2014 (3) TMI 95 - HC - Customs

Duty drawback - verification of identity between import goods and export goods - Import of sewing needles for the purpose of re-export - petitioner contends that the phraseology of Section 74 admits of only one interpretation and addresses it with the language adopted in Section 75. It is argued that Section 75 allows drawback in respect of goods so long as they are identifiable in all material particulars with the imported goods. - Held that - In Phoenix (2010 (9) TMI 281 - BOMBAY HIGH COURT), interestingly, the view of the Central Government, (which cannot, of course, be treated as a precedent) itself appears to have been that if the so-called process is a mere change of packaging, and fairly disclosed by the assessee/re-exporter, Section 74 would apply and not Section 75. This interpretation of the Central Government may be seen in Torrent (1999 (11) TMI 95 - GOVERNMENT OF INDIA). What the petitioner appears to have done is a matter which cannot be disputed by the respondents since both at the stage of importation and reexport, the goods were verified i.e. the needles were subject to re-packaging and re-exported. As to the applicability of the ABC (1991 (8) TMI 107 - HIGH COURT OF DELHI AT NEW DELHI), there cannot be any dispute since re-packing cannot, by any stretch of imagination, be called an operation or process on the goods. The quantity and identity of the goods remained unchanged. In these circumstances, we are of the opinion that the view of the Central Government cannot be sustained and is set-aside. - Decided in favor of assessee.

Summary

Issues Involved:
1. Applicability of Section 74 vs. Section 75 of the Customs Act for duty drawback.
2. Determination of whether repackaging constitutes a process or operation under Section 75.
3. Validity of the Central Government's order reversing the Commissioner (Appeals) decision.

Issue-wise Detailed Analysis:

1. Applicability of Section 74 vs. Section 75 of the Customs Act for Duty Drawback:
The petitioner imported sewing needles for re-export and claimed a duty drawback under Section 74 of the Customs Act, which allows for a 98% duty repayment on re-exported goods if they are identifiable as the same goods imported. The Commissioner (Appeals) initially supported this claim, stating that Section 74 does not require the goods to be re-exported in the exact same state but only requires their identity to be established. The Central Government, however, reversed this decision, arguing that the repackaging of the needles constituted an operation under Section 75, which pertains to goods that have undergone manufacturing, processing, or any operation in India.

2. Determination of Whether Repackaging Constitutes a Process or Operation Under Section 75:
The Central Government's order stated that repackaging the needles from grey to orange dispensers fell under the category of "carrying out any operation" as described in Section 75, thus disqualifying the petitioner from claiming a drawback under Section 74. The petitioner argued that repackaging does not alter the identity of the goods and should not be considered an operation or process under Section 75. Previous judgments, including ABC India Ltd. v. UOI and Commissioner of Customs Drawback Recovery Cell v. Phoenix Cement Limited, supported the petitioner's view that Section 74 applies to goods re-exported without significant alteration, and mere repackaging does not constitute a process or operation.

3. Validity of the Central Government's Order Reversing the Commissioner (Appeals) Decision:
The High Court examined the Central Government's interpretation and found it unsustainable. The Court emphasized that the identity and quantity of the goods remained unchanged and that repackaging alone does not qualify as an operation or process under Section 75. The Court referred to the ABC India Ltd. case, which distinguished between Sections 74 and 75, noting that Section 74 applies to identifiable re-exported goods without significant alteration, whereas Section 75 applies to goods that have undergone manufacturing or processing. The Court concluded that the Central Government's order was incorrect and set it aside, allowing the petitioner's claim for duty drawback under Section 74.

Conclusion:
The High Court allowed the writ petition, setting aside the Central Government's order and reinstating the decision of the Commissioner (Appeals). The Court held that repackaging does not constitute a process or operation under Section 75, and the petitioner was entitled to a duty drawback under Section 74, as the identity and quantity of the re-exported goods remained unchanged.