2017 (1) TMI 341 - AT - Customs

Export Oriented Unit Wins Duty Drawback Appeal, Precedence of Statutory Provisions

M/s. Fancy Images, Shri Chamkesh Sadh, Shri Rakesh Sadh Versus Commissioner of Customs

The Tribunal allowed the appeal of a 100% Export Oriented Unit (EOU) regarding the denial of duty drawback under a specific notification. The judgment ... 100% EOU - Drawback claim - recovery on the ground that the appellant is a 100% EOU and as per N/N. 26/03-Cus(NT) dated 10.4.03, as amended, a 100% EOU is debarred from claiming the benefit of notification - Held that: - There is no dispute that the materials used by them were of duty paid and the fact that appellant has not availed any credit of duty so paid is also admitted by the Revenue. Denial of draw back is on the sole ground that same would not be available to 100% EOU as against the express provisions of section 75 as also of the draw back Rules - reliance was placed in the case of Karle International [2012 (10) TMI 652 - KARNATAKA HIGH COURT] wherein identically worded N/N. 67/98 Cus (NT) laying down that all India Industrial rates of drawback would not be available if finished goods are exported by 100% EOU, was held inapplicable inasmuch as the same run counter to section 75 of Customs Act, 1962 and the benefit given therein cannot be taken away by way of notification - appeal allowed - decided in favor of appellant. Issues involved:- Denial of duty drawback to a 100% Export Oriented Unit (EOU) under a specific notification.- Interpretation of Customs Act, 1962 and Customs, Central Excise Duty and Service Tax Drawback Rules, 1995.- Conflict between statutory provisions and notification provisions.- Legal validity of denying drawback to EOUs for goods manufactured using duty paid raw materials.Detailed Analysis:1. The judgment deals with the denial of duty drawback to a 100% EOU, M/s. Fancy Images, under a notification disallowing drawback for goods manufactured or exported by such units. The Commissioner confirmed a duty demand of approximately Rs. 2.92 crores and imposed penalties on the partners. The issue revolved around the applicability of the notification in contravention to general rules on drawback eligibility.2. The EOU was engaged in manufacturing garments using imported raw materials duty-free for export. Additionally, they procured duty-paid inputs domestically for manufacturing final products, claiming drawback on exported goods. The Revenue challenged this claiming that as a 100% EOU, they were ineligible for drawback under a specific notification.3. The Tribunal analyzed the Customs Act, 1962, and the Drawback Rules, emphasizing the power of the Central Government to allow drawback subject to rules. The EOU exported goods to places outside India, meeting the export criteria under the Rules.4. The EOU's contention was based on statutory provisions prevailing over conflicting notifications. They argued that the legislative intent was to neutralize duty paid on inputs, and being a 100% EOU entitled to duty refunds, denial of drawback was unjustified.5. Referring to a Karnataka High Court case, the Tribunal upheld that the notification's denial of drawback to EOUs conflicted with the Customs Act and Rules. The High Court extended drawback benefits even to goods manufactured by EOUs, similar to the present case.6. The Tribunal dismissed the Revenue's reliance on the notification, following the precedent set by the Karnataka High Court and the Supreme Court's affirmation. The judgment allowed the appeal on the grounds of statutory provisions prevailing over conflicting notifications, setting aside the impugned order and granting consequential relief.7. The Tribunal clarified that as the appeal was allowed on merits, other issues like revenue neutrality and limitations were not addressed, focusing solely on the denial of drawback to the EOU based on the specific notification.In conclusion, the judgment resolved the issue of denying duty drawback to a 100% EOU, emphasizing the supremacy of statutory provisions over conflicting notifications and ensuring the EOU's entitlement to drawback benefits under the Customs Act and Rules.