2017 (6) TMI 1414 - HC - Customs

Quashed memo changing classification; Rule 13(3) allows deficiency notices for incomplete claims within 10 days; release drawback under Section 75A

HC quashed the deficiency memo issued under the Drawback Rules and allowed the petition. Court held that once final assessment and classification are ... Duty drawback - validity of 10-day period prescribed by Rule 13(3) of the Customs Central Excise Duties and Service Tax Drawback Rules, 1995 - Challenge to proceedings initiated consequential to the deficiency memo - release of duty drawback amount with interest - stay on execution, operation and implementation of the impugned deficiency memo - exoprt of prohibited goods or not - Nuts, Bolts, Hand Tools, Fasteners etc. falling under Chapter heading 7318, 8205 and 3923 of the Customs Tariff Act, 1975 or otherwise - case of petitioner is that once the goods have been cleared for export and the goods have been released and exported and the entire export commitment is fulfilled, there is no reason for not releasing the amount of drawback - HELD THAT:- Once final assessment is made and once classification of goods are already made and approved by the proper officer, no officer can reopen such assessment unless as provided under law. Secondly, Rule 13(3) of Customs Central Excise Duties and Service Tax Drawback Rules, 1995 provides that deficiency memo can be issued only if claim of drawback is not complete in any material particular or without the document specified in sub rule-2 and that too within 10 days from the submission of claim. It is the case of the petitioner that when the exporter has exported the goods under Electronic shipping Bills in Electronic Date Interchange (EDI) under the claim of drawback, the Electronic shipping Bills itself shall be treated as claim for drawback. Therefore, deficiency memo can be issued only when drawback claim is incomplete in any material particulars and that too it can be issued only within 10 days. Therefore, no deficiency note can be issued after expiry of 10 days and it can only be issued for the reasons provided in Rule-13(3). In the present case, the deficiency memo is issued to change the classification under which the goods have been assessed. The petitioner replied to the said letter dated 30.12.2015 vide letter dated 12.01.2016 by stating that the goods are properly classified and therefore, the deficiency memo may be dropped. In spite of the above, no reply is received by the petitioner and on the other hand, the drawback claims were not cleared or processed and the drawback claim is not cleared. The petitioner has requested the authorities on several occasions for release of drawback, however, the authorities have not cleared the drawback claim of the petitioner - the present petition is concerned with regards to the drawback for the export transactions where no dispute has arisen regarding any mis-declaration or under weighing of the goods and the authorities have permitted clearance of the goods without any objection and the assessment under Section 17 is made and export order under Section 51 is also passed. In spite of receipt of aforesaid representation, the respondents have neither replied to the said representations nor have acted as per the said representations and thereby were not releasing the drawback to the petitioner. The petitioner has exported nuts by classifying them under chapter heading 73181600 and clamps by classifying them under chapter heading 82057000, therefore, specific description is provided for both the exported goods and they have been classified in that specific head. Even as per the say of the department, by the impugned deficiency note, heading which provides the most specific description shall be preferred to a general description. The classification provided by the petitioner and accepted by the proper officer is under the head providing specific description whereas the department wants to take it to general head - the petitioner has approached this Court by way of present petition under Article 226 of the Constitution of India for quashment of deficiency memo and the proceeding initiated by thereunder and for releasing of the drawback amount of Rs.42,44,130/- outstanding of the petitioner with interest. The impugned deficiency memo dated 30th December, 2015 (Annexure “A” to the petition) is hereby quashed and set aside and the respondents are directed to forthwith process the drawback claims of the petitioner and release the drawback amount with interest as provided under section 75A of the Act, as expeditiously as possible - Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a deficiency memo issued after the 10-day period prescribed by Rule 13(3) of the Customs Central Excise Duties and Service Tax Drawback Rules, 1995 is valid, where it seeks to question classification already accepted in export clearance and assessment under Section 17 and LEO under Section 51. 2. Whether an Electronic Data Interchange (EDI) shipping bill filed under claim of drawback constitutes a valid and complete drawback claim for purposes of Rule 13(3) and the statutory timelines for processing and payment. 3. Whether a revenue authority may reopen or review a finally passed assessment/LEO or withhold drawback where export transaction is completed, goods were cleared without objection, and no show-cause notice has been issued in respect of the shipping bills in question. 4. Whether the statutory timeline for processing drawback claims and payment (including interest liability on delayed payment) under the Customs Act and related rules was breached by withholding drawback, and consequently whether mandamus is appropriate to direct payment with interest. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of deficiency memo issued after 10 days and seeking to change classification Legal framework: Rule 13(3) of the Drawback Rules, 1995 permits issuance of a deficiency memo only where the drawback claim is incomplete in any material particular or missing documents specified in sub-rule (2), and, as applied in the judgment, such memo must be issued within 10 days from submission of the claim. Final assessment and LEO occur under Sections 17 and 51 of the Customs Act, and reopening of assessment is permissible only as provided by law. Precedent treatment: The Court applied a recent coordinate-bench order in a factually identical challenge as persuasive and directed similar relief; the judgment follows that approach rather than distinguishing or overruling prior decisions. Interpretation and reasoning: The Court reasoned that issuing a deficiency memo beyond the 10-day window cannot be treated as valid under Rule 13(3). Further, issuing such a memo to reclassify goods after assessment and LEO is impermissible because it effectively reviews or cancels a completed assessment, which can only be done through statutory mechanisms. A deficiency memo aimed at changing classification was held to be inconsistent with the limited scope of Rule 13(3) and with the finality accorded to assessments unless statutory grounds for reopening exist. Ratio vs. Obiter: Ratio - A deficiency memo issued after the 10-day period under Rule 13(3) and used to change classification of goods after final assessment/LEO is invalid. Obiter - Implicit commentary that the Rule's limited grounds (incompleteness or missing documents) do not encompass post-hoc reclassification attempts. Conclusion: The deficiency memo issued beyond the 10-day period and seeking to alter classification was quashed as impermissible; such post-assessment reclassification via a deficiency memo is not allowed. Issue 2 - EDI shipping bill as claim for drawback and consequences for time limits Legal framework: Drawback claims are required to be filed electronically; relevant Union circular (No.25/2000 dated 30.03.2000) prescribes processing timelines under EDI (3 days) and manual (5 days). Section 74A (as referred) and the Drawback Rules establish that drawback claims must be processed and paid within the stipulated period, failing which interest liability arises (Section 75A referenced for interest). Precedent treatment: The Court treated the circular and statutory timelines as binding operational mandates for processing drawback claims and relied on the principle that an EDI shipping bill filed under drawback constitutes the claim for the purpose of Rule 13(3) timing. Interpretation and reasoning: The Court accepted the petitioner's position that where export was effected under Electronic shipping bills in EDI with a drawback claim, the shipping bill itself operates as the drawback claim. Consequently, deficiency memos are constrained by the 10-day Rule 13(3) deadline measured from submission of the claim (i.e., EDI shipping bill), and longer delays that result in non-payment trigger interest obligations under the Act. Ratio vs. Obiter: Ratio - An EDI shipping bill filed under drawback is to be treated as the claim for triggering the timelines in the draw-back regime; defendants cannot validly issue deficiency memos beyond the prescribed period in Rule 13(3). Obiter - Reference to circular timelines (3/5 days) is explanatory of administrative practice but the decisive statutory limit applied was Rule 13(3) and provisions imposing interest on delayed payment. Conclusion: The EDI shipping bill filed under drawback qualifies as the claim, thereby fixing the 10-day window for deficiency memos and the one-month period for payment; failure to comply entails interest liability. Issue 3 - Reopening of assessment / withholding drawback without show-cause notice Legal framework: Assessments and LEOs finalized under Sections 17 and 51 confer finality subject to statutory provisions permitting reopening; show-cause notices are the proper mechanism to initiate adjudicatory proceedings where dispute or misdeclaration is alleged. Precedent treatment: The Court followed the principle that revenue cannot withhold finalised benefit payments (drawback) for completed transactions absent invocation of statutory procedures and proper notices; it also relied on the coordinate bench interim order in a similar matter as reinforcing that approach. Interpretation and reasoning: The Court found no show-cause notices or statutory proceedings initiated against the petitioner's shipping bills. The export consignments were cleared, assessed and LEO granted, and goods were received by the importer without objection. The issuance of a deficiency memo after completion, in the absence of statutory grounds for reopening or a show-cause notice, was an improper mechanism to withhold drawback. Withholding payments pending an inquiry into other exporters' transactions was held insufficient justification for denying a cleared claimant. Ratio vs. Obiter: Ratio - Revenue cannot withhold drawback for completed and assessed exports without issuing appropriate statutory notices and cannot use deficiency memos as a substitute to reopen assessments. Obiter - Administrative prudence does not justify indefinite withholding of benefits due to unrelated or parallel inquiries. Conclusion: Withholding drawback where assessment and LEO are final, and without show-cause or statutory grounds to reopen, is impermissible; the proper course is statutory proceedings, not belated deficiency memos. Issue 4 - Breach of statutory timelines for payment and entitlement to interest; remedy of mandamus Legal framework: Statutory/administrative provisions require processing of drawback claims within prescribed periods and provide for payment of interest if payment is delayed (Section 75A invoked in judgment for interest entitlement). Judicial review under Article 226 can issue writs including certiorari and mandamus to quash unlawful actions and compel statutory performance. Precedent treatment: The Court applied established remedial principles: quashing unlawful administrative acts (deficiency memo) and directing performance of statutory duties (processing and payment with interest). It relied on coordinate bench treatment of identical facts as a basis for similar relief. Interpretation and reasoning: Given the invalidity of the deficiency memo and the failure to process and pay the drawback within the statutory period, the Court held that the authorities were obligated to process the claims and release dues with interest. The relief granted was to quash the impugned memo and direct expeditious processing and payment with interest under Section 75A. Ratio vs. Obiter: Ratio - Where statutory timelines for processing and payment of drawback are not respected and no lawful impediment exists, mandamus (or equivalent relief) is appropriate to compel payment with statutory interest. Obiter - The Court's direction to act 'as expeditiously as possible' is pragmatic guidance rather than a rigid time frame beyond statutory prescriptions. Conclusion: The Court quashed the impugned deficiency memo and directed immediate processing and release of drawback with interest under the Act; writ relief compelling payment was granted as appropriate and proportionate.