2018 (8) TMI 1933 - CGOVT - Customs

Recovery of Duty Drawback - Commissioner (Appeals) restricted the recovery of drawback relating to the packaging materials only and allowed drawback on other inputs - the revision application has been filed by the applicant mainly on the ground that the All Industry Rates are average rates and the department cannot check duty paid character of inputs; that the inputs were not procured under Rule 19(2) of Central Excise Rules 2002; that the inputs were procured from unregistered SSI units against H form; that no method/authority is prescribed for reduction of all industry rates of drawback under the Drawback Rules 1995 and the recovery of drawback can be effected within a reasonable period only. HELD THAT - The Government has examined the matter and found force in the argument of the applicant that the All Industry Rates of Drawback are fixed by the Government after considering the average incidence of duty and taxes on the inputs and services used in the exported products. Thus these are general rates and drawback at All Industry Rates is payable in respect of the export goods to the exporter without examining the duty paid character of each input. The applicability of these rates to different commodities is certainly subject to Drawback Rules 1995 and Notification Nos. 68/2007-Cus. (N.T.) dated 16-7-2007 103/2008-Cus. (N.T.) dated 29-8-2008 84/2010-Cus. (N.T.) dated 17-9-2010 and 68/2011-Cus. (N.T.) dated 22-9-2011. One of such conditions stipulated in all the above said notifications as per which the All Industry Rate shall not be applicable to a commodity was that the exported goods should not have been manufactured or exported by availing the rebate of duty on material used in the manufacture of such commodity or manufactured or exported in terms of sub-rule (2) of Rule 19 of Central Excise Rules 2002. But no such case has been made out in the Order-in-Original and Order-in-Appeal that the applicant had manufactured and exported the goods by availing the rebate of duty on inputs or by availing the facility provided under sub-rule (2) of Rule 19 of Central Excise Rules 2002. Therefore there is no basis for denying the drawback of duty at All Industries Rate in this case or restricting it to few inputs only for the reason that the packaging materials were procured without payment of duty from unregistered units. The Government agrees with the contention of the applicant that the Commissioner (Appeals) has passed the Order-in-Appeal erroneously by denying the drawback of duty on packaging materials on the ground that these were procured without payment of Central Excise duty from unregistered unit against form H issued by the State VAT. The error of denying the drawback in the above situation seems to have been realised by the respondent itself subsequently inasmuch as no such action was initiated against any of such exporter after show cause notice was issued in this case as per the RTI reply of the Deputy Commissioner ICD Agra itself. Revision application allowed.

Summary

Issues:
- Denial of duty drawback on packaging materials procured from unregistered units against form 'H'
- Interpretation of All Industry Rates of Drawback
- Authority to check duty paid character of inputs before granting drawback

Analysis:
1. The applicant filed a Revision Application against the Commissioner (Appeals)'s Order partially allowing their appeal against the Assistant Commissioner's decision to confirm the recovery of total Duty Drawback. The Assistant Commissioner had upheld the recovery on the grounds of procuring packaging materials duty-free against form 'H'. However, the Commissioner (Appeals) restricted the recovery related to packaging materials only and allowed drawback on other inputs.

2. The revision application argued that All Industry Rates are average rates, and the department cannot verify the duty paid character of each input. The applicant contended that the inputs were not procured under Rule 19(2) of Central Excise Rules, 2002, and were obtained from unregistered units against form 'H'. The applicant also highlighted the lack of prescribed methods for reducing drawback rates and emphasized that recovery should be within a reasonable period.

3. Despite the opportunity for a personal hearing, the applicant did not avail it and submitted written arguments instead. The applicant referenced an RTI reply admitting that All Industry Rates of Drawback were not reduced for exporters of footwear. The absence of the department during the personal hearing implied their disinterest in availing it.

4. The Government analyzed the matter and acknowledged that All Industry Rates of Drawback are fixed by considering the average duty and taxes on inputs used in exported products. The Government emphasized that drawback at All Industry Rates is payable without examining the duty paid character of each input. The Government found no basis for denying or restricting the drawback in this case, as the applicant did not manufacture or export goods by availing duty rebates or under Rule 19(2) of Central Excise Rules, 2002. The Commissioner (Appeals) erroneously equated procurement against form 'H' with Rule 19(2), leading to an incorrect denial of drawback.

5. The Government clarified that field officers are not empowered to check the duty paid character of each input before granting drawback at All Industry Rates. Such examination would lead to chaos and defeat the purpose of fixed rates. The Government agreed with the applicant's contention that the denial of drawback on packaging materials procured against form 'H' was erroneous. Consequently, the Order-in-Appeal was set aside, and the applicant's revision application was allowed.