Facts of the case
M/s Mahalaxmi Rubtech Ltd (taxpayer) is engaged in the manufacturing of printing blankets of rubber, and exports of such goods to foreign countries. The taxpayer exported goods in fulfilment of the Export Obligations (EO) arising in respect of the EPCG (Export Promotion Capital Goods) Licences. The taxpayer was under an impression that Duty Draw-back (DBK) is not allowed on goods exported in fulfilment of EO under EPCG Scheme and accordingly claim of DBK was not made in SB.
In December 2018, the taxpayer came to know that DBK @1.5% of the FOB value is available on the goods in question, despite the fact that such goods were exported in fulfilment of EO under EPCG Scheme. Therefore, they filed an application on 28 January 2019 requesting the Commissioner of Customs to allow, in terms of Section 149 of the Customs Act, 1962 (Act) amendment of 41 SBs lodged earlier to convert them into DBK shipping bill, by mentioning claim of DBK.
After granting a personal hearing, the Commissioner of Customs rejected the application, citing Central Board of Excise & Customs (CBEC, as it was known then) circular no:36/2010 dated 23 September 2010, which in vide para 3(a) provides that request for conversion of SB should be made within three months from the date of the Let Export Order (LEO) and in the present case, the request was made beyond said time limit, which cannot be allowed.
Aggrieved, the taxpayer filed a Writ petition before the Gujarat High Court.
Questions before the High Court
The taxpayer challenged the validity of circular no:36/2010-Cus dt. 23.09.2010 as it ultra vires Section 149 of the Customs Act, 1962 (Act) and also Articles 14 and 19(1)(g) of the Constitution of India, to the extent it imposes time limit in conversion of EPCG SB into the EPCG-cum-Drawback SB.
Observation and decision by the High Court
The High Court noted that Section 149 of the Act does not prescribe the time period and if a substantive statutory provision has not provided any time limit, the CBEC could not have issued a circular laying down a time limit of three months.
The High Court stated that the CBEC could only set certain time limit by Regulations made under the Act. The term "Regulations" refers to any regulation issued by the Board under the Act. The Court took note of the fact that Section 149 was amended after the present Writ application was filed. The amended Section 149 authorises the proper officer to amend any document "in such form and manner, within such time, subject to such restrictions and conditions, as may be prescribed" shall be inserted."
Since the claim for DBK is at an All Industry Rate (AIR), which is the common and general rate set by the Central Government for all exporters of goods, no verification or examination of the exported goods is needed. If the taxpayer had been claiming DBK at Special Brand Rate, then amendment of SBs by allowing conversion into DBK SB may not be feasible. However, in case of AIR of DBK, the benefit is allowed basis the documentary evidence, which was in existence at the time the goods were cleared for export.
However, for DKB under AIR route, the only requirement would be to consider the export documents, where the description, quantity and value of the goods have been recorded, and verified as well as assessed by the Custom Officers before the goods could be cleared for export. On the value so assessed by the Custom officers, the calculation of DBK on AIR is a mere arithmetical exercise, which could be easily done on the basis of the documentary evidence (i.e. the export documents like SB and Export Invoice) which was in existence when the goods were cleared for export.
On the basis of documentary evidence that existed at the time the goods were cleared for export, SB can be amended to convert them into DBK SB, and the benefit of DBK at the AIR @ 1.5% of the value of the exported goods can also be given.
The High Court held that the impugned circular, to the extent of para 3(a), is ultra vires Articles 14 and 19(1)(g) of the Constitution of India as also to Section 149 of the Customs Act, 1962. Further, the taxpayer is entitled to DBK with statutory interest as provided in Rule 14 of the Drawback Rules. Accordingly, the petition allowed.
BDO Comments
This decision would lend support to the exporters, especially those who could not avail the benefit of Duty Draw-back under All Industry Rate, due to non-compliance with filing of Duty Draw-back Shipping Bill, for the period prior to August 2019. Effective August 2019 an amendment was carried-out in Sec.149 of Customs Act, 1962 to authorise the proper officer to amend the documents, including imposing of time limit. It is thus interesting to see how the amended provision may be utilised by the authorities to restrict conversion of SB, as we wait to see whether the Tax authorities would accept this High Court judgment or challenge it before higher forum.
[M/s Mahalaxmi Rubtech Ltd Vs. Union of India, R/SCA no. 21636/2019, dated 2 March 2021 Gujarat High Court]