Rule 16A of the 1995 Drawback Rules not applicable as Rule 20(2) of 2017 Rules does not save right to recover amount of Drawback: CESTAT allows Appeal [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai Bench, allowed an appeal and held that Rule 16A of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 was not applicable as Rule 20(2) of Customs and Central Excise Duties Drawback Rules, 107 does not save the right to recover amount of drawback.

The appellant, Haji S International, is a partnership firm engaged in the export of Garments. During January 2012 to December 2016, the appellant undertook exports of garments through 699 shipping bills and claimed for duty drawback at the All Industry Rate notified by the Government for garments in terms of Section 75 of the Customs Act read with Rule 3 of the 1995 Drawback Rules.

After an investigation, one Suhel Anzari recorded his statement giving names of exporters to whom he claims to have provided fake invoices and one of the exporters was Haji International. Based on this, another investigation was initiated against the appellant where the partner stated that at times, his foreign buyers identify and procure goods from local suppliers which are then exported by the appellant and the appellant makes payment to these local suppliers.

A show cause notice (SCN) was issued against the appellant for recovery of duty drawback under Rule 16 of 1995 Rules on the ground that no duty/tax has been paid on procurement of goods and that the market value of goods exported appeared lower than claimed drawback amount. The appellant replied that the demand raised under Rule 16 was not maintainable as the 1995 Rules ceased to operate with the enactment of 2017 Drawback Rules.

The Commissioner, however, confirmed the duty drawback with penalties. The counsel for the appellant, submitted before the CESTAT, relying on several case laws, that the grant of duty drawback cannot be questioned and denied based on fake invoices.

The tribunal observed that according to Rule 20(1) of the 2017 Drawback Rules, the 1995 Drawback Rules ceased to exist. CESTAT concluded that Rule 16 could not have been resorted to by the department for recovery of the drawback amount from the appellant.

Due to the abovementioned reasons, the bench of Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) allowed the appeal and deleted penalties, setting aside the order passed by the Commissioner.

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