2025 (6) TMI 1288 - HC - Customs

Entitlement to duty drawback on re-export of imported capital goods only on the Basic Customs Duty (BCD) paid or on the total customs duties paid inclusive of Countervailing Duty (CVD) Special Additional Duty (SAD) and Education Cesses - interpretation of the term any duty as used in Section 74 of the Customs Act 1962 - applicability of N/N. 23/2008-Cus. dated 01.03.2008 regarding the percentage of drawback payable - HELD THAT - As per the Section 2 (15) of the Customs Act the duty means the duty payable under the Customs Act only and not the duty which is payable under the Custom Tariff Act, 1975 or any other duty being the countervailing duty or special secondary and higher secondary education Cess as per the Cess Act or the Special Additional Duty as per the provisions of the Custom Tariff Act, 1975. On perusal of Section 74 of the Customs Act which refers to any duty paid at the time of importation and therefore any duty must have reference to as per the provision of the Customs Act 1962 which refers only to the basic custom duty and therefore we are of the opinion that the petitioner was justified in claiming the duty drawback on the basic custom duty only. Applicability of Notification No. 23 of 2008 to compute the drawback allowable on re-export of the duty paid goods - HELD THAT - It is not not inclined to interfere in the findings of the Revisionary Authority as it is required to be found out by the original adjudication authority from the date of clearance of the goods in question for home consumption and the date of actual re-export of such goods by the Custom authority to apply the rate of duty drawback allowable on such re-export of the goods as per the N/N. 23 of 2008. It is also pertinent to notice that the provisions of Rule 3 of the Cenvat Credit Rules 2004 which permits for availing the Cenvat credit in respect of the CVD SAD and Cesses only and not the basic custom duty which the petitioner has already availed and has not claimed the same for the purpose of duty drawback claim made by the petitioner. Conclusion - The impugned orders passed by the respondent authorities are modified by holding that the petitioner is entitled to drawback claim on the basic custom duty as per the provision of Section 74(1) of the Customs Act 1962 and the duties paid under any other act being CVD SAD or Cesses cannot be considered as part of any duty as is interpreted by the respondent authorities while computing the duty drawback allowable to the petitioner under Section 74 of the Act. The respondent authorities are therefore directed to recompute the duty drawback allowable to the petitioner as per the provisions of Section 74 of the Custom Act 1962 by considering only the basic custom duty and after considering the directions issued by the Revisionary Authority regarding the computation of the period for the purpose of applying the N/N. 23 of 2008 - Petition allowed by way of remand.

Summary

The core legal questions considered by the Court in this matter are:

1. Whether the petitioner is entitled to duty drawback on re-export of imported capital goods only on the Basic Customs Duty (BCD) paid, or on the total customs duties paid inclusive of Countervailing Duty (CVD), Special Additional Duty (SAD), and Education Cesses, as contended by the respondents.

2. The correct interpretation of the term "any duty" as used in Section 74 of the Customs Act, 1962, and whether it includes duties other than BCD.

3. The applicability of Notification No. 23/2008-Cus. dated 01.03.2008 regarding the percentage of drawback payable based on the length of period between clearance for home consumption and re-export, specifically the relevant date to be considered for this period-whether the date of filing the shipping bill or the date of issuance of the Let Export Order (LEO) under Section 51 of the Customs Act.

4. The interplay between the CENVAT Credit Rules, 2004 and the Customs Act provisions on duty drawback, particularly the treatment of CENVAT credit availed on CVD, SAD, and Education Cess in computing the drawback amount.

Issue 1 & 2: Entitlement to Duty Drawback on Basic Customs Duty Alone vs. Total Customs Duties Paid (Including CVD, SAD, and Cesses)

Relevant Legal Framework and Precedents: Section 2(15) of the Customs Act defines "duty" as a duty of customs leviable under the Act. Section 74 of the Customs Act provides for duty drawback on re-export of duty-paid goods, stating that "any duty" paid on importation shall be repaid as drawback subject to conditions. Rule 3 of the CENVAT Credit Rules, 2004 permits availing credit of CVD, SAD, and Education Cess but not of Basic Customs Duty. Notification No. 23/2008-Cus. prescribes the rates of drawback based on the period between clearance and re-export.

Court's Interpretation and Reasoning: The Court held that the term "duty" in Section 74 of the Customs Act must be interpreted in light of Section 2(15), which restricts "duty" to customs duties leviable under the Customs Act only, i.e., Basic Customs Duty. Duties such as CVD, SAD, and Education Cess are levied under other statutes (Customs Tariff Act, Cess Act) and are not "customs duties" within the meaning of the Customs Act. Therefore, "any duty" in Section 74 refers exclusively to Basic Customs Duty.

The Court further noted that the petitioner had availed CENVAT credit on CVD, SAD, and Education Cess as permitted by Rule 3 of the CENVAT Credit Rules, 2004, and had not claimed drawback on these duties. The respondents erred in including these duties in the calculation of drawback, effectively reducing the petitioner's entitlement by deducting the CENVAT credit already availed on these components.

Key Evidence and Findings: The petitioner's detailed calculation sheets demonstrated that the drawback claim was reduced by the amount of CENVAT credit availed on non-BCD duties, leading to a substantial reduction in the drawback amount. The petitioner's claim was based solely on the Basic Customs Duty component.

Application of Law to Facts: Applying the statutory definitions and rules, the Court found that the petitioner's claim for drawback on Basic Customs Duty alone was justified. The respondents' approach of considering total customs duties paid (inclusive of CVD, SAD, and Cesses) for drawback calculation and then deducting the CENVAT credit availed was inconsistent with the legal framework.

Treatment of Competing Arguments: The respondents argued that "any duty" in Section 74 should be interpreted broadly to include all duties paid at import, to avoid double benefits by claiming both CENVAT credit and drawback. The Court rejected this, emphasizing the statutory definition of "duty" and the separate legislative schemes governing CENVAT credit and drawback.

Conclusion: The Court held that the petitioner is entitled to duty drawback on Basic Customs Duty only, excluding CVD, SAD, and Education Cess from the calculation of drawback under Section 74 of the Customs Act.

Issue 3: Applicability of Notification No. 23/2008 and Relevant Date for Computation of Drawback Percentage

Relevant Legal Framework and Precedents: Notification No. 23/2008-Cus. prescribes the percentage of drawback payable based on the length of the period between the date of clearance for home consumption and the date when goods are placed under Customs control for export. Section 50 of the Customs Act requires filing a shipping bill for export, and Section 51 empowers the Customs officer to issue a Let Export Order (LEO) permitting clearance and loading of goods for export.

Court's Interpretation and Reasoning: The Court recognized the factual dispute regarding the relevant date for computing the period for drawback percentage-whether it is the date of filing the shipping bill (when the petitioner submitted the goods under Customs control) or the date of issuance of the LEO (when Customs formally permits export). The Court observed that Section 74(1)(i) explicitly requires that the goods be entered for export and that the proper officer makes an order permitting clearance and loading under Section 51.

Therefore, the Court upheld the Revisionary Authority's decision to remand the matter to the original adjudicating authority to determine the precise period between clearance for home consumption and the date when the goods were placed under Customs control for export (as evidenced by the LEO date) to correctly apply the Notification No. 23/2008.

Key Evidence and Findings: The petitioner filed shipping bills on 11/12/2009, but the LEO was issued on 18/02/2010. The respondents contended that the relevant date is the LEO date, while the petitioner argued it should be the shipping bill date.

Application of Law to Facts: The Court applied the statutory provisions and found that the LEO date is the operative date for Customs control and export clearance under Section 51, thus relevant for calculating the drawback percentage period.

Treatment of Competing Arguments: The petitioner's argument that the goods were under Customs control from the shipping bill date was rejected in favor of the statutory requirement of the LEO for export clearance. The respondents' interpretation was accepted as consistent with the Customs Act.

Conclusion: The Court directed the original authority to determine the period between clearance for home consumption and the LEO date to apply the correct drawback percentage under Notification No. 23/2008.

Issue 4: Interplay Between CENVAT Credit Rules and Customs Act in Drawback Computation

Relevant Legal Framework and Precedents: Rule 3 of the CENVAT Credit Rules, 2004 permits manufacturers to take credit of CVD, SAD, and Education Cess but excludes Basic Customs Duty. The Rules also provide for reversal of credit upon removal or export of inputs or capital goods.

Court's Interpretation and Reasoning: The Court noted that the petitioner had availed CENVAT credit on CVD, SAD, and Education Cess as per Rule 3 and had not claimed drawback on these duties. The Court emphasized that the CENVAT credit scheme and duty drawback scheme are distinct but must be harmonized to avoid double benefit. Since the petitioner did not claim drawback on duties for which CENVAT credit was availed, the petitioner's claim on Basic Customs Duty alone was proper.

Key Evidence and Findings: The petitioner's accounts showed CENVAT credit availed on non-BCD duties and no claim for drawback on these duties. Respondents' reduction of drawback by the amount of CENVAT credit availed was therefore incorrect.

Application of Law to Facts: The Court applied the CENVAT Credit Rules and Customs Act provisions to hold that duties eligible for CENVAT credit cannot be included in the drawback calculation since the petitioner has already availed credit on those duties.

Treatment of Competing Arguments: The respondents contended that reduction of drawback by CENVAT credit was necessary to prevent double benefit. The Court agreed with the principle but found that the petitioner had not claimed drawback on duties for which credit was availed, thus no double benefit arose.

Conclusion: The Court modified the impugned orders to exclude CVD, SAD, and Education Cess from the drawback calculation and directed recomputation accordingly.

Significant Holdings:

"As per the Section 2 (15) of the Customs Act, the duty means the duty payable under the Customs Act only and not the duty which is payable under the Custom Tariff Act,1975 or any other duty being the countervailing duty or special secondary and higher secondary education Cess as per the Cess Act or the Special Additional Duty as per the provisions of the Custom Tariff Act,1975."

"We are of the opinion that the petitioner was justified in claiming the duty drawback on the basic custom duty only."

"The respondent authorities are therefore directed to recompute the duty drawback allowable to the petitioner as per the provisions of Section 74 of the Custom Act, 1962 by considering only the basic custom duty and after considering the directions issued by the Revisionary Authority regarding the computation of the period for the purpose of applying the Notification No. 23 of 2008."

Core principles established include:

• The term "duty" in Section 74 of the Customs Act refers exclusively to Basic Customs Duty leviable under the Customs Act, excluding CVD, SAD, and Education Cess.
• Duty drawback on re-export is to be computed on Basic Customs Duty only when CENVAT credit has been availed on other duties.
• The relevant period for applying drawback percentage under Notification No. 23/2008 is the time between clearance for home consumption and the date when goods are placed under Customs control for export, evidenced by the issuance of the Let Export Order under Section 51.
• CENVAT credit and duty drawback schemes must be harmonized to prevent double benefits but must be applied according to their respective statutory provisions.

Final determinations:

• The petitioner's entitlement to duty drawback is limited to the Basic Customs Duty paid on import.
• The respondents' orders reducing drawback by including CVD, SAD, and Education Cess duties were set aside.
• The matter was remanded to the original adjudicating authority to determine the exact period for drawback percentage calculation as per Notification No. 23/2008, based on the date of issuance of the Let Export Order.
• The respondents were directed to recompute the drawback amount accordingly.