NOVEMBER 24, 2014

By C S Kalirajan D

CBEC has elevated an instruction to rule by way of notification No.109/2014-Cus.(N.T) dated 17.11.2014. The said notification has brought an amendment in Rule 7 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 (in short referred to as 'Drawback Rules') nullifying the judgment of the Bombay High Court in the case of Alfa Laval (India) Ltd., - 2014-TIOL-1485-HC-MUM-CUS.

Erstwhile Circular/Instruction

The CBEC had issued an instruction vide file No.606/04/2011-DBK dated 30.12.2011 wherein under para 2(d) a restriction for claiming brand rate of drawback was provided. It was clarified that where the exporter had claimed drawback under the All Industry Rate (AIR) of drawback at the time of export, they cannot request for fixation of brand rate for drawback where he finds that the drawback sanctioned under AIR is lesser than actual. By this instruction it was insisted that prior to filling of shipping bill,the exporter himself has to determine whether to opt for AIR or brand rate of drawback.

Instruction was struck down

The Bombay High Court in the case of Alfa Laval (supra) had held that CBEC cannot incorporate restriction which does not find place in the Drawback Rules. It was also held that there is no restriction/prohibition in the Drawback Rules to claim drawback under brand rate when drawback already claimed under AIR was found to be less and CBEC by way of Circular cannot impose restriction which is not there in rules. The High Court thus struck down the portion of the Circular which was not in line with the Drawback Rules and held that exporters who claimed drawback at the AIR can also request for determination of brand rate of drawback to claim differential amount of drawback.

Amendment in the Rule

CBEC has now issued a notification No. 109/2014-Cus. (N.T) dated 17.11.2014 to give rebirth to its instruction which was struck down by the Bombay High Court. The said notification has brought an amendment in Rule 7 of the Drawback rules to curtail availment of brand rate of drawback where the exporter has already availed drawback under AIR while exporting the goods.The amended rule 7 reads as follows.

"RULE 7 Cases where amount or rate of drawback determined is low. – (1) Where, in respect of any goods, the manufacturer or exporter finds that the amount or rate of drawback determined under rule 3 or, as the case may be, revised under rule 4, for the class of goods is less than four-fifth of the duties or taxes paid on the materials or components or input services used in the production or manufacture of the said goods, he may, except where a claim for drawback under rule 3 or rule 4 has been made, within three months from the date relevant for the applicability of the amount or rate of drawback in terms of sub-rule (3) of rule 5, make an application in writing …………………"

Effect of amendment

From the above, the CBEC has made it clear that,

- The exporter shall themselves determine whether to claim drawback under AIR or brand rate prior to export of goods; and

- Claim any one (either AIR or brand rate) while exporting the goods i.e. make a declaration in the shipping bill accordingly; and

- Once the drawback is claimed under AIR, the exporter cannot request for fixation of brand rate of drawback.