- Recovery of excess drawback – Whether the drawback sanctioning authority is right in demanding the excess paid drawback on revision/re fixation of brand rate of drawback?

PJ/Case Laws/2012-13/1174

Case: IN RE: 3M INDIA LTD.

Citation: 2012 (281) E.L.T. 465 (G.O.I.)

Issue:- Recovery of excess drawback – Whether the drawback sanctioning authority is right in demanding the excess paid drawback on revision/re fixation of brand rate of drawback?
Brief Facts: - M/s. 3 M India Ltd. exported EPDXY Resin Powder and claimed duty drawback under Brand Rate fixed by Deputy Commissioner of Central Excise, LTU., Bangalore. The brand rate was subsequently revised by Deputy Commissioner of Central Excise, LTU, Bangalore, by letter vide F.No. IV /06/08/2008/GLT-III/LTU, dated 16-6-2008.As per the revised brand rate letters M/s. 3 M India Ltd. had availed excess drawback amount of Rs. 12,74,538/-. Accordingly, Show Cause Notice was issued to the applicant for the recovery of excess Drawback amount of Rs. 12,74,542/-, by the original authority. Subsequently, the original authority confirmed the demand of excess paid drawback.
Being aggrieved by the said Order-in-Original, applicant filed appeal before Commissioner (Appeals), who rejected the same.
Being aggrieved by the Impugned Order-in-Appeal, the applicant has filed this revision application under Section 129DD of Customs Act, 1962 before Central Government.
Appellant’s Contention: - The Appellants submit that they had filed bills of entry for the goods imported during the dispute period providing all details of the import goods for duty drawback under Sub-Heading No. 3907 30 90. The above bills of entry were assessed in the entirety by the officers and such assessments have not been challenged by the department. Consequently, the entire assessments done in the respective bills of entry have become final.
The Appellants submit that the drawback amounts of Rs. 23,31,647/- have been sanctioned by the proper officer of Customs on the basis of the assessment done in the shipping bills. The said amounts have been given to the Appellants either by way of cheque or by way of direct credit to the account. The Appellants submit that the above sanction order of the drawback have not been challenged so far in any manner known to law. The order sanctioning the refund is not challenged by the department before an appropriate authority and has not been set aside in the process known to law, the present proceeding seeking recovery of the drawback is legally not sustainable and the impugned order-in-appeal is liable to be set aside.
The case of the department is that the drawback sanctioned was not admissible to them on the ground that the debit in DEPB could not be treated as duty paid. Such a ground to recover drawback already sanctioned after due consideration of all material factors cannot be termed as 'erroneous'. Consequently, the Appellants submit that Rule 16 would not apply in this case at all. If Rule 16 is not applicable in this case, in view of the fact that the drawback sanctioned is not erroneous, then, there is no provision to demand or recover such drawback or that by the argument, Rule 16 is rendered nugatory. Rule 16 would indeed come into play when the drawback sanctioned needs to be recovered on account of mistaken calculation and technical error. For Instance of rates of drawback is Rs. 20 but the drawback sanctioned is say Rs. 21, then the recovery of the excess amount of Rs. 1 sanctioned as a result of mistaken calculation would be governed by Rule 16. Similarly, if the product covered under the drawback schedule is of specification A, but the drawback sanctioned is for product B, due to any technical error then, again, the drawback sanctioned can be recovered by invoking Rule 16.

The appellants contended that the ground for revision/re-fixation of brand rate itself is challenged as untenable in law and tainted by legal errors and consequently, the impugned Order all suffers from the same legal errors and therefore not sustainable. The Applicants submit that the thrust of the department's contention for revising/re-fixing the brand rate was that import of inputs by paying the BCD through could not be construed as 'duty paid' and this is entirely wrong legal proposition contrary to scheme of DEPB/Drawback as contained in the Foreign Trade Policy (FTP) and the Customs Act respectively. One may pay any type of customs duty as defined in Section 2(15) of the Customs Act, 1962 though the DEPB as long as such duty is levied under Section 12 of the Customs Act read with the Customs Tariff Act, 1975 or any other law for the time being in force.
The Applicant was not given an opportunity to oppose the re-fixation of drawback rates. Hence, the department has failed to appreciate the pleas made by the Applicants. The impugned order is therefore bad in law and is liable to set aside.
There is no provision under the Drawback Rules, 1995 for either re-fixation or revision of `brand rates' inasmuch as the original fixation of duty drawback rates itself examining the duty-paid nature of the inputs and fixation of duty drawback only thereafter. It is for this precise reason that elaborate documentation and forms have been prescribed.

Respondent’s Contention: - The Respondent contended that the pleas of the applicant before original authority basically related to challenging the revision of brand rates by the Central Excise authority. The jurisdiction for fixation or revision of brand rates of drawback under Rules 6 & 7 of the Drawback Rules, 1995 lies with the Central Excise. Hence, the original authority in the present case had no jurisdiction to consider pleas raised in this regard. This is also clearly mentioned in the order in specific terms by mentioning that 'The role of this office in this case is limited to sanction of drawback based on the brand rate fixed by the Central Excise Authority under Rule 6 or 7 of the Drawback Rules. This office has no jurisdiction or competence to alter or modify the rates fixed as above. In this case the brand rates were fixed by Central Excise, Bangalore and same were revised and re fixed after consideration of certain aspects. Hence these submissions ought to be made before the authorities who had revised the brand rates.
Further he held that appellant's plea that interest provision u/s 75A (2) was not existing prior to 11-5-2007 is not relevant to facts of the present case since the Drawback amount in the present case was paid in 2008. Interest on excess payment received by the Appellant is recoverable under provisions of Section 75A (2), which came into effect from 11-5-2007, read with Rule 16 of the Drawback Rules, 1995. Appellant's plea against recovery of interest on drawback amount is irrelevant and untenable.
He further states that the Appellant has wrongly stated that even while re-fixing the drawback rates the Department had not intimated the Appellant and it was only when the Respondent was issued notice for recovery of excess drawback that the Appellant got opportunity of the first time to oppose re-fixation of drawback rates. This ground raised by the Appellant is factually incorrect and misleading. It may be seen from the Annexure E, enclosed at page 51 and Annexure G, enclosed at page go to 71 to the Appeal Memorandum that every letter revising brand rate has not only been communicated to the Appellant but they are also having a copy of it available with them which they have enclosed to the Appeal. It is further seen that the Appellant vide letters dated 18-6-2008 & 30-6-2008, enclosed to the Appeal as Annexure H at page 73 and Annexure F at page 55, addressed to the Central Excise, Bangalore had in fact opposed revision of brand rates. Therefore, it is clear from the evidence on record that not only the Appellant had sufficient time and opportunity to oppose revision of the brand rate letters by the Central Excise authority from the date of such revision on June 2008 till their appearance before the Respondent for personal hearing in February 2009, but in fact they did avail such an opportunity.
Reasoning of Judgment: - Government held that the applicant initially filed claim for drawback as per brand rate fixed by the LTU, Bangalore, which was sanctioned by the original authority, (drawback sanctioning authority).Subsequently the LTU, Bangalore revised/refixed brand rate of drawback in case of the applicant. In view of revised rate of brand rate of duty drawback, the original authority issued Show Cause Notice for recovery of excess paid drawback and subsequently confirmed the same, which was upheld by the appellate authority.
Further it was held that the LTU, Bangalore the proper authority, initially fixed brand rate of drawback, on the basis of which drawback was sanctioned by the original authority. In terms of Rule 6 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 the authority of fixation of Brand Rate of Drawback lies with the Jurisdictional Commissioner of Central Excise or Commissioner of Customs, as the case may be. Applicant being large Tax Payer unit, the LTU, Bangalore was the proper authority to fix /refix /revise the brand rate of drawback. The Drawback Sanctioning authority sanctions the drawback as fixed by the proper authority. If the applicants were aggrieved by the re-fixing of brand rate of drawback of duty by the LW, Bangalore; they should have challenged such revisions/refixing of brand rate of drawback, which they failed to do. Once the brand rate is revised by the proper authority; the original authority i.e. drawback sanctioning authority was required to take consequential action w.r.t. revision of brand rate. As such, the Drawback sanctioning authority was right in demanding excess paid drawback in terms of Rule 16 of Drawback Rules, 1998.
It was further held that from the contention of the appellant it is clear that where amount of drawback and interest has been paid erroneously or the amount is paid in excess of entitlement the excess paid amount is liable to be recovered. There is no ambiguity in these recovery provisions.
Government finds support from the judgment of Hon'ble High Court of Bombay in this case of M/s. Indian Dye Stuff Industries Ltd. v. U01 reported as 2003 (161) E.L.T. 12 (Born.) wherein it was held that "Section 11A of Central Excise Act, 1944 being an independent substantive provision, the appellate proceedings are not required to be initiated before issuing Show Cause Notice under Section 11A if there are grounds existing such as Short Levy, short recovery or erroneous refund etc. Section 11A is an independent substantive provision and it is a complete code in itself for realisation of excise duty erroneously refunded. There are no pre-conditions attached for issuance of notice under Section 11A." The said judgment of Bombay High Court has been upheld by Hon'ble Supreme Court reported as 2004 (163) E.L.T. A56 (S.C.). This judgment is further followed by Tribunal in the case of C.C.E., Ahmedabad v. Maize Products - 2004 (167) E.L.T. 174 (T) and Bharat Box Factory Ltd. v. C.C.E. Ludhiana 2005 (183) E.L.T. 461 (Tn. Del.).
Government observes that similar recovery provisions exist in the Rule 16 ibid. So the ratio of above said judgment of Bombay High Court is squarely applicable to this case. Under such circumstances, the drawback sanctioning authority was right in confirming the said demand of excess paid drawback in terms of Rule 16 of Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.
Decision: - The application was rejected.

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