UNION OF INDIA AND ORS. Vs. M/S. B. T. PATIL AND SONSBELGAUM (CONSTRUCTION) PVT. LTD.

CITATION	(2024) 1 SCC 123.
BENCH	Justice Abhay S. Oka and Justice Ujjal Bhuyan.
COURT	SUPREME COURT OF INDIA
APPELLANT	Union of India and Others.
RESPONDENT	M/S B.T. Patil and Sons (Belgaum) Construction Pvt. Ltd.
DATE	5TH February 2024

Introduction:

The legal dispute between the Union of India and M/S B.T. Patil and Sons, Belgaum Construction Pvt. Ltd. revolves around the intricacies of deemed export benefits and duty drawback concerning the execution of civil construction works for the Koyna Hydro Electric Project. The case delves into the interpretation of the Exim Policy, 1992-1997, and the application of circulars issued by the Directorate General of Foreign Trade (DGFT), specifically those dated 20.08.1998 and 05.12.2000. These circulars clarified the eligibility of civil construction works for deemed export benefits, elucidating the position on duty drawback.

The Policy Interpretation Committee’s deliberations, chaired by the DGFT, play a pivotal role in the narrative, as it discussed the inclusion of the excise duty component in the pricing before the project authority. Subsequent events, including the rejection of interest claims by the DGFT and the legal proceedings that followed, shaped the contours of the case. The respondent, M/S B.T. Patil, and Sons, sought redress for delayed duty drawback refunds, invoking a notification dated 29.05.1995, which prescribed interest rates for delayed refunds.

This legal saga, originating from contractual and regulatory nuances, found its way to the Supreme Court, challenging the decision of the Division Bench. The ensuing analysis dissects the contentions of both parties, scrutinizes relevant precedents, and critically examines the judgment rendered by the Supreme Court on 05.02.2024.

Facts of the Case:

1. The case involves a dispute between the Union of India and M/S B.T. Patil and Sons, Belgaum Construction Pvt. Ltd. regarding the grant of deemed export benefits and duty drawback.

2. M/S B.T. Patil and Sons undertook civil construction works for the Koyna Hydro Electric Project, and a Policy Interpretation Committee, chaired by the DGFT, discussed the claim of the respondent regarding the inclusion of the excise duty component in the tender pricing.

3. Circulars dated 20.08.1998 and 05.12.2000 clarified that civil construction works were eligible for deemed export benefits under the Exim Policy.

4. The respondent made applications for a refund of duty drawback in 1996, which were belatedly accepted on 07.10.2002, and payments were made via cheques on 31.03.2003 and 20.05.2003.

5. The respondent claimed interest on the delayed refund, relying on a notification dated 29.05.1995, fixing the rate of interest at fifteen percent for the delayed refund of duty.

6. The DGFT rejected the request for interest on 10.07.2003 and 06.08.2003, leading to legal proceedings.

7. The learned Single Judge directed the appellants to pay interest on the delayed refund from the date of the clarificatory circular dated 05.12.2000 till the date of payment within three months.

8. Both parties filed writ appeals, leading to the Division Bench’s decision.

9. The Division Bench, on 22.08.2008, held in favor of the respondent, awarding interest at the rate of fifteen percent per annum.

10. The Union of India filed an appeal to the Supreme Court challenging the Division Bench’s decision.

Question of Law:

The esteemed legal proceedings before the Supreme Court revolved around the following pivotal questions:

1. Whether the respondent, M/S B.T. Patil and Sons (Belgaum) Construction Pvt. Ltd., was legitimately entitled to the benefit under the Duty Drawback Scheme as a case of ‘deemed export’ under the Exim Policy 1992-1997 for the supply of goods to the specified project?

2. Whether the circulars dated 20.08.1998 and 05.12.2000 issued by the Directorate General of Foreign Trade (DGFT) clarified and affirmed the entitlement of civil construction works, such as those undertaken by the respondent, to the benefit of duty drawback under the Exim Policy?

3. Whether the respondent was entitled to interest on the delayed refund of duty drawback, and if so, at what rate and from which date?

Contentions of Appellant:

The appellants, Union of India and others presented several contentions before the Supreme Court, asserting their stance on the crucial aspects of the case:

1. The appellants contended that the respondent was not entitled to the benefit under the Duty Drawback Scheme for their supply of goods to the project in question. It was argued that the circulars issued by the DGFT did not confer an absolute right and were subject to the conditions specified.

2. It was further contended that the circulars, including the one dated 05.12.2000, did not specifically address the aspect of interest on delayed refunds. The appellants emphasized that the respondent’s claim for interest was unfounded.

3. The appellants argued that the refund of duty drawback to the respondent was not a matter of right but was granted as a concession, and therefore, it should not set a precedent for similar cases.

4. Additionally, the appellants challenged the rate of interest awarded by the High Court, arguing that it was on the higher side and lacked proper justification.

Contentions of Respondent:

The respondent, M/S B.T. Patil & Sons (Belgaum) Construction Pvt. Ltd., presented compelling contentions in response to the appellants’ arguments. Their assertions played a pivotal role in shaping the court’s decision:

1. The respondent contended that the circulars issued by the DGFT, particularly the ones dated 05.12.2000 and 20.08.1998, unambiguously established their entitlement to the benefit under the Duty Drawback Scheme. They argued that the circulars clarified the inclusion of civil construction works as deemed exports, and thus, they should be granted the associated benefits.

2. It was emphasized that the circular dated 05.12.2000 explicitly outlined the eligibility for duty drawback and did not exclude the aspect of interest on delayed refunds. The respondent asserted their right to interest as per the relevant provisions of the Customs Act.

3. The respondent disputed the appellant’s characterization of the refund as a concession. They argued that the refund was not a matter of grace but a legitimate entitlement under the Exim Policy, and any delay in the payment warranted compensation in the form of interest.

4. Moreover, the respondent challenged the appellant’s contention that the circulars did not create new rights or benefits. They argued that the circulars merely clarified the existing entitlements, and as such, they were entitled to the benefits from the date of the Exim Policy.

Judgment:

The Hon’ble Supreme Court, after meticulous consideration of the contentions, presented and a comprehensive analysis of the relevant legal provisions rendered a definitive judgment on 05.02.2024. The court, in its wisdom, addressed each facet of the case with due diligence and legal acumen.

The central tenet of the judgment was the interpretation of the circulars issued by the DGFT in 1998 and 2000, specifically focusing on their applicability to civil construction works. The court clarified that these circulars were not merely clarificatory but held the status of providing a substantive expansion to the scope of deemed exports under the Duty Drawback Scheme. It decisively concluded that the respondent was entitled to the benefits outlined in the circulars from the inception of the Exim Policy.

A critical aspect deliberated upon was the question of interest on delayed refunds. The court, referencing Sections 27A and 75A of the Customs Act, affirmed that interest would accrue from the expiration of three months after the submission of refund applications. The judgment underscored the statutory obligation to compensate the claimant for the delay in disbursing duty drawback refunds. The court endorsed the High Court’s decision to award interest at the rate of fifteen percent per annum, aligning with the rate stipulated by the Central Board of Excise and Customs.

The court categorically dismissed the contention that the duty drawback refund was a concession, emphasizing that the respondent’s entitlement arose from the Exim Policy and the circulars. It underscored that the Duty Drawback Scheme, coupled with the provisions of the Central Excise Act and the Customs Act, unequivocally granted the respondent the right to claim duty drawback.

Additionally, the judgment clarified the retrospective operation of the circulars, affirming that the benefits extended to civil construction works had a retrospective effect from the commencement of the Exim Policy. The court reasoned that the language of the circulars and the policy itself left no room for ambiguity regarding the retrospective application.

In conclusion, the Supreme Court, in its sagacious interpretation, affirmed the respondent’s entitlement to duty drawback benefits for civil construction works, rejecting the contentions of the appellants. The judgment not only settled the specific dispute at hand but also provided legal clarity on the interpretation and retrospective operation of policy circulars, contributing to the jurisprudence surrounding deemed exports and duty drawback schemes.

This judicial pronouncement serves as a precedent, delineating the contours of entitlements under the Duty Drawback Scheme and emphasizing the obligation to compensate for delayed refunds in consonance with statutory provisions.

Analysis:

The analysis of the case involves a nuanced examination of the legal intricacies surrounding the entitlement of duty drawback benefits for civil construction works under the Exim Policy 1992-1997. The court embarked on a meticulous journey through the statutory landscape, focusing on the Exim Policy, the circulars issued by the DGFT, and the relevant provisions of the Central Excise Act and the Customs Act.

The pivotal point of analysis was the interpretation of the circulars issued in 1998 and 2000 by the DGFT. The court, in its discerning scrutiny, clarified that these circulars did not merely serve a clarificatory purpose but held the substantive force of expanding the scope of deemed exports to encompass civil construction works. The analysis underscored the need for a purposive interpretation, aligning with the overarching objective of promoting exports and granting due benefits to those involved in deemed export transactions.

An essential facet of the case analysis pertained to the retrospective application of the circulars. The court, in its sagacious approach, elucidated that the language of the circulars, coupled with the Exim Policy, left no room for ambiguity regarding their retrospective effect. This aspect of the analysis contributed to establishing a precedent on the retrospective operation of policy circulars, providing legal clarity for future cases with similar considerations.

The analysis delved into the question of interest on delayed refunds, emphasizing the statutory obligation to compensate the claimant for the delay in disbursing duty drawback refunds. The court’s endorsement of the High Court’s decision to award interest at the rate of fifteen percent per annum was grounded in the statutory framework and the rate prescribed by the Central Board of Excise and Customs.

Furthermore, the court debunked the contention that the duty drawback refund was a concession, affirming that the respondent’s entitlement emanated directly from the Exim Policy and the circulars. This aspect of the analysis reinforced the principle that entitlements under the Duty Drawback Scheme are not discretionary concessions but substantive rights conferred by law.

In essence, the case analysis illuminated the legal principles underpinning the court’s judgment, offering a comprehensive understanding of the interpretation of policy circulars, retrospective application, and the statutory framework governing duty drawback benefits. This analytical exploration not only provides insights into the specific case but also contributes to the broader legal discourse surrounding deemed exports and duty drawback schemes in India.

Conclusion:

In the culmination of this legal odyssey, the Supreme Court delivered a definitive judgment affirming the entitlement of M/S B.T. Patil and Sons (Belgaum) Construction Pvt. Ltd. to duty drawback benefits for its involvement in civil construction works under the Exim Policy 1992-1997. The conclusion reached by the court serves as a beacon, guiding future instances where the contours of deemed exports and retrospective application of policy circulars come under scrutiny.

The court, in its sagacious determination, underscored the importance of a purposive interpretation of policy circulars, accentuating their substantive impact rather than a mere clarificatory role. This conclusion establishes a precedent, elucidating that circulars, when unambiguous, can retrospectively apply, bringing clarity to the legal landscape surrounding policy pronouncements.

Crucially, the judgment’s conclusion upholds the respondent’s right to interest on delayed duty drawback refunds, grounded in the statutory framework and the rate prescribed by the competent authority. The court’s endorsement of the fifteen percent interest rate serves as a benchmark, delineating the legal standard for compensating claimants for the temporal lags in refund disbursements.

Furthermore, the conclusion dispels any notion that the duty drawback benefits granted were discretionary concessions, reiterating that such entitlements are rooted in the statutory framework, specifically the Exim Policy and the circulars issued by the DGFT. This

clarification solidifies the legal foundation for similar claims, affirming that duty drawback benefits are not acts of benevolence but legal rights accruing to eligible entities.

In summation, the Supreme Court’s conclusion in this case not only rectifies a historical injustice by recognizing the respondent’s entitlement to duty drawback benefits but also sets forth legal principles that will resonate in the annals of Indian trade and export jurisprudence. The resounding verdict echoes the court’s commitment to upholding the sanctity of legal entitlements and fostering a jurisprudential environment marked by clarity, coherence, and adherence to statutory mandates.

Written by Harshit Yadav an intern under legal vidhiya

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