2009 (4) TMI 230 - AT - Customs

Commissioner of Customs in impugned order holding that the appellants were not entitled to drawback under the All Industry Drawback Rates as they exported garments made out of fabric processed at a 100% EOU which is declared as warehouse under Section 65 of the Customs Act - as per General Note 2 of the Drawback Notification No. 31/99-Cus., All Industry Drawback Rates do not apply to products manufactured partly in such warehouse - It is not disputed that only the fabric used for making knitted garments was processed in a 100% EOU. In other words, it is the intermediate material and not the export item which was manufactured in a 100% EOU so duty drawback cannot be denied to appellant

Summary

Issues:
- Entitlement to drawback of duty under All Industry Drawback Rates for exported garments made from fabric processed at a 100% EOU.
- Interpretation of General Note 2 of the Drawback Notification regarding products manufactured partly in a warehouse under Section 65 of the Customs Act.

Analysis:
1. Entitlement to Drawback of Duty:
The Commissioner of Customs confirmed a demand of duty and denied drawback of Rs. 21,17,221 under the All Industry Drawback Rates for garments exported using fabric processed at a 100% EOU. The Commissioner held that products manufactured partly in a warehouse under Section 65 of the Customs Act are not eligible for drawback benefits as per General Note 2 of the Drawback Notification. A penalty of Rs. 2 lakhs was also imposed on the appellants under Section 114(iii) of the Customs Act.

2. Interpretation of General Note 2:
The General Note 2 of the drawback notification specifies that drawback rates do not apply to products manufactured partly or wholly in a warehouse under Section 65 of the Customs Act. The appellants argued that only the fabric used for making knitted garments was processed in the 100% EOU, not the export item itself. The Tribunal noted that the drawback rates cover warehouses under Section 65 separately from units licensed as 100% EOUs. The export commodity, knitted garments, was not manufactured in a warehouse, and hence, the denial of drawback benefits was not justified. The Tribunal set aside the impugned order and allowed the appeal.

3. Conclusion:
The Tribunal's decision clarified that the export commodity, knitted garments, was not manufactured in a warehouse under Section 65 of the Customs Act, as it was only the intermediate material processed in the 100% EOU. Therefore, the appellants were entitled to the drawback benefits under the All Industry Drawback Rates. The Tribunal's interpretation of General Note 2 supported this view, leading to the setting aside of the Commissioner's order and allowing the appeal.