M/S Aks Apparels vs Union Of India And Anr
2013 Latest Caselaw 3887 Del

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI

                         Date of decision: 3rd September, 2013.

+                        W.P.(C) 2548/2013

      M/S AKS APPARELS                             ..... Petitioner
               Through            Mr. Anil K. Khanna, Advocate.

                         versus


      UNION OF INDIA AND ANR ..... Respondent
               Through  Dr. Ashwani Bhardwaj, Advocate with
                        Mr. Aishwarya Shandilya, Advocate.
                        Ms. Sweety Manchanda, CGSC.

      CORAM:
      HON'BLE MR. JUSTICE SANJIV KHANNA
      HON'BLE MR. JUSTICE SANJEEV SACHDEVA


      SANJIV KHANNA, J. (ORAL)

Petitioner-AKS Apparels, sole proprietorship of Anup

Joshi, by this writ petition has prayed for quashing/setting aside

of Order No.243/12-Cus dated 11th June, 2012 passed by the

Government of India in exercise of power under Section 129DD

of the Customs Act, 1962 (Act, for short). The said order

affirms the view taken by the first appellate authority and the

adjudication authority that the petitioner herein should refund

duty drawback of Rs.4,00,801/-.

2. The petitioner herein is an exporter and during the period

November, 2006 to June, 2007, had exported readymade

garments of FOB value of Rs. 82,74,303/- against shipping bills.

The export itself is not disputed and there is no quarrel or issue

with regard to the quantum of exports. The petitioner had

applied for refund of excise duty portion on the imports as

drawback and payment of Rs.4,00,801/- was sanctioned and

made in 2007 (exact date is not stated). Subsequently, after

about 3 years on 13th January, 2010, a show cause notice was

issued that the said drawback had been wrongly paid and it was

admissible only if the petitioner was a manufacturer exporter or

had got the garments manufactured under job work. The claim

was not admissible as the petitioner had procured the goods for

export from traders in open market. The impugned order

records that the petitioner had made false and wrong declaration

in the drawback form as he had used the word "supplier" to avail

the drawback. There was suppression of facts. Concession

granted to merchant/exporters vide CBEC Circular No.16/2009-

Cus dated 25-5-2009 on the recommendation of Drawback

Committee was not retrospective.

3. It is clear from the impugned order as well as the order

passed by the first appellate authority and the adjudicating

authority that the petitioner had not used the word

"manufacturer" or stated that he had got the goods/garments

manufactured on job work. Thus, it can be argued that there was

no fraud, suppression of facts or misdeclaration by the

petitioner. The word "supplier" used in the form clearly

indicates that the goods were purchased from third parties. The

show cause notice itself records that the petitioner had not filed

details of the job workers or evidence of supporting

manufacturer, yet the claim was accepted and payment of

drawback was made.

4. However, we need not decide the question of fraud,

misdeclaration or suppression of facts, in the form as we find

that the issue raised is covered by decision of this Court in

Commissioner of Customs (Export) Vs. Kultar Export, 2013

(288) ELT 187 (Del.). It is apparent from the said judgment that

Government was concerned with the objections and that the

distinction between manufacture/job work and trader purchasers

had led to difficulties and denial of claims. Therefore, they had

issued Circular No.16/2009 stipulating that duty drawback

would be admissible even when merchant exporters purchase

goods from the local market for export. The stand of the

respondents, however, was that this circular was operative

prospectively i.e. with effect from 25th May, 2009 and is not

retrospective.

5. In Kultar Export (supra), the High Court examined the

question whether the benefit of this Circular No.16/2009 could

be given to an exporter from whom drawback paid was being

reclaimed. The High Court affirmed the view taken by the

Customs, Excise and Service Tax Appellate Tribunal that Rule 3

of the Customs and Excise Drawback Rules, 1995 did not make

any distinction between manufacture/job work exporters on the

one hand and traders or merchant exporters. This distinction

was undone and abolished by Circular No.16/2009 and it was

clarified that the drawback would be available to a

merchant/trader exporter. In the case of Kultar Export (supra),

the respondents herein had initiated recovery proceedings for the

period 2003-04 to 2006-07 i.e. for the period prior to Circular

No.16/2009 stating that the exporter therein was a

merchant/trader exporter and not a manufacturer or the person,

who had got the garments stitched under job work and,

therefore, was wrongly paid drawback of Rs.1,43,15,400/-. On

appeal before the tribunal, the merchant-exporter succeeded. It

was observed that the only applicable legal provision was Rule 3

of the Customs and Excise Drawback Rules, 1995, which did

not make any such distinction. It was further observed that the

respondents themselves had not relied on the said distinction

when drawbacks were paid in spite of the circulars that

drawback would be available to manufacturer/exporters or the

person, who had got the garments manufactured on job work. It

was held that the exporter therein was under a bona fide belief

that they were eligible for drawback and this belief was also

accepted and acted upon by the authorities. After referring and

quoting from the order of the tribunal, the Division Bench has

held as under:-

"9. The above discussion would show that the respondent is a merchant exporter. An important factual aspect highlighted and also noticed by the Tribunal is that the respondent does not engage in job work or getting garments stitched by others. It merely procures readymade garments and textiles and exports them. Rule 3 of the 1995 Customs and Excise Drawback Rules states that drawback are allowed on the export of goods as prescribed amount. A proviso to Section 3 (1) states that if the goods are produced or manufactured from imported materials or excisable materials on some of which only the duly chargeable has been paid and not on the rest, or only a part of the duty chargeable had been paid or duty waived or there has been rebate CEAC No. 22/2012 Page 7 or refund and is given as credit under any rules, the drawback admissible shall be reduced by taking into account the lesser duty or tax paid or refunded or credit obtained. Circular No.17/97 prescribed the various conditions and visualized different situations in which duty drawback could be given. It recognized that exporters who manufactured goods or get them

manufactured were to follow a certain procedure. In the case of merchant exporters, the same circular provided as follows:

"(iv) In the case of merchant exporter who procures the export goods from the open market, the benefit of All Industry Rates of duty drawback shall be restricted to the Customs allocation only, if any. Export goods purchased from the market shell be treated as having availed the Modvat facility."

6. Reference, thereafter, was made to the earlier circulars issued in

1998 and 2001 and it has been observed:-

"10. Circular No.64/98, dated 1.09.1998 superseded Circular No.17/97 and provided more elaborately the conditions to be followed by manufacturers, who exported goods, and paid or claimed credit in terms of the prescribed rules or statutory schemes. It provided a procedure in respect of manufacturers, and merchant exporters who got garments stitched through job workers and merchant exporters who procure goods from the open market. In respect of the latter category the Circular stated as follows:- "(vi) In the case of merchant exporter who procures the export goods from the open market, the benefit of All Industry Rates of Duty Drawback shall be restricted to the Customs allocation only, if any. Export goods purchased from the market shall be treated as having availed the Modvat facility and are not entitled to the Central Excise allocation of the All Industry Rate of Drawback."

11. The Commissioner of Customs (Export) in this case relied on Circular No.54/01 dated 19.10.2001. Facially that document pertains to merchant exporters who are also manufacturers. The first paragraph of the Circular reads as follows: "All categories of Ready-made woven garments (other than raincoats, undergarments and clothing accessories) falling under Chapter 62 of Customs & Central Excise Tariff Act are now subject to central excise levy as a result of the changes announced in the Union Budget, 2001-2002(Finance Bill stage and

those made thereafter till the Finance Bill was enacted.) Though normally it is the actual manufacturer who is to pay duty of excise leviable on any commodity, considering the peculiar and very decentralised nature of garment producing sector certain special provisions have been made, wherein the merchants who get their garments produced by supplying materials to producing job working units have been recognised for registration/ duty payment etc. purposes. Vide Rule 4(3) of Central Excise (No.2) Rules, 2001, a merchant manufacturer, i.e., a merchant, who gets the goods manufactured from a job worker on his own account, is required to pay duty on the garments manufactured on his behalf on job work basis, either himself or authorise such job worker(s) to pay duty on his behalf. When merchant manufacturer pays duty, he is also entitled to avail of CENVAT for inputs procured and used for garment production by job workers"

7. The Bench referred to the difficulties faced by the merchant-

exporters who had not manufactured or got the consignment stitched

from a job worker, but had procured the goods from open market,

which had led to issue of Circular No.8/2003. In this circular it was

clarified and stated:-

"3. After accepting the recommendations of the Committee, the Board has decided that henceforth the manufacturer-exporters who are not registered with Central Excise or such merchant exporters whose supporting manufacturer are not registered with the Central Excise, shall not be required to furnish any certificate as to the nonavailment of Cenvat facility from the jurisdictional Central Excise authorities.

4. It has been decided that instead these manufacturer exporters and merchant exporters

with a supporting manufacturer shall be required to give a self-declaration that such manufacturer- exporters or the supporting manufacturers are not registered with Central Excise and that they do not avail / have not availed Cenvat facility. The form of self-declaration is enclosed.

5. It is also clarified here that as regards such manufacturer-exporters and supporting manufacturers who are registered with Central Excise, the fact of non-availment of Cenvat facility can be confirmed from ARE-I which these exporters shall be furnishing. Therefore, in case of registered manufacturer-exporters and merchant exporters with registered supporting manufacturers the earlier practice of acceptance of ARE-I shall continue."

8. Thereafter, the Division Bench has held as under:-

"14. As noticed earlier in this case, the respondent is not a manufacturer but only procures or sources goods from the Indian market and exports them. Therefore, it availed the benefit of All India rates of duty drawback, a notional concept applicable to such class of exporters. None of the circulars cited by the petitioner required the respondent to follow the procedure which is now mandated, in 2009. The previous circulars of 1997 and 1998 as well as the circular of 2003 clearly visualized that duty drawback was restricted, excluding duty credit availed, in the case of manufacturers who also got their job work done. Exporters of goods purchased from the market were to be treated as having availed Modvat facility. In view of this, and considering the facts that the exports had been finalized and duty drawback paid as long back as in 2006-2007, the attempt to reopening the entire issue by the petitioner was clearly unwarranted."

9. In view of the aforesaid legal position, we allow the present writ

petition and the impugned order is quashed and it is held that the

respondents are not entitled to recover the drawback which was paid to

the petitioner. The petitioner, it is stated, has already refunded the

drawback of Rs.4,00,801/- plus paid interest and penalty of Rs.50,000/-

Amount of Rs.4,00,801/- along with interest deposited and Rs.50,000/-

will be refunded to the petitioner within a period of two months from

the date copy of this order is received. In case payment is not made

within the said period, the respondents will pay interest @ 10% per

annum from the date of this order till payment is made.

The writ petition is disposed of. No costs.

SANJIV KHANNA, J

SANJEEV SACHDEVA, J SEPTEMBER 02, 2013 NA