By TIOL News Service

NEW DELHI, NOV 17, 2016: DURING the period 1991-1993, the appellant exported garments to M/s. Pinky Originals Inc. and M/s. Indo American Design Workshop Inc., USA, valued at Rs.45.75crores in respect of which the appellant was allowed duty drawback.

However, the appellant was not able to realise export proceeds to the extent of Rs.11.73 crores since the foreign buyers were declared bankrupt.

Consequently, the appellant applied to the Reserve Bank of India (RBI) to write off the amount as there was no possibility of realizing the aforementioned export proceeds. The RBI granted permission.

By notice dated 17.11.1997, the customs authorities required the appellant to surrender/ repay the duty drawback allowed earlier to the extent of the amount of sale proceeds not realised.

The Assistant Commissioner of Customs by an order dated 01.07.1998 confirmed the demand of Rs.99,69,684/- towards principal, along with interest at the rate of 24% per annum amounting to Rs.71,73,851, aggregating to Rs.1,71,37,545/-.

The said order was challenged by the appellant by way of a writ petition before the High Court contending that the order of the Assistant Collector of Customs was entirely without jurisdiction. It was also contended that since the Customs and Central Excise Duties Drawback Rules, 1995 (Duty Drawback Rules, 1995) were not retrospective, the demand for refund of the duty drawback made in exercise of Rule 16A thereof was unsustainable in law. The said writ petition was dismissed with the liberty to raise the issue before the Appellate authority.

The Appellate authority dismissed the appeal and the contention of the appellant that Rule 16A of the Duty Drawback Rules, 1995 was not retrospective was rejected. It was held that Rule 16A has to be harmoniously construed with the provisions of Section 75 of Customs Act, 1962, and therefore, recoveries can be effected in respect of exports made earlier and where foreign exchange has not been realized. It was further held that the drawback was not limited to customs duty but included duty on excisable goods as well.

Consequently, the appellant deposited the entire sum of drawback with interest.

The revision petition was disposed of. It was held that Rule 16A of the Duty Drawback Rules, 1995 could not be retrospective and that all payments made towards the Central Excise component of drawback before 06.12.1995 [when rule 16A was inserted] cannot be recovered even though the export proceeds have not been realized. Consequently, the orders passed by the lower authorities were set aside.

The Civil Appeal was dismissed on grounds that there was no satisfactory explanation for delay in filing the appeal.

Pursuant thereto, the appellant sought refund of the amount deposited.

The AC rejected the claim to the extent of its customs component of Rs.46,06,890/- and also the claim for interest.

The High Court held that the appellants claim for refund of the customs component of the drawback together with interest is rejected and the appellant was directed to be paid interest for the delayed refund of the excise duty component at the rate of 12% p.a. It was observed by the High Court that prior to the Duty Drawback Rules, 1995, there was no provision either in the Central Excise Act, 1944 or in the Duty Drawback Rules, 1971 which stipulated that if the export proceeds were not recovered, then the corresponding excise duty drawback would become refundable by the exporter.

Hence the civil appeal.

The Supreme Court inter alia observed -

+ We are of the opinion that the impugned order passed by the High Court does not suffer from any infirmity and, therefore, no interference therein is called for.

+ Suffice it to point out that the effect of Section 75 of the Customs Act, 1962, is that in case value/price of the goods exported is not received, it is to be presumed as if no drawback was ever allowed and in that view of the matter, the duty drawback which was taken by the appellant had to be refunded.

+ That would be the position even de hors Rule 16A of the Duty Drawback Rules, 1995. Therefore, we are inclined to agree that Rule 16A is a clarificatory provision clarifying the position of law which already exists in the form of Section 75 of the Customs Act, 1962, and therefore, will have retrospective effect.

The appeal was dismissed.

Incidentally, at this stage, the appellant submitted that on the central excise duty component of the drawback where the High Court had directed the Government to refund the said amount along with 12% Simple Interest, though the said amount is refunded, the interest component has not been released to the appellant till date. The Supreme Court directed the authorities concerned to release the same in favour of the appellants within three months.

(See 2016-TIOL-189-SC-CUS)