CESTAT Upholds DRI’s Power to Issue SCN u/S.4 of Customs Act in Recovery of Drawback Amount [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) upheld the Directorate of Revenue Intelligence (DRI) has jurisdiction and is empowered under Section 4 of the Customs Act, 1962 to issue show cause notices (SCN) proceedings for recovery of drawback amounts peculiarly cases involving fraudulent or erroneous grant of drawback.

The appellant,M/s Sanco Trans Ltd., is a Customs Broker engaged in handling export consignments at the Inland Container Depot, Salem. Investigations were initiated by the DRI into exports allegedly made using fictitious exporters, manipulated Bills of Lading, and inflated values for the purpose of claiming ineligible duty drawback.

It was alleged that several consignments were exported by misdeclaring the port of discharge and by using fake or non-existent exporters. The export proceeds were not realised, yet duty drawback was claimed and encashed. The DRI initiated proceedings and issued SCNs seeking recovery of the wrongly sanctioned drawback amounts and proposing penal action under the Customs Act, 1962.

The adjudicating authority confirmed the recovery of drawback and imposed penalties. Aggrieved by the orders, the appellant challenged, inter alia, the jurisdiction of the DRI to issue SCNs in matters relating to drawback.

Advocate, T. Sundaranathan for the appellant argued that drawback proceedings were distinct from customs duty proceedings and that the issuance of SCNs by officers of the DRI was without authority of law. Subsequently, the impugned proceedings were vitiated due to lack of jurisdiction and were therefore liable to be set aside.

O.M. Reena, representing the Revenue, argued that officers of the DRI are appointed as customs officers under statutory notifications issued under Section 4 of the Customs Act, 1962 and are therefore fully empowered to issue SCNs.

The Bench comprising Ajayan T.V., Judicial Member and M. Ajit Kumar, Technical Member, observed that duty drawback is granted under Section 75 of the CustomsAct, 1962, and that recovery of wrongly sanctioned drawback is intrinsically connected with the levy and refund of customs duty. The Tribunal concluded that a drawback is a form of refund and squarely falls within the scope of the Customs Act, 1962.

The Tribunal noted the Karnataka High Court’s judgment in Sri Meenakshi Apparels Pvt. Ltd. (2010), wherein it was held that officers of the DRI are appointed as Customs Officers under Section 4 of the Customs Act, 1962, and are competent to issue SCNs and adjudicate drawback matters by virtue of Section 5 of the Customs Act, 1962.

The Bench placed reliance upon the decision of the Supreme Court in Pahwa Chemicals Pvt. Ltd. v. Commissioner of Central Excise, Delhi (2005) which held that statutory powers conferred on officers under an Act cannot be curtailed by administrative instructions or circulars.

Referring to Notification No. 17/2002-Customs (N.T.), issued under Section 4 of the Customs Act, 1962 which appoints officers of the DRI as Customs Officers with authority to exercise powers under the Act, reaffirmed the power of the DRI is to issue SCNs for recovery of drawback.

Further in light of the Madras High Court’s judgment in PGC Corporation Ltd. v. Assistant Commissioner of Customs (2019), the bench clarified the legal position of a drawback as a form of customs duty refund, falling within the scope of the Customs Act, 1962.

Thereby, objections regarding lack of jurisdiction of the DRI were ruled to be no longer sustainable in law. Accordingly, the CESTAT upheld the validity of the SCNs issued by the DRI and rejected the challenge raised by the appellant on jurisdictional grounds.

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