2025 (4) TMI 1122 - HC - Customs

Writ petition dismissed for fraudulent duty drawback claims involving 2700% overvaluation of soccer ball exports under Rule 16

Delhi HC dismissed writ petition challenging SCN and order regarding fraudulent duty drawback claims from 2013-15 exports, with SCN issued in 2021. Court ... Challenge to SCN and order in original on the ground of time limitation - fraudulent claims under the Duty Drawback Scheme - contention of Petitioner is that the exports dated back to 2013-15 and the impugned SCNs have been issued only in 2021 - HELD THAT:- The impugned SCNs have been issued based on documents recovered from the Petitioner as also received from the Delhi Chamber of Commerce. For eg., in the invoice related to the export of soccer balls/ sports goods, the two recovered parallel invoices placed on record prima facie, reveal the manner in which the goods were being over-valued by the Petitioner - the two invoices, the same product, i.e., inflated soccer balls made of Polyurethane, are valued at 0.36 USD in one invoice and 9.70 USD in the other. This, in essence, shows an overvaluation of the product to the tune of approximately 27 times the original value i.e., an increase of 2700%(approx.). The total value of the invoice with the original price is 2176 USD whereas the value of the invoice with the over-valued price is 56,032 USD. There is no doubt that the former set of invoices was submitted to the Delhi Chamber of Commerce, and the latter set was filed to the Department. The difference might have come to the notice of the Department much later after the assessment was conducted. Accordingly, the issuance of the impugned SCN cannot be held to be barred by limitation. Rule 16 of the Drawback Rules does not prescribe any limitation, the Court is of the opinion that in the absence of a prescribed period of limitation being provided by the statute, the general limitation period of three years cannot be presumed to apply by default, especially when there are strong suspicions as to the fraudulent availment of duty drawbacks and knowledge of such availment is acquired much later. It is relevant to note that this Court in YOGENDRA SINGH BALYAN VERSUS UNION OF INDIA & ORS. [2025 (3) TMI 752 - DELHI HIGH COURT], in fact, relegated the co-noticee to avail the statutory appellate remedy. Further, the Coordinate Bench of this Court in Commr. of Customs v. Sans Frontiers, [2023 (12) TMI 695 - DELHI HIGH COURT] where a similar issue of limitation under Rule 16 of the Duty Drawback Rules was raised, the Court had relegated the case on the ground that there was an alternate remedy that remained un-exhausted. Considering that the co-noticee has been relegated to the appellate remedy, this Court is of the opinion that, though the exercise of writ jurisdiction in favour of the Petitioner may not be warranted, the Petitioner ought not to be denied the opportunity to avail the statutory remedy on grounds of parity - the Petitioner is also permitted to avail of the appellate remedy under Section 128 of the Customs Act, 1962. Conclusion - The availability of an efficacious statutory appellate remedy under Section 128 of the Customs Act militates against the exercise of writ jurisdiction under Article 226 in such matters, particularly where the Petitioner failed to contest the allegations on merits during the SCN proceedings. Petition disposed off. Issues Presented and ConsideredThe core legal questions considered by the Court in this matter include:(i) Whether the issuance of Show Cause Notices (SCNs) and the Order-in-Original (OIO) relating to alleged fraudulent claims under the Duty Drawback Scheme are barred by limitation;(ii) Whether the Petitioner engaged in fraudulent export practices, specifically by creating parallel invoices with different valuations to claim excess duty drawback amounts;(iii) The applicability and interpretation of Rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 (Duty Drawback Rules) concerning repayment and limitation;(iv) The appropriateness of the writ jurisdiction under Article 226 of the Constitution of India in challenging the impugned OIO and SCNs, especially in light of the availability of statutory appellate remedies under Section 128 of the Customs Act, 1962;(v) The treatment of penalties imposed on the Petitioner and co-noticees under various provisions of the Customs Act, 1962 and related regulations.Issue-wise Detailed AnalysisLimitation for Initiating Proceedings under Rule 16 of the Duty Drawback RulesThe Court examined whether the issuance of SCNs in 2021 for exports dating back to 2013-15 was barred by limitation. The Petitioner relied on precedents from the Gujarat High Court to argue that the proceedings were time-barred. However, the Court found that Rule 16 of the Duty Drawback Rules, 1995, which governs repayment of erroneous or excess drawback payments, does not prescribe any specific limitation period. The Court noted:'Where an amount of drawback and interest, if any, has been paid erroneously or the amount so paid is in excess of what the claimant is entitled to, the claimant shall, on demand by a proper officer of Customs repay the amount so paid erroneously or in excess...'Accordingly, the absence of a statutory limitation period means the general limitation period of three years cannot be presumed to apply by default, especially in cases involving suspected fraud where knowledge of the wrongdoing arises only after investigation.The Court also referenced a prior decision of a Coordinate Bench which held that demands under Rule 16 are not necessarily time-barred and that the Revenue's knowledge of fraudulent availment triggers the limitation period. The Court thus rejected the limitation plea.Allegations of Fraudulent Export Practices and Parallel InvoicesThe primary allegation against the Petitioner was the creation of parallel invoices for the same exports, with one set submitted to the Delhi Chamber of Commerce and the other, overvalued set submitted to the Customs Department to claim higher duty drawback. Evidence included recovered invoices showing stark discrepancies in valuation-for example, soccer balls valued at 0.36 USD in one invoice and 9.70 USD in another, representing an overvaluation of approximately 2700%.The Court found the existence of parallel invoices undisputed, with the Petitioner's counsel effectively conceding the allegation during proceedings. The Petitioner's reply to the SCNs did not specifically address these allegations on merits but focused on technical and jurisdictional issues. The Court observed that the Petitioner failed to provide a substantive defense against the fraud allegations.The Court applied the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, and Sections 14, 75, 75A, 113, 114, 114AA, and 125 of the Customs Act, 1962, to re-determine the correct FOB value of the exports, order recovery of excess drawback amounts with interest, impose penalties, and hold the goods liable for confiscation.Appropriateness of Writ Jurisdiction versus Statutory Appellate RemediesThe Court considered whether the Petitioner's challenge under Article 226 was appropriate or whether the Petitioner should be relegated to statutory appellate remedies under Section 128 of the Customs Act, 1962. Respondents argued that since the Petitioner did not raise limitation or other substantive defenses during the SCN proceedings and because the OIO is appealable, the writ petition was not maintainable.The Court noted that in a related writ petition filed by a co-noticee, the Court had already directed the party to avail the statutory appellate remedy. Additionally, the Court referred to a precedent where a similar limitation issue was raised, and the Court declined to decide the limitation question in writ jurisdiction, instead directing the aggrieved party to file a revision under Section 129DD of the Customs Act.In light of parity and to ensure fairness, the Court allowed the Petitioner to avail the appellate remedy under Section 128, emphasizing that observations made in the writ proceedings would not prejudice the appellate adjudication. The Court also noted that the Petitioner's claim that statements were extracted under duress could be raised before the Appellate Authority.Penalties and Confiscation OrdersThe OIO imposed multiple penalties on the Petitioner and co-noticees under Sections 114(iii), 114AA, and 14AA of the Customs Act, 1962, reflecting the seriousness of the fraudulent conduct. The Court upheld the imposition of penalties and the order of confiscation of goods, subject to appellate review. The Court refrained from imposing redemption fines under Section 125, as the goods were not seized under Section 110 of the Customs Act.Significant HoldingsThe Court held that:'In the absence of a prescribed period of limitation being provided by the statute, the general limitation period of three years cannot be presumed to apply by default, especially when there are strong suspicions as to the fraudulent availment of duty drawbacks and knowledge of such availment is acquired much later.'The Court also established the principle that the availability of an efficacious statutory appellate remedy under Section 128 of the Customs Act militates against the exercise of writ jurisdiction under Article 226 in such matters, particularly where the Petitioner failed to contest the allegations on merits during the SCN proceedings.The Court concluded that the impugned Show Cause Notices and Order-in-Original were not barred by limitation and that the Petitioner's challenge under writ jurisdiction was not maintainable. However, the Petitioner was permitted to pursue statutory appellate remedies to contest the findings and penalties imposed.Finally, the Court emphasized that any submissions regarding coercion or duress in extracting statements should be addressed before the Appellate Authority and that the appellate process must be exhausted before seeking judicial intervention.