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M/S. FANCY IMAGES & OTHERS V/S COMMISSIONER OF CUSTOMS, decided on Tuesday, January 3, 2017.
[ In the Customs Excise Service Tax Appellate Tribunal Principal Bench New Delhi, Customs Appeal No. 50501, 50506 & 50507 of 2016 & Final Order No. 50003-50005 of 2017. ] 03/01/2017
Judge(s) : MS. ARCHANA WADHWA, JUDICIAL MEMBER & ASHOK K. ARYA, TECHNICAL MEMBER
Advocate(s) : Sudhir Malhora, Tarun Chawla. S.K. Sheoram, DR.
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    Archana Wadhwa:1. All three appeals are disposed of by a common order as they arise out of same order of the Commissioner vide which he has confirmed the demand of duty of Rs. 2.92 crores approx. on M/s. Fancy Images along with imposition of identical amount and has further imposed penalty of Rs. 50 000/- on each of its partners Shri Chamkesh Sadh and Shri Rakesh Sadh.2. M/s. Fancy Images is a 100% EOU engaged in the manufacture of readymade garments article of apparel and clothing falling under chapter 61 and 62 of the Central Excise Tariff Act 1985. They were manufacturing their final products out of the raw materials imported by them free of duty. Such final goods were being cleared by them were exported by them under valid shipping bill without any claim of draw back. There is no dispute on export of the said goods.3. Apart from that the appellant was also procuring the duty paid inputs from indigenous manufacturer which were being used by them in the manufacture of their final product without the claim of any cenvat credit. Such goods were exported by the appellant under green shipping bills under claim of draw back.4. Such draw backs claimed by the appellant were scrutinized by the Revenue and during the period 12.1.04 to 31.3.11 the total draw back of Rs. 2 92 10 408/- was paid by them by applying the all industry draw back rate.5. Subsequently proceedings were initiated against the appellant by way of issuance of show cause notice dated 10.11.14 proposing to recover the said draw back amount already sanctioned to them and received by the appellant on the alleged ground that the appellant is a 100% EOU and as per notification No. 26/03-Cus(NT) dated 10.4.03 as amended a 100% EOU is debarred from claiming the benefit of notification. Accordingly the notice proposed to confirm the demand on the above ground resulting in passing of present impugned order.6. After hearing both sides duly represented by Shri Sudhir Malhotra learned advocate appearing for the appellant and Shri S K Sheoram learned DR appearing for the Revenue we find that in terms of section 75 of the Customs Act 1962 the Central Government is empowered to allow draw back in accordance with law and subject to Rules made under the section. Accordingly the Customs Central Excise duty and Service tax draw back Rules 1995 stand framed by the Government of India in exercise of powers conferred by section 75 of the Customs Act 1962. In terms of Rule 2( c) of said goods Export stand defined as meaning taking out of India to a place outside India or taking out from a place in domestic tariff act DTA to special economic zone. In the present case the appellants have admittedly exported the goods inasmuch as they were taken out of India to a place outside India.7. In terms of Rule 3 of the said Rules the draw back is allowable on the export of the goods on such amount or on such rates as may be determined by the Central Government. Second proviso to said rule is to the effect that no draw back shall be allowed if the said goods are produced or manufactured using the imported material or excisable material or taxable service in respect of which duties or taxes have not been paid.8. Further we note that notification in question is to the effect as under:The rates of drawback specified in the said Schedule shall not be applicable to export of a commodity or product if such commodity or product is(a) Manufactured partly or wholly in a warehouse under section 65 of Customs Act 1962 (52 of 1962);(b) .(c) Manufactured or exported by a unit licensed as hundred per cent Export Oriented Unit in terms of the provisions of the relevant Export and Import Policy and the Foreign Trade Policy.9. As is seen Revenues total reliance is on the said notification which disallows draw back on all India industrial rate if the goods are manufactured or exported by a 100% EOU. There is otherwise no dispute that the appellants have manfuactured the goods out of duty paid raw material and have not taken any credit of the said duty so paid by them and as such were entitled to the draw back in terms of the draw back Rules read with section 75 of the Customs Act. The only issue which emerges is as to whether such notification debarring the draw back in contra distinction to the general Rules can be adopted for the purpose of denial of drawback.10. Learned Advocate Shri Sudhir Malhotra appearing for the appellant has drawn our attention to various decisions laying down that where there is a conflict between Act / Rules and the notification provisions of Act / Rules would prevail. The Honble Supreme Court in the case of Corporation Bank vs. Saraswati Abharansala [2009 (233) ELT 3 SC] has held that statutory provisions provided for refund are to prevail rather than the notification which lays to the contrary. The appellants contention is that inasmuch as they have paid taxes and duties on the raw materials and inasmuch as such taxes and duties cannot be exported the legislative intent to reimburse the element of tax and duty suffered on goods not used in export goods cannot be neutralized by adopting such a stand of the Revenue. The duty drawback scheme is aimed at neutralizing the effect of duty paid on various inputs and such facility would not be available only in that case where exporter has used the facilities at import stage under various schemes.It also stand argued by the learned advocate that inasmuch as they are 100% EOU and are entitled to the refund of duty paid on the inputs in terms of Rule 5 of Cenvat Credit Rules the entire situation is Revenue neutral. Merely because they have opted for the export of the goods under draw back the Revenue cannot deny them their legitimate claim.11. Learned Advocate also draw our attention to the Honble Karnataka High Court in the case of Karle International [2012 (281) ELT 486 (Kar)] wherein identically worded notification No. 67/98 Cus (NT) laying down that all India Industrial rates of drawback would not be available if finished goods are exported by 100% EOU was held inapplicable inasmuch as the same run counter to section 75 of Customs Act 1962 and the benefit given therein cannot be taken away by way of notification. He submits that said decision was upheld by Honble Supreme Court reported as [2015 (323) ELT A-74 (SC)].12. After hearing the learned DR we find that inasmuch as the issue stand decided by Honble Karnataka High Court the appeal can be disposed of on the said ground itself without adverting to the other peripheral submissions like interpretations of statute or limitation and revenue neutrality made by the learned advocate.13. The issue before Honble Karnataka High Court in the case of Karle International was identical. The drawback claim of EOU was being denied to them by adopting notification No. 67/98 which debar such credit in case of exports by EOU. Infact we find that in the said decision the Honble High Court has extended the benefit of drawback even in respect of goods manufactured by DTA units and exported through 100% EOU. In the present case the goods stand manufactured by the appellant himself. There is also no dispute that the materials used by them were of duty paid and the fact that appellant has not availed any credit of duty so paid is also admitted by the Revenue. Denial of draw back is on the sole ground that same would not be available to 100% EOU as against the express provisions of section 75 as also of the draw back Rules. As held by Honble Karnataka High Court in the above referred case the said stand of the Revenue cannot be appreciated and accepted. We also find that said decision was appealed against by the Revenue and the Honble Supreme Court dismissed the appeal by observing that there is another decision of the Madras High Court on the said issue which does not stand challenged by the Revenue and in that view the Honble Supreme Court declined to entertain the Special Leave Petitions. As such it can be safely concluded that the issue stand decided by the Honble Karnataka High Court and appeal filed thereagainst by the Revenue dismissed by the Honble Supreme Court. As such by following the same we set aside the impugned order and allow the appeal with consequential relief if any.14. We make it clear that as we have allowed the appeal on merits the other issue of revenue neutrality and limitation etc. are not being adve