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Ratnamani Metals And Tubes Ltd Versus Union of India - Through Joint Secretary (Revisionary Authority)

Availability of benefit of duty drawback - Export of final product - Importer utilises DEPB scrip for the purpose of customs duty on inputs and raw materials - Held that:- in exercise of powers under section(2) of section 75, the Drawback Rules of 1995 have been framed. In terms of rule 3 of the said Rules of 1995, drawback is allowed on export of goods at such rates as may be determined by the Central Government. Under further proviso to rule 3 however, such drawback would not be available in v .....

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ed in favour of petitioner - SPECIAL CIVIL APPLICATION NO. 8025 of 2015 With SPECIAL CIVIL APPLICATION NO. 2753 of 2016 - Dated:- 6-5-2016 - MR. AKIL KURESHI & MR. A.Y. KOGJE JJ. For the Petitioner: Mr Paresh M Dave With Mr Paritosh Gupta Advocate Mr JC Patel with Mr Dhaval Shah, Advocate For the Respondent: Mr Devang Vyas, Advocate for the respondent(s) no. 1 Mr YN Ravani, Advocate (s) no. 2 Ms Maithili D Mehta, Advocate For the respondent(s) no. 1 ORAL JUD .....

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s of manufacturing goods which are exported by the petitioner. For the purpose of the manufacturing activity, the petitioner imports various inputs and raw materials. The petitioner imported various items such as polyethylene, adhesive epoxy, etc. by paying customs duty utilising Duty Entitlement Pass Book Scrip( DEPB scrip for short) which the petitioner had purchased from the market. While exporting the final product manufactured with the aid of such imported inputs, the petitioner desired to .....

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ent of customs duty and that therefore, it cannot be stated that the imports had suffered customs duty. The petitioner challenged the order of competent authority before the Commissioner(Appeals), who by his order dated 11.7.2013 allowed the appeal. He referred to the Board circular No.41/2005 dated 28.10.2005 and observed that in the said circular, it is clarified that additional customs duty paid through debit in DEPB is allowed as brand rate of duty drawback. He made the following observation .....

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and special CVD and for that provisions are made in the notifications itself, as well as clarifications are issued. However, no such clarification is issued with regard to Basic Customs Duty. Therefore, if the intention of the Government was to allow drawback of that portion of BCD which was debited through DEPB scrip, the Government must have issued some clarification. Since there is no such clarification, it is clear that the intention of the Government is not to grant drawback of that portio .....

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duty it does not mean that the brand rate of the drawback is not available in respect of basic customs duty. Clarifications are warranted when there is ambiguity. Excepting non availability of clarification from the Board, New Delhi, in respect of the basic customs, duty, the lower adjudicating authority has not pointed out as to how and under which provisions of the law the same is not required to be granted. 3. The department challenged the order of Commissioner (Appeals) before t .....

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section 3 of the Customs Tariff Act and not to cover the drawback on basic customs duty when debited in the DEPB. This order the petitioner has challenged in this petition. 4. In Special Civil Application No.2753/2016, the petitioner has challenged an order dated 28.12.2015 by which the Commissioner (Appeals) dismissed the appeal of the petitioner and held that the petitioner would not be entitled to duty drawback. This issue arose in the background of the fact that the petitioner is .....

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overnment of India contends that the duty drawback is not available unless the customs duty is paid in cash and not through debit in the scrip. 5. In the background of such facts, learned advocates appearing for the petitioners contended that the approach of the Government of India is wholly erroneous. The duty drawback is provided where customs paid inputs are used for export of final product and is governed by statutory provisions and regulations made by the Government of India. The .....

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The reliance of the authorities on the clarification about availability of drawback on additional customs duty paid through DEPB, cannot be utilised to deny the benefit of drawback when the question of basic customs duty arises. 6. On the other hand, learned counsel Shri Ravani and Shri Bhatt for the department opposed the petitions contending that the claim of drawback of an exporter must be examined within the statutory provisions and Government of India notifications and the policy .....

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geability of education cess, this Court had examined the provisions contained in DEPB scheme. Reliance was also placed on the Government of India circular no.3/99 dated 3.2.1999 in which it was clarified that brand rate of drawback is admissible only against cash payment of duties and debit of duties under DEPB scheme on import of goods being in the nature of availment of exemption of duty under the Customs Act, drawback would not be available. 7. The short question therefore, that c .....

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cessed or on which any operation has been carried out in India, a drawback should be allowed of duties of customs on any imported materials of a class or description, the Central Government may by issuing a notification in the official gazette, direct that drawback shall be allowed in respect of such goods in accordance with and subject to the rules made under subsection(2). Under subsection(2) of section 75, the Central Government is authorised to make rules for the purpose of carryi .....

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s as under : RULE 3. Drawback (1) Subject to the provisions of (a) the Customs Act, 1962 (52 of 1962) and the rules made thereunder, (b) the Central Excises and Salt Act, 1944(1 of 1944) and the rules made thereunder, [(bb) the Finance Act, 1994 (32 of 1994), and the rules made thereunder, and] (c) these rules, a drawback may be allowed on the export of goods at such amount, or at such rates, as may be determined by the Central Go .....

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ules made thereunder, or of the Central Excise Act, 1944 (1 of 1944) and the rules made thereunder, or of the Finance Act, 1994 (32 of 1994) and the rules made thereunder, the drawback admissible on the said goods shall be reduced taking into account the lesser duty or tax paid or the rebate, refund or credit obtained:] Provided further that no drawback shall be allowed (i) if the said goods, except tea chests used as packing material for export of blended tea, have been ta .....

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the export of (1) jute yarn (including Bimplipatam jute or mesta fibre), twist, twine, thread and ropes in which jute yarn predominates in weight; (2) jute fabrics (including Bimlipatam jute or mesta fibre), in which jute predominates in weight; (3) jute manufactures note elsewhere specified (including Bimlipatam jute or mesta fibre) in which jute predominates in weight. [(v) on any of the goods [falling within heading 0401, 0402, 0403, 0404, 0406, 100 .....

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ed statutes, the Government of India has issued notification no.92/2012 dated 4.10.2012 providing the rate of drawback as specified in the schedule to the said notification. Clause(8) of this notification provides that the rates of drawback specified in the schedule to the said notification, shall not be applicable to export of a commodity or product which falls in any one of the five categories specified therein. This clause reads as under : (8) The rates of drawback specified in the .....

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p> Provided that where exports are made against Advance Licences issued on or after the 1st April, 1997, in discharge of export obligations in terms of notification No. 31/97Customs, dated the 1st April,1997, or against Duty Free Replenishment Certificate Licence issued in terms of notification No. 48/2000Customs, dated the 25th April, 2000, or against Duty Free Replenishment Certificate Licence issued in terms of notification No. 46/2002Customs, dated the 22nd April,2002, or against Duty Free R .....

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cy; (d) manufactured or exported by any of the units situated in free trade zones or export processing zones or special economic zones; (e) manufactured or exported availing the benefit of the relevant Export and Import Policy and the Foreign Trade Policy; 11. We may also refer to the Board circular no.41/2005 dated 28.10.2005 since much debate on this circular has taken place in the orders passed by the authorities. The relevant portion of the said circular rea .....

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itherto, the additional customs duty paid in cash only was adjusted as CENVAT credit or duty drawback while the same paid through debit under DEPB was not allowed as duty drawback. In the Foreign Trade Policy 20042009, which came into force w.e.f. 192004, it has been provided under Paragraph 4.3.5 that the additional customs duty/excise duty paid in cash or through debit under DEPB shall be adjusted as CENVAT credit or Duty Drawback as per the rules framed by the Department of Revenue. Taking no .....

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e treated as payment of duty or exemption from duty. Hitherto, the stand taken by the department was that goods cleared through debit under DEPB are exempted goods and, accordingly, no CENVAT or drawback was allowed for such payments. Para 4.3.5 of the Foreign Trade Policy, 200409 was amended allowing, additional Customs duty paid through debit under DEPB to be adjusted as Cenvat credit or duty drawback. The said position was clarified vide Circular No. 59/2004Cus., dated 21.10.2004 [2004 (173) .....

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debited from DEPB scrip. Therefore, it cannot be considered that the duty payable is nil or exempted. This is further supported by the fact that the CENVAT credit or duty drawback is available even when the additional Customs duty is debited under DEPB. 13. It can thus be seen that the benefit of duty drawback is available in terms of section 75 of the Customs Act, 1962 as provided in the Drawback Rules as specified by Government notifications from time to time. Section 75 in plain .....

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s may be determined by the Central Government. Under further proviso to rule 3 however, such drawback would not be available in various categories specified therein. None of these categories include the payment of customs duty on the goods through DEPB scrip. In other words, rule 3 does not prohibit a claim of drawback as per the specified rates if the duty on the imported goods is not paid in cash but by surrendering credit in the DEPB scrip. Thus neither section 75 of the Customs Act, nor rule .....

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oms duty on import component of export product which would include special additional duty in case of nonavailment of CENVAT credit. Neutralisation would be provided by way of grant of duty credit against export product which would be at a specified percentage of FOB value of export. The holder of DEPB would have an option to pay additional customs duty in cash also. DEPB is freely transferable. The Foreign Trade Policy of 20092014 contained an additional clause which hitherto was not .....

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exports. Such credit could be utilised for payment of duty in future or may even be traded. It was in this background that Supreme Court in case of Liberty India v. Commissioner of Incometax reported in 317 ITR 218, had held that DEPB being an incentive which flows from the scheme framed by the Central Government, hence, incentives profits are not profit derived from the eligible business (in the said case falling under section 80IB of the Income Tax Act) and belong to the category of ancillary .....

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ted, neither section 75 nor the Rules of 1995, prohibits entitlement of drawback when the basic customs duty has been paid through DEPB scrip. To read such limitation through the clarification issued by the Government of India in various circulars which principally touch the question of eligibility of draw back, when additional duties have been paid through DEPB would not be the correct interpretative process. 18. We may recall, in the circular dated 28.10.2005 it was clarified that h .....

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allowed as brand rate of duty drawback. Thus, the Foreign Trade Policy removed restrictions on additional customs duty being adjusted against CENVAT credit or duty drawback, unless paid in cash. A corresponding clarification was issued. This clarification cannot be seen in reverse as to eliminate the facility of draw back when basic customs duty has been paid through DEPB scrip. 19. The case of imports under different other schemes substantially stand on the same footing. Though as is .....

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ikewise, in case of FMS, it is provided that same is to offset high freight cost and other externalities to select international markets to enhance India's export competitiveness in these markets. Specified product exported to specified countries qualify for such benefits. Duty credit scrip at the specified rate of the FOB value of the exports would be provided. In case of FPS, the objective is to promote export of products which have high export intensity/employment potential so .....

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nherent handicap faced by the industry in the specified areas. These export incentive schemes have nothing to do with offset of duty element of imported raw materials or inputs used in export products, unlike as in the case of DEPB. 20. Thus, under these schemes, the Government of India having realised that exports in question require added incentive, provides for the same in form of credit at specified rate of FOB value of the export which credit can be utilised for payment of custom .....

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