2009 (9) TMI 133 - HC - Customs

Petitioners are challenging the denial of duty draw back on Castor Oil exported by them for the period 22/23-6-1989 to 21st December, 1990 - Government by their communication dated 6th December, 1989 in respect of Castor Oil medicinal and/or Castor Oil First Grade had fixed rate of duty drawback for the period 1-6-1989 to 31-5-1990. By a further communication of 6-11-1990 the communication of 6-12-1989 was amended by substituting the description by Castor Oil medicinal . Thus Castor Oil First Special Grade was excluded. The question that we are called upon to consider is whether it was open to the respondents by subsequent communication of 6-11-1990 to amend the communication on 6-12-1989 for the period 1-6-1989 to 31-5-1990. In our opinion the petitioners had already exported Castor Oil First Grade under the mark Castor Oil First Special Grade as they were doing earlier. It is only that the same oil then was being described as Castor Oil medicinal, pursuant to the test which was earlier being done in terms of Circular of 3rd October, 1964 - . In our opinion, in these circumstances it will be open to the petitioners within sixty days from today to apply to the respondents to exercise their powers under Rule 15 of the Rules. It is for the respondents to consider the same and act according to law at any rate not later than six months from the petitioners so applying. petitioner is at liberty to apply for relaxation of rules and respondent to consider the same

Summary

Issues Involved:

1. Denial of duty drawback on Castor Oil exported between 22/23-6-1989 to 21st December, 1990.
2. Validity of retrospective amendment to drawback rates.
3. Classification of Castor Oil as "Medicinal" or "First Grade" under the Drawback Rules.
4. Application of Rule 15 of the Drawback Rules for relaxation of rules.

Detailed Analysis:

1. Denial of Duty Drawback on Castor Oil Exported Between 22/23-6-1989 to 21st December, 1990:

The petitioners challenged the denial of duty drawback on Castor Oil exported during this period. The Drawback Rules, framed under Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise & Salt Act, entitled exporters to a drawback on goods listed in Schedule II. Initially, the petitioners were allowed to export Castor Oil as "Medicinal" under the test prescribed by a 1964 notification. However, a new test introduced by a circular on 22/23-6-1989 led to the reclassification of their product, impacting their eligibility for duty drawback.

2. Validity of Retrospective Amendment to Drawback Rates:

The Government's communication dated 6th December, 1989 fixed drawback rates for Castor Oil Medicinal and Castor Oil First Grade for the period 1-6-1989 to 31-5-1990. However, a subsequent communication on 6th November, 1990 amended this to include only Castor Oil Medicinal, effectively excluding Castor Oil First Grade. The court held that once rates were fixed, the Government could not retrospectively amend them. This principle was supported by precedents such as *Mazda International (P) Ltd. v. Union of India* and *Gandhi Sons & Ors. v. Union of India*, which established that subordinate legislation could not have retrospective effect unless explicitly empowered.

3. Classification of Castor Oil as "Medicinal" or "First Grade" Under the Drawback Rules:

The core issue was whether the Castor Oil exported by the petitioners met the criteria for "Medicinal" grade under the new test introduced in 1989. The court noted that the same oil was previously classified as "Medicinal" under the 1964 test. The new test led to a reclassification, distinguishing between Castor Oil Medicinal (Cold Drawn) and Castor Oil First Grade. The court acknowledged that the petitioners had been exporting the oil under the earlier classification and that the new classification should not retrospectively affect their drawback entitlement for the period before the new test was introduced.

4. Application of Rule 15 of the Drawback Rules for Relaxation of Rules:

The court suggested that the petitioners could apply under Rule 15 of the Drawback Rules, which allows the Government to relax rules to avoid hardship. The petitioners were given sixty days to apply for such relaxation, and the respondents were directed to consider the application within six months. This provision was seen as a potential remedy for the petitioners, given the change in classification due to the new test.

Conclusion:

The court ruled that the Government could not retrospectively amend the drawback rates fixed by the communication dated 6th December, 1989. The petitioners were entitled to the drawback for the period 1-6-1989 to 31-5-1990 under the original classification. For the subsequent periods, the court directed the petitioners to apply for relaxation under Rule 15, and the respondents were to consider this application within six months. The rule was made partly absolute, with no order as to costs.