Sans Frontiers Vs Assistant Commissioner of Customs (Delhi High Court)
Delhi High Court has directed the Assistant Commissioner of Customs to release withheld duty drawbacks amounting to ₹9.13 lakh to the exporter M/s Sans Frontiers. The court’s order came in a petition filed by the firm challenging the continued withholding of the drawbacks despite a stay granted by the Supreme Court in related proceedings.
M/s Sans Frontiers, an exporter of goods including imitation jewellery and handicrafts for nearly three decades, was previously operating as an Export Oriented Unit (EOU). The dispute originated concerning duty drawback claims availed by the firm during its tenure as an EOU between 2006-07 and 2013-14.
According to the petitioner, they were receiving duty drawback payments until June 2020, when the payments were abruptly stopped. The firm’s Import Export Code (IEC) was flagged with an alert on February 13, 2020, cited by the Customs Department as the reason for withholding the drawbacks. Although this initial alert was reportedly removed, the drawbacks remained suspended.
Upon inquiry through the Centralized Public Grievance Redress and Monitoring System (CPGRAMS), the petitioner was informed that the withholding was due to an alert linked to an appeal filed by the Commissioner of Customs before the Delhi High Court. This appeal, CUSAA No. 01 of 2022 (Commissioner of Customs, Air Cargo Export v. M/s Sans Frontiers), challenged an earlier order passed by the Customs Excise and Service Tax Appellate Tribunal (CESTAT).
The CESTAT proceedings stemmed from a Show Cause Notice (SCN) issued by the Customs Department on August 24, 2015, proposing inadmissibility of the availed duty drawbacks. The department had invoked an extended period of limitation for issuing this SCN. Crucially, the CESTAT, in its order dated November 2, 2018, set aside the SCN, finding that the extended period of limitation was not applicable as the assessee had deposited the duty drawback amount along with interest upon being pointed out by the department in March 2014. The CESTAT held that the appellant was entitled to consequential benefits.
The Commissioner of Customs then challenged this CESTAT order before the Delhi High Court in CUSAA 1/2022, which was heard along with a writ petition filed by Sans Frontiers (W.P.(C) 7962/2021) concerning related notices and demands. The Delhi High Court, in its judgment on December 12, 2023, observed that the demand for recovery of drawbacks was made within a reasonable period after the department became aware of the alleged wrong availment. However, regarding the belated SCN, the court chose not to adjudicate directly on the limitation issue, noting that the Commissioner (Appeals) had previously decided this in favor of the Revenue and the revision authority had not ruled on it.
Recognizing the peculiar facts, particularly that the Revenue had not initially objected to the CESTAT hearing the matter and had even sanctioned a refund following the CESTAT order, the Delhi High Court granted Sans Frontiers the opportunity to file a revision application under Section 129DD of the Customs Act, 1962, against the Commissioner (Appeals)’s order dated May 14, 2018. The court directed that if such a revision was filed within two months, it should be entertained on merits by the Central Government, including the examination of the limitation issue concerning the SCN.
Sans Frontiers subsequently challenged the Delhi High Court’s December 12, 2023 judgment before the Supreme Court by filing Civil Appeal No. 12419/2024. In this civil appeal, Sans Frontiers also filed an application seeking a stay of the Delhi High Court’s judgment and the related notices/demand notices.
The Supreme Court, in its order, admitted the civil appeal and granted the stay as prayed for by Sans Frontiers pending the disposal of the appeal.
It was in this backdrop of the Supreme Court’s stay that Sans Frontiers approached the Delhi High Court again, seeking the release of the pending duty drawbacks which were being withheld due to the ongoing litigation that was now subject to a Supreme Court stay.
Before the Delhi High Court, the counsel for the petitioner presented a copy of the Supreme Court’s stay order. The court noted that the Supreme Court had specifically granted a stay of the Delhi High Court’s judgment dated December 12, 2023.
Considering the Supreme Court’s stay order, the Delhi High Court held that there was no justification for the Customs Department to continue withholding the duty drawbacks owed to the petitioner. The court observed that with the foundational judgment that had led to the continuation of the dispute and the withholding of benefits being stayed by the apex court, the basis for retaining the drawbacks was removed.
Consequently, the Delhi High Court directed the Assistant Commissioner of Customs to release the pending duty drawbacks amounting to ₹9,13,596/- to M/s Sans Frontiers within a period of 30 days. The court clarified that this release of duty drawbacks would be subject to the final outcome of the Civil Appeal pending before the Supreme Court.
The petition was disposed of with these directions, and pending applications were also closed. The judgment underscores the principle that executive action, such as withholding of benefits, should not persist when the judicial basis for such action is under scrutiny and subject to a stay by a higher court. The case highlights the procedural complexities and prolonged litigation that can arise in disputes concerning customs duties and export incentives.
Judicial Precedents and Legal Framework:
While the judgment primarily narrates the case’s journey through different judicial tiers, it implicitly involves several key aspects of customs law and constitutional provisions:
- Duty Drawback Scheme: Governed by the Customs Act, 1962, and related rules, this scheme allows for the rebate of duties on imported or excisable materials used in the manufacture of exported goods. The dispute centered on the eligibility of an EOU unit for such drawbacks and the recovery of previously granted amounts.
- Show Cause Notice and Limitation: Section 28 of the Customs Act deals with the recovery of duties not levied or erroneously refunded and includes provisions for the period of limitation for issuing SCNs, including extended periods under certain circumstances like fraud, collusion, or willful misstatement. The CESTAT’s decision turned on the applicability of the extended period in this case.
- Jurisdiction of CESTAT: The case’s history before CESTAT involves the tribunal’s jurisdiction to hear matters related to duty drawback, which can be a point of legal contention based on the nature of the dispute and specific provisions of the Customs Act (Section 129A). The Delhi High Court’s previous order allowing for a revision application under Section 129DD stemmed partly from the complexity surrounding the appropriate forum for challenging the Commissioner (Appeals)’s order in drawback matters.
- Revision by Central Government: Section 129DD of the Customs Act provides for the Central Government to revise certain orders passed by the Commissioner (Appeals), particularly in cases related to baggage, or goods not unloaded. The Delhi High Court’s previous directive for the petitioner to file a revision application under this section was a significant procedural turn in the case.
- Writ Jurisdiction (Article 226): The present petition was filed under Article 226 of the Constitution of India, which grants High Courts the power to issue writs for the enforcement of fundamental rights and for any other purpose. Exporters often resort to writ petitions to seek directions against the arbitrary action of customs authorities, such as the withholding of legitimate export incentives like duty drawback. The Delhi High Court exercised this jurisdiction to ensure that the executive action aligns with the status of the related legal proceedings before the Supreme Court.
- Impact of Stay Orders: The core of the Delhi High Court’s decision rests on the legal effect of the Supreme Court’s stay order. A stay on a judgment typically suspends its operation, meaning the legal position reverts to what it was before the stayed judgment was passed, pending the final outcome of the appeal. The High Court recognized that with the Supreme Court staying its previous judgment, the justification for withholding the drawbacks based on that judgment or the underlying departmental actions challenged in the appeal was nullified, at least temporarily.
While the judgment does not cite specific external precedents beyond the chronology of this particular case’s litigation, the principles applied regarding limitation, jurisdiction, and the effect of stay orders are well-established in customs and administrative law jurisprudence in India. The case serves as a practical illustration of how the interplay between different judicial and quasi-judicial forums and the impact of interim orders from higher courts influence the rights and entitlements of litigants in tax and customs matters. The final resolution of the duty drawback issue for Sans Frontiers will ultimately depend on the Supreme Court’s decision in the pending civil appeal.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This hearing has been done through hybrid mode.
2. The present petition has been filed by the Petitioner-M/s. Sans Frontiers under Article 226 of the Constitution of India, inter alia, seeking revocation of the alert dated 13th February 2020 and the release of the pending duty drawbacks.
3. The Petitioner is a firm engaged in the business of exports primarily in imitation jewellery, handicrafts, etc. for nearly 30 years. The Petitioner was operating as an Export Oriented Unit (hereinafter, ‘EOU’) until 7th May 2014. After completion of the exit formalities from the EOU Scheme as per Foreign Trade Policy/Handbook of Procedures, the Assistant Development Commissioner issued the Petitioner with a Final De-Bonding Order on 14th May 2025.
4. The case of the Petitioner is that he had been receiving the duty drawback against eligible exports until June 2020, however, thereafter, the Respondent stopped the drawback against Petitioner’s eligible exports. The duty drawbacks and other incentives were again withheld on 16th June 2020 with the message ‘DBK AC has suspended the SB’. On 28th July 2022, the Petitioner filed a grievance through Centralized Public Grievance Redress and Monitoring System (hereinafter, ‘CPGRAMS’) portal vide reference no. CBOEC/E/2022/05000 enquiring into the reason for the inordinate delay of the release of pending duty drawback to the tune of Rs. 9,13,596/-.
5. Thereafter, it is stated that on 29th August 2022, the Petitioner was informed that an alert was raised on the Import Export Code of the Petitioner on 13th February 2020 which resulted in withholding of duty drawbacks. The withholding of duty drawbacks was justified by the Department on the ground of the alert having been placed. The same was, however, removed thereafter by the Customs Department.
6. The Petitioner then challenged the same and the non-release of duty drawbacks before the Commissioner of Customs in Appeal No. C/52631/2018-CUS [SM]. The Commissioner of Customs disposed of the said appeal stating that an alert has been placed again on the Import Export Code of the Petitioner owing to an appeal, e. CUSAA No. 01 of 2022 titled ‘Commissioner of Customs, Air Cargo Export v. M/s Sans Frontiers’, filed before this Court against the Final Order No. A/53263/2018-SM(BR) dated 2nd November 2018 passed by Customs Excise and Service Tax Appellate Tribunal (hereinafter, ‘CESTAT’),
7. The said proceedings before CESTAT arose out of a Show Cause Notice dated 24th August 2015 and the stand of the Respondent in the said proceedings was that the duty drawbacks were inadmissible. The said Show Cause Notice had been issued after invoking the extended period of limitation and that led to the CESTAT setting aside the Show Cause Notice and passing the consequential order. The said order reads as under:-
“1. The issue involved in this appeal is whether show cause notice dated 24th August, 2015 have been rightly issued invoking the extended period of limitation.
2. The admitted fact is that the appellant- assessee is 100% EOU and they availed duty drawback on the exports effected by them during 2006-07 to 2013-14. The appellant received objection from the Department vide letter dated 12th March, 2014, regarding the inadmissibility of the drawback availed. The appellant in response, deposited the duty drawback so availed and intimated the Revenue by their letter dated 31st March, 2014. The amount of deposit made Rs. 54, 80, 710/- also included interest component of Rs. 28, 64, 768/-.
3. Subsequently, show cause notice dated 24th August 2015 have been issued invoking extended period of limitation with proposal to confirm the same demand of duty drawback along with proposal to appropriate the amount already deposited.
4. Heard the parties.
5. Having considered rival contentions I find that under the facts and circumstances the extended period of limitation is not available to the Department, as the appellant had deposited on being so pointed out, along with interest, which is an admitted fact. Accordingly, the impugned order is set aside. The appellant is entitled to consequential benefits in accordance with law. Appeal stands allowed.”
8. This order of CESTAT came to be challenged before this Court in CUSSA 1/2022 titled ‘Commissioner of Customs, Air Cargo Export v. M/s Sans Frontiers’ and connected writ petition i.e. W.P.(C) 7962/2021 titled M/s Sans Frontiers v. Commissioner of Customs (Exports) . The said two proceedings were decided finally on 12th December 2023 in which the Court has observed that the demand was made within a reasonable period when the Department came to know of the wrong availment of the said duty drawbacks. In respect of the belated issuance of the Show Cause Notice, the Court deemed it appropriate to refrain from adjudicating on the said issue. The Coordinate Bench in the peculiar facts had directed as under:
“80. We do not consider it apposite to decide in the facts of the present case as to whether that the SCN dated 24.08.2015 was issued belatedly or not since the said issue had been decided in favour of the Revenue by the order passed by the Commissioner (Appeals), and has not been adjudicated upon by the revision authority having jurisdiction under Section 129DD of the Customs Act.
81. In the peculiar facts of this case where the Revenue originally had not taken any objection on the appeal being heard by the learned CESTAT, and had also, following the order of the learned CESTAT, sanctioned refund of the Drawback, the Firm should not be left remediless.
82. We, therefore, grant an opportunity to the Firm to prefer a revision, under Section 129DD of the Customs Act, against the order dated 14.05.2018 passed by the Commissioner (Appeals).
83. We direct that if such a revision is preferred within a period of two months, the same shall not be dismissed on the ground of limitation and be entertained on merits by the Central Government.
84. It is open for the Firm to raise all grounds, including the issue as to whether the SCN dated 24.08.2015 was barred by limitation. Needless to state that if so raised, the same shall be considered by the Central Government, and a speaking order shall be passed after affording an opportunity of being heard to the Firm.
85. The writ petition is disposed of in the aforesaid terms.”
9. The said judgement was challenged before the Supreme Court by the Petitioner in Civil Appeal No.12419/2024 titled ‘M/s. Sans Frontiers vs. Commissioner of Customs, Air Cargo, Export’ wherein a stay has been granted by the Court.
10. Ld. Counsel for the Petitioner has placed on record a copy of the application being I.A.107988/2024 in Civil Appeal No.12419/2024.
11. The prayer in the application was for stay of the impugned judgement dated 12th December 2023 and also the notice dated 6th July 2021 and Demand-cum-Show-Cause-Notice dated 15th July 2021. The order of the Supreme Court reads as under:-
“1. Appeal admitted.
2. Stay as prayed for in I.A. No. 107988 of 2024 is granted pending disposal of the Civil Appeal.
3. Accordingly, IA No. 107988/2024 is disposed of”.
12. In view of the fact that the judgment dated 12th December 2023 has been stayed, there can be no justification for holding back of duty drawbacks.
13. Let the duty drawbacks be now released to the Petitioner within a period of 30 days in accordance with law.
14. It is made clear that the release of the said duty drawbacks, however, will be subject to the outcome of the Civil Appeal No.12419/2024.
15. The petition is disposed of in the above terms. Pending applications, if any, are also disposed of.
