2019 (3) TMI 2050 - HC - Central Excise

Duty drawback - time limitation - absence of a provision for time limitation in Rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 - HELD THAT - In the instant case, the two shipping bill Nos. 11 and 29, dated 18.07.1986 and 13.02.1987, wherein the sanctioned letter fixing erroneous rate was made on 17.10.1987. The recovery letter came to be issued on 04.04.1989 and adjudication came to be made on 16.10.1989. The withdrawal was shown on 04.05.1990 and the show cause notice was issued on 28.05.1990. The only explanation given in the impugned order in the revision is that since Rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 does not prescribe a time limitation, the ground of limitation cannot be relied upon. Section 28 of the Act relates to recovery of duties, short levies duties or erroneously refunded within its prescribed time limitation of six months from the relevant date, from the date of notice. Though the section relates to recovery of duties, an analogy can be drawn from the said provisions for identifying what a reasonable time could be in a case of this nature, since Rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 has been framed by invoking the powers conferred under Customs Act. By drawing an analogy from Section 28 of the Customs Act and applying it to the facts of the present case it is seen that the notice, being one made after a period of six months, cannot be held to be done within a reasonable time. This Court is of the view that the impugned orders passed in these Writ Petitions are liable to be rejected on the ground of delay - Petition allowed.

Summary

Issues Involved:
1. Legality of the recovery of drawback amount after a significant delay.
2. Whether the principle of "reasonable time" should be applied to Rule 16 of the Customs, Central Excise Duties, and Service Tax Drawback Rules, 1995.
3. Violation of principles of natural justice due to the absence of a show cause notice or enquiry before the withdrawal of the drawback fixation letter.

Issue-wise Detailed Analysis:

1. Legality of the recovery of drawback amount after a significant delay:
The petitioner, a registered manufacturer and exporter, claimed a drawback for textile machineries via shipping bills dated 18.07.1986 and 13.02.1987, which was sanctioned and later extended. A show cause notice was issued on 04.04.1989 to recover the drawback amount of Rs. 2,64,390/- under Rule 16 of the Customs and Central Excise Duties Drawback Rules, 1971. The Adjudicating Authority dropped the proceedings on 16.10.1989, but the Commissioner of Appeals reversed this decision on 17.12.1990, stating the FOB value did not exceed Rs. 14 lakhs as required. The drawback fixation letter was withdrawn on 04.05.1990, and another show cause notice was issued on 28.05.1990. The petitioner argued that the recovery was time-barred as it was not initiated within a reasonable time, citing Section 28 of the Excise Act which suggests a six-month period for such actions. The court agreed, noting that the recovery letter issued after almost three years was not within a reasonable period.

2. Whether the principle of "reasonable time" should be applied to Rule 16 of the Customs, Central Excise Duties, and Service Tax Drawback Rules, 1995:
The court acknowledged that Rule 16 does not prescribe a time limitation for claiming a refund of erroneous excise payments. However, it emphasized that in the absence of a statutory time limit, actions must be completed within a reasonable period. The court referred to the Gujarat High Court's decision in Padmini Exports v. Union of India, which relied on the Supreme Court's ruling in Government of India v. Citedal Fine Pharmaceuticals. It was established that even without a prescribed period, actions under Rule 16 must be taken within a reasonable time to prevent arbitrary delays. The court found that the delay of more than three years in issuing the show cause notice was unreasonable, thus rendering the recovery action invalid.

3. Violation of principles of natural justice due to the absence of a show cause notice or enquiry before the withdrawal of the drawback fixation letter:
The petitioner contended that the suo motu withdrawal of the drawback fixation letter without a show cause notice or enquiry violated the principles of natural justice. The court noted that the withdrawal and subsequent show cause notice were issued without following due process, further supporting the petitioner's claim. The court highlighted that any administrative action affecting rights must adhere to the principles of natural justice, including providing an opportunity to be heard.

Conclusion:
The court concluded that the impugned orders and recovery actions were invalid due to the unreasonable delay and procedural lapses. The writ petitions were allowed, and the impugned orders dated 31.12.2002, 16.01.2003, and the letter dated 04.05.1990 were quashed. No costs were awarded.