Duty Drawback Cannot Be Denied Merely Because Goods Didn’t Reach Destination Country: CESTAT
Sangeetha Prathap
The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that once goods are taken outside the territory of India, the exporter becomes entitled to duty drawback, irrespective of whether the goods ultimately reach the destination country. The ruling came in favour of Texcomash Export, a Delhi-based garment exporter, which had challenged the denial of drawback relating to nine shipments of ladies’ garments exported in 1994.
The case stemmed from 29 shipments of children’s garments and nine shipments of ladies’ garments exported by Texcomash during 1993–94 under the duty drawback scheme. While the customs authorities provisionally allowed the exports, they later alleged that the garments were heavily over-invoiced to obtain inflated drawback. The export value was reassessed at ₹210 per set, and though drawback was initially released at this reduced value, the Directorate of Revenue Intelligence (DRI) issued a show-cause notice in 2000 seeking to recover ₹31.66 lakh in drawback relating to the nine ladies’ garment consignments. The department further proposed confiscation under Sections 113(b) and 113(l) of the Customs Act, asserting that the garments never reached Russia and were instead offloaded in Dubai.
Texcomash argued that the DRI had no jurisdiction to issue the notice, that the 1995 Drawback Rules could not be applied retrospectively to 1994 shipments, and that the export proceeds had been duly received in India in November 1994, satisfying the statutory condition under Section 75 of the Customs Act. The exporter maintained that once the goods left Indian territory and reached Dubai, the export was complete under Rule 2(b) of the Drawback Rules, which defines export as “taking goods out of India to a place outside India.”
The department countered that the garments never reached Moscow and relied on an RBI Circular from 1993, which prohibited financing third-country exports from Indo-Russian state credit repayment funds. Since the consignments were delivered in Dubai, the department treated the remittances received in India as irregular and claimed that drawback was inadmissible.
The Tribunal rejected the department’s position, emphasising that drawback eligibility depends solely on whether the goods have been exported outside India, not on where they are ultimately delivered. It noted that there is no provision in the Drawback Rules that makes drawback conditional on the goods reaching the declared destination. The Bench further observed that the RBI’s 1993 circular could not override statutory provisions and that the Reserve Bank itself had released the export remittances to the exporter, confirming the legitimacy of the transaction.
CESTAT also noted that the 1995 Drawback Rules—and in particular Rule 16A dealing with recovery—could not be applied retrospectively to shipments made in 1994. The Tribunal found no legal basis for confiscation, especially since the goods had been allowed to be cleared provisionally decades ago and were not available for confiscation. It held that the show-cause notice lacked jurisdiction and that the department failed to substantiate any violation of customs law.
Setting aside the Commissioner’s order in full, the Tribunal allowed the appeal and held Texcomash Export entitled to the ₹31.66 lakh in drawback for the nine shipments of ladies’ garments. The confiscation order was also quashed, with the Tribunal concluding that the exporter had complied with all statutory requirements and that the goods were validly exported under the law.
Appearance
Counsel For Appellant: A.K. Jain, Advocate
Counsel For Respondent: AR Rohit Issar
Cause Title: M/s Texcomash Export & Sh. N.K. Rajgarhia Versus Customs Commissioner
Case No: Customs Appeal No. 724 of 2005
Coram: Hon’ble Dr. Rachna Gupta, Member (Judicial)
