2013 (3) TMI 480 - HC - Customs

Recovery of duty drawback - Period of limitation - Petition has been against the order passed by the Government of India allowing the revision preferred by the Revenue and holding that the drawback paid erroneously to the petitioners is liable to be recovered under Rule 16 of the Drawback Rules, made under Section 75 of the Act. Examining the facts of the present cases in the light of the aforesaid legal position, in all these cases, drawback had been paid to the petitioners between December 1995 and August 1996. Thereafter, despite a clarification having been issued as regards the interpretation of condition (c) of the Note under SS No. 5404(1)(i) of the Drawback Schedule, no action was taken by the concerned authorities at the relevant time. It is only after a period of more than three years that show cause notices came to be issued to the petitioners seeking to recover the differential amount of drawback erroneously paid to them. - As held by the Supreme Court in the case of Collector of Central Excise, Jaipur v. M/s. Raghuvar (India) Ltd. (supra) 2000 (5) TMI 40 - SUPREME COURT OF INDIA , where no period of limitation is prescribed, the courts may always hold that any such exercise of powers which has the effect of disturbing the rights of citizen should be exercised within a reasonable period of time. Held that - In the light of the aforesaid discussion, in the opinion of this court, though Rule 16 of the Drawback Rules does not provide for any period of limitation, a reasonable period has to be read into the said rule. As observed hereinabove, in the facts of the present case, the show cause notices which have been issued after a period of more than three years from the date when the drawback came to be paid to the petitioners, cannot by any stretch of imagination be said to have been issued within a reasonable period of time. Under the circumstances, the show cause notices have to be held to be bad on the ground of being time barred. Once the show cause notices are held to be invalid, the very substratum of all the orders passed pursuant thereto, including the impugned orders would fall, rendering the same unsustainable.For the foregoing reasons, the petitions succeed and are, accordingly, allowed.

Summary

Issues Involved:
1. Legality of the recovery of erroneously paid duty drawback.
2. Applicability of a reasonable period for issuing demand notices under Rule 16 of the Drawback Rules.

Issue-wise Detailed Analysis:

1. Legality of the Recovery of Erroneously Paid Duty Drawback:

In each of the petitions, the petitioners have challenged the order passed by the Government of India (hereinafter referred to as "the revisional authority") allowing the revision preferred by the Revenue and holding that the drawback paid erroneously to the petitioners is liable to be recovered.

The petitioners are Government recognized export houses engaged in the export of fabrics made from 100% polyester filament yarn. Under the Drawback Rules framed by the Government in exercise of powers under Section 75 of the Customs Act, 1962, and Section 37 of the Central Excise Act, 1944, the Central Government is given power to fix rates at which drawback would be allowed to exporters of specified goods. The Schedule to the Drawback Rules provides for classification of goods specified for allowing drawback. Sub-Serial No. 54.04 of the Drawback Schedule covered goods of the description "all fabrics including sarees, dhotis, and odhanies made of man-made staple fibers and filament yarn".

The petitioners claimed drawback at the rate of 17% FOB value because they did not satisfy condition (b) as contained in the original Schedule. Initially, the authorities interpreted the Schedule to mean that insofar as the goods falling under condition (c) are concerned, no maximum ceiling had been imposed. Accordingly, the petitioners had been paid drawback at the rate of 17% without any maximum ceiling.

Subsequently, by a letter dated 20th September 1996, the Commissioner (Drawback) clarified that the rate mentioned against heading S.S. No. 5404 (1)(i) would read as "17% (seventeen percent only) of the FOB value subject to a maximum of Rs. 62 (Rupees sixty-two only) per kg. of filament yarn content".

After a period of more than three years since the disbursement of the Drawback, separate show cause notices came to be issued in February 2000 to each of the petitioners proposing to recover from them the differential amount of drawback erroneously paid to them under Section 142 of the Act read with Rule 16 of the Drawback Rules, on the ground that the drawback should have been paid at the rate of 17% by taking into account the maximum limit of Rs. 62 per kg.

Each of the petitioners carried the matter in appeal before the Commissioner (Appeals), who by a common order dated 29-6-2000, allowed the appeals. The Commissioner (Appeals) held that in case of export already made, there was no intention on the part of the Government to apply the maximum ceiling limit. On the question of limitation, it was held that the show cause notice had been issued after two to three years of sanctioning of drawback claims of the petitioners, without alleging suppression of facts, fraud, or willful misstatement and therefore, the show cause notices are time-barred.

Against the common order passed by the Commissioner (Appeals), revenue went in revision before the Government of India. The revisional authority held that the Drawback Rules are a self-contained set of rules made under Section 75 of the Customs Act and are specifically provided to deal with various aspects of drawback. The revisional authority was of the opinion that there is no time limit for issuance of demand notice for recovery of drawback paid erroneously or in excess under Rule 16 of the Drawback Rules.

Being aggrieved by the order passed by the revisional authority, the petitioners carried the matter before this Court by way of writ petitions. The said petitions came to be disposed of by a common order dated 31st January 2003, with a view to enable the petitioners to move review applications before the revisional authority. Pursuant to the aforesaid order, the petitioners filed review applications before the revisional authority, who by an order dated 31-12-2003 rejected the review applications, giving rise to the present petitions wherein both the order dated 28-6-2002 as well as the order dated 31-12-2003 passed by the revisional authority are subject matter of challenge.

2. Applicability of a Reasonable Period for Issuing Demand Notices under Rule 16 of the Drawback Rules:

The sole question that arises for consideration in this group of petitions is as to whether the concept of reasonable period is required to be read into Rule 16 of the Drawback Rules which does not prescribe any period of limitation for recovery of drawback erroneously paid.

Rule 16 of the Drawback Rules provides that where an amount of drawback and interest, if any, has been paid erroneously or the amount so paid is in excess of what the claimant is entitled to, the claimant shall, on demand by a proper officer of Customs, repay the amount so paid erroneously or in excess, as the case may be, and where the claimant fails to repay the amount it shall be recovered in the manner laid down in sub-section (1) of Section 142 of the Customs Act, 1962. Thus, apparently Rule 16 of the Rules does not provide for any time limit for making recovery of excess drawback paid erroneously.

In Government of India v. Citedal Fine Pharmaceuticals, Madras (supra), the Supreme Court has, in the context of Rule 12 of the Medicinal and Toilet Preparations (Excise Duties) Rules, 1956, which did not provide for any period of limitation, held that in the absence of any period of limitation it is settled that every authority is to exercise the power within a reasonable period. What would be a reasonable period would depend upon the facts of each case.

In Collector of Central Excise, Jaipur v. M/s. Raghuvar (India) Ltd. (supra), the Supreme Court held that any law or stipulation prescribing a period of limitation to do or not to do a thing after the expiry of the period so stipulated has the consequence of creation and destruction of rights and, therefore, must be specifically enacted and prescribed therefor. It is not for the courts to import any specific period of limitation by implication, where there is really none, though courts may always hold when any such exercise of power had the effect of disturbing rights of a citizen that it should be exercised within a reasonable period.

In Torrent Laboratories Pvt. Ltd. v. Union of India (supra), a Division Bench of this Court in the context of Rule 57-I of the Central Excise Rules, 1944 held that in absence of any provision with regard to specific period of limitation, reasonable period of limitation has to be read into the rule.

Thus, it is a settled legal proposition that where a statutory provision does not prescribe any period of limitation for exercise of power thereunder, a reasonable period has to be read therein. As to what is a reasonable period would depend upon the facts of each case.

Examining the facts of the present cases in the light of the aforesaid legal position, in all these cases, drawback had been paid to the petitioners between December 1995 and August 1996. Thereafter, despite a clarification having been issued as regards the interpretation of condition (c) of the Note under SS No. 5404(1)(i) of the Drawback Schedule, no action was taken by the concerned authorities at the relevant time. It is only after a period of more than three years that show cause notices came to be issued to the petitioners seeking to recover the differential amount of drawback erroneously paid to them.

Judging the period of delay from the armchair of a reasonable man, under no circumstances can the period of more than three years be termed to be a reasonable period for recovery of the amount erroneously paid. As held by the Supreme Court in the case of Collector of Central Excise, Jaipur v. M/s. Raghuvar (India) Ltd. (supra), where no period of limitation is prescribed, the courts may always hold that any such exercise of powers which has the effect of disturbing the rights of citizen should be exercised within a reasonable period of time.

In the present case, the drawback had been paid more than three years prior to the issuance of the show cause notices, and despite the fact that clarification in respect of condition (c) of the Note under SS No. 5404(1)(i) of the Schedule had been issued way back in the year 1996, no efforts were made to recover the drawback paid to the petitioners at the relevant time. Thus, the petitioners were entitled to form a belief that the matter has attained finality and arrange their finances accordingly. Now, when after a period of more than three years has elapsed, if the respondents seek to recover the amount of drawback paid, it cannot be gainsaid that such exercise of powers would have the effect of disturbing their rights. Under the circumstances, reading in the concept of reasonable period in Rule 16 of the Rules, this court is of the view that the show cause notices in question were clearly time-barred.

Insofar as the decision of this court in the case of Dadri Inorganics Pvt. Ltd. v. Commissioner of Customs (supra) on which reliance has been placed by the learned counsel for the respondents is concerned, a perusal of the said decision indicates that the said case fell within the ambit of willful misstatement or suppression of fact as envisaged under the proviso to Section 28 of the Customs Act. It is, therefore, in the light of the peculiar facts of the said case that the court had held that the contention that the extended period of limitation could not be invoked was misconceived. The decision cannot be said to be laying down any absolute proposition of law to the effect that since Rule 16 of the Drawback Rules does not provide for any limitation for recovery of amount of drawback erroneously paid, such powers can be exercised at any point of time, even beyond a reasonable period.

As regards the submission advanced by the learned counsel for the respondent that since in the review application, the petitioners had not raised the contention as regards limitation, the petitioners are now prohibited from raising the same in these petitions, it may be noted that in the earlier order dated 28th June 2002, passed by the Government of India, the issue on merits, namely, applicability or otherwise of the maximum ceiling to the goods falling under condition (c) of the Note under SS No. 5404(1)(i) of the Schedule had not been decided inasmuch as in para 12 of the said order, the revisional authority observed that the issues were already decided by the Government in the interim order. The sole issue that was decided by the revisional authority in the said order was on the question of time limit for recovery of drawback. When the petitioners challenged the said decision before this court, the petitions were withdrawn with a view to file review applications before the revisional authority on the merits of the applicability of the maximum ceiling of Rs. 62/- in cases falling under condition (c) of the Note under SS No. 5404(1)(i) of the Drawback Schedule, on the ground that the revisional authority had not considered the said aspect and had laid emphasis on the limitation aspect of the matter. Thus, it is apparent that since in the earlier order, the revisional authority had considered the aspect of limitation only, review applications came to be filed before the revisional authority inviting a decision on merits as regards the applicability of the maximum ceiling to the cases of the petitioners. Viewed in the aforesaid context, the contention that as the question of limitation had not been raised before the revisional authority in the review applications, the petitioners are debarred from raising such contention before this court in these petitions deserves to be stated only to be rejected.

In the light of the aforesaid discussion, in the opinion of this court, though Rule 16 of the Drawback Rules does not provide for any period of limitation, a reasonable period has to be read into the said rule. As observed hereinabove, in the facts of the present case, the show cause notices which have been issued after a period of more than three years from the date when the drawback came to be paid to the petitioners, cannot by any stretch of imagination be said to have been issued within a reasonable period of time. Under the circumstances, the show cause notices have to be held to be bad on the ground of being time barred. Once the show cause notices are held to be invalid, the very substratum of all the orders passed pursuant thereto, including the impugned orders would fall, rendering the same unsustainable.

For the foregoing reasons, the petitions succeed and are, accordingly, allowed. The impugned orders dated 28th June 2002 and 31st December 2003 passed by the Government of India are hereby quashed and set aside. Rule is made absolute accordingly in each of the petitions with no order as to costs.