Duty drawback remains available when customs duty on imported inputs is paid through a DEPB scrip, not cash.

The Gujarat High Court examined whether duty drawback is available when customs duty on imported inputs is discharged by debit in a DEPB scrip rather than by cash payment. It held that section 75 of the Customs Act, 1962 and the Drawback Rules, 1995 do not bar drawback on that basis, and that the relevant notifications and circulars could not be read as denying drawback on basic customs duty merely because the duty was paid through an export incentive scrip. The Court also distinguished VKGUY, FMS and FPS schemes, noting that they do not operate like DEPB for neutralising duty on imported inputs. Accordingly, orders denying or reversing drawback were unsustainable.

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Issues: Whether duty drawback is admissible where customs duty on imported inputs is paid through debit in a DEPB scrip or similar export incentive scrip, and whether the relevant notifications and circulars restrict drawback only to duties paid in cash.

Analysis: Section 75 of the Customs Act, 1962 authorises drawback on imported materials used in exported goods, and the Drawback Rules, 1995 permit drawback subject to the specified exclusions. Neither the statute nor Rule 3 creates a prohibition against drawback merely because the duty was discharged through a DEPB scrip instead of cash. The circulars and notifications dealing with additional customs duty and CENVAT adjustment could not be read as an implied denial of drawback on basic customs duty where the imported goods had been duty-paid by debit in the scrip. The Court also distinguished export incentive schemes such as VKGUY, FMS and FPS, noting that they were not designed to neutralise duty on imported inputs in the same manner as DEPB, and therefore could not be used to deny drawback on the footing that no customs duty had been suffered.

Conclusion: Duty drawback is admissible even where the customs duty on imported inputs is paid through DEPB or comparable incentive scrips, and the impugned orders denying or reversing such benefit were unsustainable.

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