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PJ/CASE STUDY/2011-12/17
27 July 2011

Duty Drawback - Non-furnishing of BRC - Imposition of Penalty under Section 117 of Customs Act
 
PJ/Case Study/2011-12/17

CASE STUDY

Prepared By:
CA Pradeep Jain,
Sukhvinder Kaur, LLB [FYIC]
And Megha Jain, B. Com

Introduction: -
 
Whether penalty can be imposed on the assessee for a procedural mistake of not furnishing the necessary documents with the Department but there was compliance of the substantive legal provisions? This is the issue involved in the case under study wherein the assessee had claimed Duty Drawback but had not submitted the Bank Realization Certificate (BRC) within stipulated time limit with the Department, as prescribed. The BRC was obtained time but only was not submitted to the Department as they were new to the procedure. The Department accepted that the provisions of Section 75 of the Customs Act, 1962 were followed but still imposed penalty under Section under Section 117 of the Customs Act, 1962. 

M/s Adarsh International Inc v/s Assistant Commissioner, Jaipur
[Order-In-Appeal no. 33(CB)Cus/JPR-II/2010, Dated: 31.01.2011]

Relevant Legal Provisions:
 
- Section 75 (1) of Customs Act, 1962:-
 
(1) Where it appears to the Central Government that in respect of goods of any class or description manufactured , processed or which any operation has been carried out in India , being goods which have entered for export and in respect of which an order permitting the clearance 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 pro officer, a drawback should be allowed of duties of customs chargeable under 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, 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 the rules made under sub-section (2).

Provided that no drawback shall be allowed under this sub-section, 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 goods is less than the value of the imported materials used in the manufacture processing of such goods or carrying out any operation on such goods or class goods, or is not more than such percentage of the value of the imported mater' used in the 8[manufacture or processing of such goods or carrying out any operation such goods or class of goods as the Central Government may, by notification' the Official Gazette, specify in this behalf : 

Provided further that where any drawback has been allowed on any go 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 Foreign Exchange Regulation Act, 1973 (46 of 1973), such drawback shall be deem never to have been allowed and the Central Government may, by rules made und sub-section (2), specify the procedure for the recovery or adjustment of the amount of such drawback.
 
- Section 117 of Customs Act, 1962:-
           
“Any person who contravenes any provision of this Act or abets any such contravention or who fails to comply with any provision of this Act with which it was his duty to comply, where no express penalty is elsewhere provided for such contravention or failure, shall be liable to penalty”.
 
- Sub-rule (2) and (4) of Rule 16 A of Customs, Central Excise Duties and Service Tax Drawback Rules, 1995: -
 
RULE 16A. Recovery of amount of Drawback where export proceeds not realised. Where an amount of drawback has been-
 
(1) ……………
(2)        If the exporter fails to produce evidence in respect of realisation of export proceeds within the period allowed under the Foreign Exchange Management Act, 1999, or any extension of the said period by the Reserve Bank of India, the Assistant Commissioner of Customs or the Deputy Commissioner of Customs, as the case may be] shall cause notice to be issued to the exporter for production of evidence of realisation of export proceeds within a period of thirty days from the date of receipt of such notice and where the exporter does not produce such evidence within the said period of [thirty days, the Assistant Commissioner of Customs or Deputy Commissioner of Customs, as the case may be shall pass an order to recover the amount of drawback paid to the claimant and the exporter shall repay the amount so demanded within thirty days of the receipt of the said order :
 
Providedthat where a part of the sale proceeds has been realised, the amount of drawback to be recovered shall be the amount equal to that portion of the amount of drawback paid which bears the same     proportion as the portion of the sale proceeds not realised bears to the total amount of sale proceeds:
 
(3) …………
 
(4)        Where the sale proceeds are realised by the exporter after the amount of drawback has been recovered from him under sub-rule (2) or sub-rule (3) and the exporter produces evidence about such realisation within one year from the date of such recovery of the amount of drawback, the amount of drawback so recovered shall be repaid by the Assistant Commissioner of Customs or Deputy Commissioner of Customs to the claimant.”
 
Brief facts of the case: -

  • Appellant are engaged in the manufacture and export of ready made garments. On the export of their goods, appellant was claiming benefit of Duty Drawback. 
  • On exports made vide Shipping Bill dated 15.04.2004, the Duty Drawback was claimed and granted by the Department. However, the appellant had not submitted the Bank Realization Certificate to the Appropriate Authority. 
  • Department issued Show Cause Notice to the appellant recovery of Drawback paid to them, in terms of second proviso to sub–section (1) of Section 75 of the Customs Act, 1962. The Act provides that where any drawback has been allowed on any goods but the sales proceeds thereof has not been realised by or on behalf of the exporter in India within the time allowed under FEMA, 1990, such drawback shall be deemed never to have been allowed and liable to be recovered in terms of Rule 16/ 16A of Customs, Central Excise Duties and Service Tax Drawback Rules, 1995. 
  • The Show cause notice was adjudicated upon and decided ex-parte vide order-in-original dated 12.03.2008 confirming the demand and imposing penalty of Rs. 10,000/- under Section 117 of the Customs Act, 1962. 
  • Aggrieved by the impugned order, appellant filed appeal with the Commissioner (Appeals), on the grounds that the show cause notice was sent to the wrong address. That they have no office in Jaipur and that they have not received any show cause notice or notice of hearing or Order-in-Original and that they had no knowledge about the said proceedings before the letter dated 05.11.2008 was received demanding the drawback amount of Rs. 32008/- confirmed and penalty of Rs. 10,000/- imposed vide Order-in-Original. 
  • Finding appellant's contention correct, the Commissioner (Appeals) remanded the case for fresh adjudication after giving opportunity to appellant for being heard. The case was decided a fresh vide impugned order where in demand of duty Rs. 32008/- was dropped since realisation of sale proceeds was within time however, the Adjudicating authority imposed penalty of Rs. 5000/- for not complying the requirement of filing of BRC for 4 long years. It was held that appellant had contravened the provisions of Section 75 of Customs Act, 1962 and therefore liable for penalty under Section 117 of the Customs Act, 1962. 
  • Against the same, appellant is again in appeal before the Commissioner (Appeal). 

Appellant’s Contention: -
 
The appellant made the following submissions before the Commissioner (Appeal) as under:
 
- With regard to finding of the impugned order that the appellant has contravened the provisions of Section 75 of Customs Act, 1962 and therefore liable for penalty under Section 117, it was submitted that the demand of recovery of drawback is already dropped by the learned Adjudicating Authority by holding that the sale proceeds have been realized as per Regulation 9 of FEMA (Export of Goods and Services), Regulation, 2000 and no drawback is liable to be recovered under sub-section (1) of Section 75 of the Customs Act, 1962. This implies that the Department also agrees that the appellant has complied with the basic requirement of submission of the BRC and only a procedural lapse has been done by the appellant. Consequently, the penalty cannot be imposed on them.
 
- Appellant submitted that their main argument is only this that when the recovery of drawback is dropped then how can penalty be imposed on them. For this purpose they have relied on judgments given in the following cases:-
 
- Hindustan Coco-Cola Beverage Pvt. Ltd. vs. Commissioner of Central Excise, Pune [2004(178) E.L.T. 274 (Tri. - Mumbai)]
 
- Modern Process Printers [2006 (204) E.L.T. 632 (G.O.I.)]
 
- Jaisu Shipping Co. Pvt. Ltd. vs. Commissioner of C. Ex., Ahmedabad[2007 (217) E.L.T. 292 (Tri. - Mumbai)]
 
- Syndicate Shipping Services Pvt. Ltd vs. Commissioner of Customs, Chennai
 
In light of the judgments given in above case law it was submitted that as drawback recovery has been already dropped by the Department which implies that even the Department agrees that the law is not contravened by the appellant as such the impugned order is not tenable. Consequently, the penalty cannot be imposed on them.
 
- Appellant further submitted that the penalty is also not imposable on them because no malafide intention on the part of appellant was proved by the Department. The non submission of copies of BRC was on account of unawareness only. Further the fact of submission of copies of BRC as soon as it was brought to notice of appellant also proves the genuineness on their part. Since there was no malafide intention proved against the appellant which is essential condition for imposition of penalty, no penalty can be imposed.
 
- The appellant further submit that impugned order is imposing the penalty holding that they have contravened the provision of Section 75 of Customs Act, 1962 and so are liable for penalty. On the other hand it is also accepted in the same order that the BRC was obtained and submitted although belatedly and that the sale proceeds have been realized as per Regulation 9 of FEMA (Export of Goods and Services), Regulations, 2000 and as such no drawback is liable to be recovered under sub-section (1) of Section 75 of the Customs Act, 1962. So when there is no contravention of Section 75 as held in the order, than the imposition of penalty is not understandable and it is contradictory to its own finding.
 
Provisions of Section 117 of Customs Act, 1962 were referred and it was submitted that from the same, it is ample clear that if there is any contravention of provision of the Act, only then the penalty is imposable but in the case of appellant it is clearly stated in the order itself that no drawback is liable to be recovered under sub-section (1) of Section 75 of the Customs Act, 1962. It means there is no contravention of Section 75. Hence the penalty can not be imposed on the appellant.                                                                                          

- Appellant submitted that since the learned Assistant Commissioner has already dropped the recovery of drawback amount accepting that the assessee has duly complied with the prescribed procedure in time then it is not clear as to how penalty can be imposed on the appellant. Only if there is mere procedural mistake then it can be condoned and the aforesaid lapses on their part are procedural requirement and as such the penalty should not be imposed on such procedural breaches of law.
 
- The appellant further submit that question of imposition of penalty does not arise when there is no contravention of law. As per order in original the appellant have not contravened the provisions of Sec 75A (2) of Customs Act, 1962 then penalty cannot be imposed on the appellant. The appellant have neither received the show cause notice nor the hearing letter or the order. They had no knowledge about the matter till Oct, 08. It came to their knowledge vide Departmental letter dated 05.11.08 demanding the drawback amount and penalty which was confirmed vide Order in original dt. 12.3.08. The appellant had replied to each and every letter sent thereafter by the Department explaining the circumstances and facts of the matter is detail. All the documents required to satisfy the queries of the department were also submitted. But instead of adhering to the submissions made by the appellant, the department continued to ask for deposit of the drawback amount and penalty. In the light of the submissions made by the appellant, it is clear that there is no fault on their part as they have not received any show cause notice or hearing letter or order in original. Had they received any show cause notice, the matter would have settled at that stage only as the BRC was available with them and the situation of contravention of the law will not occurred. It was due to lack of knowledge that they could not submit the same to the department. However, they would have submitted it if specifically required by the department. As such, the impugned order would not have been issued against the appellant.
 
The appellant submit that they have duly received the payment in respect of the Shipping bill dt 15.04.04. But the BRC was not submitted because this was their first export and they were not aware about the complete rules and regulations. But this is very clear that they have realized the payment duly and if department has demanded the same prior to issuance of show cause notice they would have presented the same to the department. However, no such letter demanding submission of BRC was issued. Indeed, show cause notice was issued to them in this respect but that too was issued to the wrong address. As such, show cause notice was not received by them. If they would have received it, they would have submitted the BRC alongwith reply to the show cause notice. Even the hearing letter and order were also issued at wrong address. As such, there was no opportunity for the appellant to know about the query and satisfy the same. However, on being brought to their notice vide the departmental letter dated 5.11.08, copy of BRC was submitted alongwith the reply dated 10.11.08. The analysis of this BRC makes it clear that the payment was duly received by the appellant, as such, they have rightfully been allowed drawback and the learned assistant commissioner has already dropped the demand of recovery of drawback so the penalty could not be imposed for the procedural lapses. As such, the impugned order in original should be set aside.
 
The appellant humbly submit that it has been given in the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 that where the drawback amount is recovered from the exporter on account of non receipt of export proceeds and the export proceeds are realized later on, the exporter may re-claim the drawback on submission of the BRC to the department. The provision given in sub-rule (4) of the Rule 16A was referred and it was submitted that the analysis of above sub-rule (2) and (4) makes it clear that even if the drawback amount is recovered from exporter on failure to submit the BRC, the exporter may re-claim the same on submission of BRC within 1 year from the date of recovery of drawback. And the appellant has already submitted the BRC on 10-11-2008 which is within the purview of the provisions of law. And the same contention is also accepted by the learned Adjudicating Authority. Therefore, looking at the intention of the law makers the penalty should not have been imposed on the appellant. Thus, the appeal should be allowed and the impugned order should be set aside.
 
Issue:
 
Whether Penalty under Secion 117 can be imposed when it has been held that there was no contravention of provisions of Section 75 (1) of Customs Act, 1962? 
 
Judgment of the Appellate Authority:-
 
The learned Commissioner (Appeal) held as under: 

  • It was noted that penalty of Rs. 5000/- under Section 117 of Customs Act, 1962 was imposed on the appellant on the ground that appellant did not complied with the requirement of filling of BRC for four long years until they received the notices from the department demanding the draw back already sanctioned. 
  • It was noted that in the impugned order the Adjudication Authority has observed that BRC's submitted on 04.11.2008 shows the date of realization of export proceeds as 12.04.2004 which is within the period of six months as provided under Regulation of FEMA (Export of goods and services) Regulation 2000. From the above observation of Adjudication Authority the compliance of Section 75 of Customs Act, 1962 is made and he has dropped the demand. However, he has upheld to penalty of Rs. 5000/- on the ground as stated hereinabove and not on the grounds proposed in show cause notice i.e. non-compliance of Section 75 of Customs Act, 1962 since the demand is dropped. 
  • The Commissioner (Appeal) held that as such penalty for non submission of proof of export was neither leviable under Section 75 nor was proposed in the impugned Show cause notice. Further appellant are not at default for lapse of 4 years which is evident from the grounds under Order-in-Appeal while remanding the case by holding the appellant no where at fault since notices were delivered at wrong address at Jaipur therefore, for the long period of four years also appellant are not at fault and imposition of penalty is not justified on this ground also. 
  • In the end the Commissioner (A) did not find penalty imposed on the grounds under the impugned order sustainable under law. 

Decision:-
 
Impugned order set aside and Appeal allowed.
 
Conclusion:-
 
The learned Commissioner (Appeal) has rightly set aside the penalty imposed on the assessee for non-filing of Bank Realization Certificate (BRC) with the Department which was a procedural mistake. The appellant had received the BRC within stipulated time limit but did not submit the same as they were new to the procedure. Therefore, there was no contravention of the Section 75. Moreover, the appellant were prevented from filing BRC when SCN was issued to them as the same was issued at the wrong address. It was rightly held that the impugned order when passed on the ground other than mentioned in the show cause notice was not sustainable. This will amount to passing an order without giving an opportunity of hearing to the assessee on the impugned grounds which were not mentioned in the show cause notice. And this will amount to violation of principle of natural justice. 

******

 
 
 
 
 
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