2014 (10) TMI 329 - CGOVT - Customs

Duty drawback claim - Section 75 of the Customs Act, 1962 - Import of second hand machines - Since these press machines could not be installed, the applicants withdrew the same from the EPCG Scheme and paid the applicable Customs Duty of ₹ 2,18,50,325/- and appropriate interest amounting to ₹ 61,62,413/-. On such uninstalled press machines, the applicants carried out various operations viz. refurbishing, painting, modifications, rewinding works, etc. and thereafter, the same were exported in CKD/SKD condition by classifying them under Customs Tariff Item 8462 29 10, under UT-1 Bond, under claim of Duty Drawback. - Their applications were rejected by the original authority. Commissioner (Appeals) upheld the impugned Order-in-Original Held that - The applicant has contended that process carried out by them in the imported capital goods can be considered as input used in the manufacture of finished product i.e. reconditioned machine. As observed in para above, the provisions of Section 75 unambiguously state that drawback under Section 75 is available only on imported materials used in manufacture of final product. In this case the impugned goods were capital goods i.e. imported second hand machinery on which some operations were claimed to be carried out. Whereas the applicant had no Central Excise Registration for manufacture of such machines. No imported materials were used in processing of impugned goods so as to make the impugned goods eligible for drawback under Section 75 of the Customs Act, 1962. The export of imported machines by carrying out mere reconditioning/refurbishing operation without complying with substantial requirements of said Section 75, renders the said drawback claims inadmissible under Section 75. There is specific provision of claiming drawback on re-exported goods under Section 74 which applicant has failed to avail. Applicant has heavily relied upon Circular No. 57/95-Cus., dated 30-5-1995, wherein the scope of Section 75 has been enlarged to include admissibility even for goods processed or on which any operation has been carried out in India, in view of the definition of manufacture. Government observes that any such enlargement of scope of Section 75 has to be seen in light of basic provision of Section 75. In this case the repaired/refurbished capital goods were exported and no imported materials are used in the manufacture/processing of exported goods. Since the instant claims do not fall in the ambit of Section 75 of Customs Act, 1962, the provisions of said circular are not applicable to this case. instant drawback claims are not covered by the provisions of Section 75 of Customs Act, 1962 and lower authorities have rightly rejected the said duty drawback brand rate fixation applications. Government finds no infirmity in the impugned orders and therefore uphold the same - Decided against appellant assessee.

Issues Involved:
1. Eligibility for duty drawback under Section 75 of the Customs Act, 1962.
2. Definition and scope of "manufacture" under the Drawback Rules, 1995.
3. Applicability of Section 74 versus Section 75 of the Customs Act, 1962.
4. Interpretation of "imported materials" for the purpose of claiming duty drawback.
5. Compliance with procedural requirements for claiming duty drawback.

Comprehensive, Issue-Wise Detailed Analysis:

1. Eligibility for Duty Drawback under Section 75 of the Customs Act, 1962:
The applicants filed for duty drawback claims under Section 75, which allows for a rebate of customs duty on imported materials used in the manufacture of exported goods. The applicants argued that they had imported second-hand mechanical press machines, carried out refurbishing, painting, modifications, and rewinding works, and then exported these machines. They claimed that the operations performed on the machines amounted to "manufacture" as per the Customs, Central Excise Duties, and Service Tax Drawback Rules, 1995.

2. Definition and Scope of "Manufacture" under the Drawback Rules, 1995:
The applicants contended that the term "manufacture" under Rule 2(e) of the Drawback Rules, 1995, includes processing or any other operation carried out on goods. They argued that the alterations and modifications made to the imported machines fell within this definition. They cited various case laws and a circular (Circular 57/95-Cus., dated 30-5-1995) to support their claim that any operation carried out on goods should be construed as manufacturing activity, making them eligible for duty drawback under Section 75.

3. Applicability of Section 74 versus Section 75 of the Customs Act, 1962:
The department argued that the applicants had imported the machines under the EPCG Scheme, paid the applicable customs duties with interest when they withdrew from the scheme, and then re-exported the same machines. They contended that the correct provision for claiming duty drawback in this case would be Section 74, which deals with re-exported goods, rather than Section 75, which is for imported materials used in the manufacture of exported goods. The department pointed out that the applicants did not provide any explanation for not filing under Section 74.

4. Interpretation of "Imported Materials" for the Purpose of Claiming Duty Drawback:
The applicants argued that the term "imported materials" under Rule 2(d) of the Drawback Rules, 1995, is broad and includes all types of goods, including capital goods. They claimed that the second-hand mechanical press machines they imported and paid customs duty on should be considered "imported materials" for the purpose of claiming duty drawback under Section 75. The department, however, maintained that the imported capital goods could not be construed as "imported materials" since they were not used in the manufacture of the exported goods but were the goods themselves.

5. Compliance with Procedural Requirements for Claiming Duty Drawback:
The original authority and the Commissioner (Appeals) found that the applicants had re-exported the same machines they had imported, without using any imported materials in the manufacture of the exported goods. They concluded that the applicants' claims did not meet the requirements of Section 75 and should have been filed under Section 74. The government agreed with these findings, noting that the applicants had not complied with the procedural requirements for claiming duty drawback under Section 75.

Conclusion:
The government upheld the decisions of the original authority and the Commissioner (Appeals), rejecting the applicants' claims for duty drawback under Section 75. The government found that the applicants had re-exported the imported machines without using any imported materials in the manufacture of the exported goods, making their claims ineligible under Section 75. The government also noted that the applicants had not provided any explanation for not filing their claims under Section 74, which would have been the correct provision for re-exported goods. The revision application was thus rejected, and the impugned orders were upheld.

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