Drawback - Procurement of inputs duty free against form 'H' is not made a disqualification anywhere under Drawback Rules or Notifications: Revisionary Authority
By TIOL News Service
NEW DELHI, AUG 13, 2018: THE Assistant Commissioner had, vide O-in-O confirmed the recovery of total Duty Drawback, which was sanctioned earlier to the applicant as per all Industry rate, under Rule 16 of the Drawback Rules, 1995 on the ground that the applicant had procured the packaging materials, used in the exported products, duty free against 'H' form.
However, the Commissioner (Appeals) restricted the recovery of Drawback relating to the packaging materials only and allowed drawback on other inputs.
The applicant has filed a revision application against this order.
The main ground is that the All Industry Rates are average rates and the department cannot check duty paid character of inputs; that the inputs were not procured under Rule 19(2) of CER, 2002; that the inputs were procured from unregistered SSI units against 'H' form; that no method/authority is prescribed for reduction of all industry rates of drawback under the Drawback Rules, 1995 and the recovery of drawback can be effected within a reasonable period only.
The applicant also pleaded that the Dy. Commissioner, ICD, Agra, in his RTI reply dated 31.05.2018 has admitted that All Industry rate of Drawback has neither been denied nor reduced from the amount of AIR Drawback payable to exporters of footwear exporting through ICD, Agra after issuance of Modus Operandi Circular No. 01/2013 dated 09.05.2013.
The Revisionary authority considered the submissions and found force in the argument of the applicant that the All Industry Rates of Drawback are fixed by the Government after considering the average incidence of duty and taxes on the inputs and services used in the exported products.
It was further observed –
+ Drawback at All Industry Rates is payable in respect of the exported goods to the exporter without examining the duty paid character of each input. The applicability of these rates to different commodities is certainly subject to Drawback rules, 1995 and Notifications…
+ One of such conditions stipulated, … as per which the All Industry Rate shall not be applicable to a commodity, was that the exported goods should not have been manufactured or exported by availing the rebate of duty on material used in the manufacture of such commodity or manufactured or exported in terms of sub rule (2) of Rule 19 of Central Excise Rules, 2002.
+ No such case has been made out in the Order-in-Original and Order-in-Appeal that the applicant had manufactured and exported the goods by availing the rebate of duty on inputs or by availing the facility provided under sub Rule (2) of Rule 19 of Central Excise Rules, 2002.
+ Therefore, there is no basis for denying the Drawback of duty at All Industries Rate in this case or restricting it to few inputs only for the reason that the packaging materials were procured without payment of duty from unregistered units.
+ Commissioner (Appeals) has considered the procurement of inputs from unregistered units without payment of duty at par with procurement of inputs under Rule 19(2) of Central Excise Rules, 2002 and accordingly upheld the denial of drawback in respect of packaging material ...
+ But, such equation is not supported by the said condition as it only talks about the manufacture or export of goods in terms of Rule 19(2) of Central Excise Rules, 2002 and procurement of inputs duty free against the form 'H' etc. is not made a disqualification anywhere under the Drawback Rules or Notifications…
+ Conflating procurement of inputs against form 'H' with procurement of inputs under Rule 19 (2) of Central Excise Rules, 2002 clearly amounts to re-writing of above said condition of Notification…for which Commissioner (Appeals) is not a competent authority.
+ Accordingly, the Commissioner (Appeals) has also erroneously placed reliance on Government of India's order in the case of Sterling Agro Industries Ltd - 2011-TIOL-457-HC-DEL-CUS-LB wherein the inputs were procured duty free under Rule 19(2) of Central Excise Rules, 2002 and not against form 'H'.
+ As regards the issue whether the field officers are empowered to examine the duty paid character of each input before sanctioning the Drawback of duty at All Industries Rate, the Government does not have any hesitation in saying that no such power is conferred upon any field officer under the Drawback Rules, 1995, or Notifications…
+ The first proviso to Rule 3 of Drawback Rules, 1995 does not designate any field officer as proper officer to reduce the rates of drawback by considering the unpaid character of one or few inputs apparently because such examination at the field officer level will lead to utter chaos and will defeat the very purpose of fixing All Industry Rates on the basis of which drawback is granted even on the exported goods procured from open market in respect of which duty paid character of inputs is not known and can not be verified.
+ Even the Central Board of Excise and Custom has clarified, vide Circular No. 24/2001-Cus dated 20.04.2001 and Circular No. 19/2005-Cus dated 21.03.2005, that it is not open for the field formation to question as to how the rate has been determined in the case of individual export goods and to probe whether certain exempted inputs have been used in the manufacture of the same.
+ The error of denying the drawback in the above situation seems to have been realised by the respondent itself subsequently inasmuch as no such action was initiated against any of such exporters after show cause notice was issued in this case as per the RTI reply of the Dy. Commissioner, ICD, Agra, itself.
The O-in-A was set aside and the revision application was allowed.
(See 2018-TIOL-01-REVISIONARY)
