Legal principle

A show cause notice issued after 1.10.2017 invoking Rule 16 of the repealed Drawback Rules, 1995 to recover drawback or reassess the value of goods already exported is unsustainable, both for want of saving under Rule 20(2) of the Drawback Rules, 2017 and for want of any power to reassess export value.

Court decision

The court allowed the writ petition and quashed the impugned show cause notice dated 18.12.2018 against the petitioner, following its earlier judgments in Famina Knit Fabs v. UOI and Jairath International v. UOI; it held that a show cause notice issued after 1.10.2017 invoking Rule 16 of the Drawback Rules, 1995 is not sustainable in view of Rule 20(2) of the Drawback Rules, 2017, that the demand mechanism under Rule 16 is absent in the 1995 Rules, and that the respondent has no power to reassess the value of goods already exported.

Facts

M/s Narula Tools International, a manufacturer-exporter, exported scaffolding items during 2013-2015 claiming duty drawback under the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, filing shipping bills under Section 50 with goods assessed under Section 17 and exports permitted under Section 51 of the Customs Act, 1962. The DRI investigated, searched the petitioner's premises on 25.4.2015, and concluded that the petitioner had mis-declared (grossly overvalued) the value of goods exported up to March 2015 to fraudulently avail drawback. On that basis, the Joint Commissioner of Customs, Ludhiana issued a show cause notice dated 18.12.2018 proposing rejection of the declared FOB value under Rule 8 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 read with Section 14 of the 1962 Act, re-determination under Rules 6 & 8 of those Rules, and recovery of drawback already disbursed under Rule 16 of the Drawback Rules, 1995.

Key provisions

• Rule 16, Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 — Repayment of erroneous or excess payment of drawback and interest
• Section 75, Customs Act, 1962 — Drawback on imported materials used in the manufacture of goods which are exported
• Rule 8, Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Computed value
• Rule 8, Customs Valuation (Determination of Value of Export Goods) Rules, 2007 — Rejection of declared value
• Section 51, Customs Act, 1962 — Clearance of goods for exportation
• Rule 20(2), Customs and Central Excise Duties Drawback Rules, 2017 — Repeal and saving
• Rule 6, Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Determination of value where value can not be determined under rules 3, 4 and 5