All Industry Rate drawback cannot be cut for packaging inputs bought against 'H' form without duty payment.

All Industry Rate drawback cannot be denied or reduced merely because packaging materials were procured without duty from unregistered units against 'H' form. The drawback scheme fixes rates on average duty incidence in exported goods, and the relevant notifications allow denial only where rebate of duty has been availed on materials used in manufacture or where export is under Rule 19(2) of the Central Excise Rules, 2002. Procurement against 'H' form is not equivalent to such rebate or Rule 19(2) export, and field officers have no authority to re-examine each input's duty-paid character to cut drawback. The restriction on drawback was therefore unsustainable.

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Issues: Whether drawback at the All Industry Rate could be denied or restricted on the ground that packaging materials were procured without payment of duty from unregistered units against 'H' form, and whether such procurement could be treated as equivalent to manufacture or export under Rule 19(2) of the Central Excise Rules, 2002.

Analysis: The applicable drawback scheme fixes All Industry Rates on the basis of average incidence of duty and taxes on inputs and services used in exported goods. The governing notifications and the Drawback Rules permit denial of the rate only where the export is made after availing rebate of duty on materials used in manufacture or in terms of Rule 19(2) of the Central Excise Rules, 2002. Procurement of inputs against 'H' form was not a disqualification under the relevant notifications, and it could not be equated with export under Rule 19(2). The field officers were also not vested with authority under the Drawback Rules to examine the duty-paid character of each input and reduce drawback on that basis. The denial of drawback on packaging materials therefore rested on an impermissible rewriting of the conditions in the notifications.

Conclusion: The restriction of drawback on packaging materials was unsustainable, and the applicant was entitled to drawback at the All Industry Rate.

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