Drawback Benefit Available for Gold Exports Despite Non-Payment of Basic Customs Duty, Provided Additional Duty Paid u/s 3 of Customs Tariff Act During Import: Delhi High Court [Read Order]

The High Court of Delhi has held that exporters of gold dore bars are eligible for drawback benefits even if they did not pay Basic Customs Duty (BCD) at the time of import, provided they paid the additional duty under Section 3 of the Customs Tariff Act, 1975 during import.

The decision came in response to the petition filed by AJ Gold and Silver Refinery, a precious metal refining firm.

The case revolved around a claim by the petitioner for drawback benefits amounting to Rs.2,15,48,344/-. The petitioner company had imported gold dore bars during the financial year 2013-2014.

The petitioner, represented by Mr. Kishore Kunal and Ms. Ankita Prakash, argued that it was eligible for drawback benefits even though it hadn’t paid BCD at the time of import. Instead, it had paid the additional duty as mandated by Section 3 of the Customs Tariff Act, 1975.

The respondent revenue, the Assistant Commissioner of Customs, (Drawback) & Others, represented by Mr. R. Ramachandran contended that the petitioner assessee was not entitled to drawback benefits because it hadn’t paid BCD on the imported articles.

The dispute arose when AJ Gold and Silver Refinery inadvertently failed to submit duty drawback shipping bills during the export process and instead submitted free shipping bills. They later sought to amend these free shipping bills to claim drawback benefits.

The bench noted that the additional duty paid under Section 3 of the Tariff Act is akin to customs duty and found that it qualified as a “duty” under the Customs, Central Excise Duties Drawback Rules, 1995. Rule 2(a) of the Drawback Rules defines “drawback” as the rebate of “duty” or “tax” chargeable on any imported material or excisable materials in the manufacture of exported goods. Therefore, the court concluded that the additional duty met the criteria for claiming drawback benefits.

The bench also examined Condition No. 6 of the Drawback Notification, which deals with the eligibility for drawback when Central Value Added Tax (Cenvat) facility has not been availed. Since an All-Industry Rate (AI Rate) for drawback had been specified, the court held that the petitioner was not required to prove the payment of customs, central excise duty or service tax. Condition No. 6 made it clear that when the rate was the same in both columns, i.e., for Cenvat facility availed and not availed, it pertained to the customs component and was available irrespective of whether Cenvat had been availed.

Addressing Condition No. 23 of the Drawback Notification, the bench found that it did not apply to the petitioner’s case. Condition No. 23 stipulated that certain drawback rates would not apply to goods exported in discharge of an export obligation if the relevant policy provided for “duty free import” of gold or silver. Since the petitioner had paid the additional duty under Section 3 of the Tariff Act, the court concluded that the goods were not imported “duty free”, and Condition No. 23 did not apply.

In conclusion, the bench held that the Customs Department was liable to pay interest to the petitioner under Section 75A of the Customs Act, 1962.

Section 75A of the Customs Act, 1962, states that if any drawback due to an exporter or any other person under the Customs Act is not paid within a prescribed period, then interest at a specified rate becomes payable. The section ensures that exporters or individuals are compensated for any delays in receiving their rightful drawback amounts.

The court determined that interest should be paid from one month after the petitioner’s claim was made until the amount was ultimately paid.

In result, the division bench comprising Justice Yashwant Varma and Justice Dharmesh Sharmaallowed the writ petition and ordered the Customs Department to process the petitioner’s drawback claim, release the amount owed and pay interest in accordance with the law.

To Read the full text of the Order CLICK HERE

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