Delhi HC allows duty drawback recovery after finding inadequate investigation by Revisional Authority on supplier verification

Delhi HC ruled in favor of petitioner in duty drawback recovery case. Court found Revisional Authority's determination of non-existent local supplier was based on inadequate investigation, despite petitioner providing bank statements showing payments through banking channels. Since export proceeds were realized within FEMA-prescribed timeframe and payments were properly documented through banking channels, petitioner was entitled to duty drawback. Court held no justification existed for freezing petitioner's bank account and set aside the revision order dated 18.08.2022. Petition disposed of favorably.

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Issues Involved:
1. Legitimacy of the duty drawback claimed by the petitioner.
2. Validity of third-party payments for export transactions.
3. Freezing of the petitioner's bank account.
4. Compliance with the RBI Master Circular and Customs Act provisions.

Issue-wise Detailed Analysis:

1. Legitimacy of the Duty Drawback Claimed by the Petitioner:
The petitioner, a sole proprietorship firm engaged in exporting handicrafts, claimed a duty drawback of Rs. 89,77,007/- for 24 consignments exported between 08.12.2014 and 13.12.2014. The Department challenged the legitimacy of this drawback, alleging that the petitioner purchased goods from a non-existent firm, M/s. Maxwell Impex, and received export proceeds from third parties rather than the consignee. A Show Cause Notice was issued to recover Rs. 79,45,653/- under Rule 16/16A of the Customs, Central Excise Duties & Service Tax Drawback Rules, 1995, and Section 76 (1) (b) of the Customs Act, 1962, confirmed by the Order-in-Original and upheld in appeal. The petitioner contested these findings, arguing that the exports complied with all legal requirements and that foreign exchange was fully realized.

2. Validity of Third-Party Payments for Export Transactions:
The petitioner argued that third-party payments were permissible under RBI Master Circular No. 14/2014-15, provided specific conditions were met, including a tripartite agreement. The petitioner submitted a Tripartite Agreement dated 05.10.2014, allowing payments from entities other than the consignee, M/s. Metal Masters. The Department's stance was that no valid documentation supported these third-party payments. However, statements from bank officials and the submission of relevant documents, including the Tripartite Agreement, demonstrated compliance with RBI guidelines, confirming the legitimacy of third-party payments.

3. Freezing of the Petitioner's Bank Account:
The Department froze the petitioner's bank account based on suspicions regarding the legitimacy of export proceeds. The court found no justification for this action, given that the petitioner fulfilled the conditions for receiving third-party payments and realized export proceeds within the stipulated period under FEMA. The court directed the respondents to defreeze the petitioner's bank account at IndusInd Bank, Moradabad Branch.

4. Compliance with the RBI Master Circular and Customs Act Provisions:
The court analyzed Section 75 of the Customs Act, which stipulates that duty drawback is contingent upon the receipt of export proceeds in India within the time allowed under FEMA. The RBI Circular permits third-party payments subject to conditions, which the petitioner met, including having a valid tripartite agreement and routing payments through banking channels. The court found that the Department failed to prove any violation of these provisions, and the petitioner's compliance with both RBI and Customs Act guidelines was established.

Conclusion:
The court set aside the impugned revision order dated 18.08.2022, finding that the petitioner was entitled to the duty drawback claimed and that the freezing of the bank account was unwarranted. The writ petition was disposed of with directions to defreeze the petitioner's bank account.

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