Madras High Court Quashes Duty Drawback Recovery Order Initiated After Unreasonable Delay — Sakthi Shoes Vs Commissioner of Customs

Overview

The Madras High Court, in Sakthi Shoes Vs Commissioner of Customs, delivered a significant ruling concerning the time limits within which Customs authorities may legitimately initiate proceedings to recover duty drawback amounts. The Court allowed the writ petition and set aside the recovery order, holding that where no statutory limitation period is prescribed, recovery must still be pursued within a reasonable period — and that a gap of over seven years plainly exceeds what can be regarded as reasonable in the absence of any allegation of fraud or suppression.

Case Reference: Sakthi Shoes Vs Commissioner of Customs (Madras High Court), W.P.No.29468 of 2026, Order dated 09/09/2026

Background and Facts of the Case

M/s. Sakthi Shoes was engaged in the export of footwear and had availed duty drawback benefits under seven shipping bills covering exports made between 2005 and 2010. The drawback amount in question was Rs.3,51,500/-. The assessee subsequently wound down its export operations in 2011, citing declining business activity.

Nearly eight years after the last drawback was availed, a show cause notice was issued in 2018, proposing recovery of the drawback on the ground that the assessee had failed to furnish proof of realisation of export proceeds. The notice was issued under Rule 16A(2) and (3) of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, and also proposed imposition of a penalty under Section 117 of the Customs Act, 1962.

The assessee contended that the show cause notice was never actually served upon it. Since no response was filed, the second respondent (Commissioner of Customs) passed an order dated 18.06.2022 confirming the recovery demand along with applicable interest. A consequential communication was thereafter issued on 07.03.2026, following which the bank account of the assessee was frozen.

The Madras High Court confined its examination to the following core question:

Whether recovery proceedings under Rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 can be validly initiated more than seven years after the drawback was last paid, in the absence of any allegation of fraud or suppression?

Ancillary issues included:

  • Whether the writ petition was maintainable when a statutory appeal under Section 128(1) of the Customs Act was available
  • Whether the impugned order violated principles of natural justice
  • The applicability of competing precedents from the Delhi High Court and Gujarat High Court

Statutory Framework: Rule 16 and the Absence of a Limitation Period

Rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 (as amended) vests Customs authorities with the power to recover drawback that has been paid erroneously or in excess. However, the Rule is conspicuously silent on any prescribed limitation period within which such recovery must be initiated.

The Court acknowledged this legislative gap but held that the absence of an express limitation period does not confer an open-ended or perpetual right to recover. Citing well-established principles of statutory interpretation, the Court held: