Delhi High Court
M.F. Rings & Bearing Races Ltd. vs Commissioner Of Customs & Anr. on 6 May, 2016
Author: Vibhu Bakhru
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 06.05.2016
+ W.P.(C) 5118/2003
M.F. RINGS & BEARING RACES LTD. ..... Petitioner
Through: Mr. Kamal Mehta and Mr Sudeep
Singh, Advocates.
versus
COMMISSIONER OF CUSTOMS & ANR. ..... Respondents
Through: Mr Kamal Nijhawan, Senior Standing
Counsel.
Mr Bhagvan Swarup Shukla, CGSC with Mr
Rachit Goel, Advocate for UOI.
WITH
+ W.P.(C) 5277/2003
M.F. RINGS & BEARING RACES LTD. ..... Petitioner
Through: Mr. Kamal Mehta and Mr Sudeep
Singh, Advocates.
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr Kamal Nijhawan, Senior Standing
Counsel.
Mr Bhagvan Swarup Shukla, CGSC with Mr
Rachit Goel, Advocate for UOI.
WITH
+ W.P.(C) 5394/2003
R.N. GUPTA & CO. LTD. ..... Petitioner
Through: Mr. P. Devnath with Mr Abhishek
Anand, Mr. Vivek Sharma and Mr Yogendra
Aldak, Advocates.
W.P.(C) 5118/2003 & Other Connected Matters Page 1 of 32
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr. Rahul Kaushik, Senior Standing
Counsel for CBEC with Mr Bhavishya Sharma,
Advocate.
Mr. Bhagvan Swarup Shukla, CGSC with
Mr. Rachit Goel, Advocate for UOI.
WITH
+ W.P.(C) 5403/2003
UMA SHANKAR KHANDELWAL & CO. ..... Petitioner
Through: Mr. P. Devnath with Mr Abhishek
Anand, Mr. Vivek Sharma and Mr Yogendra
Aldak, Advocates.
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr. Satish kumar, senior standing
counsel for R-2 & R-3.
Mr. Bhagvan Swarup Shukla, CGSC with Mr.
Rachit Goel, Advocate for UOI.
AND
+ W.P.(C) 5692/2003
KUNJ FORGINGS ..... Petitioner
Through: Mr. P. Devnath with Mr Abhishek
Anand, Mr. Vivek Sharma and Mr Yogendra
Aldak, Advocates.
versus
UNION OF INDIA & ORS. ..... Respondents
Through: Mr. Kamal Nijhawan, Advocate.
W.P.(C) 5118/2003 & Other Connected Matters Page 2 of 32
Mr. Bhagvan Swarup Shukla, CGSC with Mr.
Rachit Goel, Advocate for UOI.
CORAM:
JUSTICE S.MURALIDHAR
JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The controversy involved in the present petitions relates to denial
of duty drawback on „Flanges‟ manufactured by the Petitioners, by the
process of forging, and exported from the country. The Petitioners claim
that Flanges manufactured by them and exported during the period 10th
December, 2002 to 6th April, 2003 are covered under SS No. 73.29 under
Chapter 73 of the Table of Drawback Rates 2002-03 (hereafter
„Drawback Schedule 2002-03‟) notified by Custom Notification No.
33/2002 (NT) as amended by Notification No. 80/2002 (NT) dated 10th
December, 2002 and the Flanges exported by them after 6th April, 2003
till 30th June, 2003 are covered under SS 73.28 of the Table of Drawback
Rates 2003-04 (hereafter „Drawback Schedule 2003-04‟) as notified by
Notification No. 26/2003 (NT). The Respondents contest the claim as
according to them, Flanges are manufactured by using low grade steel
and are, therefore, not covered under SS No. 73.29 or SS No. 73.28 for
the purposes of grant of duty drawback. The Respondents state that the
duty drawback rates have been computed on the basis of the data
provided by the Forgings Panel of the Engineering Export Promotion
Council (EEPC), which did not contain any data regarding Flanges and,
therefore, duty drawback at the rates fixed by the Central Government is
not available for export of forged Flanges.
2. In respect of certain shipments, claims made by the Petitioners for
duty drawbacks were pending while in certain other cases, claims were
sanctioned. Subsequently, show cause notices have been issued calling
upon the Petitioners to show cause why their claims should not be
rejected and why the drawback claims sanctioned earlier be not
recovered. The Petitioners, inter alia, impugn the said show cause notices
in these petitions.
3. Some of the Petitioners have also impugned a letter dated 8th April,
2003 issued by the Joint Secretary (Drawback), Ministry of Finance,
Government of India, clarifying that Flanges are not eligible for duty
drawback under SS No. 73.29 and 73.30 of the Drawback Schedule 2002-
03 and SS No. 73.28, 73.29 and 73.30 of the Drawback Schedule 2003-
04. In W.P.(C) 5277/2003, the Petitioner therein has also impugned the
Corrigendum issued by way of a public notice dated 13th May, 2003, inter
alia, seeking to correct and rectify SS No. 73.28, 73.29, 73.30 and 73.31
of the Drawback Schedule 2003-04. The Petitioner contended that the
said public notice, in fact, seeks to substantially amend those entries;
which, according to it, is not permissible as the Drawback Rates have
been notified in the Official Gazette in exercise of delegated legislative
powers and, thus, cannot be amended by a public notice/circular.
4. For the purposes of addressing the controversy involved in these
petitions, certain facts regarding M.F. Rings & Bearing Races Ltd. (the
Petitioner in W.P.(C) No.5277/2003 and 5118/2003 and hereafter referred
to as MFRBRL) are noticed hereunder.
4.1 MFRBRL is, inter alia, engaged in the manufacturing of different
types of Steel Forgings under the licence issued by the Department of
Industrial Development, Ministry of Industry for manufacture of Forged
Steel Flanges, Rings, Discs, Forged Fittings and Bearing Races, etc.
MFRBRL states that it manufactures Steel Flanges by the process of
Forging and the same entails cutting of Steel, Heating, Punching, Ring-
Rolling/Pressing, Forging and Testing. MFRBRL is also registered with
the EEPC for export of all types of miscellaneous Forgings, Carbon Steel
Forgings/Flanges, Stainless Steel Flanges, Rings, etc., as per International
Standards. MFRBRL further states that the Flanges manufactured by it
conform to the international standards and specifications as per ASTIM
A-105.
4.2 MFRBRL exported Forged Flanges under Shipping Bills dated 28 th
January, 2003 to 31st March, 2003 in respect of which it claims to be
entitled to Duty Drawback of Rs.51,54,890/- under Drawback Schedule
2002-03. MFRBRL has made claims for the aforesaid amount but the
same has not been accepted. In addition, MFRBRL had exported Flanges
under Shipping Bill Nos.1258707 and 1270730 in respect of which a duty
drawback amount of Rs.7,88,956/- was sanctioned. MFRBRL has also
exported Flanges under Shipping Bills dated 10 th April, 2003 to 16th May,
2003 in respect of which MFRBRL has claimed a sum of Rs.39,17,873/-
as duty drawback as per Drawback Schedule 2003-04.
4.3 MFRBRL received a Show Cause Notice dated 4th June, 2003,
inter alia, calling upon MFRBRL to show cause as to why the duty
drawback amount of Rs.51,54,890/- (as claimed by it as per Drawback
Schedule 2002-03) not be denied. Further, MFRBRL was also called
upon to show cause as to why an amount of Rs.7,93,820/- (subsequently
corrected to Rs.7,88,956/-), which was sanctioned earlier be not
recovered along with interest.
4.4 MFRBRL was issued another Show Cause Notice dated 22nd July,
2003 referring to the Corrigendum dated 13th May, 2003 issued by the
Respondents for rectifying, inter alia, SS 73.28, 73.29, 73.30 and 73.31
of Drawback Schedule 2003-04 and calling upon MFRBRL to show
cause why the benefit of duty drawback in respect of Shipping Bills for
the period 10th April, 2003 to 16th May, 2003 be not denied to it.
4.5 MFRBRL has filed the petition being W.P.(C) No.5118/2003, inter
alia, impugning the Show Cause Notice dated 4th June, 2003 as well as
the action of the Respondents in seeking to denying the benefits of duty
drawback in respect of forged Flanges. MFRBRL has also filed another
petition, W.P.(C) 5277/2003, impugning the Show Cause Notice dated
22nd July, 2003 and the Corrigendum dated 13th May, 2003 issued by the
Respondents to the extent it seeks to rectify SS 73.28, 73.29,73.30 and
73.31 of Drawback Schedule 2003-04.
5. Similarly, Uma Shankar Khandelwal & Co. (the Petitioner in
W.P.(C) 5403/2003) impugns the denial of duty drawback of Rs.
2,11,49,807/- in respect of exports made under shipping bills for the
period 20th January, 2003 to 4th April, 2003. In W.P.(C) 5394/2003, R.N.
Gupta and Co. Ltd. (the Petitioner therein) claims a sum of Rs.
30,38,385/- as duty drawback under SS 73.28 of the Drawback Schedule
2003-04 alongwith interest. In W.P.(C) 5692/2003, M/s Kunj Forgings
(the Petitioner therein) claims a sum of Rs. 55,91,260/- as duty drawback
for export of product covered under SS 73.29 of the Drawback Schedule
2002-03. The Petitioners in W.P.(C) 5692/2003, W.P.(C) 5394/2003 and
W.P.(C) 5403/2002 also impugn the letter dated 8th April, 2003 issued by
Joint Secretary (Drawback), Ministry of Finance whereby it is clarified
that Flanges are not eligible for duty drawback at the rates specified under
Drawback Schedules.
6. The learned counsel appearing for Respondents submitted that the
Petitioners were not entitled to duty drawback for export of Flanges
because Flanges are manufactured by using low grade steel and the
relevant data pertaining to the said product was not considered while
fixing the All Industry Rates of duty drawbacks under the Drawback
Schedules notified by the Central Government. The learned counsel
referred to the Customs and Central Excise Duties Drawback Rules, 1995
and drew the attention of this Court to Sub-rule (2) of Rule 3 which, inter
alia, postulates that the Central Government shall have regard to the
average quantities, value and the duties suffered on the material used for
manufacture of the product eligible for duty drawback. They emphasised
that since duty relating to Flanges had not been considered by the Central
Government while fixing All Industry Rates of duty drawback, Flanges
would not be covered under the relevant entries (73.28 and/or 73.29) of
the Drawback Schedules.
7. Both, Mr Kamal Nijhawan and Mr Satish Kumar, learned Senior
Standing counsels strongly relied upon the decision of the Gujarat High
Court in Micro Forge (India) Ltd. v. Union of India: 2014 (307) E.L.T.
652 (Guj.) and contended that the issues agitated by the Petitioners were
covered by the said decision.
8. The learned counsel for the Respondents also supported the
clarification issued by the Joint Secretary (Drawback), Ministry of
Finance, by his letter dated 8th April, 2003 wherein it was clarified that
the data relating to Flanges was not provided by the Forgings panel of
EEPC and, therefore, it was not possible for Central Government to
determine the rate of duty drawback as applicable to Flanges;
consequently SS Nos. 73.29 and 73.30 of Drawback Schedule 2002-03
and SS Nos. 73.28, 73.29 and 73.30 of Drawback Schedule 2003-04 were
not representative of the product Flanges. And, therefore, no duty
drawback was available on export of Flanges.
9. The principal question that arises for consideration in these
petitions is whether the export of Flanges manufactured by the process of
Forging are eligible for duty drawback at All Industry Rates under SS
73.29 of the Drawback Schedule 2002-03 and/or SS 73.28 of the
Drawback Schedule 2003-04, as notified under the Customs and Central
Excise Duties Drawback Rules, 1995.
10. Flanges are defined as "a projecting edge or rib of a metal wheel or
beam used for strengthening, guiding, attaching or securing". The
Petitioners state that Flanges are shaped as metal rings, which are used as
sleeves to connect different sections of pipes. It is not in dispute that
Flanges are manufactured from Carbon Steel by the process of forging.
11. Duty Drawback is an export incentive which entails providing
rebate on the exports of specified products. The purpose of Duty
Drawback is to neutralise the impact of the duties on imports used for
manufacturing export products in order to ensure that products
manufactured in India are competitive in the international market.
12. The statutory sanction for granting Duty Drawback is provided
under Section 75 of the Customs Act, 1962 (hereafter the „Act‟). Section
75 of the Act and Section 37 of the Central Excise Act, 1944 provides
that where it appears to the Central Government that in respect of any
goods or any class or description of goods manufactured in India and
which have been entered for export, a drawback should be allowed of
duties of customs chargeable on any imported material used in
manufacture or processing of such goods, the Central Government may
by notification in the Official Gazette direct that Duty Drawback be
allowed subject to the Rules made thereunder. The relevant extract of
Section 75 of the Act is reproduced as under:
"SECTION 75. Drawback on imported materials used
in the manufacture of goods which are exported. - (1)
Where it appears to the Central Government that in respect
of goods of any class or description manufactured,
processed or on which any operation has been carried out in
India, being goods which have been entered for export and
in respect of which an order permitting the clearance and
loading thereof for exportation has been made under
section 51 by the proper officer, or being goods entered for
export by post under section 82 and in respect of which an
order permitting clearance for exportation has been made
by the proper officer, a drawback should be allowed of
duties of customs chargeable under this Act on any
imported materials of a class or description used in the
manufacture or processing of such goods or carrying out
any operation on such goods, the Central Government may,
by notification in the Official Gazette, direct that drawback
shall be allowed in respect of such goods in accordance
with, and subject to, the rules made under sub-section (2).
Provided that no drawback shall be allowed under
this sub-section in respect of any of the aforesaid goods
which the Central Government may, by rules made under
sub-section (2), specify, if the export value of such goods
or class of goods is less than the value of the imported
materials used in the manufacture or processing of such
goods or carrying out any operation on such goods or class
of goods, or is not more than such percentage of the value
of the imported materials used in the manufacture or
processing of such goods or carrying out any operation on
such goods or class of goods as the Central Government
may, by notification in the Official Gazette, specify in this
behalf:
Provided further that where any drawback has been
allowed on any goods under this sub-section and the sale
proceeds in respect of such goods are not received by or on
behalf of the exporter in India within the time allowed
under the Foreign Exchange Management Act, 1999 (42 of
1999), such drawback shall be deemed never to have been
allowed and the Central Government may, by rules made
under subsection (2), specify the procedure for the recovery
or adjustment of the amount of such drawback.
(1A) Where it appears to the Central Government that the
quantity of a particular material imported into India is more
than the total quantity of like material that has been used in
the goods manufactured, processed or on which any
operation has been carried out in India and exported outside
India, then, the Central Government may, by notification in
the Official Gazette, declare that so much of the material as
is contained in the goods exported shall, for the purpose of
sub-section (1), be deemed to be imported material.
(2) The Central Government may make rules for the
purpose of carrying out the provisions of sub-section (1)
and, in particular, such rules may provide -
(a) for the payment of drawback equal to the amount of
duty actually paid on the imported materials used in the
manufacture or processing of the goods or carrying out any
operation on the goods or as is specified in the rules as the
average amount of duty paid on the materials of that class
or description used in the manufacture or processing of
export goods or carrying out any operation on export goods
of that class or description either by manufacturers
generally or by persons processing or carrying on any
operation generally or by any particular manufacturer or
particular person carrying on any process or other
operation, and interest if any payable thereon;
(aa) for specifying the goods in respect of which no
drawback shall be allowed;
(ab) for specifying the procedure for recovery or
adjustment of the amount of any drawback which had been
allowed under sub-section (1) or interest chargeable
thereon;
(b) for the production of such certificates, documents and
other evidence in support of each claim of drawback as
may be necessary;
(c) for requiring the manufacturer or the person carrying
out any process or other operation to give access to every
part of his manufactory to any officer of customs specially
authorised in this behalf by the Assistant Commissioner of
Customs or Deputy Commissioner of Customs to enable
such authorised officer to inspect the processes of
manufacture, process or any other operation carried out and
to verify by actual check or otherwise the statements made
in support of the claim for drawback.
(d) for the manner and the time within which the claim
for payment of drawback may be filed;"
13. In exercise of the powers conferred under Section 75(2) of the Act
and Section 37 of the Central Excise Act, 1944, the Central Government
had framed the Customs and Central Excise Duties Drawback Rules,
1971 which were subsequently replaced by the Customs and Central
Excise Duties Drawback Rules, 1995 (hereafter „the Rules‟).
14. Rule 3 of the Rules, inter alia, provides that the drawback may be
allowed on the export of goods on such amount or at such rate as may be
determined by the Central Government. Sub- Rule (2) of Rule 3 of the
Rules indicates the relevant data required to be considered by the Central
Government in determining the amount or the rates of the duty drawback.
Rule 3(2) of the Rules reads as under:
"(2) In determining the amount or rate of drawback
under this rule, the Central Government shall have regard
to:-
(a) the average quantity or value of each class or description
of the materials from which a particular class of goods is
ordinarily produced or manufactured in India;
(b) the average quantity or value of the imported materials
or excisable materials used for production or
manufacture in India of a particular class of goods.
(c) the average amount of duties paid on imported
materials or excisable materials used in the manufacture
of semis, components and intermediate products which
are used in the manufacture of goods;
(d) the average amount of duties paid on materials wasted in
the process of manufacture and catalytic agents;
Provided that if any such waste or catalytic agent
is re-used in any process of manufacture or is sold, the
average amount of duties on the waste or catalytic agent
re-used or sold shall also be deducted;
(e) the average amount of duties paid on imported materials
or excisable materials used for containing or packing the
export goods;
(f) any other information which the Central Government
may consider relevant or useful for the purpose."
15. In exercise of the powers conferred under Rules 3 and 4 of the
Rules, the Central Government notified the Drawback Schedule 2002-
2003 vide Notification No. 33/2002 (NT). Chapter 73 of the said
Schedule concerns articles of iron and steel. SS 73.29 of the Drawback
Schedule 2002-03 as effective from 1st June, 2002 is extracted below:
Serial/ Description of Goods Rate of Allocation
Sub- Drawback
Serial
No.
Customs Excise
73.29 Non-alloy/Carbon Steel Rs.19.00 12.00 7.00
Forgings (rough) / (Rupees
unmachined/semifinished nineteen
/ machined / identifiable only) per kg.
ready to use machined of steel
parts / components content
manufactured through
forging process, when
CENVAT facility has not
been availed, subject to
the condition that the
exporters shall give self-
certification
authenticated by the
Chartered Engineer that
only duty paid imported
steel has been used in the
manufacture of these
goods.
16. The above entry, SS 73.29, was subsequently substituted by
Notification No. 80/2002 (N.T.) w.e.f. 10th December, 2002, which reads
as under:
Serial/ Description of Goods Rate of Allocation
Sub- Drawback
Serial
No.
Customs Excise
73.29 Non-alloy/Carbon Steel Rs.19.00 12.00 7.00
Forgings (rough) / (Rupees
unmachined/semifinished nineteen
/ machined / identifiable only) per kg.
ready to use machined of steel
parts / components content
manufactured through
forging process, when
CENVAT facility has not
been availed.
17. The Central Government issued a notification on 1st April, 2003
being Notification No. 26/2003-CUSTOMS (N.T.), specifying All
Industry Rates of duty drawback in supersession of the drawback rates
specified earlier under Notification No. 33/2002 - CUSTOMS (N.T.).
The entries SS Nos. 73.28, 73.29, 73.30 and 73.31 of the Drawback
Schedule 2003-04 as notified under the notification dated 1st April, 2003
reads as under:
Serial/ Description of Goods Rate of Allocation
Sub- Drawback
Serial
No.
Customs Excise
73.28 Non-alloy/ Carbon Steel Rs.17.00 10.70 6.30
Forgings (rough)/ (Rs.
unmachined/ semi- seventeen
finished/machined/ only) per
identifiable ready-to-use kg. of
machined parts/ components, steel
manufactured through forging content.
process, when CENVAT
facility has not been availed.
73.29 Non-alloy/ Carbon Steel Rs.10.70 All Customs
Forgings (rough)/ (Rs. ten
unmachined/ semi- and paise
finished/machined/ seventy
identifiable ready-to-use only) per
machined parts/ components, kg. of
manufactured through forging steel
process, when CENVAT content.
facility has been availed.
73.30 Alloy Steel Forgings (rough) / Rs.26.80 17.40 9.40
unmachined/ semi-finished/ (Rs.
machined/ identifiable ready- twenty-six
to-use machined parts/ and paise
components, manufactured eighty
through forging process, only) per
when CENVAT facility has kg. of
not been availed. steel
content.
73.31 Alloy Steel Forgings (rough) / Rs.17.40 All Customs
unmachined/semi-finished/ (Rs.
machined/ identifiable ready- seventeen
to-use machined and paise
parts/components, forty only)
manufactured through forging per kg. of
process, when CENVAT steel
facility has been availed. content.
18. Therefore, the Respondents then issued a corrigendum by way of a
public notice on 13th May, 2003, inter alia, rectifying entries SS 73.28,
73.29, 73.30 and 73.31 of the Drawback Schedule 2003-04. The relevant
extract of the said public notice reads as under:-
"10. At page 65, in Chapter 73, in column 3, against
Serial/Sub-serial No.73.28, the word, ".... manufactured ...",
the words, "...out of duty paid imported steel...", shall be
inserted.
11. At page 65, in Chapter 73, in column 3, against
Serial/Sub-serial No.73.29, after the word, ".... manufactured
...", the words, "...out of duty paid imported steel...", shall be
inserted.
12. At page 65, in Chapter 73, in column 3, against
Serial/Sub-serial No.73.30, after the word, ".... manufactured
...", the words, "...out of duty paid imported steel...", shall be
inserted.
13. At page 65, in Chapter 73, in column 3, against
Serial/Sub-serial No.73.31, after the word, ".... manufactured
...", the words, "...out of duty paid imported steel...", shall be
inserted."
19. The Central Government issued a Notification dated 25 th June,
2003 (being Notification No.42/2003(NT), in exercise of its powers
conferred by Rule 3 read with Rule 4 of the Rules deleting SS Nos. 73.28,
73.29, 73.30 and 73.31 from the Drawback Schedule 2003-04 w.e.f. 1st
July, 2003.
20. As stated earlier, it is not in dispute that the Petitioners have
exported Flanges which were manufactured from carbon steel using the
process of forging. The Petitioners further claim that they have not
availed CENVAT in relation to the inputs used for manufacturing the
Flanges and, accordingly, have claimed duty drawback at the rates
specified in respect of SS 73.29 of Drawback Schedule 2002-03 for
exports under shipping bills for the period prior to 7th April, 2003, the
date from which the notification dated 1st April, 2003 came into effect.
R.N. Gupta & Co. Ltd. (the Petitioner in W.P.(C) 5394/2003) and
MFRBRL have also claimed benefit of duty drawback under entry SS
73.28 of the Drawback Schedule 2003-04 for export of Flanges made
after 6th April, 2003.
21. It is clear on a plain reading of SS 73.29 of the Drawback Schedule
2002-03 and SS 73.28 of the Drawback Schedule 2003-04 that Flanges
manufactured and exported by the Petitioners are covered under those
entries.
22. Insofar as exports made under shipping bills prior to the
notification dated 1st April, 2003 are concerned, the Respondents are
seeking to deny the benefits solely on the basis that the data related to the
said products was not considered while fixing the All Industry Rates of
duty drawback. Although, it was also mentioned that the Petitioners have
not provided proof of payment of duties, the said line of argument was
not pressed. Thus, the only question to be addressed in respect of claims
made under the Drawback Schedule 2002-03 is whether the benefit of
duty drawback could be denied to the Petitioners on the ground that the
data relating to Flanges had not been provided by EEPC and, therefore,
was not considered by the Central Government while fixing the All
Industry Rates.
23. Insofar as the exports made under shipping bills after the
Drawback Schedule 2003-04 was notified are concerned, the
Respondents have sought to deny the benefit, additionally on the basis of
the Corrigendum dated 13th May, 2003 issued by the Central
Government. Thus, it is also necessary to consider whether the Central
Government could rectify the notification dated 1 st April, 2003 with
retrospective effect by a public notice issued on 13th May, 2003.
24. A plain reading of Sub-rule (2) of Rule 3 of the Rules indicates that
the rates of drawback are to be fixed by the Central Government on the
basis of averages in respect of industry as a whole. Sub-rule (2) of Rule 3
of the Rules expressly provides that the Central Government shall have
regard to the average quantity or value of the materials from which the
goods in question are ordinarily produced or manufactured in India; the
average quantity of value of imported material or excisable material used
for production or manufacture of goods and the average amount of duties
suffered on such material; average amount of duties of materials wasted
in the process of manufacture; and the average amount of duties paid on
materials used for packing export goods. Thus, undisputedly, the duties
actually paid on the goods manufactured by a particular exporter are not
relevant since the drawback rates are fixed on the basis of the industry
mean. The scheme of rate fixation takes into account the duties suffered
on the raw materials used by an industry as a whole. Thus, there is little
scope for calling upon a particular manufacturer to provide proof of the
duties actually paid on the materials used by him for manufacture or
production of the eligible product, for the purposes of granting duty
drawback.
25. Circular No. 23/2001-CUS dated 18th April, 2001 issued by the
Central Board of Excise and Customs, New Delhi also clarifies the above
position and puts it beyond any pail of doubt. The relevant extract of the
said Circular is reproduced below:-
"Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi
Subject : Declaration under Rule 12(1)a(ii) of Drawback
Rule for availing AIR of Drawback.
Certain Export Promotion Councils have brought to
the notice of the Board that certain Custom Houses are
relying on the first proviso to Rule 3 of Customs & Central
Excise Rules, 1995 and Declaration filed by exporters under
Rule 12(1)(a)(ii) of the said Rules to seek evidence of
payment of duties and evidence of import of inputs against
individual consignments exported by individual exporters
under claim for Drawback at All Industry Rate and this is
creating undue delay in disbursement of drawback and
harassment to genuine exporters.
2. The issue has been examined in the Board. All
Industry Rate is based on the concept of averages, wherein
the drawback rate itself, as well as its customs and excise
portions, are based on weighted averages of consumption of
imported / indigenous inputs of a cross section of exporters
and the average incidence for duties suffered on such inputs.
These rates have no relation to the actual input consumption
pattern and actual incidence suffered on inputs of a particular
exporter or individual consignments exported by any
particular exporter under AIR/DBK Claim.
3. Therefore, it is clarified that, as a matter of rule, no
evidence of actual duties suffered or imported or indigenous
nature of inputs, even if the All Industry Rate has customs
portion, should be insisted upon by the field formations
along with declaration filed by exporters under Rule
12(l)(a)(ii) of the Customs & Central Excise Duties
Drawback Rules, 1995."
26. In view of the above, an exporter is only required to satisfy that the
exported product falls within the description of the goods as notified by
the Central Government in order to claim duty drawbacks at the specified
All Industry Rates. It cannot be disputed that the Flanges exported by the
Petitioners conformed to the description as specified in SS 73.29 of
Drawback Schedule 2002-03 and SS 73.28 of Drawback Schedule 2003-
04 inasmuch as, (i) the Flanges were manufactured from carbon steel; (ii)
they were manufactured by the process of forging; and (iii) CENVAT
credit on the inputs had not been claimed. Thus, the Petitioners would
clearly be entitled to duty drawback at the notified rates in respect of the
Flanges exported by them.
27. Now, we turn to the question whether such benefit could be denied
to the Petitioners on the basis of the clarification issued by the Joint
Secretary by way of a letter dated 8th April, 2003. The said letter dated
8th April, 2003 was addressed to all the Commissioners of Customs and
Central Excise for information and necessary action and is reproduced
below for ready reference:-
"Sub: Duty Drawback Rates for Non-Alloy Steel and Alloy
Steel Forgings
......................
Please refer to the discussions you had with the
undersigned and Shri Avinash Pushkarna, Technical Officer
of the Drawback Division, Department of Revenue with
regard to the scope of entries at SS Nos. 73.29 and 73.30 of
the Drawback Schedule 2002-03 and SS Nos. 73.28, 73.29
and 73.30 of the Drawback Schedule 2003-04. During
discussions it was brought to your notice that drawback rates
for these products had been worked out by taking into
account non-alloy/carbon steel/alloy steel inputs used in the
manufacture of automotive components and machinery
parts. You had mentioned that Shri A. K. Raha,
Commissioner of Customs, ICD-TKD, Delhi in his letter No
VIII/ICD/TKD/20/DBK/22/03 dated 20th March 2003 had
provided details of certain shipment bill relating to
drawback claims under these sub-serial numbers, which
appear to be disproportionately high. According to you, all
these shipments were for 'FLANGES'.
We have gleaned through our data and find that data
provided by Forgings Panel of Engineering Export
Promotion Council did not contain data regarding
"FLANGES" exporters of which seem to have been availing
the benefit of these entries and getting compensation more
than that was intended by the Government. It is, therefore,
brought to your notice that no data has been furnished by
exporters of 'FLANGES'. It has also been learnt that
'FLANGES' require low-grade steel as input, value of which
is also very low. Hence, the aforesaid entries in the
Drawback Schedule are not representative of the product
'FLANGES'. Therefore, keeping in view the revenue
interest and in consonance with the true mandate of Customs
& Central Excise Duties Drawback Rules 1995, it is
clarified that 'FLANGES' were not and are not eligible for
drawback under these entries.
In order to further gauge the extent of any other
misuse of these entries I have already sent a detailed FAX to
your Commissioner and other Commissioners soliciting
details of such shipments so that further corrective action
can be taken by the Ministry by the Ministry (sic) to avoid
accrual of any unintended benefits to the exporters.
You may like to take action in the light of above."
28. A plain reading of the aforesaid letter indicates that the only reason
provided for denial of benefit is that the data in respect of Flanges was
not considered by the Government while fixing the All Industry Rates.
This is also the principal contention advanced by the learned counsel for
the Respondents.
29. As observed earlier, All Industry Rates for duty drawback as
notified by the Central Government are in pursuance of the powers of
delegated legislation conferred under Section 75 of the Act read with the
Rules. The All Industry Rates of duty drawbacks as fixed by the Central
Government are statutory. Thus, we find it difficult to accept that such
statutory notifications could be whittled down or amended by an
executive circular.
30. We have no reason to doubt the assertion that the data relating to
Flanges had not been forwarded by EEPC and, therefore, was not
considered by the Central Government while fixing the drawback rates in
exercise of its delegated powers under Section 75 of the Act read with
Rule 3 and 4 of the Rules. Perhaps, the Respondents are also correct in
submitting that it was not the intention of the Central Government to
confer the benefit of duty drawback for export of Flanges at the rate so
notified. However, if the language of the statute is clear and
unambiguous, there is little scope to entertain such contentions. In our
view, the only question to be answered would be whether the product,
Flanges, conforms to the conditions of SS 73.29 of Drawback Schedule
2002-03 and 73.28 of Drawback Schedule 2003-04. It is not open for the
Court or the executive to look beyond the plain language of the statute if
it is clear and unambiguous.
31. The above principle was pithily put by Lord Cairns in Partington
v. Attorney General: (1869) LR 4 HL 100 in the following words:-
"As I understand the principle of all fiscal interpretation it is
this: if the person sought to be taxed comes within the letter
of the law he must be taxed, however great the hardship may
appear to the judicial mind to be. On the other hand, if the
Crown, seeking to recover the tax cannot bring the subject
within the letter of the law, the subject is free, however
apparently within the spirit of the law, the case might
otherwise appear to be."
32. In Hemraj Gordhandas v. H.H. Dave, Assistant Collector of C.
Ex. & Customs: 1978 (2) E.L.T. J 350 (S.C.) a Constitution Bench of the
Supreme Court considered the question whether excise duty exemption
was available in respect of cotton fabrics which were produced on
powerlooms owned by a co-operative society. Such exemption was
claimed in respect of two notifications issued by the Central Government.
The appellant therein claimed that in terms of the plain language of the
notifications, it was entitled to exemption from payment of excise duty on
the cotton fabrics. The appellant contended that the exemption applied to
all cotton fabrics which were produced on powerlooms owned by co-
operative societies and it was not relevant as to who produced or
manufactured such fabrics. The Supreme Court accepted the above
contention, as the notification clearly granted exemption to "cotton
fabrics produced by any co-operative society formed of owners of cotton
powerlooms which is registered or which may be registered on or before
March 31, 1961". It was contended on behalf of the Respondents therein
that the object of granting exemption was to encourage the formation of
co-operative societies which not only produced cotton fabrics but which
consisted of members who not only owned but had actually operated not
more than four powerlooms during the three years immediately preceding
their joining the society. It was emphasized that the intention of the
Government always was that exemption be available only in respect of
goods produced by the society on its own behalf. The Court did not
accept this contention and held that on a true construction of the language
of the notifications in question, all that was required for claiming
exemption was that the cotton fabrics must be produced on powerlooms
owned by the co-operative society. The Court further observed that :
"It is well established that in a taxing statute there is no room
for any intendment but regard must be had to the clear
meaning of the words. The entire matter is governed wholly
by the language of the notification. If the tax-payer is within
the plain terms of the exemption it cannot be denied its
benefit by calling in aid any supposed intention of the
exempting authority."
33. The Supreme Court also referred to the following observations
made by Lord Watson in Salomon v. Salomon and Co.: 1897 AC 22:
"Intention of the Legislature is a common but very slippery
phrase, which, popularly understood may signify anything
from intention embodied in positive enactment to
speculative opinion as to what the Legislature probably
would have meant, although there has been an omission to
enact it. In a Court of Law or Equity, what the Legislature
intended to be done or not to be done can only be
legitimately ascertained from that which it has chosen to
enact, either in express words or by reasonable and
necessary implication."
34. It is trite law that the intention of a statute or a legal provision
must be ascertained from the express language of the statute or its
necessary implication. In the present case, there is no room in the
language of relevant entries to impose additional conditions, other than
those expressly stated. Equally, no exclusion can be read in which is not
expressly indicated or ascertainable from the plain language of the
entries in question.
35. We are, respectively, unable to subscribe to the view accepted by
the Gujarat High Court in Micro Forge (India) Ltd. (supra). In our view,
it is not open for a Court, while interpreting any statute, to examine the
material which weighed with the authority while framing that law if the
provisions of the statute are clear and unequivocal. The scope of the
entries in question have to be interpreted on the plain language of the
entries, if the same is unambiguous, and it is not open for a Court to
interpret the entries in the light of data which may or may not be collected
by the Central Government in framing those entries and fixing the All
Industry Rates. In the present case, we find that the language of the
entries is clear and unequivocal and, thus, there is no room to attempt to
discover the intention of the Central Government by taking recourse to
any other external aid.
36. In view of the aforesaid, the clarification dated 8 th April, 2003 has
no statutory force. The express language of the Drawback Schedules as
notified by Central Government in exercise of statutory powers cannot be
diluted or whittled down by the letter dated 8th April, 2003 and,
accordingly, the same is liable to be set aside.
37. We are also inclined to accept the contention that the public notice
dated 13th May, 2003 seeks to make substantial amendments to the
express language of the Drawback Schedule 2003-04 with retrospective
effect and that too is not permissible.
38. It is well established that the devices of public notice or circulars
cannot be adopted for modifying the substantive provisions of a statutory
notification. In a recent decision, this Court in Allen Diesels India Pvt.
Ltd. v. Union of India & Ors.: W.P.(C) 4665/2014 decided on 1st
February, 2016, following the earlier decisions in Sandur Micro Circuits
Ltd. v. Commissioner of Central Excise: 2008 (8) TMI 3-SC, Modi
Rubber Ltd. v. Union of India: 1978 (2) ELT (J127)(Del.) and Pioneer
India Electronics (P) Ltd. v. Union of India: 2014 (301) ELT 59 (Del.),
it was held that the statutory notifications cannot be amended by the
device of circulars. More importantly, a benefit granted by a statutory
notification cannot be withdrawn with retrospective effect and that too by
a device of a public notice. The Petitioners, in the present case, claim to
have made exports and priced their shipments on the basis of the
Drawback Schedules notified by the Central Government. Thus, in our
view, the benefit of duty drawback cannot be denied to them.
39. A Division Bench of the Bombay High Court Mazda International
(P) Ltd. v. Union of India: 1995 (77) E.L.T. 526 (Bom) considered a
case where the Central Government had sought to withdraw drawback
benefits in respect of Gripe Water with effect from June 1st, 1983 by way
of public notice dated 11th February, 1984. The Respondents had also
issued show cause notices pursuant to the public notice dated 11 th
February, 1984. The Court accepted the challenge to the show cause
notices and held that "it is not open for the authority issuing public notice
to withdraw the benefit with retrospective effect and consequently the
issuance of the show cause notice was without jurisdiction".
40. Before concluding, it is necessary to mention that Mr Satish
Kumar, learned counsel for the Respondents submitted that this Court had
no jurisdiction to entertain W.P.(C) 5394/2003 inasmuch as the Petitioner
therein had impugned two show cause notices of even date i.e. 20th June,
2003, which were issued by the Assistant Commissioner of Customs,
Ludhiana. He further pointed out that the Petitioner was also located at
Ludhiana and, therefore, no part of cause of action had arisen within the
jurisdiction of this Court. He referred to the decision of the Supreme
Court in Kusum Ingots & Alloys Ltd. v. Union of India and Ors.: (2004)
6 SCC 254 in support of his contention that the fact that the Drawback
Schedules were notified by the Central Government in Delhi would not
give rise to any cause of action in Delhi. He contended that since the
authority issuing the show cause notices was at Ludhiana, the cause of
action for filing the petition lay entirely outside the territories of Delhi.
41. Although, there is merit in Mr Satish Kumar's contention that situs
of passing a legislation would not give rise to a cause of action to file a
writ petition challenging its validity. However, in the present case, the
Petitioner has also impugned the letter dated 8th April, 2003 which is not
in the nature of a legislative instrument but is an executive direction.
Hence, it is apparent that a part of the cause of action has arisen within
the territorial jurisdiction of this Court. Consequently, we are unable to
accept that the W.P.(C) 5394/2003 is not maintainable.
42. The petitions are allowed in the aforesaid terms and the
Respondents are directed to process the Petitioners' claims for duty
drawback in accordance with law.
VIBHU BAKHRU, J
S.MURALIDHAR, J
MAY 06, 2016
RK/MK
