Whether refund claim be rejected on the ground that the sale proceeds against have been received before recovery of the duty drawback?

PJ/Case Study/2020-21/159

18 July 2020

Case:
M/s Excel Creation (OIA No. 19(SM)CUS/JPR/2020 dated 02.03.2020)

Issue involved:
Whether refund of recovery of drawback for non-realisation of export proceeds can be filed when order for recovery of drawback was not challenged?

Brief Facts:

M/s Excel Creation is engaged in export of goods. They have claimed duty drawback but failed to produce evidence of realisation of export proceeds in the form of Bank Realisation Certificate (BRC). Thus this indicated to the authorities that the export proceeds have not been realised within the time stipulated by FEMA Act. So show cause notice was issued for the recovery of Duty drawback. Further adjudicating authority issued OIO wherein the drawback amount was confirmed along with interest and penalty. The appellant in spite of having the BRC paid the amount as the OIO had attained finality but the appellant contended that since he had closed the business he couldn’t receive the SCN and the OIO. He only came to know when the recovery proceedings had started. After which he submitted the BRC which was of no use as OIO had already been issued and was left with no option but to pay the amount along with interest and penalty. So later refund was applied for the same which was rejected by the authorities.
Applicant’s Contention:
The appellant has contended in the following manner

The appellant submits that the refund claim filed by them has been simply denied by contending that the order confirming the demand of drawback has not been challenged by the appellant. In this respect, the appellant reiterate that they did not receive the show cause notice and the order in original initially issued to them and their unit was also closed in March, 2017. The appellant came to know about the passing of order only when the recovery proceedings were initiated against them. Consequently, the appellant produced the relevant bank realisation certificates thrice as and when the recovery letter was issued to them. However, since the appellant never received the order in original no. 614/16-17 dated 22.02.2017, they could not file appeal against the said order before the Commissioner Appeals. But, non-filing of appeal cannot be reason for recovering drawback along with interest and penalty even when the entire export proceeds were realised within the stipulated period. Hence, rejection of refund claim is not at all proper as filing of bank realisation proceeds is only procedural lapse for which substantial benefit of drawback cannot be denied. In this regard, reliance is placed on the following judicial pronouncements:-
KNITWIN INTERNATIONAL VERSUS DEPUTY COMMR. OF CUSTOMS, ICD, TIRUPUR[2018 (360) E.L.T. 239 (MAD.)]
IN RE : MANGLAM ARTS [2018 (363) E.L.T. 821 (G.O.I)]
HANDICRAFTS & HANDLOOMS EXPORTS CORPN. OF INDIA LTD. VERSUS JT. SECRETARY, M.F. (D.R.), NEW DELHI[2018 (359) E.L.T. 170 (MAD.)]

In light of the above cited decision, the ex-parte order confirming recovery of drawback is not at all sustainable. The appellant have already furnished the bank realisation certificates and so when the proof of realisation of export proceeds has been given, the recovery of drawback is not sustainable and the refund claim should be allowed to them.

In continuation to the above, the appellant submits that it is not the case that they have realised the export proceeds late and rather the export proceeds have been realised within the stipulated time period. However, due to non-receipt of show cause notice and hearing notice, the appellant could not furnish the evidence in the form of bank realisation certificate to the revenue authorities. However, after receipt of recovery letters, they have furnished the information thrice which proves their bonafides. The appellant submits that their unit was closed in March, 2017and as they did not receive the copy of order in original no. 614/16-17 dated 22.02.2017, they did not file appeal before the Commissioner Appeals. However, the factual position remains the same that they have realised the export proceeds within the stipulated time period and they are eligible for claiming the duty drawback. Therefore, the drawback paid by them along with interest and penalty should be refunded to them. In this regard, they also wish to place reliance on the following judicial pronouncements:-
RAAGAM EXPORTS VERSUS ASSISTANT COMMISSIONER OF CUSTOMS, TIRUPUR[2017 (347) E.L.T. 249 (MAD.)]
MEENAKSHI IMPEX VERSUS COMMISSIONER OF CUSTOMS (SEAPORT), CHENNAI-IV [2016 (339) E.L.T. 357 (MAD.)]

In light of the above cited decisions, the bank realisation certificates furnished by the appellant should be considered and the refund claim filed by them should be allowed.

The appellant further submit that the impugned order has contended that there is no express provision for sanctioning the refund claim on furnishing of bank realisation certificates after the drawback has been recovered from the assessee and so refund is not admissible to them. In this regard, the appellant highlights the provisions contained in Rule 16A(4) of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 which specifically state that where the sales proceeds are realised by the exporter after the amount of drawback has been recovered from him and the exporter produces evidence about such realisation, the amount of drawback so recovered shall be repaid to the exporter. The above provision indicates the intention of the legislature and consequently, in light of the above provision, the refund claim filed by the appellant should be allowed.
The appellant further submits that there is no violation of the statutory provision on their part. The only violation was of a procedural nature i.e. delay in furnishing evidence of realisation of export proceeds to the department. It is submitted that for the procedural infraction, the substantive benefit of Duty Drawback cannot be denied to the appellant for which they are eligible. Further, hon’ble Gujarat High Court has held that the substantial benefit cannot be denied for the procedural lapse which can be rectified at any point of time.

CCE, CC & ST, DAMAN VS J J POLYPLAST LTD [2010-TIOL-136-HC-AHM-CX]-
The above decision mentions that the procedural lapses which can be rectified anytime cannot be a ground to deny the benefit otherwise available to the assessee. In the instant case, the “filing of Bank Realisation Certificate” is a procedural lapse. The delay in filing of BRC was not intentional as narrated in detail in the preceding paragraphs. Thus, the above decision of hon’ble Gujarat High court is equally applicable on them and its benefit should be extended to them.Therefore, for mere procedural infraction substantive benefit of drawback cannot be denied. Therefore, the impugned order requires to be set aside and the refund claim should be allowed.

The appellant further submit that in they have paid interest as per section 75A(2) and penalty of Rs. 10,000/- under Section 117 of the Customs Act, 1962 for not submitting any proof of the receipt of export proceeds. In this regard, the appellant submit that the issue regarding non-submission of the proof of realisation of export proceeds has been resolved by enclosing the copies of bank realisation certificatesthrice to the department. As such, since they have resolved the issue that arose and so the interest and penalty should not be imposed on them. It has been held by hon’ble Tribunal that procedural infractions do not entail imposition of penalties. M/S HONEYWELL TECHNOLOGY SOLUTIONS LAB PVT LTD (EHTP) VS CC, BANGALORE [2008-TIOL-1607-CESTAT-BANG.]:-

In the instant case also, there was mere procedural lapse; that too, is rectified here by submitting proof of realisation of export proceeds. As such, extending the ratio of above decision, interest and penalty is not attracted in the instant case. Therefore, the appellant should be sanctioned refund of interest and penalty paid by them as there was no violation on their part.
Reasoning of Judgement:
The appellate authority allowed the appeal on the following basis:-

The learned Commissioner(Appeal) has discussed the provision of Rule 16A(4) of Customs, Central Excise Duties and Service Tax drawback Rules, 1995 and allowed the appeal
The appellate authority maintained that there is no dispute that exporter has realised the amount within the time limit provided FEMA,1999 and there is also not disputed that the exporter has submitted the BRC to custom department. Hence, the benefit should be extended to the appeallant.
The impugned order-in-appeal relied upon the decision Madras High Court in case of Knitwin International [2018(360)E.L.T.239(Mad)] as well as Raagam Exports [2017(347)E.L.T.249 (Mad.)] to allow the appeal of appellant.

Conclusion:
It can be concluded from above that if the BRC has been realised and submitted to the department within time limit then drawback cannot be recovered. Secondly, the ex-parte order where in the party did not reply as well as appeared for personal hearing is not a legally sustainable in eyes of law.

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PJ/Case Study/2020-21/159
18 July 2020

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