Misuse of Duty Drawback Scheme by Exporters: Delhi HC Allows to Avail Remedy Under Customs Act [Read Order]

In a recent case, the Delhi High Court  allowed the petitioner to avail remedy under the customs Act, 1961and also pointed the issue of  misuse of duty drawback scheme by  Various exporters .

The petitioner , Rajbir Singh filed petition under the scheme  which allows refund or recoupment of customs and excise duties that are paid by the exporters on products which are exported. The purpose is to encourage exports and to enable exporters to set off some of the costs accrued in the process of manufacturing the products which are exported.  Even after the introduction of Integrated Goods and Service Tax (‘IGST’) regime, this scheme had been continued in respect of IGST and Compensation Cess which may have been paid by the exporters. The said duty drawbacks are claimed under Sections 74 and 75 of the Customs Act, 1962.

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This scheme, however, has become the subject of misuse by some traders/ exporters who make fraudulent exports merely with a view of availing the benefits under the scheme.  Fraudulent exports could be in various forms including (i) filing of fake documents, (ii) over-valuation of goods that have been exported and (iii) the exporters themselves being completely nonexistent etc., Several cases have come before the Court where such duty drawbacks have, in fact, been availed of, which is detected by the Customs Department subsequently.  

The exporter M/s. Abhishek EXIM India, is stated to have exported goods and claimed duty drawback in respect thereof. The Petitioner is the proprietor of M/s Abhishek EXIM, India. He was issued the impugned SCNs with regard to the duty drawbacks claimed by him.   The primary allegation against the Petitioner and his company is that he created parallel invoices with different valuations for the same exports. One set of invoices was submitted to the Delhi Chamber of Commerce and the other set, with the overvalued price, was submitted to the Department only with the intention to claim a higher duty drawback. The entire process is alleged to have been executed by the Petitioner in connivance with two staff members including a Chartered Accountant (hereinafter, ‘CA’). 

No issue of the limitation was raised by the Petitioner in the reply. The impugned OIO was passed on 14th January, 2025. In terms of the said order, the value of the exports was considered and upon being found to be overvalued, the recovery of drawback amounts was directed along with penalties.

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The court considered the creation of fake and fraudulent invoices being the basis of the SCN. And also check whether a substantial amount of duty drawbacks has been alleged to have been availed of by the Petitioner by completely altering the value of the exports and on the existence of the parallel invoices is not even being disputed. Counsel for the Petitioner, in fact, confirms the allegation when a question is put by the Court today.

On Considering the above aspects, the Court is not inclined to entertain the challenge to the impugned OIO dated 14th January, 2025 in a writ petition under Article 226 of the Constitution of India.

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A division bench of Justices Prathiba M. Singh and Rajneesh Kumar Gupta found that the scheme, has become the subject of misuse by some traders/ exporters who make fraudulent exports merely with a view of availing the benefits.

In view of the above decision and considering that the co-noticee has been relegated to the appellate remedy, the Court is of the opinion that, though the exercise of writ jurisdiction in favour of the Petitioner may not be warranted, the Petitioner ought not to be denied the opportunity to avail the statutory remedy on grounds of parity.

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The Petitioner is also permitted to avail of the appellate remedy under Section 128 of the Customs Act, 1962.  The Court in this proceeding shall not have any bearing on the adjudication before the Appellate Authority and it shall adjudicate the same in accordance with law. At this point, ld. Counsel for the Petitioner submits that the statement made by the Petitioner before the DRI has been relied upon in the impugned OIO, but the same was extracted out of duress and coercion.

To Read the full text of the Order CLICK HERE

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