Union of India vs. B.T. Patil & Sons Belgaum (2024)

• Provisions Involved:
  • Exim Policy (1992-1997): This Export-Import policy governs duty drawbacks, specifically in relation to deemed exports.
  • Section 27A of the Customs Act, 1962: Provides for interest on delayed refunds of duty.
  • Section 75A of the Customs Act: Concerns interest on delayed duty drawback payments.
• Facts of the Case:
  • B.T. Patil & Sons Belgaum, a construction company, was awarded a sub-contract for civil works in the Koyna Hydroelectric Power Project.
  • After completing the project in 1996, the company applied for a duty drawback under the Deemed Export Scheme of the Exim Policy 1992-1997, which provides certain benefits for goods supplied to large projects within India (deemed exports).
  • However, the Director General of Foreign Trade (DGFT) initially rejected their application, stating that civil construction work did not qualify for deemed export benefits.

Despite a later circular in 1998 clarifying that civil construction was eligible for the duty drawback scheme, the refund process was significantly delayed. B.T. Patil & Sons subsequently applied for interest on the delayed payment, which was also rejected.

The company approached the Karnataka High Court, which awarded them 15% interest on the delayed payment, considering the prolonged delay. Dissatisfied with this decision, the Union of India appealed to the Supreme Court.

Supreme Court's Ruling:

The Supreme Court upheld the Karnataka High Court's ruling, affirming that B.T. Patil & Sons were entitled to 15% interest on the delayed refund. The Court found that:

• The deemed export benefits were clearly applicable under the Exim Policy 1992-1997.
• There was a six-year delay in processing the refund, warranting interest as per Section 27A and Section 75A of the Customs Act.
• The company was entitled to interest from the date of their refund application in 1996, rather than from the date of the clarifying circular issued in 1998.

Key Clarifications:

• Deemed Export Benefit: The Exim Policy provides that even though the goods supplied do not leave India, they can still qualify for export benefits if they are part of projects funded by international organizations.
• Interest on Delayed Refunds: Under Section 27A of the Customs Act, if a refund is not issued within three months, the claimant is entitled to interest at a rate between 10% and 30%. The Court determined that the 15% interest awarded was appropriate given the substantial delay in this case.

Relevant Paragraphs:

• Paragraph 4: Discusses the scope of "deemed exports" under the Exim Policy, particularly regarding civil construction works.
• Paragraph 11: Clarifies the application of Section 27A and Section 75A in determining interest for delayed refunds.
• Paragraph 15: The Court confirms that the refund and interest calculations should be based on the date of the refund application and not the later policy clarifications.

Conclusion:
This case emphasizes that companies working on civil construction projects funded by international organizations are eligible for duty drawbacks under the deemed export provisions. Moreover, the Supreme Court reinforced that delayed payments of such refunds entitle the claimant to interest, ensuring that the government is held accountable for undue delays.