Manufacturer Eligible to Refund of Terminal Excise Duty on supply of Goods to a 100% Export Oriented Unit: Delhi HC [Read Judgment]

The Delhi High Court has recently held that the manufacturer who supplied goods (after payment of excise duty via the route) to a 100% Export Oriented Unit (EOU) is entitled to claim the refund of Terminal Excise Duty.

The petitioner, a division of a company, namely, Motherson Sumi Systems Ltd. (MSSL), is in the business of manufacturing excisable goods such as PVC insulated wires and cables. Over the years, the petitioner has been supplying these goods to other divisions of MSSL, which have a status of a 100% EOU on payment of excise duty, albeit, via CENVAT credit route. The petitioners’ application for refund of TED was rejected by the authority in view of the provisions of paragraph 7.04 of the Foreign Trade Policy (FTP).

The petitioner, therefore, approached the High Court through a writ petition.

The bench examined the provisions of Chapter 8 of the FTP. Clause (b) of paragraph 8.2, which provides that the goods supplied by the main contractor or a sub-contractor to an EOU will be regarded as deemed exports.

Allowing the petition, Justice Rajiv Shakdher observed that “A careful perusal of the aforesaid extract of para 8.3, in particular, clause (c) would show that goods which qualify as deemed exports are exempt from TED where supplies are made against ICB. However, where supplies are not made against ICBs refund of TED is to be given. This fact is reiterated in para 8.4 which speaks about various benefits available to the supplier under paras 8.3(a), (b) & (c) to suppliers. Paragraph 8.5 of the FTP 2009-2014 also alludes to the fact that the supply of goods would be eligible for the refund of TED in terms of paragraph 8.3(c) of the FTP provided the recipient of the goods does not avail of CENVAT credit or rebate on such goods.”

Therefore, it was concluded that the DTA supplier can seek refund only if the EOU has not availed of CENVAT credit or rebate on such goods.

Rejecting the contention of the department that the refund of TED would result in monetization of CENVAT credit, the bench observed that “the object of the FTP is to provide impetus to export either by direct physical export or via the deemed export route. In case refund of TED is not given qua deemed export, it would result in the export of duties, which, in the long run, would be detrimental to the cause of the exporters and the Indian economy.”