2017 (5) TMI 130 - HC - Customs

Duty Drawback - validity of deficiency memo - classification of goods exported - deficiency memo has been issued stating that the department does not agree with the classification and self-assessment of the exported goods as made by the petitioner and that the items exported by the petitioner as detailed therein are nothing but part of main products of scaffolding, that is, temporary structure used to support people and material in construction and repair or building and other structure and more appropriately classifiable under Chapter 73084000 - Held that - it may be germane to refer to rule 13 of the rules, which bears the heading Manner and time for claiming drawback on goods exported other than by post . A deficiency memo is required to be issued in case of two eventualities. Firstly, where the claim for drawback is incomplete in any material particulars, and secondly where the drawback claim is not accompanied by the documents specified in sub-rule (2) of rule 13 of the rules. The rule further provides that in case where the above two eventualities are not satisfied, the claim for drawback has to be returned to the claimant together with the deficiency memo and such claim shall be deemed to not having been filed for the purpose of section 75A of the Act, viz., for the purpose of payment of interest. Once the claim for drawback is returned with the deficiency memo, it can only be considered after it is submitted after removal of the deficiency. The deficiency memo is, therefore, not in the nature of a show cause notice, but is in the nature of an information to the party stating the deficiency in the claim for drawback and calling upon it to remove such deficiency and thereafter, submit the claim. In the facts of the present case, on a reading of the contents of the deficiency memo, it is evident that the same does not relate to either of the two eventualities mentioned in sub-rule (3) of rule 13 of the rules - The deficiency memo has been issued on the ground that the Department does not agree to the classification and selfassessment of the exported goods made by the petitioner - From the very nature of the deficiency memo, it is evident that the question of raising a dispute with regard to classification and self-assessment would not arise, inasmuch as, a deficiency memo can only be issued pointing out the deficiencies specified in sub-rule (3) of rule 13 of the rules. Evidently therefore, the deficiency memo travels much beyond the scope of sub-rule (3) of rule 13 of the rules. If the claim for drawback is deficient, it is required to be returned together with the deficiency memo calling upon the party to remove such deficiency. The approach adopted by the respondents in the present case, therefore, is clearly not in consonance with the provisions of rule 13 of the rules. The impugned deficiency memo being contrary to the provisions of sub-rule (3) of rule 13 of the rules, cannot be sustained. Petition allowed - decided in favor of petitioner.

Issues Involved:

1. Legality of the deficiency memo issued by the Deputy Commissioner of Customs.
2. Delay in processing and payment of duty drawback claims.
3. Classification and self-assessment of exported goods.
4. Entitlement to interest on delayed duty drawback under Section 75A of the Customs Act.

Issue-wise Detailed Analysis:

1. Legality of the Deficiency Memo Issued by the Deputy Commissioner of Customs:

The petitioner challenged the deficiency memo issued by the Deputy Commissioner of Customs, arguing that it was beyond the scope of the law. According to the petitioner, once the goods have been cleared under section 51 of the Customs Act, the classification made by the exporter and accepted by the Proper Officer cannot be reopened except as provided under the law. The court examined Rule 13(3) of the Customs, Central Excise Duties, and Service Tax Drawback Rules, 1995, which allows a deficiency memo to be issued only if the claim is incomplete in material particulars or if the necessary documents are not furnished. The deficiency memo in this case was issued on the grounds of disagreement with the classification and self-assessment of the exported goods, which is not a valid ground under Rule 13(3). Therefore, the court found the deficiency memo to be beyond the scope of the rule and quashed it.

2. Delay in Processing and Payment of Duty Drawback Claims:

The petitioner argued that the drawback claims were not processed within the statutory period of one month as mandated by Section 75A of the Customs Act. Despite the statutory requirement, the claims were delayed without any valid inquiry or sampling of the exported goods. The court noted that the deficiency memo was issued much later than the prescribed 10 days under Rule 13(3), and the delay was unjustified. The court directed the respondents to process the drawback claims forthwith and release the amounts due.

3. Classification and Self-Assessment of Exported Goods:

The petitioner contended that the classification of goods had been accepted by the Proper Officer under Section 51 of the Act, and the issuance of the deficiency memo to change the classification was impermissible. The respondents argued that the classification was prima facie incorrect and that similar cases had been found to be misclassified. However, the court noted that the deficiency memo should only address incomplete claims or missing documents, not classification disputes. Therefore, the court held that the deficiency memo was not a valid instrument for challenging the classification and self-assessment of the goods.

4. Entitlement to Interest on Delayed Duty Drawback under Section 75A of the Customs Act:

The petitioner claimed that interest on delayed drawback payments was mounting, and the respondents' actions were causing financial strain. The court reiterated that Section 75A mandates the payment of interest if the drawback is not paid within one month from the date of the claim. Given the undue delay in processing the claims and the improper issuance of the deficiency memo, the court directed the respondents to release the drawback amounts along with the applicable interest as per Section 75A.

Conclusion:

The court allowed the petition, quashing the deficiency memo dated 30th December 2015, and directed the respondents to process the drawback claims and release the amounts with interest as expeditiously as possible. The court emphasized adherence to the statutory provisions and timelines for processing drawback claims, ensuring that exporters are not unduly burdened by administrative delays.

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