2011 (2) TMI 1078 - AT - Customs

Drawback claim rejected - confiscation under Section 113(i) of the Customs Act - penalty under Section 114(iii) of the Act - reasons stated for denial of drawback was that the input used in the manufacture of the exported product was grey fabric on which Central Excise duty/countervailing duty (CVD) was not payable and hence the appellant was not eligible for drawback - Held that - Input used is Grey Fabric, should be reviewed and steps be taken to recover the drawback already sanctioned. For future exports, the exporters may be directed to clearly declare on the shipping bills the inputs used in the manufacture of such fabrics and the drawback be allowed strictly only in such cases where the inputs like fibre/POY/yarn are duty paid or where the duty would be payable on such inputs, All Industry rates of drawback are applicable only to those exports of processed fabrics under DFRC scheme where the input used is POY (partially oriented yarn)/fibre/yarn and not applicable to the exports of man-made fabrics involving grey fabrics as input, adjudicating authority did not consider the Circular No.3/01-Cus. dated 16.1.2001, order set aside and allow this appeal by way of remand with a request to the Commissioner to pass fresh speaking order on the issue after hearing the party and considering the relevant EXIM policy provisions, rules, circulars etc.

Summary

Issues Involved:
1. Denial of drawback claim.
2. Liability of exported goods to confiscation under Section 113(i) of the Customs Act.
3. Imposition of penalty under Section 114(iii) of the Customs Act.

Detailed Analysis:

1. Denial of Drawback Claim:
The appellant filed shipping bills under the DFRC-cum-Drawback Scheme for exporting 'dyed and printed man-made fabrics' and claimed drawback under entry No.54.04(b). The Deputy Commissioner of Customs issued a show-cause notice proposing to reject the drawback claim on the grounds that the input used in the manufacture of the exported product was grey fabric, which was not subject to Central Excise duty/CVD, thus making the appellant ineligible for drawback as per clause (ii) of the second proviso to Rule 3 of the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995. The Commissioner of Customs upheld this view, rejecting the claim and imposing a penalty. The appellant argued that they had the option to use either grey or dyed fabric as input and had imported dyed fabric on payment of CVD, thus qualifying for drawback. The Tribunal found that the appellant's plea regarding the option to use either fabric was not considered by the adjudicating authority and required reevaluation.

2. Liability of Exported Goods to Confiscation:
The show-cause notice also proposed that the exported goods were liable to confiscation under Section 113(i) of the Customs Act. The Commissioner of Customs found that the exported goods were manufactured using grey fabrics, which did not attract Central Excise duty, thus violating the provisions of the Drawback Rules. The Tribunal noted that the shipping bills were assessed based on the declaration that the input was dyed polyester fabric, and this aspect needed reconsideration in light of the appellant's arguments and relevant EXIM policy provisions.

3. Imposition of Penalty:
The Commissioner imposed a penalty of Rs. 1,00,000/- under Section 114(iii) of the Customs Act, citing the use of grey fabric in manufacturing the exported goods, which barred the appellant from claiming drawback. The Tribunal highlighted the need for a fresh adjudication to consider whether the appellant indeed had the option to use either grey or dyed fabric as input and whether the imported dyed fabric on payment of CVD justified the drawback claim.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the Commissioner for fresh adjudication. The Commissioner was directed to pass a new speaking order after hearing the appellant and considering the relevant EXIM policy provisions, rules, and circulars. The Tribunal emphasized the need to address the appellant's plea regarding the option to use either grey or dyed fabric as input and the implications of importing dyed fabric on payment of CVD.