2018 (2) TMI 852 - HC - Customs

High Court upholds drawback claim for exported goods based on product content, clarifies deeming provision.

The High Court upheld the respondent's entitlement to claim drawback on exported goods based on the content of the manufactured products under Section ... Drawback u/s 75 of the CA 1962 - the second ingredient copper that goes into the manufacture of their products is procured indigenously from local producers. Since the products exported by the respondent contained copper, the respondent claimed drawback - powers conferred by Section 75(1A) of CA. Held that: - power u/s 75(1A) is to declare through a notification to be published in the official gazette that the material contained in a particular category of goods exported was imported. The concept of deemed import is to be applied in cases where the conditions stipulated by Section 75(1A) stands satisfied. It is on the basis of such a satisfaction that Ext. P7 notification has been issued. Ext. P7 notification is not under challenge. It is not in dispute that, copper is contained in the manufactured product of the respondent. Therefore, going by the terms of Ext. P7 the respondent is entitled to claim the benefit of Ext. P7. In other words, in terms of Ext. P7 the respondent is entitled to claim that the whole of the copper content in its manufactured product should be treated as “deemed to be imported material”, for the purpose of sub-section (1) of Section 75 of the Act. Availing of the Cenvat credit also does not disentitle the respondent from claiming the above benefit since there is not such restriction in Ext. P7. Whether it is the “all industry rates” stipulated by Rule 3 of the Rules or what is commonly called “the brand rates” to be fixed under Rule 6 of the Rules, that should apply in computing the rate of drawback applicable to the respondent? - Held that: - the rate applicable to the respondent would have to be determined separately under Rule 6 of the Rules. In Ext. P9, the second respondent has proceeded on the basis that fixation of the rate under Rule 6 should be only on the basis of the actual customs duty suffered by the product - the said reasoning is not sustainable in view of the clear wording in Ext. P7 notification. The rate of drawback applicable to the respondent’s product would have to be fixed in exercise of the powers under Rule 6 of the Rules. Appeal dismissed. Issues:1. Interpretation of Section 75(1A) of the Customs Act and Ext. P7 notification for claiming drawback on exported goods.2. Determination of entitlement to drawback based on the nature of raw materials used in manufacturing.3. Application of brand rates versus all industry rates under Rule 3 and Rule 6 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.Analysis:Issue 1: Interpretation of Section 75(1A) and Ext. P7 notificationThe case involved a dispute regarding the entitlement to drawback under Section 75 of the Customs Act for goods exported by the respondent. The respondent claimed drawback on the copper content of their exported products, relying on Ext. P7 notification issued by the Central Government. The notification declared that the material specified in the table annexed shall be deemed to be imported material for the purpose of claiming drawback. The High Court held that the deeming provision in Ext. P7 focused on the content of the manufactured products, not on the nature of the raw material used. Therefore, the respondent was entitled to claim the benefit of deemed import for the copper content in their products, as per the terms of Ext. P7.Issue 2: Determination of entitlement based on raw materialsThe appellants contended that since the respondent procured copper indigenously and availed Cenvat credit for excise duty paid, they were not entitled to claim drawback under Section 75(1A) of the Customs Act. However, the Court rejected this argument, emphasizing that Ext. P7 did not impose restrictions based on the nature of raw materials used. As long as copper was contained in the manufactured product, the respondent could claim the benefit of deemed import, irrespective of the source of procurement or availing of Cenvat credit.Issue 3: Application of brand rates versus all industry ratesThe Court addressed the question of whether the brand rates or all industry rates should apply in determining the rate of drawback for the respondent's products. Since no rate was fixed under Rule 3 of the Rules for the respondent's products, the Court held that the rate should be determined under Rule 6. The second respondent's reasoning that the rate should be based on actual customs duty suffered was deemed unsustainable in light of Ext. P7 notification. Therefore, the Court upheld the direction to fix the rate under Rule 6 and dismissed the writ appeal.In conclusion, the High Court upheld the respondent's entitlement to claim drawback on the exported goods based on the content of the manufactured products, as per the provisions of Section 75(1A) and Ext. P7 notification. The Court also clarified the application of brand rates under Rule 6 in the absence of all industry rates, emphasizing the importance of statutory notifications in determining entitlement to drawback benefits.