M/s Bhati & Company E-524-526 MIA Basni Phase-II vs Union Of India

Headnote:(A) Customs Act, 1962 - Sections 17, 18, 50, 51, 75A, 75(2), 142(1) - Customs and Excise Duties And Service Tax Drawback Rules, 1995 - Rule 16 - Recovery of excess drawback - Self-assessment under Section 17 - Erroneous payment - Reassessment - The primary issue is whether the authorities can directly invoke Section 75A for recovery of alleged excess drawback without first completing reassessment under Section 17(4) or conducting a further inquiry under Section 18. The Court held that Section 75A can be invoked only after crystallization of the amount as a consequence of reassessment, not before. As long as the self-assessment remains unchallenged, the payment is deemed to have been made on its basis, even if resulting from misdeclaration or misclassification. The proper recourse is to Sections 17(4) or 18, not directly Section 75A. (Paras 10, 14, 15, 16)

Facts of the case:
The petitioners exported handicrafts/artistic wooden furniture items and self-assessed under Drawback Schedule Nos.9401 and 940399. The Audit found misclassification, noting proper classification under Schedule No.442101, resulting in excess drawback claims and payments. Show cause notices were issued under Section 142(1) read with Section 75A of the Act of 1962 and Rule 16 of the Rules of 1995 for recovery, without prior reassessment. Orders determining excess drawback were passed, challenged in appeals unsuccessfully, and the Revisional Authority remanded the matters. The writ petitions challenge the entire proceedings.

Findings of Court:
The Court found that the authorities directly proceeded under Section 75A without invoking Sections 17 or 18. Since self-assessment was not challenged, the payment was not erroneous but made pursuant to self-assessment, even if based on wrong classification. Therefore, Section 75A could not be invoked until reassessment crystallized the amount. The entire proceedings were held to be a result of misapplication of law and unsustainable. The orders of the original authority, Appellate Authority, and Revisional Authority were set aside, with liberty to respondents to proceed under Sections 17 and 18 if law permits.

Issues: The main issue was whether the authorities can directly invoke Section 75A of the Customs Act, 1962, for recovery of alleged excess drawback without first undertaking reassessment under Section 17(4) or further inquiry under Section 18 of the Act.

Ratio Decidendi: The Court ruled that Section 75A is intended for recovery of amounts erroneously paid or recoverable under the Act, but such recovery can only be initiated after the amount is crystallized through reassessment. Where payment is made based on self-assessment that remains unchallenged, it cannot be treated as erroneous payment without first going through the reassessment process under Sections 17(4) or 18. Direct recourse to Section 75A is legally misconceived. Result : Writ petitions allowed. Impugned orders set aside. Liberty granted to respondents to proceed under Sections 17 and 18 if permissible.

Legal Category Hierarchy

1. Exporters misclassified goods in self-assessment, claimed excess drawback; recovery initiated under Section 75A, Customs Act. (Para 2 , 3 , 4 )

2. Petitioners: recovery without prior reassessment under Section 17 invalid. Respondents: direct recovery permissible for erroneous payment. (Para 6 , 7 )

3. Writ petitions allowed; impugned orders set aside; liberty to proceed under Sections 17 and 18 of Customs Act. (Para 17 , 18 )

4. Can authorities directly invoke Section 75A for recovery of excess drawback without first reassessing under Section 17?

No. Recovery under Section 75A can only be initiated after the amount is crystallised through reassessment under Section 17 or 18 of the Customs Act. (Para 10 , 11 , 14 , 15 , 16 )

5. What is the proper procedure when self-assessment leads to misclassification of export goods?

The proper officer must proceed for reassessment under Section 17(4) or conduct further inquiry under Section 18 before any recovery action. (Para 11 , 14 )

6. What is the distinction between erroneous payment and payment made pursuant to self-assessment?

Payment made under a subsisting self-assessment, even if based on wrong classification, is not 'erroneous payment' but a payment under assessment; recovery requires reassessment first. (Para 14 , 16 )

Reportable Order

1. The issue involved in these two writ petitions is common. Therefore, both the writ petitions are being taken up for disposal by this common order.

2. The facts of the cases disclose that in the case of M/s Bhati & Company, the petitioner had exported handicrafts/artistic wooden furniture items under six shipping bills commencing from 13.05.2011 to 20.05.2011 and in the case of Latiyal Handicrafts Pvt. Ltd., the petitioner had exported handicrafts/artistic wooden furniture items under seven shipping bills commencing from 13.10.2009 to 25.05.2011. While making self-assessment on shipping bills, the petitioners have classified the goods exported under Drawback Schedule Nos.9401 and 940399 by describing such goods as handicrafts/artistic wooden furniture items. The proper classification for the shipped items falls under Drawback Schedule No.442101 under the Drawback Schedule Notification.

3. The petitioners in respect of each shipping bill, carried out self-assessment, under Section 17 of Customs Act, 1962 (hereinafter referred to as “Act of 1962”). In the said self- assessment, they described different classification instead of proper/correct classification under the drawback schedule. As a result, the excess payments of drawbacks amounts were claimed and paid to the petitioners.

4. In the Audit, they found misclassification of goods exported. Pursuant to the audit objection, the respondents issued a show cause notice dated 25.03.2013 for recovery of excess drawbacks on the premise that such payment was erroneously paid by invoking Section 142(1) read with Section 75A of Act of 1962, and Rule 16 of the Customs and Excise Duties And Service Tax Drawback Rules, 1995 (hereinafter referred to as “Rules of 1995”).

5. The petitioners submitted their replies to the show cause notices and, thereafter, the respondents passed orders, determining the amount of excess drawback paid and initiating recovery thereof. The said orders were challenged in appeal, however, the appeals were also unsuccessful. Subsequently, the Revisional Authority, in exercise of the revisional powers, set aside the orders passed by the original authority as well as the Appellate Authority and remanded the matters for fresh consideration. Aggrieved by the same, the present writ petitions have been filed.

6. The main contention of learned counsel appearing for the petitioners is that the invocation of Section 75A (2) of the Act of 1962, on the premise that recovery is sought to be made in respect of the excess payment of drawback is misconceived. It is contended that the present case is not one of excess payment, but a case of payment made on the basis of self-assessment. The further contention of counsel for the petitioners is that once a self- assessment is done under Section 17 of the Act of 1962, the respondents are required to accept or verify the same and, if the respondents find that self-assessment is not correct, they can also proceed for reassessment. After such a reassessment, if any liability is crystalised, they can draw the recovery proceedings under Section 75A (2) r/w 142(1) of Act of 1962. In the present case, recovery was directly done without going for reassessment, which is without a jurisdiction, and seeks to intervene in the impugned order.

7. The learned counsel appearing for the respondents submits that the payment of excess drawback was result of misclassification of goods. As per the shipping bills, the goods exported were handicrafts and artistic wood furniture, which is not in dispute. The classification was wrongly applied to such goods, so as to claim excess drawbacks, and the said incorrect classification was noticed by the Audit Department, and they found that excess drawbacks were erroneously paid on account of wrong classification. Therefore, they directly invoked the Section 75A r/w Section 142 of the Act of 1962. According to him, the impugned order is only remand or

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2026 Supreme(Online)(Raj) 19140

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR
M/s Bhati & Company E-524-526 MIA Basni Phase-II – Appellant
Versus
Union Of India – Respondent
D.B. Civil Writ Petition No. 19673/2022

Legal Category Hierarchy

Table of Contents

4. Can authorities directly invoke Section 75A for recovery of excess drawback without first reassessing under Section 17?

5. What is the proper procedure when self-assessment leads to misclassification of export goods?

6. What is the distinction between erroneous payment and payment made pursuant to self-assessment?

2026 Supreme(Online)(Raj) 19140

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPURM/s Bhati & Company E-524-526 MIA Basni Phase-II – AppellantVersusUnion Of India – RespondentD.B. Civil Writ Petition No. 19673/2022

Legal Category Hierarchy

Table of Contents

4. Can authorities directly invoke Section 75A for recovery of excess drawback without first reassessing under Section 17?

5. What is the proper procedure when self-assessment leads to misclassification of export goods?

6. What is the distinction between erroneous payment and payment made pursuant to self-assessment?

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR
M/s Bhati & Company E-524-526 MIA Basni Phase-II – Appellant
Versus
Union Of India – Respondent
D.B. Civil Writ Petition No. 19673/2022