Duty drawback cannot be rejected solely for lack of physical verification 

Commissioner of Customs and Service Tax Vs Carl Zeiss India Pvt. Ltd. (Karnataka High Court)

Rule 4(a) of the Re-Export Of Imported Goods (Drawback Of Customs Duties) Rules, 1995 provides for exemption or waiver of the requirement physical verification and cannot form the sole basis for rejection of the claim for drawback of duty under Section 74 of the Act. Similarly, clauses 3 and 4 Circular dated 23.09.2010, which deals with conversion of free shipping bills to export promotion scheme shipping bills and conversion of shipping boils from one scheme to another also provides that on case to case basis on merits, provided the commissioner of customs is satisfied, on the basis of documentary evidence which was in existence at the time the goods were available for export promotion scheme to which conversion has been requested, the same may be allowed subject to the conditions mentioned therein.

Thus, the tribunal has rightly recorded the finding that the claim of the appellant for conversion of shipping bill is based on pre existing documents which were available at the time of re-export and no new material evidence has been claimed and identity of the product can be established on the basis of documentary evidence as physical examination could not be done at the time of shipment. It is also pertinent to note that goods were exported on 13.09.2006 and on 30.11.2006, the demand was made to convert the duty drawback under Section 74 of the Act. Thereafter, a reminder was submitted on 20.02.2007. Thus, the original demand has been made within the prescribed period of limitation.

For the aforementioned reasons, the substantial questions of law framed by this court are answered against the appellant and in favour of the respondent.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

This appeal under Section 130 of the Customs Act, 1962 (hereinafter referred to as the Act for short) has been filed against the order dated 11.08.2017 passed by Customs, Excise and Service Tax Appellate Tribunal, Bangalore (hereinafter referred to as ‘the tribunal’ for short). The appeal is admitted on the following substantial questions of law:

“(i) Whether the Tribunal erred in setting aside the order of the Commissioner dated 24.5.2007 and holding that the respondent is entitled to claim drawback of duty paid on import of microscopes vide Bill of Entry No.131819 dated 10.4.2006, despite exporting the goods vide a free shipping bill and without physical examination of the goods by the customs authorities at the time of export, as required under Section 74 of the Customs Act?

(ii) Whether the Tribunal erred in setting aside the order of the Commissioner dated 24.5.2007 and holding that the respondent is entitled to claim drawback of duty paid on import of microscopes vide Bill of Entry NO.131819 dated 10.4.2006, despite the claim being time-barred as the respondent claimed drawback of duty on the said goods more than 3 months after the export of the goods?”.

2. Facts leading to filing of this appeal briefly stated are that respondent is a private limited company and is engaged in ophthalmic business in India since, 1997. The respondent imported four microscopes in the country vide Entry dated 10.04.2006 and paid customs duty of Rs.22,22,928/-. The respondent re-exported the said microscopes on 30.09.2006 vide a free shipping bill. The Customs House Agent of the respondent requested for conversion of the duty drawback under Section 74 of the Act on 30.09.2006. Thereafter, a reminder was submitted on 20.02.2007. The Commissioner vide order dated 24.05.2007 inter alia held that for duty drawback under Section 74 of the Act, one of the conditions stipulated in the Act that goods are identified to the satisfaction of Assistant Commissioner or Deputy Commissioner of Customs as that were imported. Since, the respondent filed a free shipping bill, therefore, the Commissioner held that there had been no verification / examination of the goods as required under Section 74 of the Act in order to establish that goods exported were the same as the goods imported. The Commissioner further held that under Section 74 of the Act read with Rule 5(1) of the Re-Export Of Imported Goods (Drawback Of Customs Duties) Rules, 1995, (hereinafter referred to as ‘the 1995, Rules’ for short) any claim for drawback should have been made within three months, and the same was made by the respondent on 28.02.1997 i.e., nearly after 5 months from the date of export of the goods. The Commissioner, therefore, rejected the request made by the respondent.

3. The respondent thereupon filed an appeal before the tribunal. The tribunal vide order dated 11.08.2017 inter alia held that even though there has been no physical verification of the goods at the time of export, the same cannot be the sole reason for refusal of the respondent’s request. The tribunal relied on the Circular issued by Central Board of Direct Taxes (CBDT) dated 23.09.2010, wherein it was clarified that the Commissioner may allow all industry rates of duty drawback on goods exported under a free shipping bill, without conversion of such free shipping bill to a drawback bill in terms of proviso to Rule 12(1)(a) of the 1995, Rules. In the result, the tribunal set aside the order of the Commissioner dated 24.05.2007 and allowed the appeal preferred by the respondent. In the aforesaid factual background, this appeal has been filed.

4. Learned counsel for the appellant submitted that the impugned order is opposed to scheme and object of Section 74 of the Act which expressly provide for drawback of duty paid on import of goods only in cases were the goods are identified to the satisfaction of the Assistant Commissioner or Deputy Commissioner of Customs. In the instant case, admittedly, the export consignment had not been opened for physical examination by the authorities, therefore, order of the tribunal permitting conversion of a free shipping bill to a drawback bill is opposed to one of the mandatory conditions prescribed under Section 74 of the Act. It is also urged that the request of conversion of free shipping bill dated 30.09.2006 to a drawback bill was made nearly 5 months after the goods were exported whereas Rule 5 of the 1995 Rules mandatorily requires any claim be made within three months, therefore the respondent’s claim for drawback was time barred. It is also urged that the tribunal completely failed to appreciate that the Circular dated 23.09.2010 relates to Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 and not ‘1995 Rules’. It is further submitted that the Circular relied upon by the tribunal has no relevant to the fact situation of the case.

5. On the other hand, learned counsel for the respondent while inviting the attention of this court to proviso to Rule 4(a) of 1995 Rules submitted that the requirement of identification of the goods cannot be the sole basis for either granting or denying the benefit of drawback of duty under Section 74 of the Act. It is submitted that proviso to Rule 4(a) empowers the Principal Commissioner, or Commissioner of Customs to exempt an exporter or his authorized agent for reasons to be recorded that such exporter or his authorized agent has for reasons beyond his control failed to comply with the provisions of identification of the goods. It is also submitted that Rule 5(1) permits the Assistant Commissioner or Deputy Commissioner of Customs to extend the period of three months by a further period of three months and in the instant case, the demand has been made within a period of three months. In this connection, our attention has been invited to letter dated 30.09.2006, which has been made within the period of limitation. In support of aforesaid submissions, reliance has been placed on decision of High Court of Gujarat in GOKUL OVERSEAS VS. UNION OF INDIA, 2020-VIL-191-GUJ-CU.

6. We have considered the submissions made by learned counsel for the parties and have perused the record. The proviso to Rule 4(a) of the 1995 Rules reads as under:

Rule 4: Statements / Declarations to be made on exports other than by post. – In the case of exports other than by post, the exporter shall at the time of export of the goods –

( a) state on the shipping bill or bill of export, the description, quantity and such other particulars as are necessary for deciding whether the goods are entitled to drawback under Section 74 and make a declaration on the relevant shipping bill or bill of export that –

( i) the export is being made under a claim for drawback under Section 74 of the Customs Act;

(ii) that the duties of customs were paid on the goods imported;

( iii) that the goods imported were not taken into use after importation;

Or

( iii) that the goods were taken in use:

Provided that if the Principal Commissioner of Customs or Commissioner of Customs, as the case may be is satisfied that the exporter of his authorized agent has, for reasons beyond his control failed to comply with the provisions of this clause, he may, after considering the representation, if any, made by such exporter or his authorized agent, and for reasons to be recorded, exempt such exporter or his authorized agent from the provisions of this clause.

7. Thus, it is evident that the aforesaid provision provides for exemption or waiver of the requirement physical verification and cannot form the sole basis for rejection of the claim for drawback of duty under Section 74 of the Act. Similarly, clauses 3 and 4 Circular dated 23.09.2010, which deals with conversion of free shipping bills to export promotion scheme shipping bills and conversion of shipping boils from one scheme to another also provides that on case to case basis on merits, provided the commissioner of customs is satisfied, on the basis of documentary evidence which was in existence at the time the goods were available for export promotion scheme to which conversion has been requested, the same may be allowed subject to the conditions mentioned therein. Paragraph 3 and 4 of the Circular, reads as under:

3. The issue has been re-examined in light of the above. It is clarified that Commissioner of Customs may allow conversion of shipping bilsl from schemes involving more rigorous examination to schemes involving less rigorous examination (for example, from Advance Authorization / DFIA scheme to Drawback/DEPB scheme) or within the schmes involving same level of examination for example from Drawback scheme to DEPB scheme or vice versa) irrespective of whether the benefit of an export promotion scheme claimed by the exporter was denied to him by DGFT/DOC or Customs due to any dispute or not. The conversion may be permitted in accordance with the provisions of Section 149 of the Customs Act, 1962 on a case to case basis on merits provided the Commissioner of Customs is satisfied, on the basis of documentary evidence which was in existence at the time the goods were exported, that the goods are eligible for the export promotions scheme to which conversion has been requested. Conversion of shipping bills shall also be subject to conditions as may be specified by the DGFT/MOC. The conversion may be allowed subject to the following further conditions.

(a) The request for conversion is made by the exporter within three months from the date of the Let Export Order (LEO).

(b) On the basis of available export documents etc., the fact of use of inputs is satisfactorily proved in the resultant export product.

(c) The examination report and other endorsement made on the shipping bill/export documents prove the fact of export and the export product is clearly covered under the relevant SION ad or DEPB/Drawback Schedule as the case may be.

(d) On the basis of S/Bill/export documents, the exporter has fulfilled all conditions of the export promotion scheme to which he is seeking conversion.

(e) The exporter has not availed benefit of the export promotion scheme under which the good’s were exported and no fraud / misdeclaration /manipulation has been noticed or investigation initiated against him in respect of such exports.

4. Free shipping bills (shipping bills not filed under any export promotion scheme) are subject to ‘nil’ examination norms. Conversion of free shipping bills into EP scheme shipping bills (advance authorization, DFIA, DEPB, reward schemes etc.) should not be allowed. However, the Commissioner may allow all industry rate of duty drawback on goods exported under free shipping bill, without conversion of such free shipping bill to Drawback scheme shipping bill, in terms of the proviso to Rule 12(1)( a) of the Customs, Central Excise and Service Tax Drawback Rules, 1995.

8. Thus, the tribunal has rightly recorded the finding that the claim of the appellant for conversion of shipping bill is based on pre existing documents which were available at the time of re-export and no new material evidence has been claimed and identity of the product can be established on the basis of documentary evidence as physical examination could not be done at the time of shipment. It is also pertinent to note that goods were exported on 13.09.2006 and on 30.11.2006, the demand was made to convert the duty drawback under Section 74 of the Act. Thereafter, a reminder was submitted on 20.02.2007. Thus, the original demand has been made within the prescribed period of limitation.

For the aforementioned reasons, the substantial questions of law framed by this court are answered against the appellant and in favour of the respondent. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed.