2019 (9) TMI 970 - HC - Customs

Court quashes late show cause notice, rules against incomplete mechanism for drawback demand.

M/s Famina Knit Fabs through its partner Versus Union of India And Ors.

M/s Famina Knit Fabs through its partner Versus Union of India And Ors. - [2020] 11 G S.T.R. - OL 383 (P&H), 2020 (371) E.L.T. 97 (P & H) Issues Involved:1. Maintainability of writ petition under Article 226 against the show cause notice.2. Reasonable period of limitation for issuing show cause notice under Rule 16 of the Drawback Rules, 1995.3. Effect of the repeal of Drawback Rules, 1995 and introduction of Drawback Rules, 2017 on the show cause notice.4. Adequacy of the mechanism under Rule 16 of Drawback Rules, 1995 for determining and recovering erroneous or excess drawback.5. Authority of the Respondent to reassess the value of already exported goods under Rule 6 & 8 of the Valuation Rules, 2007 read with Section 14 of the Customs Act, 1962.Detailed Analysis:1. Maintainability of Writ Petition:The court acknowledged that the primary issue involved was the demand of Duty Drawback, an export incentive. The petitioner raised questions of limitation, repeal of Drawback Rules, 1995, absence of a mechanism to raise demand of drawback, and the jurisdiction of the Respondent to reassess the value of goods already exported. The court noted that the dates of export, release of drawback, realization of export proceeds, and the issue of the show cause notice were undisputed. It was held that the authorities under the Customs Act, 1962 could not decide what constituted a reasonable period of limitation, which is a matter for the courts. The court cited the Supreme Court’s judgment in Bhatinda District Coop. Milk and other precedents, concluding that the writ petition was maintainable as it involved questions of jurisdiction.2. Reasonable Period of Limitation:The court discussed various judgments including those of the Supreme Court and the Gujarat High Court, which held that in the absence of a specific period, actions should be initiated within a reasonable period. The court noted that Section 28 of the Customs Act, 1962 prescribes a maximum period of 5 years to issue a show cause notice even in cases of fraud or willful mis-statement. The court concluded that a notice issued beyond 5 years from the date of export is barred by limitation and bad in the eyes of law. The impugned show cause notice was issued after more than 5 years from the date of export, making it time-barred.3. Effect of Repeal of Drawback Rules, 1995:The court examined Section 159A of the Customs Act, 1962 and Rule 20 of the Drawback Rules, 2017, which repealed the Drawback Rules, 1995. It was noted that Rule 20(2) of the Drawback Rules, 2017 only saved specific rights and liabilities under the 1995 Rules, such as pending applications for determination or revision of drawback and pending claims for payment of drawback. The court held that the show cause notice issued under the repealed 1995 Rules was not saved by the 2017 Rules, and thus, the proceedings initiated under the repealed rules were not maintainable.4. Adequacy of Mechanism under Rule 16 of Drawback Rules, 1995:The court found that Rule 16 of the Drawback Rules, 1995 did not provide a complete mechanism for determining and demanding erroneous or excess drawback. The rule only directed the claimant to repay the erroneous or excess drawback on demand by a proper officer but did not prescribe a method or procedure for determining such erroneous or excess amounts. The court held that in the absence of a prescribed mechanism, the demand under Rule 16 was not sustainable. The court also noted that the Valuation Rules, 2007, which were cited by the Respondents, did not substitute for the necessary mechanism under Rule 16.5. Authority to Reassess Value of Already Exported Goods:The court examined the relevant provisions of the Customs Act, 1962 and the Valuation Rules, 2007. It was found that the Valuation Rules applied to 'export goods,' which are defined as goods to be taken out of India, not goods that have already been exported. The court held that the Customs Officers or DRI officers did not have the authority to reassess the value of goods that had already been exported, as there was no specific provision in the Customs Act, 1962, like those in the Income Tax Act or VAT Acts, empowering such reassessment.Conclusion:The court allowed the petition, quashing the show cause notice dated 09.02.2018, as it was issued beyond the reasonable period of limitation, was not saved by the 2017 Rules, and was based on a rule that did not provide a complete mechanism for demanding erroneous or excess drawback. The court refrained from addressing the last question regarding the power to reassess already exported goods, as the petition was resolved on the other grounds.