Whether the non-submission of BRC within the prescribed period leads to withdrawal of duty drawback sanctioned to appellant?

PJ/Case Study/2018-19/142

05 January 2019

M/S Craft Hut (Order in Appeal No. 381(SM)CUS/JPR/2018 dated 29.11.2018)
Prepared By- CA Preksha Jain and Pushpa Choudhary

Introduction: M/s Craft Hutis registered with Excise Department for Manufacture & Exporter of wooden/Iron Furniture/Handicraft & Article. They have received Show Cause Notice No. VIII(10)12/DBK/2014/51 dated 16.09.2014 for alleging that BRCs was not submitted/produced and not realised the export proceeds within the period allowed under Foreign Exchange Management Act 1999 and the RBI regulations made there under. The same was confirmed by the adjudicating authority by passing the Order-In-Original No.116/2015-16 dated 31.12.2015.
Thereafter, they have moved the appeal against the aforesaid Order-in-Original before Commissioner Appeals. The Hon’ble Commissioner Appeals set aside the impugned order vide Order-in-Appeal No. 381(SM) CUS/JPR/2018 dated 29.11.2018 and allowed the appeal.
Relevant Legal Provisions:
·        Rule 16A of the Customs & Central Excise Duties & Service Tax Drawback(Amendment) Rules, 1995
·        Section 75 of the Customs Act,1962
·        Penalty under Section 117 of the Customs Act,1962
·        Interest under Section 75A(2) of the Customs Act,1962.
Issue Involved: Whether the non-submission of BRC within the prescribed period leads to withdrawal of duty drawback sanctioned to appellant?
Brief Facts: M/s Craft Hut (hereinafter referred to as appellant), having their registered place of business at G-609, Gali No. 10, Basni, II^nd Phase, Jodhpurare manufacturer-exporter. They have exported “wooden/Iron Furniture/Handicraft & Article” and claimed drawback on the shipping bills.
The drawback was sanctioned to the appellant. However the show cause noticesno. VIII (10)12/DBK/2014/51 dated 16.09.2014 was issued to the appellant for recovery of drawback sanctioned to them on the ground that BRC was not submitted/export proceeds were not realized. Theappellant has submitted their reply on 10.10.2014 along with copy of three BRCs. Thereafter, the impugned Order in Original no. 116/2015-16 dated 31.12.2015 was passed thereby confirming the recovery of drawback Rs. 19,520/- along with interest under section 75A (2) of the Customs Act, 1962 and imposed penalty of Rs. 2000/- under section 117 of the Customs Act, 1962. The Order in Original was passed on following grounds:

S. No.	Shipping Bill No.	FOB	Drawback Amount (Rs.)	Reasons
1	1540/22.10.11	1008737	38319/-	Export Proceeds not realized to the extent of Rs. 1,66,946/-
2	1592/22.10.11	1322651	23103/-	Export proceeds not realized to the extent of Rs. 79,896/-
3	1785/29.11.11	816476	10781/-	BRC Not Submitted

Assessee’s Contention:The appellant submit that the impugned Order in Original issued by the Adjudicating Officer is wholly and totally erroneous and is liable to be set aside.

1)                Shipping Bill No. 1540 dated 22.10.2011 – Export Proceed Not Realized
The impugned order has held that the export proceeds to the extent Rs. 2539.10/- Euro (Rs. 166946/-) is not realized in respect of shipping bill no. 1540 dated 22.10.2011. In this regard, the appellant submits that the contention that the export proceeds were not realized by them is totally erroneous. It is submitted that there was the shutout in respect of shipping bill No. 1540 and therefore the actual amount of FOB Value was 12802.90/- Euro which is also evidenced by the Shipping Bill No. 1540 dated 22.10.2011.

It is submitted that FOB value as well as other details was modified in the shipping bill due to shut out and the shipping bill clearly shows that the actual FOB was 12802.90/- Euro. Further it is undisputed fact that the appellant has realized 12802.90/- Euro in respect of shipping bill no. 1540. Therefore, appellant has realized the full export proceeds in respect of Shipping Bill No. 1540 and there was no short realization.

Hence the impugned order demanding drawback is totally erroneous and liable to be set aside

2)                Shipping Bill No. 1592 dated 25.10.2011 – Export Proceed Not Realized
The impugned order has held that the export proceeds to the extent Rs. 79896/- is not realized in respect of shipping bill no. 1592 dated 25.10.2011. In this regard, the appellant submits that the contention that the export proceeds were not realized by them is totally erroneous. The appellant submits that they have realized full amount of export proceeds in foreign currency. The FOB value of Shipping Bill No. 1592 dated 25.10.11 was amounting to 23,517/- EURO and they have realized full export proceeds 23,517/- EURO equivalent to Indian Rupees on 21.12.2011 which also evidenced by Bank Realization Certificate.

The appellant submit that they have realized the full amount in foreign currency but the department has taken a wrong view by considering the realization amount in Indian Currency. The difference in FOB value in Indian Rupees and realization amount Indian Currency was due to exchange rate difference. Hence the order in original contending that there was short realization is erroneous and liable to be set aside.

3)                            Shipping Bill No. 1785 dated 29.11.2011 – BRC Not Submitted

The impugned order has held that since the appellant had not submitted the copy of BRC, therefore, the appellant is not eligible for Drawback. In this regard, the appellant submits that due to the technical error, the appellant failed to furnish the BRC before the concerned authorities.

The appellant submit that there is no violation of the statutory provision on their part. The only violation was of a procedural nature i.e. delayed in furnishing the Bank Realization Certificate (BRC) within time to the Department. It is submitted that for the procedural infraction the substantive benefit of Duty Drawback cannot be denied to the appellant for whom 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. The decision given by Hon’ble High Court is as follows:-
·                    CCE, CC & ST, DAMAN VS J J POLYPLAST LTD [2010-TIOL-136-HC-AHM-CX]-
Central Excise - CENVAT Credit - Procedural lapse should not result in denial of admissible credit- Revenue Appeal summarily dismissed: the invoices could have been endorsed by the Daman Office of the same appellant in the name of their Mumbai Office. This is rectifiable defect and can be rectified at any point of time. There being no dispute otherwise about the entitlement of the Modvat Credit, such procedural lapse should not result in denial of benefits to them otherwise admissible credit. It could not give raise to any substantial question of law and, hence, the Appeal is summarily dismissed. :GUJARAT HIGH COURT;
The analysis of above decision makes it clear 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 and it is rectified now by submission of ‘Bank Realization Certificate’. 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 cannot be denied. Therefore, the impugned order requires to be set aside.

4)                The appellant further submit that in the impugned order it has been held that the appellant is liable to pay the interest as per provisions of Section 75A of the Customs Act, 1962. In this regard, the appellant submit that when the demand itself is not sustainable on the basis of above submissions, then the question of levy of interest under provisions of Section 75A of the Customs Act, 1962 does not arise.

5)                   The appellant further submit that in the impugned order penalty of Rs. 2000/- has been imposed on the appellant 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 only issue is that the BRC was submitted belatedly. It is reiterated that the appellant were prevented from furnishing the BRC within time because of some technical error. But ultimately, the default has been rectified by submitting the BRC. It has been held by Hon’ble Tribunal that procedural infractions do not entail imposition of penalties. This has been held in the following case:-
·        M/S HONEYWELL TECHNOLOGY SOLUTIONS LAB PVT LTD (EHTP) VS CC, BANGALORE [2008-TIOL-1607-CESTAT-BANG.]:-
Customs - 100% EOU - Goods imported by EOU put to use for a different purpose - Matter regularized by STP/EHTP authorities and imposed a penalty - Relevant notifications and Board's Clarification allows inter unit transfer of goods and provides for a simplified procedure - STP/EHTP authorities cannot be alleged as interested parties - Rigid system of obtaining permission results in inefficiency & non-performance - Mere procedural infraction does not entail demand of duty and imposition of penalties - Impugned orders set aside : BANGALORE CESTAT;
In the instant case also, there was mere procedural lapse; that too, is rectified here by submitting ‘Bank Realisation Certificate’. As such, extending the ratio of above decision, penalty is not attracted in the instant case. Therefore, the penalty imposed on the appellant is required to be set aside as there was no violation on the part of the appellant.
On the basis of these submissions made by the appellant it is crystal clear the impugned Order is not viable and it should be quashed and the appeal should be allowed.
Reasoning adopted by the Appellate authority: The authority contented that exporter has not submitted the copy of one BRC therefore the export proceeds of the goods in respect of shipping bills in question are not realized on which drawback amount involved is Rs. 10781/-. Further export proceeds amounting Rs.246842/- are not realized in respect of two shipping bills on which drawback amount involved is Rs. 8739/-. Therefore, the drawback amount of Rs. 19520/- sanctioned to them appear to be recoverable along with interest in terms of rule 16A of customs & Central Excise Duties & Service Tax drawback (Amendment) Rules,1995 read with Section 75 of the Custom Act, 1962.
Conclusion: The kernel of the case is, theappellant has already submitted Bank Certificate of Export and Realization generated from the website of DGFT in Annexure-22A Form No. 1 which has already been realized .Therefore, the demand of recovery of Drawback of Rs. 19520/- is not sustainable.

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PJ/Case Study/2018-19/142
05 January 2019

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