Drawback - petitioner procured inputs under Rule 19(2) and used same in manufacture of goods exported - Revenue's plea that since petitioner paid duty after issue of SCN, hence, not eligible for drawback is not acceptable as there is no such condition in proviso to Rule 3 (1): HC
By TIOL News Service
GWALIOR, JUNE 26 , 2013: THE petitioner is engaged in manufacture and export of skimmed milk powder, full cream milk powder, butter oil etc. The petitioner was sanctioned drawback and the amount was also paid to the petitioner.
Later on, notices were issued to the petitioner for recovery of the amount on the ground that the petitioner was not eligible to receive drawback under Rule 16 of Customs & Central Excise Duties Drawback Rules, 1995. Consequently, the petitioner was ordered to deposit the amount with interest.
The authority held that drawback amount was recoverable on the following grounds :-
"2.1 The Applicant did not clear goods in Form ARE-2 and did not follow the procedure under Notification No.42/ 2001. By not doing so, in addition to procurement of input material without payment of duty, the Applicant have availed the double benefit of duty drawback on export consignment. Therefore, the Applicant have knowingly/deliberately suppressed the fact by not clearing their exported goods under ARE-2 as required under Notification No.42/2001.
2.2 The contention of the Applicant that, neither the assessment of Shipping Bill has been challenged nor the revenue has filed any appeal against the order of grant of drawback to the Appellant and the order passed by quasi-judicial authority cannot himself review the same at his own was held to be misleading, nor legal and is devoid of any merits as the facts regarding the quantity, FOB value, description of goods etc. mentioned in the Shipping Bills have not been disputed in the instant case. What has been alleged in the SCN is a concealment, suppression of fact of procurement of inputs without payment of duty for use in the manufacture of export goods and not exporting the said goods on the application in Form ARE-2 which make the Applicant not eligible to claim the drawback and also the judgments relied upon by the Applicant are not relevant.
2.3 The Assistant Commissioner on perusal of Rule 13 of the Customs, Central Excise and Service Tax Drawback Rules, 1995, has held that, no separate Order- Appellate Order is required to be issued."
Against the aforesaid order, the petitioner filed two separate appeals which were dismissed. Thereafter, revision petitions were filed before the government, those were also dismissed and then the petitioner filed writ petition before the Delhi High Court. The writ petition was referred firstly to Three Judge Bench and thereafter before Five Judge Bench to decide the question that whether petition was maintainable or not.
Thereafter, the petitioner had withdrawn the petition and filed the present petition before the Madhya Pradesh High Court.
The respondents in the return pleaded that the petitioner is not eligible for drawback because the petitioner had procured inputs viz. MS drums and multi wall papers under the Rule 19 (2) of CER, 2002 without payment of excise duty and used the same product in the manufacture of goods exported by the petitioner. Since the petitioner did not fulfill the conditions of Rule 19 (2) of the Rules of 2002, hence, the petitioner is not eligible for drawback. It was further submitted that in terms of clause (ii) of second proviso to sub rule (1) of Rule 3 of Rules of 1995, no drawback is allowable if the exported goods are produced or manufactured, using imported materials or excisable materials in respect of which duties have not been paid.
In the instant case, the petitioner paid excise duty on MS drums and multi wall paper after issuance of show cause notice and hence the claim of the petitioner has rightly been rejected by the authority.
The petitioner submitted that they are also entitled for the benefit in accordance with condition Nos.7(f) of Notification No.68/2007-CUS (NT) and condition No.8(f) of Notification No.103/2003-CUS (NT), wherein it is mentioned that the drawback of customs is available irrespective of fact whether the exporter availed CENVAT facility or not. Inasmuch as since the petitioner had paid excise duty on MS drums and multi wall papers, the material which was imported by the petitioner, for the purpose of manufacture and export of skimmed milk powder, full cream milk powder, butter oil etc. the petitioner is eligible the drawback facility.
A plethora of decisions were cited by, both the petitioner and the Revenue in support of their respective stand.
The High Court extracted the provisions of rule 3 & 16 of the drawback rules, rule 19 of the CER, 2002 & the conditions of notification 68/2007-Cus & 103/2008-Cus and observed -
"15. The aforesaid notifications prescribe that the drawback shall not applicable if the goods are manufactured or exported in terms of sub-rule (2) of rule 19 of the Rules of 2002. The aforesaid rules, as quoted above, give the facility to the manufacturer to export the goods without payment of duty. In the present case, the respondents themselves admitted the fact in the return that the petitioner deposited CENVAT credit availed on duty amount on inputs i.e. MS drums in question on 28.4.2009.
16. It is further pleaded by the department in the return that the petitioner had agreed to deposit the duty foregone on the inputs i.e. packing materials in question and deposited Rs.22,06,762/- on duty and Rs.2,57,385/- on interest on 28.4.2009. The argument of the department is that there is no provisions under the Statute for reversal of duty foregone. The revisionary authority also observed that because the petitioner availed the facility of Rule 19 (2) of the Rules of 2002, hence, he is not eligible to receive the benefit of drawback. However, proviso to Rule 3(1) of the Rules of 1995 prescribes that if the goods are produced or manufactured from imported materials or excisable materials on some of which only, duty chargeable thereon had been paid and not on the rest, the drawback admissible on the said goods be reduced taking into account the lesser duty paid or the rebate, refund or credit obtained. In the present case, the petitioner used packing material to manufacture and export of skimmed milk powder, full cream milk powder, butter oil etc. The aforesaid packing material was imported by the petitioner. The petitioner deposited the CENVAT credit and excise duty on the aforesaid material. In such circumstances, in our opinion, the petitioner is eligible to receive benefits of drawback in terms of proviso to Rule 3 (1) of the Rules of 1995.
17. The argument of the revenue that since the petitioner paid the excise duty or CENVAT credit subsequently after issuance of show cause notice, hence, the petitioner is not eligible for the aforesaid benefit is not acceptable because there is no such condition mentioned in the proviso to Rule 3 (1) of the Rules of 1995 as quoted above."
The High Court thereafter referred to the Supreme Court decisions in Chandrapur Magnet Wires (P) Ltd. Vs. Collector of C.Excise, Nagpur, (2002-TIOL-41-SC-CX) & Commissioner of C.Ex., Mumbai Vs. Bombay Dyeing & Mfg. Co.Ltd. (2007-TIOL-141-SC-CX) and concluded that since the petitioner had paid the excise duty subsequent to issuance of show cause notice and deposited the CENVAT credit, he was eligible for the benefit of drawback in accordance with the proviso to Rule 3 (1) of the Rules of 1995.
In fine, the orders of the lower authorities were quashed and the matter was remanded to calculate the benefit of drawback available to the petitioner in terms of proviso to Rule 3 (1) of the Rules of 1995.
(See 2013-TIOL-329-HC-MP-CX )
