2024 (9) TMI 1183 - HC - Customs

Penalty for non-issuance of ARE-2 quashed without proving intentional wrongdoing in duty drawback case

Gujarat HC allowed the petition challenging penalty for non-issuance of ARE-2 while removing DOC manufactured using duty-free Hexane. The court held that ... Recovery of duty drawback with penalty - requirement to issue ARE-2 to the merchant exporter in case where the duty paid Hexane is used to manufacture DOC - HELD THAT:- It is not in dispute that the petitioner did not issue the ARE-2 while removing the DOC manufactured by using the Hexane without payment of Central Excise duty. However, as held by the Commissioner (Appeals) such non-issuance of the ARE-2 would not be for removal of the DOC manufactured out of the duty free procured Hexane by availing the benefit under Rule-19 (2) of the Rules would not make any difference as there is no intention established by the Adjudicating Authority and the only allegation levelled against the petitioner stand on pre-condition that the petitioner exporter had knowingly or intentionally claimed the duty drawback erroneously. However, the Commissioner (Appeals) has categorically held that the legality of claiming custom portion of the drawback by the merchant exporter, the allegation made by the Adjudicating Authority was devoid of any merit and there was no finding or discussion by the Adjudicating Authority whereby any conclusive evidence as how non-issuance of ARE-2 by the petitioner would tantamount to the intentional involvement in abetement of erroneous claim of the drawback by the exporter which purely relates to the custom portion of the drawback when the exporter manufacturer is not unduly getting the double benefit. The Revisional Authority while Considering the aspect in the facts of the case of the petitioner has not taken into consideration the fact that the rate of duty drawback is 1% in the facts of the case which relates to the custom portion only and not the Central Excise portion and therefore, the exporter did not get any double benefit in the facts of the case. In such circumstances, it cannot be said that the petitioner has committed any breach of the Rules by issuing the DOC without issuing ARE-2. In such circumstances, the impugned order passed by the Revisional Authority is not sustainable and is accordingly, quashed and set aside so far as the petitioner is concerned with regard to the levy of penalty which is deleted by the Commissioner of Customs (Appeals). The impugned order passed by the Revisional Authority levying the penalty upon the petitioner is quashed and set aside to the extent it confirms the levy of penalty upon the petitioner and the order of Commissioner (Appeals) to that extent is restored - Petition allowed. Issues Involved:1. Legality of the Order No. 185-189/2020-CUS(WZ)/ASRA/MUMBAI dated 11.09.2020 and corrigendum dated 17.11.2020.2. Requirement of issuing ARE-2 for removal of De-oiled Cake (DOC) manufactured using duty-free Hexane.3. Entitlement to duty drawback at the rate of 1% for the merchant exporter.4. Imposition of penalty under Section 114 (iii) of the Customs Act, 1962.Issue-wise Detailed Analysis:1. Legality of the Order No. 185-189/2020-CUS(WZ)/ASRA/MUMBAI dated 11.09.2020 and corrigendum dated 17.11.2020:The petitioner challenged the legality of the impugned order and corrigendum issued by the Revisional Authority, which restored the Order-in-Original dated 04.04.2013 and confirmed the penalty of Rs. 3,00,000/- imposed upon the petitioner. The High Court found that the Revisional Authority did not take into consideration the fact that the rate of duty drawback was 1%, which related solely to the customs portion and not the Central Excise portion. Therefore, the impugned order was quashed and set aside to the extent it confirmed the levy of penalty on the petitioner.2. Requirement of issuing ARE-2 for removal of De-oiled Cake (DOC) manufactured using duty-free Hexane:The petitioner argued that ARE-2 was not required for the removal of DOC as it was taxed at a Nil rate and ARE-2 was only necessary for dutiable excisable goods. The Commissioner (Appeals) agreed, stating that the duty drawback rate of 1% pertained to the customs component and not the Central Excise component. The High Court concurred, noting that non-issuance of ARE-2 did not establish any intention of the petitioner to claim duty drawback erroneously. The Revisional Authority's focus on non-issuance of ARE-2 was deemed misplaced.3. Entitlement to duty drawback at the rate of 1% for the merchant exporter:The petitioner contended that the merchant exporter was entitled to a duty drawback at the rate of 1% as per the All Industry Rate (AIR) under Notification No. 68/2007 and subsequent notifications. The Commissioner (Appeals) supported this view, emphasizing that the drawback was for the customs component only. The High Court upheld this reasoning, stating that the petitioner did not get any double benefit and thus, the merchant exporter was rightfully entitled to the duty drawback.4. Imposition of penalty under Section 114 (iii) of the Customs Act, 1962:The Adjudicating Authority had imposed a penalty of Rs. 3,00,000/- on the petitioner for not issuing ARE-2. The Commissioner (Appeals) overturned this, citing a lack of conclusive evidence of intentional wrongdoing by the petitioner. The High Court agreed, noting that the Revisional Authority failed to consider the absence of any intent to claim erroneous duty drawback. Consequently, the penalty was deemed unsustainable and was quashed.Conclusion:The High Court allowed the petition, quashing the impugned order of the Revisional Authority to the extent it confirmed the penalty on the petitioner. The order of the Commissioner (Appeals), which had set aside the penalty, was restored. The High Court ruled that the petitioner did not breach any rules by not issuing ARE-2 and that the duty drawback related only to the customs component, not the Central Excise component. No order as to costs was made.