2015 (4) TMI 1073 - AT - Customs

Denial of Duty Drawback - Duty free input and dutiable input used in manufacture of exportable goods - Appellant used duty free input in dyeing and such material lost its existence in finished good result of which he is asked by revenue to repay back the entire drawback claimed by it - But appellant argues that drawback is not deniable or slashed when all industry rate of drawback was prescribed - Held that when drawback rate was declared it has taken into consideration the composition of goods with exempted inputs and dutiable inputs and industrial behaviour in the economy, so, once a drawback rate is prescribed at a particular rate for an industry and the appellant has manufactured the goods using dutiable input procured from the domestic market as well as global market paying duty, it is not exposable to any adversity. Therefore, as appellant being governed by the basic provision of Rule 3 of the Drawback Rules, it is not required to repay back the drawback. - Decided in favour of appellant

Summary

Issues:
1. Denial of drawback claim due to the use of duty-free imported goods in dyeing process.
2. Interpretation of industry rate of drawback and its application to manufacturing processes.
3. Recoverability of duty forgone on goods lost during manufacturing.

Analysis:
The case involved a dispute regarding the denial of a drawback claim by the Revenue due to the use of duty-free imported goods in the dyeing process, where the imported goods lost their identity. The Revenue alleged that the appellant should repay the entire drawback claimed as a part of the duty-free material was used in dyeing. The appellant argued that since both duty-free imported goods and excise duty paid goods were used in manufacturing exportable goods, the drawback claim should not be denied. The appellant contended that the industry rate of drawback considers the usage of both types of inputs in manufacturing.

Upon hearing both sides and examining the facts, the Tribunal found that the appellant had indeed used a mix of duty-free imported raw materials and excise duty paid raw materials in manufacturing the goods. It was noted that a fraction of duty-free imported goods lost their identity during the dyeing process. The Tribunal emphasized that the drawback rate is determined based on the composition of goods with exempted and dutiable inputs, considering industrial practices. Therefore, the Tribunal held that the appellant, who complied with the export obligations using a combination of dutiable inputs, was entitled to the drawback claim.

The Tribunal rejected the Revenue's argument that duty-free goods used in dyeing process are recoverable, stating that the law does not mandate denying drawback claims solely based on the use of duty-free goods for exports. The Tribunal highlighted that the appellant's actions aligned with Rule 3 of the Drawback Rules, and since there was no allegation of export using only duty-free goods, the Revenue's plea failed. Consequently, the Tribunal allowed the appeal, ruling in favor of the appellant.

In conclusion, the Tribunal upheld the appellant's entitlement to the drawback claim, emphasizing the permissible use of a mix of duty-free and excise duty paid goods in manufacturing processes. The judgment clarified the application of drawback rules concerning the utilization of different types of inputs in export-oriented production, ultimately deciding in favor of the appellant based on the legal provisions and factual circumstances presented.