1991 (2) TMI 113 - SC - Customs

Court Upholds Denial of Full Customs Duty Drawback for Polyester Yarn

CHEMICALS & FIBRES OF INDIA LTD. Versus UNION OF INDIA

CHEMICALS & FIBRES OF INDIA LTD. Versus UNION OF INDIA - 1991 (54) E.L.T. 3 (SC) Issues Involved:1. Entitlement to full 'drawback' of customs duty on imported de-methyl-terephthalate (DMT).2. Interpretation of Section 75 of the Customs Act, 1962, and the Customs and Central Excise Duty Drawback Rules, 1971.3. Determination of drawback rates and their applicability.4. Equitable considerations for granting drawback.Detailed Analysis:1. Entitlement to Full 'Drawback' of Customs Duty on Imported DMT:The primary issue was whether the appellant companies (assessees) were entitled to a full drawback of the customs duty paid on the import of de-methyl-terephthalate (DMT) used for manufacturing polyester staple fibre yarn. The assessees converted the DMT into polyester staple fibre, blended it with indigenous viscose staple fibre, and exported the final product. The assessees contended that having paid customs duty on the DMT, they were entitled to a drawback in respect of this duty.2. Interpretation of Section 75 of the Customs Act, 1962, and the Customs and Central Excise Duty Drawback Rules, 1971:Section 75 of the Customs Act, 1962, empowers the Central Government to allow a drawback of customs duties on imported materials used in the manufacture of exported goods. The Customs and Central Excise Duties Drawback Rules, 1971, provide for the determination of drawback rates based on the average amount of duties paid on materials used in the manufacture of export goods. Rule 3 specifies that the Central Government shall consider various factors, including the average amount of duties paid on imported materials, in determining the amount or rate of drawback.3. Determination of Drawback Rates and Their Applicability:The Central Government notified rates of drawback for various goods, including 'Synthetic and regenerated fibre, textile yarn, thread, twines, cords and ropes' under Item 25. The rates specified for polyester fibre content were Rs. 43.15 per kg. The assessees argued that this rate only accounted for Central Excise duty and did not include the customs duty paid on DMT. The Central Government, however, rejected their request for a full drawback of customs duty, stating that the rates were determined after considering the duty incidence of raw materials and excise duties.4. Equitable Considerations for Granting Drawback:The assessees contended that they were pioneers in manufacturing polyester fibre yarn in India and had obtained a contract from Imperial Chemical Industries, Singapore, which supplied DMT free of cost. They argued that they had sought permission to convert DMT into polyester under Customs bond to avoid customs duty, but this was declined by the Customs authorities. They further argued that the Government's exemption of DMT from customs duty in August 1976 should be applied retrospectively to their case. The Court, however, found that the rates of drawback were fixed considering the availability of DMT indigenously and that the Central Government had taken a conscious decision not to grant relief for customs duty on imported DMT.Conclusion:The Court concluded that the assessees' arguments were based on a misapprehension that a manufacturer is automatically entitled to a full drawback of customs and excise duties paid if the terms of Section 75 are fulfilled. The rules provide for a refund of the 'average amount of duty paid on materials' used in the manufacture of export goods, not an arithmetical refund of duties paid by individual manufacturers. The Court upheld the Central Government's decision, stating that the rates of drawback were fixed after considering both customs and excise duties and that no relief was granted for customs duty on DMT as it was available indigenously. The Court dismissed the appeals but suggested that the Central Government consider granting relief on equitable grounds if the assessees made an application within two months.