2005 (3) TMI 309 - AT - Customs

Summary

Issues:
- Eligibility for Drawback on 21 shipping bills
- Imposition of penalty under Section 114(iii) of the Customs Act, 1962

Analysis:
1. Eligibility for Drawback on 21 shipping bills:
The case involved exporters of Heat Resistant Latex Rubber Thread challenging the denial of Drawback claim by the Commissioner of Customs, Cochin for 21 shipping bills totaling Rs. 77,97,236/-. The exporters had claimed Duty Drawback based on the All Industry Rate, which was fixed considering the average duty incidence on the product. The exporters argued that the Drawback should be paid irrespective of the duty incidence on inputs used in manufacturing. However, it was found that 97% of the export product was constituted by Natural Rubber, which had not suffered any duty as it was not excisable. The All Industry Rate was fixed based on the duty incidence on imported rubber, even though the exporters had switched to procuring rubber from indigenous sources. The Tribunal held that since the export product was manufactured using inputs that had not suffered any duty, no Drawback could be granted as per Rule 3(1)(ii) of the Drawback Rules, 1995.

2. Imposition of penalty under Section 114(iii) of the Customs Act, 1962:
In addition to denying the Drawback claim, a penalty of Rs. 5 lakhs was imposed on the exporters under Section 114(iii) of the Customs Act, 1962. The penalty was justified based on the misrepresentation made by the exporters to the Government regarding the use of imported rubber. The Tribunal referred to a Ministry's Circular stating that if there is evidence of fraud, proper investigation can be initiated. The penalty was upheld considering the misrepresentation and the ineligibility for Drawback due to the non-payment of duty on the inputs used in manufacturing the export product. The Tribunal also cited a precedent from the Kerala High Court emphasizing that no Drawback is admissible if the exported goods were manufactured using materials on which no duty had been paid.

In conclusion, the Tribunal dismissed the appeal, upholding the denial of Drawback claim and the imposition of the penalty under Section 114(iii) of the Customs Act, 1962, due to the non-payment of duty on the inputs used in manufacturing the export product and the misrepresentation made by the exporters.