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2020 (3) TMI 382 - HC - Customs100% EOU - Reversal of Drawback granted - All Industry Rate (AIR) - N/N. 31 of 1999 dated 20.05.1999 - HELD THAT - The petitioner is entitled to drawback at All India Rate in respect of the duty suffered on inputs utilised by 100% EOU/units in EPZ for manufacture. It could not have been the intention of Legislature or the authorities concerned, to deny drawback claim merely because some processes in the chain of manufacturing have been conducted in the premise of EOU/unit of EPZ, if the assessee is otherwise entitled to the benefit - Though the Notifications do specifically require that the export, after completion of job work, is to take place only from the EOU/EPZ, this can be given effect to only in a situation where the entire process of manufacture/finishing is occasioned in such EOU/EPZ. In a situation such as the present, where parts of the process are carried out in different locations, one can hardly conclude that this operational difference would result in denial of the benefit to the exporter. The original stipulation that no drawback was available for export was imposed to ensure that no double benefit was obtained. Subsequently, when an EOU was permitted to engage in job work, the original condition stood modified to the effect that a manufacturer/exporter would also be entitled to drawback, provided the finished commodity was exported from EOU/EPZ itself. A situation such as the present where the goods revert back to the assessee for further processing has not been envisaged and is thus not covered, though it is, in my view, also entitled to such benefit. Such a situation is clearly not intended to be kept out of the beneficial sweep of Notification 31 of 2000. The issue is remanded to the Assessing Authority to verify specifically whether duty has been remitted on the raw materials utilised in job work. If the result of the enquiry is positive, the petitioner is entitled to the drawback of the duty paid in accordance with law - petition disposed off.
Issues Involved:
1. Entitlement to duty drawback on inputs used by 100% Export Oriented Units (EOUs) for job work. 2. Validity of Notification No. 31/1999 in relation to Customs and Central Excise Duties Drawback Rules, 1995. 3. Conditions imposed by various Circulars and Notifications regarding job work by EOUs and the eligibility for duty drawback. Detailed Analysis: 1. Entitlement to Duty Drawback on Inputs Used by 100% EOUs for Job Work: The petitioner, a manufacturer and exporter of readymade garments, claimed duty drawback on excise and customs duties paid on raw materials. The petitioner subcontracted processes like 'silicon washing' and 'mercerizing' to a 100% EOU, which returned the goods for final processing and export. Initially, the drawback claims were allowed but were later reversed based on Notification No. 31/1999. The petitioner argued that there is no restriction under the Customs Act, 1962, for claiming drawback on job work carried out by EOUs. The court examined various notifications and circulars, concluding that the ultimate manufacturer/exporter is entitled to a drawback claim for the duty paid on inputs, provided proof of payment is submitted. The court referenced the decisions in Commissioner of Customs, Tuticorin v. L.T. Karle & Co. and First Garments Manufacturing (I) P. Ltd. v. Jt. Secretary to the G.O.I, supporting the petitioner's claim. 2. Validity of Notification No. 31/1999: The petitioner challenged the provisions of Notification No. 31/1999, arguing that additional conditions imposed by the notification are impermissible. The court noted that the notification specifies that drawback rates are not applicable to exports against an advance license under the Duty Exemption Scheme. The court also considered Circular No. 67/1998, which allows EOUs to subcontract part of their production, provided raw materials are accounted for and finished products are exported directly from the EOU. The court found that the notifications and circulars aim to optimize the production capacity of EOUs and ensure that the duty component on inputs is eligible for drawback. 3. Conditions Imposed by Various Circulars and Notifications: The court examined Circular No. 67/1998, Circular No. 74/1999, Circular No. 31/2000, and Circular No. 49/2000, which outline conditions for EOUs to undertake job work and the eligibility for duty drawback. The notifications and circulars require that finished products be exported directly from EOUs, and no drawback is available if goods are sent back to the Domestic Tariff Area (DTA). However, the court noted that in cases where goods are processed in different locations, the benefit of drawback should not be denied if the duty on raw materials has been paid. The court emphasized that the intention of the legislature is not to deny drawback claims merely because some processes are conducted in EOUs. Conclusion: The court held that the petitioner is entitled to a duty drawback at the All India Rate for the duty paid on inputs used by EOUs for job work. The court set aside the impugned order and remanded the issue to the Assessing Authority to verify if the duty on raw materials used in job work has been remitted. If confirmed, the petitioner is entitled to the drawback. The court directed the Assessing Authority to complete the verification within three months. Additional Judgment: The court dismissed W.P.No.4847 of 2007, which sought a declaration that certain provisions of Notification 31/99 were ultra vires, as it was not pressed by the petitioner. Consequently, all connected miscellaneous petitions were closed.
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