Union of India vs Kerala Chemical and Proteins Ltd.

Thottathil B. Radhakrishnan, J.—This appeal is by the Union of India and others. We have heard learned Senior Standing Counsel for C.B.E. & C. and learned counsel for the respondent.

The issue raised before the learned Single Judge was as to whether the respondent writ petitioner was eligible to duty drawback on furnace oil which was utilised in the process of manufacture of its product. The issue that was focused upon before the learned Single Judge was, as to the effect of Ext.P11, whereby the Ministry of Defence, Government of India decided and informed all Chief Commissioners of Customs and other authorities that the incidence of duty on HSD/furnace oil is to be factored in the calculation of duty drawback in respect of exports made from 5-5-2005 onwards, that is the date from which All Industry Rates of Duty Drawback came into force. The learned Single Judge held that Ext.P11 is clarificatory in nature and therefore, it would be applicable to all pending applications for duty drawback relatable to furnace oil utilised in the manufacturing process of the writ petitioner. Directions were issued to consider all applications pending as on 5-5-2005 as if they were filed after that date.

Hearing the learned Senior Standing Counsel for C.B.E. & C. and the learned counsel for the respondent, it can be seen that the entire issue revolves on interpretation of Ext.P11. While the learned Senior Standing Counsel for C.B.E. & C. argued that Ext.P11 contains such clarifications as would operate only with effect from 5-5-2005 and is essentially a reflection of the policy decision of the Government, learned counsel for the respondent argued that the said document is a clarification issued and such a clarification would affect all earlier claims for duty drawback at least on pending applications. He also impeaches the reasonableness of fixing 5-5-2005 as the cut off date.

As is discernible from Ext.P11, 5-5-2005 is a date picked up by the Department for reasons more than one. Firstly, it can be noticed that the Ministry had issued a circular on 2-5-2005 clarifying the position relating to the duty drawback of HSD/furnace oil. It is from 5-5-2005 that the All Industry Rates of Duty Drawback came into force. Therefore, the picking up of 5-5-2005 as a relevant date for giving the benefit of duty drawback for furnace oil to the manufacturer cannot be treated as an arbitrary fixation of a cut off rate.

It can be seen from Paragraphs 2 and 3 of Ext. P11 that inputs consumed in production are inputs physically incorporated, energy, fuels and oil used in the production process and they have to be treated as consumed in the course of their use to obtain the exported product. The fact of the matter remains that the Government had a policy in force which was contrary to what is noted herein above. Nobody had challenged that policy that had run its way through. It was thereafter that this aspect of the matter was examined by the committee constituted for formulation of All Industry Rates of Duty Drawback and the said committee has then observed that this is an outmoded approach towards understanding the scope of manufacturing process. That being so, the Government had taken up conscious policy decision and had issued the circular dated 2-5-2005 leading to Ext.P11 clarification whereby it expressed a policy contrary to the then prevailing policy and this is to the effect that HSD/furnace oil shall be eligible for duty drawback. Obviously therefore, the benefit of such provision in Ext.P11 would operate only from 5-5-2005. It cannot relate to any period before that. Similarly, no applications filed and pending for consideration before 5-5-2005 could have been ordered to be considered.

In the light of the aforesaid, we are unable to uphold the impugned judgment. In the result, this writ appeal is allowed, vacating the impugned judgment and dismissing the writ petition. No costs.