2012 (10) TMI 422 - CGOVT - Customs

Duty drawback alleged that appellants had declared the export goods to be Handicrafts/Artware of the constituent materials and accordingly claimed drawback separately on the constituent materials treating the goods as composite articles - appellants placed reliance on Circular No. 56/99-Cus., dated 26-8-1999 and produced the certificates issued by Metal Handicraft Service Centre and a few invoices stamped by the Export promotion Council for Handicrafts and based their claim for drawback on the fact that all the goods exported were handicrafts Held that - Since in this case neither any approval was taken from Commissioner of Central Excise/Customs nor discussions were held with certificate issuing authority, the decision taken by adjudicating/appellate authority to reject the respective handicraft certificate is liable to be set aside - matter back to original authority for de novo proceedings

Issues Involved:
1. Classification of exported goods for duty drawback.
2. Eligibility of goods as handicrafts.
3. Validity of certificates issued by various organizations for classification.
4. Interpretation of relevant circulars and statutory provisions.
5. Adherence to procedural requirements by adjudicating authorities.

Detailed Analysis:

1. Classification of Exported Goods for Duty Drawback:
The primary issue revolves around the classification of exported goods such as lanterns, decorative items, and candle holders under the duty drawback scheme. The adjudicating authority argued that the goods should be classified based on their essential material, not as composite goods, which resulted in a lower drawback rate for the exporter. The exporter contested this classification, arguing that the goods should be considered handicrafts, which would allow for a higher drawback rate.

2. Eligibility of Goods as Handicrafts:
The adjudicating authority questioned the classification of the goods as handicrafts, citing the Supreme Court's criteria in the Louis Shoppe case, which requires goods to be predominantly made by hand and graced with substantial or ornamental artistic work. The exporter provided certificates from recognized authorities such as the Export Promotion Council for Handicrafts (EPCH) and the Metal Handicraft Service Centre, but the adjudicating authority did not accept these certificates as conclusive proof.

3. Validity of Certificates Issued by Various Organizations for Classification:
The exporter relied on certificates issued by the EPCH and other recognized bodies to support their claim that the goods were handicrafts. The adjudicating authority, however, rejected these certificates, arguing that they could not be the sole basis for classification. The government noted that according to Circular No. 3/2010-Customs, such certificates should normally be accepted unless rejected with the approval of the Commissioner of Customs/Central Excise and after discussions with the certificate-issuing authority.

4. Interpretation of Relevant Circulars and Statutory Provisions:
The government highlighted the importance of adhering to circulars issued by the Central Board of Excise and Customs (CBEC), which are binding on the department. Circular No. 3/2010-Customs clarifies that certificates from the Development Commissioner (Handicrafts)/EPCH should be accepted unless there is a compelling reason to reject them, which must be approved by higher authorities. The adjudicating authority's failure to follow this procedure was a significant point of contention.

5. Adherence to Procedural Requirements by Adjudicating Authorities:
The government criticized the adjudicating authority for not following the proper procedure as outlined in the relevant circulars. Specifically, the adjudicating authority did not seek approval from the Commissioner of Customs/Central Excise nor held discussions with the certificate-issuing authority before rejecting the handicraft certificates. This procedural lapse was deemed sufficient to set aside the adjudicating authority's decision.

Conclusion:
The government set aside the impugned orders and remanded the case back to the original authority for de novo proceedings. The original authority was instructed to consider the observations made in the judgment, allow the exporter to present their case regarding the manufacturing process and classification of goods, and provide a reasonable opportunity for a hearing. The decision emphasized the importance of following procedural requirements and respecting the binding nature of CBEC circulars to ensure fair and just treatment of exporters.

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