SETTLEMENT COMMISSION IS HAVING JURISDICTION TO DEAL WITH THE QUESTION RELATING TO THE RECOVERY OF DRAW BACK ERRONEOUSLY PAID BY THE REVENUE

[DR.MARIAPPAN GOVINDARAJAN]

    Chapter XIVA of Customs Act, 1962 deals with the settlement of cases before Settlement Commission.  Sec. 127B(1) of the Customs Act provides that any importer, exporter or any other person may, in respect of a case, relating to him make an application, before adjudication to the Settlement Commissioner to have the case settled, in such form and in such manner as may be specified by rules, and containing a full and true disclosure of his duty liability which has not been disclosed before the proper officer, the manner in which such liability has been incurred, the additional amount of customs duty accepted to be payable by him and such other particulars as may be specified by rules including the particulars of such dutiable goods in respect of which he admits short levy on account of misclassification, under valuation or inapplicability of exemption notification but excluding the goods not included in the entry made under this Act and such application shall be disposed of in the manner prescribed.

    Sec. 127A(b) of the Customs Act, 1962 defines the term 'case' as any proceeding under this Act or any other Act for the levy, assessment and collection of customs duty, pending before an adjudicating authority on the date on which the application under Sec. 127B(1) is made.   When any proceeding is referred back in any appeal or revision, as the case may be, by any court, Appellate Tribunal or any other authority, to the adjudicating authority for a fresh adjudication or decision, as the case may be, then such proceeding shall not be deemed to be a proceeding pending within the meaning of this clause.

    The issue taken up for discussion in this article is whether the settlement commission is having jurisdiction to deal with the question relating to the recovery of draw back erroneously paid by the revenue with reference to case law in 'Union of India V. Customs & Central Excise Settlement Commission, Mumbai' - 2010 (258)ELT 476 (Bom.).

    In the above said case the proceedings were initiated against respondents No. 2 to 7 and others by the Revenue by issuing show cause notice, inter alia, for recovery of duty of drawback amounting to Rs.2,07,71,436/- with interest, said to have been obtained fraudulently by respondent No.2 on the projected claim of Rectified Spirit having minimum strength of 94.68% v/v at 15.6 degree  C under two shipping bills during the months of September, 2000 and February 2001 respectively when, factually, the goods exported were 'solvent mixture' which do not qualify for duty drawback under S.S. No.22.01 of the Drawback Table forming part of the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995.

    The respondent Nos 2 to 4 instead of responding to the show cause notice filed an application before the Settlement Commission for settlement of the case.   The respondents instead of accepting their liability in terms of Sec. 127-B (1) of the Act, admitted additional duty liability of Rs.2,07,71,436/-, the amount of drawback received with a view to put an end to the litigation by a piece of mind.

    The Revenue objected to the jurisdiction of the Settlement Commission to entertain and consider the case relating to the recovery of duty drawback erroneously granted.   Such type of cases do not fall within the definition of 'case'.  The Special Bench of the Settlement Commission passed an order by majority of four against one ruling that Settlement Commission has jurisdiction to decide such case.  It settled the case at duty liability of Rs.2,07,71,436/- with interest thereon at the rate of 10% per annum for the time lag.   Immunity from fine, penalty and prosecution also granted to all the applicants under the said order.

 

    The Revenue took the matter before the High Court in which it contended:

The respondent Nos. 2 to 4 were not entitled to drawback since the claim had not exported goods under the Draw Back Schedule;

The recovery of duty drawback under Drawback Rules does not involve levy, assessment and collection of customs duty as envisaged under Section 127A (b) of the Act, consequently, the said proceedings are not covered within the meaning of 'case' stipulated under Section 127 A(b) of the Act;

The Settlement Commission failed to appreciate that there was no assessment of duty involved, on the shipping bills presented by respondent No.2 for export of goods under claim of duty draw back, as the goods exported were not subject to any export duty, but were tendered under only a claim of drawback, which required verification of certain parameters to sanction the drawback amount;

The erroneous interpretation the Commission conferred jurisdiction unto itself to settle cases relating to recovery of duty drawback erroneously paid, on the premises that assessment involved quantification of duty and went on to further holding that without assessment erroneous payment of duty drawback cannot be detected;

The Commission erroneously held that recovery of drawback is nothing but recovery of duty element along with declarations made in the Shipping bill and, therefore, covered within the meaning of Section 127-A(b) of the Act;

The Commission has failed to appreciate that verification of amount of drawback is carried out with reference to parameters under which said drawback is permissible i.e., whether the goods are of the description/specification mentioned in the Drawback Table and not with reference to duty initially assessed at the time of import or manufacture of goods, on which drawback is considered;

Assuming but not admitting that the Commission had jurisdiction to entertain the application for settlement of cases relating to recovery of duty drawback erroneously paid, it ought not to have entertained the application since the respondent No.2 had neither admitted any duty liability, nor the manner in which such liability was incurred as required in terms of Sec. 127-B(1) of the Act in respect of subject goods, as such the primary requirement contemplated under Section 127-B(1) for an application to be considered by the Commission was not met;

The impugned order is bad and illegal and is liable to quashed and set aside.

The respondents submitted the following:

Ø      The word 'duty' appearing in the definition of 'case' is required to be given a wide meaning in the background of the claim of the Act;

Ø      While the Act provides for levy of customs duty, it also provides for a refund thereof;

Ø      The provisions relating to refund of duty contained in Section 27 of the Act also extend to drawback.   This is because drawback is the return of the customs duty, in whole or in part, paid on the goods used in the manufacture of export goods and hat is why it is covered by the same provision for refund of duty;

Ø      Since the duty drawback is directly related to duty, all cases which deal with drawback also can be settled before the Settlement Commission;

Ø      The exclusion of jurisdiction must not be inferred easily.  This more so when the Parliament has consciously left certain matters out of the scope of the Settlement Commission;

Ø      Drawback has not been excluded from the purview of Section 127-B of the Act and therefore, the Settlement Commission can entertain applications relating to drawback where additional duty liability is admitted.

The High Court observed that the Settlement Commission while considering the issue before it relied upon the term 'drawback' as defined in Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995 and the Drawback Rules and  also Sec. 74 of the Act dealing with the imported material used in the manufacture of goods which are exported.   The court relied on the decision of Supreme Court in  Liberty India V. Commissioner of Income Tax' - (2009) 317 ITR 218(SC) in which the Supreme Court observed - "What is duty drawback?  Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower government of India to provide for repayment of customs and excise duty paid by an assessee.   The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class.  The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer.   Sec. 75(2) of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported.   Basically the source of duty drawback receipt lies in Section 75 of the Customs Act and Section 37 of the Central Excise Act.  Analysing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/schemes framed by the Government of India.   In the Circumstances, we hold that profits derived by way of such incentives do not fall within the expression 'profits derived from industrial undertaking' in Section 80-IB.

    The Court held that the analysis made by the Apex Court with respect to the concept of 'duty drawback' one cannot dispute that it is nothing but a remission of duty on account of the statutory provisions  in the Act and the scheme framed by the Government of India.   Under these circumstances the duty drawback or claim for duty drawback is nothing but a claim for refund of duty may be as per the statutory scheme framed by the Government of India or in exercise of statutory powers under the provisions of this Act.

    Thus the Court held that the Settlement Commission had jurisdiction to deal with the question relating to the recovery of drawback erroneously paid by the Revenue.