Duty drawback cannot be denied for procedural irregularities

Bio Gen Extracts Pvt Ltd Vs Commissioner of Customs (CESTAT Bangalore)

We find that the appellant initially exported Phycocyanin and a part quantity of the same was rejected for quality reasons which was re-imported by him without payment of duty in terms of Notification No. 158/95-Cus dated 14.11.1995 on executing Bond with Bank Guarantee. We also find that the appellant have re-exported the said goods after rectifying the defect and the identification of the re-exported goods is not disputed by the Department. Further, we find that the appellant also paid an amount of Rs.13,81,543/- as demanded by the Department. Further, we find that after payment of the duty along with interest, the appellant sought suitable amendment to the re-exported shipping documents to enable the appellant to claim drawback in terms of Section 74 but the same was not considered and his request was rejected without affording him an opportunity of hearing which is in violation of the principles of natural justice. We also find that it is substantive right of the exporter to claim drawback and it has been consistently held by various High Courts that substantive right should not be denied on account of procedural irregularities. Further, we find that CBEC issued Circular No. 1063/2/2018-CX dated 16.02.2018 whereby they have compiled orders of Hon’ble Supreme Court High Courts and CESTAT which have been accepted by the Department on which no review petitions have been filed by the Department. We further note that at SI. No. 2 of this Circular, the Department has accepted the judgment of the Hon’ble High Court in the case of CCE Vs Dashiyon Ltd. reported in 2016 (41) STR 884 and the judgment of Hon’ble High Court of Rajasthan in the case of CCE Jaipur Vs National Engineering Industries Ltd. reported in 2016 (42) STR 945.

Further, as per Para 2.1 of the Circular “Department has accepted the judgment whereby the Hon’ble High Courts dismissed the Department’s Appeal inter alia holding that substantive benefits cannot be denies because of procedural irregularities. Further, we find that the judgments relied upon by the appellant cited supra have admitted that free shipping bills can be converted into drawback shipping bills subject to certain conditions. Therefore, keeping in view the various decisions and the Circular issued by the CBEC dated 16.02.2018, we set aside the Communication dated 12.03.2019 and remand the matter back to the Commissioner to consider the claim of the appellant for conversion of free shipping bills into drawback shipping bills, after following the principles of natural justice and after affording an opportunity of hearing to the appellant.

FULL TEXT OF THE CESTAT ORDER

The present appeal is directed against the impugned order dated 12.03.2019 whereby the Department has rejected the request of the appellant to convert free shipping bills into drawback shipping bills on the ground of non-fulfillment of conditions of Notification No. 158/95 dated 14.11.1995.

2. Briefly the facts of the present case are that the appellant have exported Phycocyanin during the period June 2016 to September 2016. A part quantity of the exported goods was rejected for quality reasons and returned to the appellant which has been re-imported by the appellant vide Bill of Entry No. 7578327 dated 24.11.2016 in terms of Notification No. 158/95-Cus dated 14.11.1995 without payment of duties, but executing appropriate Bond with the Bank Guarantee, with an undertaking to re-export the same after curing quality defects. Thereafter, the appellant have re­exported the said goods after addressing the quality issues. Thereafter, the appellant requested the Department to cancel their RE bond and return the corresponding Bank Guarantee as the appellant have discharged the obligation thereunder. While processing the request of the appellant, the Customs Department found that a part of the re-export was affected few days after the permissible period and hence, informed them to pay applicable import duties and interest for the corresponding quantities of re­imports. Thereafter, the appellant paid an amount of Rs.13,81,543/- vide TR-6 challan, non EDI Customs Duty dated 23.05.2018 at State Bank of India, Air Cargo Complex, Bangalore. Thereafter, the appellant sought suitable amendment to the related re-export shipping documents to enable the appellant claim drawback in terms of Section 74. The appellant has also sought relaxation from Rule 4 of the Drawback Rules, 1995 and also sought suitable extension of time for claiming drawback in terms of Rule 5 (1) (i), the appellant also paid application fees of Rs.2000 seeking suitable extension of time in terms of Rule 5 (1) (iii). Thereafter, the Assistant Commissioner of Customs issued a Communication/Order dated 12.03.2019 informing rejection of request for conversion of free shipping Bill No. 1450810 dated 11.12.2017 on the grounds “ The duty was paid for violation of Notification No. 158/95 dated 14.11.1995 which was payable to re-export beyond time limit.”

3. Heard both the parties and perused the records of the case.

4. Learned Counsel for the appellant submitted that the appellant is a first generation exporter and exported the goods and a part of which was rejected by the foreign buyer on quality reasons and returned to the appellant exporter for doing needful and the appellant re-imported the said goods in terms of Notification No. 158/95-Cus dated 14.11.1995 on executing RE Bond and thereafter re-exported the rejected goods after rectifying the quality problems and the same is not in dispute. He further submitted that while processing the request of the appellant for discharge and release of Bank Guarantee, the Department found that a quantity of 250 Kg out of 1750 Kg was re-exported after the period of one year and hence the appellant has violated the conditions set out in the said Notification No. 158/95 dated 14.11.1995. He further submitted that on the asking of the Department, the appellant paid an amount of Rs.13,81,543/- which consists of import duty of Rs.10,96,558/- and interest amount of Rs.2,84,985/-. He further submitted that it is a case that the re-imported goods have suffered duty in affect and the same have been re-exported after processing and the law provides for off loading of duty burden on the goods exported/re-exported. He further submitted that the learned Commissioner should have considered the case of the appellant sympathetically and should have allowed the conversion of free shipping bills into duty drawback shipping bills as per Section 74 and Duty Drawback Rules of 1995. He also submitted that while rejecting the request of the appellant, the Department has not followed the principles of natural justice and has not accorded any opportunity of hearing to the appellant to explain their case. He also submitted that drawback is a substantive benefit which cannot be denied for procedural irregularities. In support of his claim, he relied upon the following decisions:

• 2018 (359) ELT 388 (Tri. Bang.)
• 2010 (259) ELT 295 (Tri. Ahmd.)
• 2014 (309) ELT 344 (Tri. Ahmd.)
• 2014 (314) ELT 871 (G.O.I.)
• 2012 (281) ELT 750 (G.O.I.)
• 2011 (272) ELT 448 (G.O.I.)

5. On the other hand, learned AR defended the impugned order and submitted that the appellant has violated the conditions of Notification No. 158/95-Cus dated 14.11.1995 as he has re-exported beyond the time limit, though the learned AR has conceded that the delay is only of few days in affecting the re-export. She further submitted that though the drawback is a substantive right but there are conditions which the appellant needs to fulfill for converting free shipping bills into duty drawback bills.

6. After considering the submissions of both the parties and perusal of the material on record, we find that the appellant initially exported Phycocyanin and a part quantity of the same was rejected for quality reasons which was re-imported by him without payment of duty in terms of Notification No. 158/95-Cus dated 14.11.1995 on executing Bond with Bank Guarantee. We also find that the appellant have re-exported the said goods after rectifying the defect and the identification of the re-exported goods is not disputed by the Department. Further, we find that the appellant also paid an amount of Rs.13,81,543/- as demanded by the Department. Further, we find that after payment of the duty along with interest, the appellant sought suitable amendment to the re-exported shipping documents to enable the appellant to claim drawback in terms of Section 74 but the same was not considered and his request was rejected without affording him an opportunity of hearing which is in violation of the principles of natural justice. We also find that it is substantive right of the exporter to claim drawback and it has been consistently held by various High Courts that substantive right should not be denied on account of procedural irregularities. Further, we find that CBEC issued Circular No. 1063/2/2018-CX dated 16.02.2018 whereby they have compiled orders of Hon’ble Supreme Court High Courts and CESTAT which have been accepted by the Department on which no review petitions have been filed by the Department. We further note that at SI. No. 2 of this Circular, the Department has accepted the judgment of the Hon’ble High Court in the case of CCE Vs Dashiyon Ltd. reported in 2016 (41) STR 884 and the judgment of Hon’ble High Court of Rajasthan in the case of CCE Jaipur Vs National Engineering Industries Ltd. reported in 2016 (42) STR 945.

Further, as per Para 2.1 of the Circular “Department has accepted the judgment whereby the Hon’ble High Courts dismissed the Department’s Appeal inter alia holding that substantive benefits cannot be denies because of procedural irregularities. Further, we find that the judgments relied upon by the appellant cited supra have admitted that free shipping bills can be converted into drawback shipping bills subject to certain conditions. Therefore, keeping in view the various decisions and the Circular issued by the CBEC dated 16.02.2018, we set aside the Communication dated 12.03.2019 and remand the matter back to the Commissioner to consider the claim of the appellant for conversion of free shipping bills into drawback shipping bills, after following the principles of natural justice and after affording an opportunity of hearing to the appellant. Hence, the appeal is allowed by way of remand and the needful be done within a period of two months after receiving the certified copy of this order.

(Order pronounced in the Open Court on 31/08/2020)