2013 (5) TMI 791 - CGOVT - Customs

Failure to Comply with SEZ Rule Leads to Reinstatement of Drawback Claim Decision

IN RE : KARIWALA GREEN BAGS

The respondent failed to comply with the requirement of making payments from a foreign currency account as mandated by Rule 30(8) of SEZ Rules, 2006. ... Denial of duty drawback claim - Denial on the ground that each company/SEZ Unit is a separate and distinct unit and therefore, M/s. Kariwala Industries Ltd. and M/s. Kariwala Green Bags cannot be treated as one and the same unit - Non maintenance of proper account showing accountal of goods procured from DTA unit - violation of Rules 34 and 22(ii) of SEZ Rules, 2006 - Held that:- Rule clearly stipulates that payment for supplies from DTA unit has to be made from foreign currency account of the SEZ unit. In this case, payment is made from current deposit account No. 51044001797 which is not a foreign currency account, as also clarified by AGM, RBI Kolkata, Foreign Exchange Department vide his letter No. Kol.FED. 312/20.65.001/11-12, dated 25-7-2011. As such the said mandatory condition of Rule 30(8) is not complied with this case. Commissioner (Appeals) has erred in ignoring the applicability of Rule 30(8) in this case. Government, therefore finds that this plea of the applicant is legally tenable. As such Government hold that impugned drawback claim were rightly rejected by the original authority for said violations. Reimbursement of duty in lieu of drawback against supply of goods by DTA supplier to SEZ developers, shall be admissible even if payment is made in Indian rupees. This proviso relates to reimbursement of duty scheme where DTA unit supplies goods to SEZ developers only. As such respondent has wrongly relied upon this Notification which has no application to instant case. - Decided in favour of Revenue. Issues Involved:1. Distinctness of SEZ units and companies.2. Maintenance of proper accounts and compliance with SEZ Rules.3. Validity of exports without a valid Letter of Permission (LOP).4. Adherence to Rule 30(8) of SEZ Rules regarding payment from foreign currency accounts.5. Procedural fairness and natural justice.Issue-wise Detailed Analysis:1. Distinctness of SEZ Units and Companies:The department argued that each SEZ unit is a separate and distinct entity, and thus, M/s. Kariwala Green Bags and M/s. Kariwala Industries Ltd. cannot be treated as the same unit. The respondent countered that they have different units under a single company, M/s. Kariwala Industries Ltd., and have maintained separate books of inventory and separate periodical returns as required by SEZ Rules. The Commissioner (Appeals) had noted that M/s. Kariwala Industries Ltd. operates three units in the SEZ and one in the DTA, maintaining separate accounts and registrations for each.2. Maintenance of Proper Accounts and Compliance with SEZ Rules:The department contended that the respondent violated Rules 34 and 22(ii) of SEZ Rules, 2006, by not maintaining proper accounts showing the accountal of goods procured from the DTA unit. The respondent argued that they maintained separate accounts for purchase, consumption, and sale for each unit and that the Development Commissioner of FSEZ did not find any issues with their compliance. The Government noted that the respondent did not produce relevant records for verification, and thus, in the absence of valid documentary evidence, the claim could not be accepted.3. Validity of Exports without a Valid LOP:The department claimed that M/s. Kariwala Industries Ltd. did not possess a valid LOP at the time of exports, and thus, the exports could not be treated as those made by an SEZ unit. The respondent argued that the exports were made using the LOP of M/s. Kariwala Green Bags, which is a unit of M/s. Kariwala Industries Ltd., and that there was no objection raised at the time of export. The Government observed that inter-unit transfer of materials is permitted under Rule 30(15) of SEZ Rules, 2006, and any procedural lapse could be condoned.4. Adherence to Rule 30(8) of SEZ Rules regarding Payment from Foreign Currency Accounts:The department argued that the respondent did not make payments for goods procured from the DTA unit from a foreign currency account as required by Rule 30(8) of SEZ Rules, 2006. The respondent claimed that payments were made from a current account in foreign currency, which should satisfy the requirement. The Government noted that the payment was made from a current deposit account, not a foreign currency account, as clarified by the RBI. Thus, the mandatory condition of Rule 30(8) was not complied with, and the Commissioner (Appeals) erred in ignoring this requirement.5. Procedural Fairness and Natural Justice:The department argued that they were not given a proper opportunity to be heard before the Commissioner (Appeals), which violated the principles of natural justice. The respondent countered that the Commissioner (Appeals) had given repeated opportunities for hearings and passed a reasoned order based on the facts and grounds of appeal. The Government found that the Commissioner (Appeals) had indeed provided sufficient opportunities for the department to present their case.Conclusion:The Government concluded that the respondent did not comply with the mandatory condition of making payments from a foreign currency account as required by Rule 30(8) of SEZ Rules, 2006. The impugned Order-in-Appeal was set aside, and the Order-in-Original rejecting the drawback claim was restored. The revision application succeeded on these grounds.