TaxTMI 
TaxTMI 
2026 (9) TMI 2018
X X X X Extracts X X X X
X X X X Extracts X X X X
....akabad is already the respondent. If the Commissionerate has subsequently been bifurcated into Commissioner of Customs (Import) and Commissioner of Customs (Export) and these appeals pertain to exports, naturally the concerned Commissioner will have to take action. There is no need to separately implead Commissioner of Customs (Export). The miscellaneous applications are rejected. 2. The order dated 31.3.2012 passed by the Commissioner of Customs, ICD, Tughlakabad is assailed in these six appeals by the appellants insofar as it applies to them. M/s. PGY Associates [Exporter] is aggrieved by the disallowance of drawback and order of its recovery from the appellant in respect of 58 consignments of goods exported through ICD Tughlakabad and 34 consignments of goods exported through ICD Patparganj, New Delhi to Russia. It is also aggrieved by the order holding the exported goods liable to confiscation and consequently imposing penalty under section 114 of the Customs Act, 1962 [Act] and order of recovery of interest under section 75A(2) of the Act read with 28AB of the Act. Other appellants are aggrieved by the penalties imposed on them under section 114 of the Act. The operative pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....posed upon Shri Gaur Hari Singhania, Partner of M/s PGY Associates, Kanpur under section 114 of the Customs Act, 1962 ; 7. Penalty of Rs. 50,00,000/- (Rupees fifty lakh only) is imposed upon Smt. Sushila Singhania, Partner of M/s PGY Associates, Kanpur under section 114 of the Customs Act, 1962 ; 8. Penalty of Rs. 50,00,000/- (Rupees fifty lakh only) is imposed upon Smt. Kavita Singhania, Partner of M/s PGY Associates, Kanpur under section 114 of the Customs Act, 1962 ; 9. Penalty of Rs. 50,00,000/- (Rupees fifty lakh only) is imposed upon Shri Anil Kumar Agarwal (or Agarwal), Vice President and Authorized Signatory of M/s PGY Associates, Kanpur under section 114 of the Customs Act, 1962 for his acts of abetment in availing of drawback fraudulently; and 10. Penalty of Rs. 50,00,000/- (Rupees fifty lakh only) is imposed upon Shri Krishna Kumar Mishra (Shri K.K. Mishra), Assistant Vice President in M/s J.K. Cement and Authorized Signatory of M/s PGY Associates, Kanpur under section 114 of the Customs Act, 1962. 3. PGY Associates had filed shipping bills to export readymade garments to Russia through ICD Tughlakabad and ICD Patparganj under the R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing of the Commissioner that any prohibition under Foreign Trade (Development & Regulation) Act, 1992 [FTDR Act] will be a prohibition under the Customs Act and hence violation of RBI circular will also be contravention of Customs Act is erroneous. (vii) The Commissioner ordered recovery of drawback based on the communication dated 21.2.2007 from the First Secretary (Trade) Embassy of India, Moscow stating that the advance payments made by the Russian importers were returned to them by the Russian banks. However, the First Secretary had not made any enquiries with the Russian bankers. (viii) As per section 139 of the Act, documents received from abroad should be authenticated in accordance with Authentication of Documents Rules, 1974. The Commissioner has arrived at the conclusions on the basis of inadmissible and vague and disjointed documents without giving any opportunity of cross examination. (ix) The Commissioner has relied on (1) the discrepancy in the dates of three Bills of Lading tabulated at page 30 of the impugned order, (2) the letter from the Enforcement Department of Moscow stating that the pre-payments were made to the exporters but were la....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e banks. In turn, RBI would set off the value of the exports against India's state loans to Russia and would inform the Russia's Bank for Foreign Economic Affairs (BFEA) about the settlement of the State Debt. (iv) At the Russian end, the Russian importers would pay their banks in advance for the imports in Roubles which will be passed on to BFEA. Thus, the circuit is completed with BFEA receiving roubles from Russian importers and corresponding rupee debt from India to Russia being set off. (v) Investigations showed that the goods were off loaded en route and they never reached Russia. The importers in Russia had not received the goods and hence the Roubles which they paid in advance were also returned to them. (vi) Therefore, there is no manner of doubt that the goods were not exported to Russia. When goods were not exported, remittance, if any, received cannot be said to be sale proceeds of exports. (vii) Drawback is an incentive by returning the taxes incurred in the manufacture of exported goods (on presumptive basis). Drawback cannot be only based on remittance; every remittance does not entitle one to drawback. Only if the remittance is sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng and elegant system generally used in exports and imports. While the seller and the buyer may not trust each other much, the buyer and his bank trust each other and the seller and his bank trust each other and the two banks trust one another (being reputed institutions) and this chain of trust is used to ensure payments. Typically, instead of paying the seller in advance, on delivery, or much later, the buyer asks his bank to open a Letter of Credit (LC) in favour of the seller's bank with the seller as the beneficiary. The LC is a guarantee from the buyer's bank to the seller's bank that if goods, as indicated, are shipped and the documents are produced to it, it will pay the consideration to the seller's bank. 13. Thereafter, the seller exports the goods and the Master of the Vessel or the Shipping Line issues a Bill of Lading which is the document of title and it shows that the goods were given to the Master of the Vessel. 14. The seller presents the BL and LC and other documents to his bank (in a process called negotiation of documents) and receives the money. The seller's bank, in turn, sends the LC and BL to the Buyer's bank which then pays the seller's bank. The Buye....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... get an LC issued in Indian rupees. The Indian exporter would then export goods and present the documents including the LC to his bank. Instead of sending the LC and BL to the LC issuing bank in Russia, the Indian bank would pay the exporter and send the documents to the RBI which would, in turn, pay the Indian bank and set off the export against the loan of Government of India to Russia and inform the Russian Bank BFEA which will, in turn, recover equivalent Roubles from the Russian importer. The scheme notified by the RBI is below: 21. Thus, when goods are exported to Russia under this scheme, the remittance would come to the exporter from RBI through his bank in Indian Rupees and NOT in freely convertible currency from the exporter's bank. 22. Thus, in case of exports to Russia under the scheme, not only is the drawback (say 10 or 15% of the FOB value) is paid to the exporter by the Indian Customs, but the entire value of the exports is also paid to the exporter by the RBI. RBI, in turn, would set off the amount so paid against the loans which Government of India owes to Government of Russia and inform BFEA. Remittances 23. The Commissioner's finding is that remittan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....epartment is that since the goods never reached the intended destination (Russia), no drawback is admissible to the appellant. The case of the appellant, on the other hand is that the goods reached Russia through multimodal transport after reaching Bandar Abbas or Kotka. It is also the submission of the appellant that once the goods have been exported from India, the appellant is entitled to the drawback which does not depend on the country of export. 29. We find that as per the Drawback Rules, the exporter will be entitled to drawback if the goods are exported. There are two Rules under which the drawback can be recovered- Rule 16 and Rule 16A. Rule 16 deals with situations where the drawback was wrongly paid- say, if Rs. 1,000/- was payable and Rs. 1,100/- was paid, the excess drawback can be recovered. Rule 16A, on the other hand, provides for recovery of drawback if the remittance has not been received within the time stipulated under FEMA. These two Rules read as follows: 16. Repayment of erroneous or excess payment of drawback and interest.- Where an amount of drawback and interest, if any, has been paid erroneously or the amount so paid is in excess of what the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to in this subrule shall not be applicable to the goods exported from the Domestic Tariff Area to a special economic zone. 30. Drawback is an incentive to export goods from India and it is based on the universally accepted principle that countries export goods but not taxes. Countries formulate various schemes to pay back the taxes incurred in the exported goods. Drawback is one such scheme. Sections 74, 75 and 76 of the Act deal with the drawback. Section 74 provides for drawback of the customs duty paid on the imported goods if such goods are re-exported. Section 75 provides for drawback of the duties used in the raw material used in the manufacture of the exported goods. There are three primary ways in which this drawback is allowed. An exporter can apply for a brand rate for the goods which it exports giving details of the inputs used and the duties incurred and a brand rate of drawback is fixed for such goods. For vast majority of commonly exported goods, a drawback schedule giving rates of drawback is notified based on the average incidence of duties in different types of goods which is known as All Industry Rate (AIR). The third is case where even if there is an AIR, one ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch some other destination or are then destroyed or are re-imported. The answer to that would depend on when the property would pass to the importer because if the goods are destroyed after the property in it passes to the importer, the importer is still liable to pay the exporter and remittance has to be received. When goods are exported on Free On Board (FOB) basis, for instance, the seller delivers the goods the moment they are put on board and all costs and risks thereafter are on the buyer's account. Therefore, neither can the drawback be denied to the exporter nor can the exporter claim any exemption from obtaining remittance. Similarly, if the buyer then re-sells the goods to someone else in another place or diverts the goods to some other location, it will make no difference to either the drawback or the responsibility of the exporter to receive the remittance. This question was examined by the Supreme Court in Collector of Customs, Calcutta versus Sun Industries [1988 (35) ELT 241 (SC)] In that case, the exporter had exported goods destined to Colombo and they were cleared by the customs and they left the territorial waters of India. Thereafter, the engine of the ship devel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ambit of expression "taking out to a place outside India". Indubitably the goods had been taken out of India. "Place" according to Webster Comprehensive Dictionary, International Edition page 964 means a particular point or portion of space, especially that part of space occupied by or belonging to a thing under consideration; a definite locality or location. It also means an open space or square in a city. Therefore, in international trade the ship beyond the territorial waters of a country would be a place outside the country, if the goods are taken to that place, that is to say, a situation outside the territorial waters of a country and the title to the goods passes to the purchasers. Then, in our opinion, the goods are taken to a place outside India. 7. The expression "place" will depend for its connotation on the context in which it is used. In clause of charter party requiring charterer to procure safe "place" for discharge of cargo, quoted word meant spot selected to drop anchor plus area over which tanker might swing to tide and charter's duty was not fulfilled merely be selecting area containing both safe and unsafe berths. The word "place" as used in a statute....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cluded in the entry made under this Act, or in the case of baggage in the declaration made under section 77; (i) any goods entered for exportation which do not correspond in respect of value or in any material particular with the entry made under this Act or in the case of baggage with the declaration made under section 77 ; (ia) any goods entered for exportation under claim for drawback which do not correspond in any material particular with any information furnished by the exporter or manufacturer under this Act in relation to the fixation of rate of drawback under section 75 ; ...... 40. Section 113 renders certain type of 'export goods' liable to confiscation. The term 'export goods' is defined in section 2(19) as follows: "2. Definitions.-In this Act, unless the context otherwise requires,- .... (19) 'export goods' means any goods which are to be taken out of India to a place outside India;" 41. Export goods are those goods which are to be taken out of India to a place outside India. They are not those which have already been exported i.e., taken out of India. Section 113 deals provides for confiscation of certain types of exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tment against India's sovereign debt and only the Commissioner who passed the order is correct. (vi) Drawback is admissible for exports and export is complete once the goods leave the territorial waters of India and the title in the goods passes to the buyer as held by the Supreme Court in Sun Industries. (vii) Goods which were already exported were no longer 'export goods' and hence were not liable to confiscation under section 113. Even the Act itself did not, during the relevant period, extend beyond India. Therefore, the confiscation of the goods is set aside. (viii) Penalties under section 114 have been imposed for alleged acts and omissions which rendered the goods liable to confiscation under section 113 and since the confiscation is set aside, all penalties under section 114 are also set aside. 44. All appeals are allowed and the impugned order is set aside. The appellants will be entitled to consequential relief. (Order pronounced in open court on 28/09/2026) ============= Document 1 < U RBI Circulars ts in India for handling matters relating to export yanmar mental i mean decided to include Oriental Bank Commerce Patiala a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on has been obtained from Receive Bank in terms of Pamission and bank charges, if any, to nake payment including Cour sucatasare inated Reserve the Nominated banks provided such claims are received in. Reser Bank not later than the 37th working day, Vit, excluding fre du of the.L.C. Cidadeet in availability of, balances in the Central Account of BEBA Subject to offearmarking of the same against LC with the Reserve Bank non Russia and advised to it as- at (il) opened by peut andgone the payment instructions from BFEA of domand drafts and other payment instruments for r undrawn balances retention money by surfing with the en manse money, by. verifying Les the exports relate. CHEmial LCs to which of State Credits are to be unlised. for I thMay, Togg enden I Notice to Exporters No. 1, dated 19th May 1999- is enclosed, the of which may be brownthe notice of your continued trady changed or propos" This naverne 973) att directions contained in this circular have been issued under 73(3) of the Foreign Exchange Regulation Act- 1973 (46-of. 1915) ny contravention or Notice to Exporters No. 1 of 1999 the provisions of the Letters exchange implementation of and Russian De whe....