2022 (7) TMI 619 - HC - Customs

Duty Drawback - re-export - non-export of capital goods within six months - whether petitioner was entitled to any drawback on the customs duty that they had paid, under Section 74 of the said Act read with Notification 27/02 read with Notification 19/1965 read with Notification No.27/2008-Cus dated 1st March 2008 amending Notification 27/02? - HELD THAT - Notification 27/02 was a concession that was granted to people like petitioner who had no intention of importing the goods for home consumption but who would bring it on lease with an intention to re-export the goods within a period of six months or within a period of six months to one year - The extent of exemption is so much of the duty of customs as in excess of 15% (incase re-exported within six months) and if beyond six months but under one year then so much of the duty of customs as in excess of 30%. In these cases, there is no importation for home consumption envisaged under Section 74. This is a separate class of importers and the Notification 27/02 has been issued under Section 25(1) of the said Act and not under Section 74. There is a duty exemption as provided in Notification 27/02 for those who import machinery or tools for execution of a contract and re-export the same within the prescribed period. This concession was given because the Central Government was satisfied that it was necessary in the public interest so to do, where the importer has taken the goods on lease for use after importation and at the time of importation makes a declaration that the goods are being imported temporarily for execution of a contract. Such conclusions are not prescribed under Section 74 or notification issued under Section 74(2) - the concession given to such importer was that he need not pay the entire 100% of the customs duty payable under the said Act but would pay only 15% or 30%, as the case may be, They do not have to pay the entire 100% and then claim a drawback of 85% or 70%, as the case may be. Notification 27/02 is issued under Section 25(1) of the said Act and not under Section 74 of the said Act. Further, the conditions prescribed under Notification 27/02 are not prescribed under Notification 19/1965 issued under sub-section (2) of Section 74. Further, we agree with Mr. Bangur that the note in Notification 27/2008 is also clarificatory. The petitioner would have been entitled to a drawback of either 85% or 70% depending on when the goods were re-exported, if they had paid 100% customs duty and not filed declarations under Notification 27/02. Since petitioner had not paid 100% duty availing of Notification 27/02 and had already availed of concession as per Notification 27/02, petitioner is not entitled to any drawback. By paying the concessional rate of customs duty at the time of import, petitioner has already availed of the benefit of drawback and as such the drawback payment made was erroneous. The petition stands dismissed with costs in the sum of Rs.1 lakh. This amount to be paid to respondent no.4 alongwith the outstanding amounts of drawback re-payable.

Issues Involved:
1. Entitlement to drawback under Section 74 of the Customs Act, 1962.
2. Applicability and interpretation of Notification No. 27/02-Cus dated 1st March 2002.
3. Validity of demand notices for recovery of drawback.
4. Legal implications of Notification No. 27/2008-Cus dated 1st March 2008.

Issue-wise Detailed Analysis:

1. Entitlement to Drawback under Section 74 of the Customs Act, 1962:
The core issue revolves around whether the petitioner is entitled to a drawback on the customs duty paid under Section 74 of the Customs Act, 1962. The petitioner, a public limited company engaged in import and export, had imported capital goods for a pipeline project and later re-exported them, claiming a drawback under Section 74(2) of the Customs Act. The department challenged the drawback granted, asserting that the customs duty paid by the petitioner at the time of importation already accounted for the benefit of the drawback, rendering the drawback payment erroneous.

2. Applicability and Interpretation of Notification No. 27/02-Cus dated 1st March 2002:
Notification No. 27/02-Cus allows temporary import of leased machinery, equipment, and tools for execution of contracts with a reduced customs duty if re-exported within six months (extendable up to one year). The petitioner availed the benefit of this notification, paying a reduced duty. The department argued that since the petitioner had already availed the concession under Notification 27/02, they were not entitled to further drawback under Section 74. The court noted that Notification 27/02 was issued under Section 25(1) of the Customs Act, which provides for duty exemptions in public interest, and not under Section 74, which deals with drawback on re-export of duty-paid goods.

3. Validity of Demand Notices for Recovery of Drawback:
The petitioner received demand notices from the department seeking recovery of the drawback granted. The petitioner argued that the department should have appealed against the order granting the drawback instead of issuing demand notices. The court held that the department's action of issuing demand notices was valid, as Rule 7 of the Drawback Rules provides for repayment of erroneous or excess payment of drawback.

4. Legal Implications of Notification No. 27/2008-Cus dated 1st March 2008:
Notification No. 27/2008-Cus, which amended Notification 27/02, included a clarificatory note stating that goods imported under this concession would not be eligible for drawback under Section 74(2) of the Customs Act. The petitioner contended that this amendment should apply prospectively from 1st March 2008. However, the court agreed with the department's view that the note was clarificatory and did not amend the substantive provisions of the law. The court concluded that the petitioner, having availed the concessional rate of duty under Notification 27/02, was not entitled to any further drawback under Section 74.

Conclusion:
The court dismissed the petition, holding that the petitioner was not entitled to any drawback under Section 74, having already availed the benefit of a reduced duty under Notification 27/02. The court also upheld the validity of the demand notices issued by the department for recovery of the erroneous drawback payments. The petitioner was directed to repay the outstanding amounts along with costs.

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