of partly in favour of each side according to these clarified principles, with no order as to costs.

Lesson Learnt

Under complex regulatory export-incentive schemes, entitlement to a benefit (like a duty refund) may legally belong to a different party in the supply chain than the one that initially bore the cost: here, the actual refund right rests with the DTA supplier, not the EOU, unless the EOU obtains a proper disclaimer and steps into the supplier's position; businesses should not assume that whoever pays a duty automatically has the right to reclaim it.

Official source (sci.gov.in)View Judgment (PDF)

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