Sakthi Shoes Vs Commissioner of Customs (Madras High Court)
Summary: The Madras High Court allowed the writ petition filed by M/s. Sakthi Shoes challenging the order dated 18.06.2022 confirming recovery of duty drawback of Rs.3,51,500/- relating to seven shipping bills, together with applicable interest. The petitioner had exported shoes during the period from 2005 to 2010 and stated that its export business was closed in 2011 due to poor business activity. In 2018, a show cause notice was issued proposing recovery of the drawback on the allegation that proof of realisation of export proceeds had not been produced. The petitioner contended that the notice had not been served and that no opportunity of hearing had been provided before the impugned order was passed.
The principal issue considered by the High Court was whether recovery proceedings could validly be initiated more than seven years after payment of the last drawback in 2010. The Court noted that Rule 16 empowers Customs authorities to recover drawback erroneously or excessively paid but does not prescribe any limitation period. The Court held that, in the absence of an express limitation period, such statutory power must ordinarily be exercised within a reasonable period, depending upon the facts and circumstances of each case.
The petitioner relied upon L&T Construction Equipment Ltd. v. Assistant Commissioner of Customs (Chennai-IV), where the Coordinate Bench had relied upon Pratipa Sitex Ltd. v. Union of India, 2013 (287) E.L.T. 290 (Gujarat), in which three years was considered the maximum reasonable period for recovery of an amount erroneously paid. The respondents relied upon Rajbir Singh v. Union of India and others, 2025 SCC OnLine Del 2847, where the Delhi High Court held that a general three-year limitation could not automatically be imported into Rule 16, particularly where there were strong suspicions of fraudulent availment of duty drawback discovered later.
The Madras High Court distinguished Rajbir Singh because there was no allegation in the present case that the petitioner had obtained drawback fraudulently or by suppressing material facts. The only allegation was failure to produce proof of realisation of export proceeds. The drawback had been availed in 2010, the show cause notice was allegedly issued only in 2018 and the impugned order was passed in 2022. No explanation was offered for this delay. The Court also took note of the petitioner’s statement that the export business had been closed in 2011 and that documents relating to the relevant exports were no longer in its possession.
Accordingly, following Pratipa Sitex Ltd. and the Coordinate Bench decision, the High Court held that the recovery proceedings were clearly barred by limitation. It further held that the petitioner could not be relegated to the alternative statutory appeal under Section 128(1) of the Customs Act because the impugned order itself had been passed without statutory authority. The Court consequently set aside the order dated 18.06.2022 and the consequential communication dated 07.03.2026, directed the bank account of the petitioner to be de-frozen, and ordered refund of Rs.3,51,500/- within four weeks. In case of default, the amount would carry interest at 8% per annum from the date of default until actual payment.
Cases Discussed
- M/s. L&T Construction Equipment Ltd., represented by its Head-Hydraulics, Bangalore v. The Assistant Commissioner of Customs (Chennai-IV), Chennai, W.P.No.18552 of 2022, dated 07.03.2025 (Madras High Court) — Relied upon by the petitioner and followed by the Court on the requirement that drawback recovery proceedings, despite absence of an express limitation period, must be initiated within a reasonable period.
- Pratipa Sitex Ltd. v. Union of India, 2013 (287) E.L.T. 290 (Gujarat High Court) — Relied upon by the Coordinate Bench and followed in the present case for the view that three years is the maximum period that can be considered reasonable for recovery of an amount erroneously paid.
- Rajbir Singh v. Union of India and others, 2025 SCC OnLine Del 2847 (Delhi High Court) — Relied upon by the respondents for the proposition that Rule 16 prescribes no limitation and a general three-year period cannot automatically be applied, particularly where fraudulent drawback is suspected; distinguished because no fraud or suppression was alleged against the petitioner.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The petitioner challenges the order dated 18.06.2022 passed by the second respondent, confirming the demand for recovery of the drawback amount of Rs.3,51,500/- in respect of seven shipping bills under Section 75(1) of the Customs Act, read with Rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, along with applicable interest.
2. The petitioner states that he was engaged in the business of exporting shoes and had exported shoes under seven shipping bills during the period from 2005 to 2010. He further states that he closed his export business in the year 2011 due to poor business activity. In the year 2018, a show cause notice was issued to the petitioner calling upon him to show cause as to why the drawback amount paid in respect of the exported goods, along with applicable interest, should not be recovered under Rule 16A(2) and (3) of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, and why penalty should not be imposed under Section 117 of the Customs Act, 1962. The show cause notice was issued on the allegation that the petitioner had not produced proof of realisation of the export proceeds. As the petitioner did not reply to the show cause notice, the second respondent passed the impugned order.
3. The learned counsel for the petitioner submitted that the show cause notice issued in the year 2018 was not served on the petitioner and that no opportunity of hearing was given to him before passing the impugned order. He further submitted that the proceedings for recovery of the drawback amount were initiated after an inordinate delay of more than seven years and that the impugned order was passed after an inordinate delay of more than twelve years. Therefore, according to him, the recovery proceedings are barred by limitation and are also in violation of the principles of natural justice. In support of his submission, he relied upon the decision of the Coordinate Bench of this Court in W.P.No.18552 of 2022, dated 07.03.2025, in M/s. L&T Construction Equipment Ltd., represented by its Head-Hydraulics, Bangalore v. The Assistant Commissioner of Customs (Chennai-IV), Chennai.
4. In response, the learned counsel for the respondents submitted that Rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Amendment Rules, 2006, does not prescribe any period of limitation for recovery of drawback erroneously paid. In the absence of any prescribed period of limitation, the impugned order cannot be said to be without statutory authority. He further submitted that the erroneous payment of drawback was noticed only in the year 2018 and that a show cause notice was immediately issued, followed by an opportunity of hearing, before the impugned order was passed.
5. He further submitted that an efficacious remedy of appeal is available against an order passed under Rule 16 of the Amendment Rules, 2006, under Section 128(1) of the Customs Act. Therefore, according to him, the present writ petition, having been filed without exhausting the statutory remedy of appeal, is not maintainable. In support of his submission, he relied upon the decision of the Delhi High Court in Rajbir Singh v. Union of India and others, 2025 SCC OnLine Del 2847.
6. The submissions of the learned counsel for the parties and the materials placed on record have been considered.
7. The impugned proceedings were initiated on the ground that the petitioner had not produced proof of realisation of the export proceeds in respect of seven shipping bills, involving a drawback amount of Rs.3,51,500/-, for exports made during the period from 2005 to 2010. The petitioner had availed the benefit of drawback. A show cause notice was issued in the year 2018. The petitioner vehemently contends that the show cause notice was not served on him. The respondents, however, contend that it was duly served on the petitioner. Be that as it may, the scope of the present writ petition is limited to the question as to whether the proceedings for recovery could have been initiated after a lapse of more than seven years from the date of payment of the last drawback, i.e., in the year 2010.
8. Rule 16 of the Rules empowers the Customs authorities to recover drawback that has been erroneously or excessively paid. However, the Rule does not prescribe any period of limitation. In the absence of an express period of limitation, such power must ordinarily be exercised within a reasonable period. What constitutes a reasonable period depends upon the facts and circumstances of each case.
9. The Coordinate Bench of this Court, in W.P. No.18552 of 2022, relied upon the decision of the Gujarat High Court in Pratipa Sitex Ltd. v. Union of India, 2013 (287) E.L.T. 290 (Gujarat), wherein it was held that a period of three years is the maximum period that can be considered reasonable for recovery of any amount erroneously paid.
10. The learned counsel for the respondents relied upon the decision of the Delhi High Court in Rajbir Singh (supra). In that case, it was held that Rule 16 of the Drawback Rules does not prescribe any limitation and that, in the absence of a prescribed period of limitation, the general limitation period of three years cannot be presumed to apply by default, particularly where there are strong suspicions regarding fraudulent availment of duty drawback and the knowledge of such availment is acquired much later.
11. It is a well-settled principle of law, consistently laid down by the Hon’ble Supreme Court, that fraud vitiates all solemn acts and that no person can be permitted to take advantage of his own fraud, irrespective of the lapse of time.
12. In the present case, there is no allegation against the petitioner that the drawback was obtained fraudulently or by suppression of material facts. The only allegation is that the petitioner had not produced proof of realisation of the export proceeds. In such circumstances, the decision of the Delhi High Court is not applicable to the facts of the present case. When the statute does not prescribe a period of limitation, the recovery proceedings must be initiated within a reasonable period. What constitutes a reasonable period depends upon the facts and circumstances of each case.
13. The drawback was availed in the year 2010. The show cause notice was allegedly issued in the year 2018 and the impugned order was passed in the year 2022. No explanation has been given for the delay. In particular, no explanation has been offered for the inordinate delay in initiating the recovery proceedings, especially when the petitioner has categorically stated that he had closed his export business in the year 2011 and was not in possession of any documents relating to the exports for the relevant period.
14. Therefore, in view of Rule 16 of the Rules, which does not prescribe any period of limitation for recovery of drawback erroneously paid, and in view of the decision of the Gujarat High Court in Pratipa Sitex Ltd. (supra), followed by the Coordinate Bench of this Court, the recovery proceedings initiated against the petitioner are clearly barred by limitation. In such circumstances, the petitioner cannot be relegated to the statutory remedy of appeal under Section 128(1) of the Customs Act, since the impugned order itself was passed without statutory authority.
15. Accordingly, the impugned order dated 18.06.2022 passed by the second respondent and the consequential communication dated 07.03.2026 issued by the third respondent are set aside. The fourth respondent is directed to de-freeze the bank account of the petitioner. The second respondent is directed to refund the amount of Rs.3,51,500/- to the petitioner within a period of four weeks from the date of receipt of a copy of this order. In the event of default, the said amount shall carry interest at the rate of 8% per annum from the date of default until the actual date of payment. There shall be no order as to costs. Consequently, the connected Miscellaneous Petitions are closed.
