Madras High Court sets aside delayed duty drawback recovery under Rule 16A

Background and context

The Madras High Court, in L&T Construction Equipment Ltd. Vs Assistant Commissioner of Customs (Chennai-IV), examined the legality of a demand raised for repayment of duty drawback far beyond a reasonable time frame. The dispute arose from an order-in-original dated 27.05.2022 passed under Rule 16A of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, as amended up to 13th July, 2006.

Under this order, the customs department directed the assessee to refund duty drawback that had been granted in respect of export consignments made during 2004–2005. The assessee approached the High Court under writ jurisdiction to challenge this order.

The central issues before the Court were:

  • Whether a demand for recovery of duty drawback made after more than 12 years from the date of export can be sustained in law; and
  • Whether the order-in-original violated the principles of natural justice by ignoring the assessee’s replies and request for additional time.

Facts of the case

Exports and drawback

  • The assessee had exported goods during the financial years 2004–2005.
  • Duty drawback was sanctioned and disbursed in the normal course against these exports.

Show Cause Notice and recovery proceedings

  • A show cause notice proposing to recover the duty drawback was issued only on 16.08.2017.
  • This notice thus related back to shipments made more than 12 years earlier.
  • The proceedings were initiated under Rule 16A of the **Customs, Central Excise Duties and Service Tax Drawback Rules, 1995`, which deals with recovery of drawback erroneously paid or not due.

Assessee’s responses

Upon receipt of the show cause notice, the assessee:

  • Sent a reply dated 28.08.2017,
  • Sent another communication dated 13.04.2022,

In both these communications, the assessee did not file a detailed rebuttal on merits but specifically:

  • Highlighted that the exports were very old (2004–2005);
  • Sought additional time to compile records and submit a comprehensive reply, given the age of the transactions and practical difficulty in retrieving old documents.

Department’s stand and personal hearing

  • The department claimed that a personal hearing notice dated 04.04.2022 was issued, fixing the hearing on 18.04.2022.
  • According to the department, the assessee neither attended the personal hearing nor filed a detailed reply in response to this notice.
  • On this basis, the department argued that the writ petition was not maintainable and the assessee was to blame for not participating in the adjudication.

Order-in-original

Despite the assessee’s earlier requests:

  • The adjudicating authority passed the order-in-original on 27.05.2022,
  • Directed recovery of the entire drawback amount granted in relation to the 2004–2005 shipments,
  • Did not deal with or even refer to the assessee’s requests dated 28.08.2017 and 13.04.2022 seeking more time.

This order was challenged before the Madras High Court.

Grounds of challenge before the High Court

The assessee attacked the order-in-original primarily on three fronts:

1. Violation of principles of natural justice

The assessee contended: