Pre-deposit Blues - Erroneous drawback is not duty?
JANUARY 27, 2015
By S Murugappan, Advocate
THE Central Board of Excise & Customs has come out with yet another circular containing instructions regarding pre-deposit of duty etc. for filing appeals. The Circular No.993/17/2014-CX dated 05.01.2015 gives a new definition for "drawback" and attempts to enlarge the scope of pre-deposit requirements for filing appeals. In paragraphs 5 and 6 of the above circular the following is stated -
"5. Several representations have been received by the Board stating that some Commissioners (Appeals) have been insisting on pre-deposit in cases of demand of erroneous drawback granted. It has been represented that drawback is not a duty and hence the amended provisions would not apply to such cases.
6. The issue has been examined. Drawback, like rebate in Central Excise, is refund of duty suffered on the export goods. Section 129E stipulates that appellant filing appeal before the Commissioner (Appeals) shall pay 7.5% of the duty demanded where duty and penalty are in dispute. Accordingly, it is clarified that mandatory pre-deposit would be payable in cases of demand of drawback as the new section 129E would apply to such cases."
The instructions as extracted above do not appear to be in conformity with either the Customs Act or the relevant Drawback Rules. Section 2(15) of Customs Act 1962 defines 'duty' as "a duty of customs leviable under this Act". In fact, on earlier occasions there were disputes as to whether the CV Duty or Additional Duty itself can be considered as a Customs Duty.
On the other hand, 'Drawback' is defined in Rule 2(a) of Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 as follows:
"drawback" in relation to any goods manufactured in India and exported, means the rebate of duty or tax, as the case may be, chargeable on any imported materials or excisable materials used or taxable services used as input services in the manufacture of such goods;
Similarly, Rule 2(a) of Re-Export of Imported Goods (Drawback of Customs Duties) Rules, 1995 defines drawback payable in terms of Section 74 of Customs Act as follows:
"drawback", in relation to any goods exported out of India, means the refund of duty paid on importation of such goods in terms of section 74 of the Customs Act;
A perusal of the above provisions should clearly indicate that duty as defined in the Customs Act is not the same as drawback payable either under Section 74 or Section 75 of Customs Act, though such drawback is related to duty. But the fact is, it is not duty. In terms of Section 74 it is "refund" of duty and in terms of Section 75 it is an incentive worked out based on Customs Duty, Excise Duty and Service Tax incurred on the inputs and services that go into the cost of manufacture of the goods.
In the case of Liberty India Vs. Commissioner of Income Tax reported in - 2009-TIOL-100-SC-IT the Supreme Court was dealing with a question that arose under the Income Tax Act and whether the benefits under Drawback and DEPB Schemes can be considered as profits derived from industrial undertaking. In paragraph 17 of the above judgment the Apex Court has made the following observations.
"The next question is - what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials, of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported. Basically, the source of duty drawback receipt lies in Section 75 of the Customs Act and Section 37 of the Central Excise Act."
The provisions contained in the Drawback Rules referred to above and the observations made by the Apex Court as reproduced above should make it crystal clear that drawback is not the same as duty. Section 129E of Customs Act 1962, as amended, refers to pre-deposit of 'duty' demanded or penalty imposed or both in pursuance of orders passed by Customs authorities.
One of the Golden Rules of Interpretation is that the words and expressions used in an enactment are to be interpreted as they are and nothing is to be added. It is also another principle of interpretation that the expressions and words in the same enactment have to be given the same meaning for achieving a harmonious view.
Therefore, there will not be any scope to include orders passed for recovery of drawback within the scope of Section 129E aforesaid which refers to pre-deposit of 'duty' demanded. Consequently, the instructions on this point as contained in the above circular appear to be misconceived and not in consonance with the provisions of Customs Act.
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