CESTAT Mumbai Sets Aside Drawback Recovery Demand: Repealed 1995 Rules Cannot Be Revived for Post-2017 Proceedings

Background and Overview

A significant ruling has emerged from the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, in the matter of Haji's International Vs Commissioner of Customs (Export), where the Tribunal set aside an order dated 15.11.2023 passed by the Commissioner of Customs (Export), ACC, Mumbai Zone-III. The decision addresses a critical question of statutory interpretation — whether recovery proceedings under Rule 16 and Rule 16A of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 (referred to as the 1995 Drawback Rules) can be initiated through a show cause notice issued on 14.12.2022, long after those Rules were replaced by the Customs and Central Excise Duties Drawback Rules, 2017 (the 2017 Drawback Rules), which came into force on 01.10.2017.

The impugned order had directed recovery of duty drawback amounting to Rs. 773.86 lakhs sanctioned under Section 75 of the Customs Act, 1962, along with interest. It had additionally rejected a drawback claim of Rs. 2,24,93,070/- relating to 198 shipping bills under Rule 16A of the 1995 Drawback Rules, ordered confiscation of goods with a redemption fine option, and levied penalties under Section 114(i)/(iii) and Section 114AA of the Customs Act, 1962. Two separate appeals were filed before CESTAT — one by M/s. Haji's International challenging the drawback rejection and recovery demand, and another by Ashfaq Anwar Nursumar, a partner of the firm, contesting the penalties imposed upon him.

Factual Matrix

The assessee, M/s. Haji's International, is a partnership firm engaged in the export of garments. Between January 2012 and December 2016, the firm exported garments predominantly to Nigeria through 699 shipping bills, claiming duty drawback at the All Industry Rate applicable to garments under Section 75 of the Customs Act, 1962 read with Rule 3 of the 1995 Drawback Rules.

Each consignment was duly assessed by the competent customs officers, Let Export Orders were issued, and duty drawback totalling Rs. 773.86 lakhs was disbursed to the assessee. The assessee maintained that full sale proceeds from the exported goods were received through foreign exchange inward remittances, backed by Bank Realization Certificates placed on record.

DRI Investigation and Allegations

In August 2015, the Directorate of Revenue Intelligence (DRI) launched an investigation against one Suhel Parvez Ansari, who was alleged to have issued fake procurement invoices through a network of 22 entities — without any actual supply of goods — to facilitate fraudulent drawback claims by various exporters. In a statement recorded on 24.08.2015, Suhel Ansari named "Haji's International" as one of the exporters to whom he allegedly supplied fake invoices, identifying "Haji Bhai" as the contact person.

Acting on this statement, the department initiated proceedings against the assessee under the assumption that the "Haji's International" named by Suhel Ansari referred to the appellant firm.

Assessee's Response to Investigations

The department recorded statements from the assessee's representatives on 01.06.2017 and 28.10.2018. In his statement, Ashfaq Anwar Nursumar categorically denied any business dealings with Suhel Parvez Ansari or his firms. He stated that procurement of export goods was made from identified suppliers including Charvi Creation (Surat), Navkar Exports (Erode, Tamil Nadu), Western Dyeing (Jethpur, Gujarat), Metric Fashion (Kolkata), Little Doll Creation (Kolkata), and JNR Collection (Kolkata), and that all payments were routed through banking channels.

Show Cause Notice and Adjudication

A show cause notice dated 14.12.2022 was issued proposing:

  1. Recovery of drawback of Rs. 773.86 lakhs under Rule 16 of the 1995 Drawback Rules on the ground that no duty or tax appeared to have been paid on the procurement of export goods, and that the market value of exported goods appeared lower than the drawback amount claimed.
  2. Recovery of drawback amounting to Rs. 2,24,93,070/- relating to 198 shipping bills under Rule 16A of the 1995 Drawback Rules on account of alleged non-realization of export proceeds.
  3. Imposition of penalties on the assessee and Ashfaq Anwar Nursumar under Section 114(i)/(iii) and Section 114AA of the Customs Act, 1962.

The assessee contested these demands, arguing primarily that the 1995 Drawback Rules had ceased to operate from 01.10.2017 and that Rule 20(2) of the 2017 Drawback Rules did not preserve any right to initiate or continue recovery proceedings under Rule 16 or Rule 16A of the 1995 Drawback Rules in respect of drawback amounts already sanctioned and disbursed prior to that date.

Despite these contentions, the Commissioner confirmed the demand by order dated 15.11.2023, relying upon Section 159A of the Customs Act, 1962 and incorrectly observing that proceedings had been initiated prior to the commencement of the 2017 Drawback Rules.

Issue 1: Whether Rule 16 of the 1995 Drawback Rules Remains Operative for Post-01.10.2017 Proceedings

Relevant Provisions

Rule 16 of the 1995 Drawback Rules provides: