2017 (10) TMI 365 - HC - Customs

FSEZ - Duty Drawback - production and export of industrial wear, beach wear, jute bags - the domestic tariff area Unit which had supplied the duty paid raw materials and the three Units within the zone all belong to the same corporate entity, i.e., Kariwala Industries Limited. It is contended by the petitioner that as between different Units of the same corporate entity, there can be no sale or purchase involving receipt or payment of any consideration - The case of the Customs Authorities is that Kariwala Green Bags is a separate legal entity under the law and had submitted documents that they procured raw materials from the Domestic Tariff Area and had submitted claim for drawback - Whether there was violation of Rules 22(2) and 34 of the Rules because according to the Customs Authorities, the duty paid raw materials were brought into one unit in the Zone but finished goods were manufactured and exported from another unit in the Zone? Held that - Kariwala Green Bags is a separate legal entity under the law and had submitted documents that they procured raw materials from the domestic tariff area Unit and had submitted claim for drawback - Manufactured products were exported abroad by Kariwala Industries and not by Kariwala Green Bags. If one looks at the proviso to Rule 34 carefully, one would find that the said proviso itself contemplates of transfer of goods from one unit to another in the same zone without payment of duty. Rule 30(15) also provides for transfer from one unit to the another in the same zone without filing of any Bill of Entry. It is clear from the records that there is no dispute with regard to the writ petitioner having procured duty paid raw materials from the Domestic Tariff Area into FSEZ or used such raw materials in the manufacture of goods within the zone. It is also the admitted fact that the finished goods were exported from the zone and export proceeds were realized in foreign currency. As such, the writ petitioner s claim for drawback ought to have been granted treating payment for goods procured from Domestic Tariff Area in foreign currency from the current account to which the foreign currency export proceeds to Unit-III were credited, considering the same to be substantial compliance of Rule 30(8) of the said Rules. The writ petition is allowed upon setting aside the Revisional order dated 28th May, 2013 with a direction upon the concerned respondent authorities to allow the drawback claim of the writ petitioner as applicable - decided in favor of petitioner.

Summary

Issues Involved:
1. Violation of Rules 22(2) and 34 of the Special Economic Zone Rules, 2006.
2. Violation of Rule 30(8) of the Special Economic Zone Rules, 2006.
3. Misdeclaration of facts under Section 50(2) of the Customs Act, 1962.
4. Procedural compliance regarding payment from a Foreign Currency Account.

Detailed Analysis:

1. Violation of Rules 22(2) and 34 of the Special Economic Zone Rules, 2006:
The Customs Authorities argued that duty-paid raw materials were brought into one unit (Kariwala Green Bags) but finished goods were manufactured and exported from another unit (Kariwala Industries) within the same zone, constituting a violation of Rules 22(2) and 34. However, the Court found that Rule 30(15)(v) and the proviso to Rule 34 permit inter-unit transfer of goods within the same zone without filing a Bill of Entry. The Customs Authorities did not claim that the raw materials were used otherwise than for manufacturing goods for export, which would have warranted a demand for duty under Rule 34. The Court concluded that the petitioner did not violate Rules 22(2) or 34 as the inter-unit transfer was permissible under the rules.

2. Violation of Rule 30(8) of the Special Economic Zone Rules, 2006:
The Customs Authorities contended that payment for duty-paid raw materials in foreign currency was made from a current account instead of a Foreign Currency Account, violating Rule 30(8). The Court noted that Rule 30(8) is procedural and that substantial compliance was achieved since the petitioner made payments in foreign currency. The Court emphasized that the petitioner was granted drawback for other periods under similar circumstances, indicating that the rule was not mandatory. The Court referenced the Madras High Court's decision in Ford India Pvt. Ltd. vs. Assistant Commr. of C. Ex., Chennai, which supported a liberal interpretation of procedural lapses to avoid denying substantive benefits.

3. Misdeclaration of Facts under Section 50(2) of the Customs Act, 1962:
The Customs Authorities accused the petitioner of misdeclaration because the export documents used the letter of permission for Kariwala Green Bags but listed the exporter as Kariwala Industries. The Court clarified that Kariwala Green Bags is a business name of Kariwala Industries Limited, not a separate legal entity. Thus, it was permissible for Kariwala Industries to export goods manufactured under the business name Kariwala Green Bags and receive export proceeds. The Court rejected the misdeclaration claim, stating that the Customs Authorities' contention had no basis.

4. Procedural Compliance Regarding Payment from a Foreign Currency Account:
The Customs Authorities referred to Regulation 6A of the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) (Third Amendment) Regulations, 2002, which allows but does not mandate units in Special Economic Zones to maintain Foreign Currency Accounts. The Court found that the petitioner's failure to maintain such an account did not invalidate the realization of export proceeds or the actual receipt of foreign currency. The Court concluded that the petitioner substantially complied with Rule 30(8) by making payments in foreign currency, even though it was from a current account.

Conclusion:
The Court allowed the writ petition, setting aside the Revisional order dated May 28, 2013, and directed the respondent authorities to allow the drawback claim of the petitioner within six to eight weeks. The Court emphasized that substantial compliance with procedural rules should not deny substantive benefits, and the petitioner’s actions were in line with the permissible provisions of the SEZ Rules.