Back
2006 Supreme(Mad) 2172
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE P.D. DINAKARAN & THE HONOURABLE MR. JUSTICE P.P.S. JANARTHANA RAJA
The Commissioner of Customs - Appellant
Versus
M/s. L.T. Karle & Co & Another - Respondents
C.M.A.No.2622 of 2005
Decided On : 29 August 2006
The denial of duty drawback on fictitious reasons would defeat the legislative intention of Section 75 of the Customs Act, and the circulars issued by the Central Board of Excise and Customs, which placed a different interpretation on the relevant provisions, were binding on the revenue.
Headnote:
Customs Act - Duty Drawback - Chapter X of the Customs Act - Section 75 - Rules 3 and 4 of the Customs and Central Excise Duties Drawback Rules, 1995 - Notification No.67/98 dated 01.09.1998 - Circular No.67/98 dated 14.9.1998 - Circular No.31/2000 dated 20.4.2000
Fact of the Case:
The case involved a dispute over the duty drawback claim in respect of imported materials used in the manufacture of goods, which were subsequently exported. The appellant contested the duty drawback claim on the grounds that the goods had been manufactured in a 100% Export Oriented Unit (EOU) and that the exporter had not obtained the required permission from the Assistant Commissioner in charge of the 100% EOU.
Finding of the Court:
The court found that the denial of duty drawback on the grounds presented by the appellant was arbitrary and capricious. It held that the denial of duty drawback on fictitious reasons would defeat the legislative intention of Section 75 of the Customs Act, which aims to settle duty drawback on imported materials used in the manufacture of exported goods. The court also emphasized that the circulars issued by the Central Board of Excise and Customs, which placed a different interpretation on the relevant provisions, were binding on the revenue.
Issues: The substantial questions of law raised in the appeal were: 1. Whether the findings of the Tribunal in equating the Circulars permitting Brand Rate of Drawback with the claim for All Industry Duty Drawback is correct in law. 2. Whether the Tribunal is correct in law in overlooking the facts that the goods have been manufactured in 100% EOU and that the exporter has mis-declared such fact in the Shipping Bill. 3. Whether the Tribunal is correct in law in ignoring the fact that the required permission from the Assistant Commissioner in charge of the 100% EOU was not obtained by the exporter.
Ratio Decidendi: The court held that the denial of duty drawback on the grounds presented by the appellant was arbitrary and capricious. It emphasized that the circulars issued by the Central Board of Excise and Customs, which placed a different interpretation on the relevant provisions, were binding on the revenue. The court also highlighted that the denial of duty drawback on fictitious reasons would defeat the legislative intention of Section 75 of the Customs Act.
Final Decision: The appeal was dismissed, and the questions of law raised were answered in the affirmative, in favor of the assessee and against the Revenue. No costs were awarded.
(Appeal filed under Section 130 A of the Customs Act, 1962, against the Final Order No.1081 of 2004 dated 15.6.2004 passed by the second respondent Tribunal.)
P.D. Dinakaran, J.
I - Subject in issue
The drawback on imported materials, in the custom laws, is an allowance made by the Government upon the duties due on imported merchandise, when the importer, instead of selling it in the imported land, re-exports it. In other words, it means the refunding of such duties already paid on the imported merchandise.
2. Chapter X of the Customs Act deals with the drawback allowable on re-export of duty paid goods, the drawback on imported materials used in the manufacture of goods which are exported, the interest on drawback and the prohibition and regulation of drawback in certain cases.
II – Order in appeal and substantial questions of law
3. Aggrieved by the order of the second respondent-the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as 'the CESTAT'), allowing the claim of duty drawback in respect of 4 shipping bills filed by M/s.L.T.Karle & Co., the first respondent herein, who admittedly imported the materials used in the manufacture of the goods, namely Ladies 100% Cotton Woven Blouse/Shirt, the Revenue has preferred this appeal on the ground that since the said goods had been manufactured in M/s.Karle International, an 100% Export Oriented Unit (in short "100% EOU"), there was a violation to the proviso to Section 2(c) of the Notification No.67/98 dated 01.09.1998, issued in exercise of the powers conferred by Rule 3 read with Rule 4 of the Customs and Central Excise Duties Drawback Rules, 1995, (hereinafter referred to as "the Rules") framed under Section 75(2) of the Customs Act (hereinafter referred to as "the Act"), raising the following substantial questions of law:
"1. Whether the findings of the Tribunal in equating the Circulars permitting Brand Rate of Drawback with the claim for All Industry Duty Drawback is correct in law.
2. Whether the Tribunal is correct in law in overlooking the facts that the goods have been manufactured in 100% EOU and that the exporter has mis-declared such fact in the Shipping Bill.
3. Whether the Tribunal is correct in law in ignoring the fact that the required permission from the Assistant Commissioner in charge of the 100% EOU was not obtained by the exporter."
III – Backdrop of the Case
4.1. The first respondent is a partnership firm, a unit of Domestic Tariff Area (in short 'DTA unit'). Its headquarters is at Bangalore. It imported raw materials for the purpose of manufacturing ladies garments viz., ladies 100% cotton woven blouse/shirt and for exporting the same thereafter. As there was no manufacturing facility available with the first respondent at its Unit III, No.334, II Floor, HMT Main Road, Commercial Street, Bangalore-22, it sent the raw materials imported to M/s.Karle International, Bangalore, an 100% EOU, for converting the same into finished goods, viz., ladies 100% cotton woven blouse/shirt, which were subsequently exported at Tuticorin Customs House, under four shipping bills dated 5.8.1998, 21.1.1999, 21.1.1999 and 11.2.1999 against duty drawback of Rs.4,37,986/-, 4,05,103/-, 8,29,308/- and 4,30,686/- respectively, thus involving a total duty drawback of Rs.21,03,083/-. The appellant sanctioned the entire drawback and paid half of the same.
4.2. It is not in dispute that the first respondent obtained necessary permission from the Customs Department in July 1999, of course after exporting, for sending the raw materials to 100% EOU for conversion of the same into finished goods.
4.3. On 23.08.2001, the Commissioner of Customs, Trichirapalli, issued a show cause notice to show cause as to why,
(a) The duty drawback amounting to Rs.21,03,083/- should not be denied in respect of the four shipping bills filed at Tuticorin Custom House in as much as the said goods have been manufactured in 100% EOU namely M/s. Karle International, Bangalore in viola
