2022 (7) TMI 107 - HC - Customs

Recovery of amount paid as drawback to petitioner on the ground that the claims were sanctioned erroneously - Note 2(b) of General Notes to All Industry Rates of Drawback - The fact that the shipping bills referred to advance licences and that was an error, is not disputed. - HELD THAT - One fact very clearly emerges from the documents annexed to the petition and the affidavits is that the advance licences of petitioner were invalidated for direct import of relevant HDPE/P Granules / Chips and petitioner was allowed to procure the same indigenously from Reliance Industries Ltd, Mumbai. The fact that the granules used in the ropes exported had been procured from Reliance Industries Ltd by paying excise duty also is not disputed. The fact that the shipping bills referred to advance licences and that was an error, is also not disputed. It is indisputable that petitioner did not use any HDPE granules procured under the advance licences by direct import but procured the granules from indigenous source, i.e., Reliance Industries Ltd. If that is the factual position, petitioner should be entitled for the drawback. Mr. Jetly in fairness submitted that locally procuring the products on which excise duty is paid and those products are used in manufacture for export goods, the excise duty paid can be claimed as drawback. The factual position notwithstanding the error in the shipping bills, which an alert petitioner could have amended on time, petitioner will be entitled and should be granted the drawback as it was rightly granted earlier by the DGFT - this observation of respondent no.2 is erroneous and it is satisfying that it is this erroneous presumption, that made respondent no.2 arrive at the conclusions that he arrived at. The show cause notice impugned in the petition is also discharged - any amount deposited with the authorities shall be refunded alongwith applicable interest if any, within 4 weeks of petitioner making the application for refund - application disposed off.

Summary

Issues:
Challenge to legality and validity of an order dated 18th May 2011 passed by respondent no.2 under Article 226 of the Constitution of India.
Claim for drawback amount sanctioned erroneously.
Validity of the show cause notice seeking to recover the drawback amount.
Confirmation of orders passed by lower authorities regarding the drawback amount.
Factual error in export documents and its impact on the claim for drawback.
Validity of the observation made by respondent no.2 regarding the cancellation of advance licenses.

Analysis:

1. The petitioner challenged the legality and validity of an order dated 18th May 2011, which was passed by respondent no.2 under Article 226 of the Constitution of India. The petitioner was engaged in the manufacture of Twine/Ropes made of High Density Polyethylene (HDPE) and obtained advance licenses for importing HDPE granules without payment of import duty. However, the petitioner procured HDPE from a domestic supplier, Reliance Industries Ltd, instead of importing it against the licenses, leading to a dispute regarding the entitlement to claim drawback.

2. The petitioner claimed drawback at the rate of Rs.4.80 per kg under the All Industry Drawback Schedule. Subsequently, a show cause notice was issued seeking to recover the amount paid as drawback, citing that the claims were sanctioned erroneously as per Note 2(b) of General Notes to All Industry Rates of Drawback. The petitioner contended that the exports were not made in discharge of export obligation under advance licenses, as the licenses for direct import had been invalidated, and the HDPE granules were procured from a domestic source.

3. The lower authorities confirmed the demand for recovery of the drawback amount, leading to an appeal by the petitioner. The Commissioner of Customs (Appeals) and respondent no.2 upheld the findings of the lower authorities. The petitioner argued that despite a factual error in the export documents, where advance licenses were erroneously indicated, the granules used in the exported ropes were procured domestically and used in manufacturing the exported products, justifying the claim for drawback.

4. The High Court observed that the advance licenses were indeed invalidated for direct import of granules but were kept valid for procuring the same domestically from Reliance Industries Ltd. The court noted that the petitioner should be entitled to the drawback as the granules used in the exported products were procured domestically, even though there was a factual error in the shipping documents. The court emphasized that the erroneous presumption made by respondent no.2 led to the incorrect conclusions in the case.

5. Consequently, the High Court quashed and set aside the impugned order dated 18th May 2011 and discharged the show cause notice seeking recovery of the drawback amount. The court directed the refund of any deposited amount with applicable interest within four weeks of the petitioner's refund application, making the rule absolute with no order as to costs. All parties were instructed to act on the authenticated copy of the order.