2025 (7) TMI 1150 - HC - Customs

Entitlement to claim duty drawback - Purchase of Goods from 100% EOU for Manufacture of goods for Export - Goods manufactured out of the raw material imported by claiming the exemption were not exported and were instead supplied to the Petitioner - absence of documentary evidence being produced on record to establish that the import duty is paid by the applicant - HELD THAT - Section 26A is a provision for refund of import duty and contemplate that when on importation of goods capable of being easily identified and any duty has been paid on clearance of such goods for home consumption such duty shall be refunded to the person by whom or on whose behalf it was paid in this peculiar circumstances set out in Section 26A. The claim for refund of duty or interest paid by any person or borne by him shall make an application to the Assistant Commissioner of Customs or Deputy Commissioner of Customs and if the Officer is satisfied that whole or any part of the duty and interest if any paid by the applicant is refunded he shall make an order accordingly and the amount so determined shall be refunded. Thus any person who claims that he has paid duty on any goods under the Act is deemed to have passed on the full incidence of such duty to the buyer of such goods and in this case since it is not in dispute that the duty has been paid by the DFCL and in the tax invoice raised by it on the Petitioner it had specifically marked that for the concession availed for payment of customs duty on imported inputs under Rule 5 of the Customs Rules 2017 they shall pay equivalent custom duty along with imported inputs used in manufacture of above quantity of finished goods sold under DTA. In addition the DFCL also gave declaration in respect of each drawback application filed by the Petitioner furnishing the details of the customs duty and social welfare surcharge paid by it on the supplies made by it to the Petitioner. The declaration specifically state that the duty so paid is included in the cost of material which is sold to the Petitioner and DFCL did not have any objection if the duty drawback is paid by the Petitioner. The Petitioner during the revision proceedings tendered invoice-wise details of the assessable value for custom purposes setting out the duty paid by DFCL and invoice valued but despite the presumption under Section 29D and the documents furnished the stand of the Petitioner was not found to be acceptable to the Authorities. It is worth to note that there is no provision under the Customs Act 1962 or the Drawback Rules 2017 requiring that the customs duty claimed as drawback must be indicated/included in the tax invoice issued by DFCL which is governed by the provisions of Section 21 of CGST Act read with Rule 46 of CGST Rules and therefore it specifically mentioned the GST and there is no reason why the tax invoice shall contain any disclosure of the customs duty amount which operate under the regime of the Customs Act and the Drawback Rules. The Authorities have clearly erred in ignoring the presumption under Section 24D as well as the declaration given by the supplier. It is evidently clear that the customs duty levied in form of an indirect tax is levied on the goods imported into or exported from India and it can be levied at a point earlier when the goods are imported or before they are exported and the duty levied form part of the total cost of the manufacturing or production of the goods. The customs duty being an integral component of the price for which the goods are sold it is ordinarily passed on to the purchaser and therefore when DFCL gave declaration that the customs duty has been reversed by the Petitioner as the price paid for the product was inclusive of customs duty there are no reason to disbelieve the statement as in any case DFCL would not have suffered loss just to benefit the Petitioner. The customs duty paid by DFCL being borne by the Petitioner the benefit of drawback could not have been denied to the Petitioner - the impugned orders suffer from gross illegality and deserve to be quashed and set aside by directing the Respondents to sanction the drawback claim of the Petitioner at brand rate under Section 75 of the Customs Act 1962 and Rule 7(1) of The Customs and Central Excise Duties Drawback Rules 2017 as claimed in the eight applications. Petition allowed.

Summary

ISSUES:

Whether the purchaser of goods from a 100% Export Oriented Unit (EOU) is entitled to claim duty drawback on customs duty paid by the EOU on imported inputs cleared to Domestic Tariff Area (DTA).Whether the presumption under Section 28D of the Customs Act, 1962, that the incidence of duty paid is passed on to the buyer, applies to duty drawback claims.Whether the inclusion or disclosure of customs duty in the tax invoice issued under CGST Act is necessary for claiming duty drawback under Customs Act and Drawback Rules, 2017.Whether the failure to produce direct documentary evidence of customs duty payment by the purchaser disentitles the purchaser from claiming duty drawback when supplier (EOU) has paid and declared such duty.Whether the authorities erred in rejecting duty drawback claims on the ground that the purchaser did not bear the customs duty paid by the EOU supplier.Whether the authorities complied with principles of natural justice in considering the purchaser's appeal and revision applications.

RULINGS / HOLDINGS:

The purchaser is entitled to claim duty drawback on customs duty paid by the EOU on inputs cleared to DTA, as the customs duty paid by the EOU is included in the price charged to the purchaser, thereby passing the incidence of duty to the purchaser.Section 28D of the Customs Act, 1962 creates a presumption that "every person who has paid the duty on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods," which applies to the present case.There is no legal requirement under the Customs Act, 1962 or the Drawback Rules, 2017 that customs duty must be separately indicated or included in the tax invoice governed by the CGST Act for the purpose of claiming duty drawback.The failure of the purchaser to produce direct documentary evidence of customs duty payment is not fatal to the claim when the supplier (EOU) has paid the customs duty, furnished declarations, and included the duty in the price charged to the purchaser.The authorities erred in rejecting the purchaser's duty drawback claim solely on the ground that the purchaser did not bear the customs duty paid by the EOU, ignoring the statutory presumption and supplier's declarations.The appellate and revisional authorities failed to properly consider the material furnished and did not comply with principles of natural justice by not re-examining the issue despite assurance to do so.

RATIONALE:

The Court applied the statutory scheme of the Customs Act, 1962, particularly Sections 17, 26, 26A, and 28D, and the Customs and Central Excise Duties Drawback Rules, 2017, focusing on the legal effect of payment and incidence of customs duty in the supply chain.Section 28D creates a legal presumption that the incidence of duty paid by a supplier is passed on to the buyer, shifting the burden of proof to the revenue to disprove this fact.The Court emphasized that the customs duty is an indirect tax forming part of the cost of goods and is ordinarily passed on to the purchaser, supported by supplier's declarations and invoices including customs duty in the price.The Court rejected the narrow interpretation by the authorities that required direct evidence of customs duty payment by the purchaser or separate disclosure of customs duty in tax invoices governed by GST law, noting no such requirement exists in the Customs Act or Drawback Rules.The Court noted that the authorities' reliance on the purchaser's inadvertent error in the drawback statement (DBK-IIA) regarding assessable value was insufficient to deny the claim when the statutory presumption and supplier's declarations were available.The Court found that the authorities' failure to re-examine the evidence and reconsider the claim upon appeal and revision amounted to a breach of natural justice and procedural fairness.The Court ordered quashing of the impugned orders and directed the revenue authorities to sanction the duty drawback claim at the brand rate under Section 75 of the Customs Act, 1962 and Rule 7(1) of the Drawback Rules, 2017 within two months.