Legal principle

A demand of duty drawback as erroneously or excessively availed is bad in law where the rule invoked (Rule 16, Drawback Rules, 1995) prescribes no machinery or procedure for determining and demanding such drawback, and demand lies specifically only under Rule 16A for non-realization of export proceeds.

Court decision

The High Court allowed the petition and quashed the show cause notice dated 09.02.2018, holding that Rule 16 of the Drawback Rules, 1995 contains no machinery to hold any drawback as erroneous or in excess and to demand it, so a demand in the absence of such mechanism is bad in law; the Court expressly refrained from answering the last question (power to reassess value of already exported goods), leaving it open as academic.

Facts

M/s Famina Knit Fabs, a partnership manufacturer-exporter, exported textile goods vide 12 shipping bills (10 in 2010 and 2 in 2012, April 2010–2012) claiming duty drawback under the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, declaring value under Section 50 and with Customs officers physically verifying the goods and assessing them under Section 17 (self-assessment only began 08.04.2011); drawback was released after export and export proceeds were realized. The DRI investigated allegations that the firm fraudulently availed drawback by grossly overvaluing the goods in export documents and searched its premises on 27.12.2012. On that investigation, the Assistant Commissioner of Customs, New Delhi issued a show cause notice dated 09.02.2018 proposing rejection of the declared FOB value of Rs.52,58,264/-, re-determination at Rs.7,51,181/- under Rules 6 & 8 of the Valuation Rules, 2007 read with Section 14 of the Customs Act, 1962, and recovery of duty drawback of Rs.4,46,153/- under Rule 16 of the Drawback Rules, 1995. The petitioner filed a writ petition under Article 226 seeking quashing of that notice.

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 28, Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 14, Customs Act, 1962 — Valuation of goods
• Rule 8, Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Computed value
• 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
• Section 159A, Customs Act, 1962 — Effect of amendments etc of rules regulations, notifications or orders
• Rule 16A, Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 — Recovery of amount of Drawback where export proceeds not realised
• Rule 20, Customs and Central Excise Duties Drawback Rules, 2017 — Repeal and saving
• Section 17, Customs Act, 1962 — Assessment of duty
• Section 51, Customs Act, 1962 — Clearance of goods for exportation
• Section 75, Customs Act, 1962 — Drawback on imported materials used in the manufacture of goods which are exported
• Section 2(19), Customs Act, 1962 — Definitions