Legal principle

A show cause notice issued after 01.10.2017 invoking Rule 16 of the repealed Drawback Rules, 1995 is not sustainable in view of Rule 20(2) of the Drawback Rules, 2017, the 1995 Rules contain no mechanism for raising such a demand, and the department has no power to reassess the value of goods already exported.

Court decision

The writ petition was allowed and the impugned show cause notice dated 31.7.2014 was quashed qua the petitioners. The court held that the writ was maintainable despite the alternative remedy since pure questions of law and jurisdiction were involved; that in view of Rule 20(2) of the Drawback Rules, 2017, a show cause notice issued after 1.10.2017 invoking Rule 16 of the 1995 Rules is not sustainable; that as the mechanism is absent in the 1995 Rules, a demand under Rule 16 is not sustainable; and, following its ruling in Jairath International in light of ITC Ltd. (SC), that the respondent has no power to reassess the value of goods already exported. The decision was entirely in favour of the petitioners/exporters.

Facts

The petitioners, manufacturer exporters (Rajesh Dhanda being Managing Director of petitioners 1 and 2 and proprietor of petitioners 3 and 4), exported textile garments during 2007-2012 claiming duty drawback under the Drawback Rules, 1995, filing shipping bills under Section 50, with goods examined and assessed under Section 17 and export permitted under Section 51 of the Customs Act, 1962; no separate assessment order was passed and drawback was released after export. The DRI investigated allegations that the petitioners were fraudulently availing drawback by grossly overvaluing goods in export documents, searched their premises on 26.4.2012 and concluded that values were mis-declared up to that date. On that basis the Joint Commissioner of Customs (SIIB), ICD Delhi issued a common show cause notice dated 31.7.2014 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 and 8 of those Rules, and recovery of drawback under Rule 16 of the Drawback Rules, 1995. The petitioners moved the High Court under Article 226 seeking quashing of the 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 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