Export Proceeds Not Remitted Within Time; Duty Drawback To Be Recovered: Delhi High Court

The Delhi High Court has held that the exporter is otherwise not entitled to duty drawback and, if already paid, is liable to be reimbursed because the buyer did not send any export proceeds within the required time frame.

The division bench of Justice Rajiv Shakdher and Justice Tara Vitasta Ganju has observed that since the amount that is lying credited to the petitioner's account, concededly, represents a part of the duty drawback sanctioned in favor of the petitioner against 20 shipping bills, no such direction can be issued that would ultimately result in the petitioner getting access to the funds.

The respondent or department issued the communication to the banker of the petitioner, which in substance prevented the bank from making any debit entries in the account maintained with it by the petitioner.

It was clearly indicated in the communication that no "outward transactions" would be permitted in the account until further communication was received on that behalf from the respondent.

A request was made to the petitioner's banker to provide KYC documents and bank statements from the date the account was opened until the date the communication was issued.

The petitioner has assailed the communication on the grounds that it was issued without legal authority.

According to the respondents, the petitioner had illegally taken advantage of duty drawbacks against overvalued exports.

The stand of the respondents was that based on the intelligence developed by DRI, Mumbai, it surfaced that the petitioner was part of a syndicate that was involved in fraudulent availment of duty drawback by taking recourse to bogus dummy Importer Exporter Codes (IECs). The IECs, according to the respondents, was fraudulently obtained by misleading certain "innocent persons."

The respondents alleged that the syndicate has obtained 124 IECs, which represent exports worth Rs. 1960 crores, and, in the process, illegally obtained Rs. 52 crores as duty drawback.

The respondents alleged that the petitioner was a member of the syndicate.

The more specific claim against the petitioner was that it exported "Ready-Made Garments Made of Man-Made Fiber Boys' Woven Shirts" in June 2021 in violation of 26 shipping bills.

The question was whether the court should allow the petitioner to use the duty drawback that was credited to its bank account while the case was being adjudicated.

Section 75 of the Customs Act, 1962, in which the provision for grant of duty drawback is embedded, is founded on the fact that sale proceeds are received by or on behalf of the exporter within the timeframe allowed under the Foreign Exchange Management Act, 1999 (FEMA); otherwise, they are deemed never to have been allowed.

The court noted that in a case where duty drawback has been paid to the exporter, but admittedly, up until now, sale proceeds have not been received against exports, the deeming provision incorporated in the second (2nd) proviso to Section 75 will kick in.

The court directed that the petitioner will be free to operate the bank account, as, at the moment, there is no legal impediment, given the fact that the provisional attachment orders that were issued to make a course correction have outlived their legal efficacy. However, insofar as the duty drawback against 20 shipping bills is concerned, which stands credited in the petitioner's bank account, it will stand remitted to the official respondents, leaving the remaining amount, if any, in the petitioner's bank account.

The court held that in case the petitioner is able to obtain sale proceeds against the subject exports, it will have the liberty to approach the concerned authority for release of duty drawback, finally or provisionally, in the event, the adjudication qua the petitioner is not over within the timeframe.

Case Title: R.K. Overseas Versus Senior Intelligence Officer, DRI

Citation: 2022 LiveLaw (Del) 1142

Date: 21.11.2022

Counsel For Petitioner: Sr. Advocate Vibha Datta Makhija

Counsel For Respondent: Sr. Standing Counsel Satish Kumar

Click Here To Read Order