DGFT oversteps defined ambit
The Director General of Foreign Trade (DGFT) has issued (through policy circular 16, dated March 15) a contentious clarification.
This says in respect of supply of goods under an invalidation letter issued against advance authorisation or under International Competitive Bidding (ICB) or supply to export-oriented units (EOU), no refund of terminal excise duty (TED) should be provided because these are exempted from excise duty.
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Para 8.3(c) of the Foreign Trade Policy (FTP) says manufacture and supply of goods qualifying as deemed exports shall be eligible for exemption from TED where these supplies are made against ICB. In other cases, refund of TED will be given. This specific provision to grant a TED refund in all cases other than supplies against ICB cannot be nullified by the DGFT through a policy circular.
In the case of J B Impex [2001 (134) ELT 0210 (Tri.Bom)], the Tribunal held: "DGFT can only advise the central government regarding formulation of policy... DGFT can never rise herself to the position of central government". On appeal, the Supreme Court [2007 (217) ELT 163 (SC)] said, "Prima facie, we find the findings recorded by the Tribunal on questions of law to be correct."
In Atul Commodities Pvt Ltd [2009 (235) ELT 385 (SC)], the SC made it explicit that "under the scheme of the statute, one finds a clear demarcation between an amendatory provision and a clarificatory provision.
Section 5 of the 1992 Act contemplates amendment to the FTP. It empowers only the central government to amend the Policy. This power is not given to the DGFT. It is not open to DGFT vide circulars to change categorisation of items from the category of 'free' to 'restricted' imports." In a number of cases, the courts have followed this judgment and amplified this position.
The DGFT could have advised the commerce ministry to suitably amend the FTP, rather than act beyond his jurisdiction. The controversial circular comes just a few days before announcement of major amendments to the FTP, this month-end or soon thereafter.
The circular refers to Para 8.3 (c ) and Para 6.11 (c ) of the FTP to say exemption is available from the outset for supply of goods under an invalidation letter issued against advance authorisation (a dubious claim) and supply of goods to an EOU. Even if one were to grant these as correct, it does not automatically follow that TED refund is not available in such cases. In fact, the FTP is explicit that TED refund will be available in all cases other than supplies against ICB.
Beside the impropriety of trying to amend the FTP through a policy circular, the DGFT has simply denied TED refund on supplies to an EOU and against invalidation, even for supplies already made on duty payment.
For these two categories of deemed exports, the DGFT should have at least made the circular applicable for supplies made after the date of clarification. Email: email@example.com