Drawback on Exports Delivered to Dubai Instead of Russia: CESTAT Quashes Rs. 31.66 Lakh Disallowance, sets aside Confiscation Order [Read Order]

The Principal Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, held that export is complete once goods are taken out of India to any place outside India, and drawback cannot be denied merely because the goods were delivered in Dubai instead of Russia and observed that the Drawback Rules do not require delivery to a specific final destination and that RBI had permitted the remittance, indicating no violation of its circular.

The Tribunal stated that delivery at Dubai against surrender of original bills of lading was a normal commercial practice. Accordingly, the disallowance of ₹31.66 lakh drawback and the confiscation order were set aside.

The Appellant, M/s Texcomash Export & Sh. N.K. Rajgarhia, filed an appeal challenging Order-in-Original No. 6/88/05 dated 13.07.2005. The appeal was earlier remanded by this Tribunal vide Final Order No. 355/2005 dated 15.03.2005, and later allowed vide Final Order No. 56848-56849/2017 dated 25.08.2017, setting aside the Show Cause Notice for lack of jurisdiction of DRI officers to issue SCN. Following the Delhi High Court's remand directions in Mangli Impex (WP No. 441/2013), the matter is being adjudicated afresh.

The Appellant made 29 export shipments of children's garments through ICD Tughlakabad, New Delhi, during November 1993 to June 1994 and 9 export shipments of Ladies garments through Mumbai Customs House during September 1994 to October 1994.

The goods were found over-invoiced for claiming inflated drawbacks. The value was initially reduced to Rs. 210/- per set by the Assistant Collector, which was later enhanced to Rs. 242/- by the Collector (Appeals) vide Order No. 406/1999 dated 26.03.1999. The department accepted this value.

The drawback was totalling Rs. 88,81,082/- was paid at Rs. 210/- per set. During investigation, the appellant voluntarily refunded Rs. 88,87,082/- and Rs. 31,66,822/- to the department. Based on Russian Customs investigation, a Show Cause Notice dated 07.01.2000 was issued proposing confiscation under Section 113(b) and (l) and disallowance of drawback under Section 75 and 76 read with Drawback Rules 16 and 16A.

The Section 113(b) and (l) of the Customs Act, 1962 explained that: Confiscation of goods attempted to be improperly exported, etc.

“The following export goods shall be liable to confiscation:-

(b) any goods attempted to be exported by land or inland water through any route other than a route specified in a notification issued under clause (c) of section 7 for the export of such goods;

(l) [ any specified goods in relation to which any provisions of Chapter IV-B or of any rule made under this Act for carrying out the purposes of that Chapter have been contravened.] [ Inserted by Act 12 of 1969, Section 5 (w.e.f. 3.1.1969).]”

The Tribunal's Final Order No. 355/2005 set aside the order regarding 29 shipments of children's garments but remanded the matter concerning 9 shipments of Ladies garments for fresh adjudication, and the impugned Order-in-Original No. 6/88/2005 dated 13.07.2005 disallowed drawback of Rs. 31,66,822/- and ordered confiscation of the 9 shipments of Ladies garments.

The Counsel for the Appellant, A.K. Jain, submitted that the impugned order suffers from jurisdictional defects as the Show Cause Notice was issued by ADG, DRI instead of the proper officer as required under Drawback Rules 16/16A and relied on Supreme Court’s decision in Cannon India Pvt. Ltd. Vs. Commissioner of Customs 2024 (265) ELT 17 (SC) is inapplicable since it is based on Notification No. 44/2011-Cus., whereas the present SCN dates back to 2000.

The Counsel also argued that Drawback Rules 1995 and Rule 16A effective 26.05.1995 and 06.12.1995 respectively cannot be applied retrospectively to exports made between September-October 1994 without saving provisions, relying on Kolhapur Canesugar Works Ltd. Vs. UOI 2000 (119) ELT 257 (SC), Padmini Exports Vs. UOI and Famina Knit Fabs Vs. UOI.

The Counsel also submitted that Section 73 of FERA 1973 (repealed in 1999) cannot be invoked, and since export proceeds were received through authorized banks on 08.11.1994 and 09.11.1994, and all 9 shipments reached Dubai thereby completing the export, the drawback entitlement cannot be denied merely because goods did not reach Russia.

Further, the Counsel also submitted that the SCN issued in 2000 for 1994 exports is barred by the 5-year limitation period, goods exported 11 years ago cannot be confiscated, and the SCN ignores earlier orders by GOI (RA) and CC (Appeals), Mumbai allowing drawback on FOB value basis.

On the other hand, the Counsel for the Respondent, Rohit Issar, Authorized Representative, stated that the 9 shipments from Mumbai did not reach Moscow as confirmed by Russian Customs reports, and were instead delivered in Dubai to M/s M.K. International as per the delivery order issued by the shipping agent. It was argued that the appellant violated the RBI Circular issued under Section 73(3) of FERA 1973, which prohibited third country exports from being financed out of state credit funds, yet the appellant received remittances in Indian rupees from such funds.

Further, the Counsel submitted that judgments cited by the appellant are inapplicable as those cases were not subject to RBI circulars. Since the remittances cannot be treated as export proceeds in respect of the Russian consignee, as per the second proviso to Section 75(1) of the Customs Act, the drawback is deemed never to have been allowed and is recoverable under Rules 16 and 16A of the Drawback Rules 1995. The Revenue emphasized the competence of DRI officers to issue SCNs as established by the Supreme Court and prayed for dismissal of the appeal.

The Tribunal consisted of Judicial Member, Rachna Gupta, heard and reviewed the matter filed by the Appellant challenging the order.

The Tribunal, after considering the submissions made, held that the final order No. 355/2005 allowed drawback for 29 shipments of children's garments but remanded the matter concerning 9 shipments of ladies' garments.

The impugned order disallowed drawback of Rs. 31,66,822/- and ordered confiscation on grounds that goods did not reach Russia, were delivered in Dubai, landing certificates were fraudulent, and RBI Circular No. 30/1993 prohibited third country exports financed from state credit funds.

The Tribunal also examined Rule 2(a) and (b) of Drawback Rules defining "drawback" and "export," holding that export is complete once goods are taken out of India to a place outside India, with no rider requiring delivery to a specific destination and observed that RBI's release of remittances indicated no violation of its circular, and delivery in Dubai upon surrender of original bills of lading was normal practice.

Further, the Tribunal stated that the forgery in Russian landing certificates cannot deny drawbacks when goods crossed Indian territory. Rule 16A of Drawback Rules 1995 cannot be applied retrospectively to 1993-94 exports. The confiscation order is unsustainable as goods were provisionally released in 1995-96.

Thus, the Tribunal set aside the order under challenge and allowed the appeals. The order was pronounced in open Court on 03.11.2025.

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