M/S Kandla Export Corporation vs Union Of India on 19 March, 2025

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Gujarat High Court

M/S Kandla Export Corporation vs Union Of India on 19 March, 2025

1. Heard learned advocate Mr. Pankaj D. Rachchh with learned advocate Mr. Saurabh S. Rachchh appearing for the Petitioners and learned advocate Mr. C B.Gupta for the Respondents. Page 1 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025

NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined

2. Rule returnable forthwith. Learned advocate Mr.C.B.Gupta for the Respondents waives service of notice of rule. With the consent of the learned advocates for the respective parties, the matter is taken up for hearing, as the issue involved is quite brief.

3. The principal facts and figures in the three petitions are reflected in the chart herewith:

SCA No. 1887/2022 SCA No. 1886/2022 SCA No. 1884/2022 M/s. Friends & Friends M/s. Friends Mercantile Pvt. M/s. Kandla Export Shipping Pvt. Ltd. Ltd. Corporation SCN No. & Date IV(6)INV/RUI/45/10/3491 IV(6)INV/RUI/45/10/441 IV(6)INV/RUI/ dtd. 16.11.2010 dtd. 28.02.2011 45/10/742 dtd.

28.03.2011 Period of Dispute 2006-07 to 2009-10 2006-07 to 2008-29 2006-07 to 2008-09 Amount of Rs. 39,74,651/- Rs. 67,18,635/- Rs. 1,67,14,797/-

Drawback Demanded U/r 16 of Drawback Rules, 1995 r.w.

Section 28 of the Cus. Act, 1962 Order-in-Original KDL/ADC/RHM/ KDL/ADC/RHM/14/2022- KDL/ADC/RHM/ No. & Date 08/2022-23 dated 23 dated 04.10.2022 15/2022-23 dated 21.09.2022 06.10.2022 Drawback Rs. 39,74,651/- Rs. 67,18,635/- Rs. 1,67,14,797/- Demand Confirmed Interest Not Quantified Not Quantified Not Quantified Penalty under Rs. 3,97,46,510/- Rs. 6,71,86,350/- Rs. 16,71,47,970/- Section 114 Penalty under Rs. 39,74,65,100/- Rs. 67,18,63,500/- Rs. 167,14,79,700/- Section 114AA Penalty upon Rs. 3,97,46,510/- Rs. 6,71,86,350/- Rs. 16,71,47,970/- Tribhuwan Rs. 39,74,65,100/- Rs. 67,18,63,500/- Rs. 167,14,79,700/- Kumar Sanghavi, Director/Autho.

                        Signa. S. 114(iii)
                        & 114AA
                        Penalty upon         NIL                        NIL                            Rs. 16,71,47,970/-
                        Pankaj Singhvi,                                                                Rs. 167,14,79,700/-
                        Pt. S. 114(iii)
                        &114AA
                        Total Penalty        Rs. 87,44,23,220/-         Rs. 147,80,99,700/-            Rs. 551,58,83,010/-



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                                                                                                                 NEUTRAL CITATION




                                       C/SCA/1884/2023              JUDGMENT DATED: 19/03/2025

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4. For the purpose of the present bunch of petitions, Special Civil Application No.1884 of 2024 is taken as the lead matter and the facts of the said case are discussed hereinbelow to provide a broad consepectus upon which the instant decision is being based. 5.1 The Petitioner is engaged, inter alia, in the export of agricultural products, including De-Oiled Cake, as a merchant exporter. During the years 2006-07, 2007-08, and 2008-09, the Petitioner exported de-oiled cake and claimed a Drawback of Rs. 1,67,14,797/-, calculated at a rate of 1% of the Free on Board (FOB) value of Rs. 167,14,79,700/- of the exported goods (for the Customs portion only). These goods were procured from various oil manufacturers ("Suppliers"). The Suppliers were engaged in the manufacture of oil and de-oiled cake through a solvent extraction process, utilizing Hexane as the solvent, and sold the de-oiled cake to the Petitioner.

5.2 According to the Show Cause Notice (SCN), intelligence was gathered by the Directorate General of Central Excise Intelligence Page 3 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025 NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined ("DGCEI"), Regional Unit, Indore, indicating that the Petitioner had exported Soya Meal and Soya De-Oiled Cake while availing the Duty Drawback. It was further alleged that the de-oiled cake purchased by the Petitioner from the Suppliers had been manufactured claiming the benefit of Rule 19(2) of the Central Excise Rules, 2002 (CERs, 2002), by purchasing Hexane without payment of Central Excise duty, following the procedure prescribed under Rule 19(2) of CERs, 2002 and the relevant notification. 5.3 It is stated in the SCN, that according to Condition Nos. 7(e) and (f) of Notification No. 81/2006-Cus. (NT) dated 13.07.2006 and Rule 3(1) of the Customs, Central Excise and Service Tax Drawback Rules, 1995, the notification disallows the drawback claim on the entire schedule (including both Excise and Customs components) if the benefit of Rule 19(2) of the CERs, 2002 is availed. 5.4 Following the investigation conducted at the Suppliers' end, documents related to the duty-free procurement of Hexane under Rule 19(2) of CERs, 2002 were seized. Based on the statements of Page 4 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025 NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined the authorized persons of the Suppliers and the applicable legal provisions, it was inferred that the Petitioner had improperly claimed an irregular Duty Drawback of Rs. 1,67,14,797/- on the export of de- oiled cake purchased from the Suppliers, which had been manufactured under bond by procuring duty-free Hexane, thereby availing the benefit of Rule 19(2) of CERs, 2002. 5.5 Consequently, a Show Cause Notice (F. No. IV(6)INV/RUI/45/10 dated 28.03.2011) was issued by the Joint Director, DGCEI, Indore, directing the Petitioner to show cause to the Additional Commissioner (DBK), Customs, Kandla (Respondent No. 3), as to why the Duty Drawback of Rs. 1,67,14,797/- should not be recovered under Rule 16 of the Customs, Central Excise Duties, and Service Tax Drawback Rules, 1995, read with Section 75 and the proviso to Section 28(1) of the Customs Act, 1962, invoking the extended period of limitation, along with applicable interest and penalties under Sections 114 and 114AA of the Customs Act, 1962, on the Petitioner No. 2 and Petitioner No. 3, as well as on the Suppliers under Section 114(iii) of the Customs Act, 1962. Page 5 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025

NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined 5.6. The Petitioners, in their letter dated 12.05.2014, denied the allegations and averred that the Show Cause Notice be dropped. They also sought permission to cross-examine the co-noticees whose statements had been relied upon in the SCN. 5.7 The Respondent No. 3 acknowledged the Petitioner's reply to the SCN dated 28.03.2011, and on 11.07.2022, after hearing the Petitioner's request for an adjournment, informed the Petitioners of the personal hearing scheduled for 16.09.2022. 5.8. In a letter dated 14.09.2022, the Petitioner, through email, requested copies of the SCN and the documents relied upon in the Show Cause Notice. Respondent No. 3, in a letter dated 23.09.2022, reiterated the date and time of the personal hearing as 28.09.2022, confirming that the SCN and the relevant documents had already been provided to the Petitioners.

5.9 On 28.09.2022, the Petitioner submitted an interim reply to the Page 6 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025 NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined SCN, requesting copies of documents to substantiate the allegations, particularly evidence that either the Petitioner or the Suppliers had availed the benefit under Rule 19(2) of CERs, 2002. The Petitioner's Chartered Accountant reaffirmed the earlier submissions made on 12.05.2014 and 28.09.2022.

5.10. The Petitioner, via email dated 30.09.2022, resent soft copies of the submissions made on 12.05.2014 and 28.09.2022, at the department's request.

5.11 On 03.10.2022, the Petitioner, through email, once again requested the Respondent No. 3 for the documents, and reiterated the request for the cross-examination of all witnesses, in continuation of the earlier communication dated 30.09.2022. 5.12 The Respondent No.3, through Order-in-Original No. KDL/ADC/RHM/15/2022-23 dated 06.10.2022, passed an order confirming the recovery of Drawback amount of Rs. 1,67,14,797/- and also imposed penalties of Rs.16,71,47,970/- and Rs. Page 7 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025

NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined 167,14,79,700/- upon the Petitioner No. 1 and Rs. 167,14,79,700/- upon the Petitioner No. 2 and Rs. 16,71,47,970/- and Rs. 167,14,79,700/- upon the Petitioner No. 3. 5.13 Aggrieved by the Order-in-Original dated 06.10.2022 passed by Respondent No. 3, the Petitioner has filed the present Petition under Article 226 of the Constitution of India, with the following prayers :-

"a) Your Lordships may be pleased to admit and allow this petition.

b) Your Lordships may be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other appropriate writ order or direction, calling for the records of the Petitioners' case and after going into the legality and validity thereof to quash and set aside the impugned Order-

in-Original dated 06.10.2022 passed by the Respondent No. 3.

c) That Your Lordships may be pleased to issue a Writ of Prohibition or any other appropriate writ, direction or order, completely and permanently prohibiting the Respondents, their servants and agents from taking any action against the Petitioner pursuant to Order-in-Original dated 06.10.2022 passed by the Respondent No. 3;

d) That in the alternative, Your Lordships may be pleased to issue a Writ of Mandamus or any other appropriate writ, direction or order, directing the Respondent no. 3 to conduct fresh adjudication in the said Show Cause Notice in due compliance with principles of natural justice and Page 8 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025 NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined adjudication procedure prescribed under the Customs Act, 1962 and after giving Petitioners an opportunity to revert to the documents relied upon in the Show Cause Notice along with a copy of the Show Cause Notice and cross examination of department's witnesses;

e) Pending this petition, Your Lordships may be pleased to issue any order or direction ordering and directing the Respondents by themselves, their subordinate servants and agents to refrain from taking any further proceedings or steps in furtherance Order in Original dated 06.10.2022 passed by Respondent No. 3 including coercive action for recovery of any amount;

f) An ex-parte ad-interim relief in terms of Para 10;

(e) above may kindly be granted;

g) Your Lordships may be pleased to grant such other and further relief as may be deemed fit and proper in the facts and circumstances of the case."

6. Learned advocate Mr. P. D. Rachchh appearing on behalf of the Petitioners submitted that the issue raised in the present bunch of petitions are squarely covered by the decision of this Court in the case of M/s. Dewas Soya Limited Vs. Union of India & Ors., [Special Civil Application 9090 of 2021] which was subsequently followed in the decision of this Court in another bunch of petitions being Special Civil Application No. 18262 of 2022 and allied petitions in the case of M/s. Dhulatwala Exim Private Ltd. Vs. Union of India & Anr.

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NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined

7. Learned advocate Mr. C. B. Gupta appearing on behalf of the Respondents-Authorities is not in a position to controvert the aforesaid submissions of the petitioners.

8. DISCUSSION & FINDINGS :

8.1 The undisputed facts of the present case indicate that the suppliers of the Petitioners were engaged in the manufacture of oil and de-oiled cake by solvent extraction process using hexane as solvent. The de-oiled cake thus manufactured by the suppliers named in the petition, were in turn, sold to the Petitioners under Form-H. It is the specific case of the DGCEI that the Petitioners had exported the said goods and availed the duty drawback. It is also the specific case of the DGCEI that the suppliers of the Petitioners had manufactured the de-oiled cake availing benefit of Section 19(2) of the Central Excise Rules, 2002 by purchasing hexane "without payment of Central Excise Duty". Therefore, the drawback at the rate of 1% of FOB was not eligible to the Petitioners because the suppliers had not paid the excise duty for the hexane used for the manufacture of de-oiled cake, which was exported by the Petitioners.

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NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined 8.2 On the other-hand, the Petitioners had contended that the adjudication process suffers from the vice of several illegalities including that of failure to adhere to natural justice inasmuch as the notices were kept pending for more than a decade and opportunities of cross-examination and appropriate hearing etc., were never provided to the Petitioners and suddenly, the show cause notice came to be adjudicated after an inordinately long lapse of time on merits. In this context, this Court finds that the decision in SJS International Vs. Union of India reported in 2022 (380) ELT 577 (Guj.) is apposite, wherein, it has been held as under:-

"7.4 Apt would be to refer to Rule 16 of the Drawback Rules, at this stage, which speaks of repayment of erroneous or excess payment of drawback and interest.

"Rule 16. Repayment of erroneous or excess payment of drawback and interest. - Where an amount of drawback and interest, if any, has been paid erroneously or the amount so paid is in excess of what the claimant is entitled to, the claimant shall, on demand by a proper officer of Customs repay the amount so paid erroneously or in excess, as the case may be, and where the claimant failsto repay the amount it shall be recovered in the manner laid down in sub- section (1) of section 142 of the Customs Act, 1962."

7.5 It is quite clear from the said Rule that any amount of drawback and interest when paid erroneously or is paid in excess of the entitlement of the claimant, on demand by a proper officer of the Customs, the claimant is required to repay the amount paid Page 11 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025 NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined erroneously or in excess. Rule 16 of the Drawback Rules provides for recovery of an amount of drawback and interest paid erroneously or in excess of what the claimant is entitled to, on demand by a proper officer of the customs the same shall need to be repaid. And, where he fails to repay the amount, it is permitted to be recovered in the manner provided under Sub-section (1) of Section 142 of the Act. It is quite clear from Rule 16 of the Drawback Rules that what all it provides for is the recovery of excess drawback paid erroneously, but choses not to prescribe the time limit. The question which has come up for consideration as to whether in absence of any period of limitation provided under Rule 16 of the Drawback Rules, anyreasonable time period could be read into the said Rule. It also provides for statutory mechanism of recovery under Section 142 of the Act."

8.3 However, this Court also finds that apart from the procedural aspects of the adjudication process, the issue of duty drawback of 1% of FOB on the export of de-oiled cake from hexane on which the excise duty was not paid by the suppliers had been specifically gone into and adjudicated upon by this Court in Dewas Soya (Supra) and other matters.

8.4 In Dewas Soya (Supra), this Court had considered the proceedings arising out of the show cause notice dated 04.10.2010. The subject matter of the said show cause notice has been recorded in Paragraph Nos. 5.6 & 5.7 of the said judgment dated 29.08.2024 as under :-

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NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined "5.6. It was alleged by the DGCEI that the petitioner procured Hexane without payment of Central Excise duty and the same were used in the manufacturing of DOC which was exported by claiming drawback at the rate of 1% of FOB value as per AIR drawback prescribed by Notification No.81 of 2006- Customs dated 13.07.2006 read with Notification No.68/2007-Custom dated 16.07.2007 which was superseded by Notification No.103/2008 dated 29.08.2008.

5.7. On completion of the investigation, show-cause notice dated 04.10.2010 was issued by the DGCEI Indore, wherein the merchant exporter was called upon to Show Cause as to why duty drawback amounting to Rs. 9, 26, 138/- should not be demanded and recovered under Rule 16 of Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 (for short"the Drawback Rules, 1995") read with Section 75 and proviso to Section 28(1) of the Customs Act, 1962 as well as to levy the penalty upon the petitioner under Section 114(iii) of the Customs Act, 1962."

8.5 Thus, the issue before this Court in the present bunch of petitions is similar to the issue which was decided in Dewas Soya(Supra), wherein, on merits, the said petition was allowed. This Court in Dewas Soya (Supra) has held as under:-

"8. Having heard learned advocates for the respective parties and considering the facts of the case, it is not in dispute that the petitioner did not issue the ARE-2 while removing the DOC manufactured by using the Hexane without payment of Central Excise duty. However, as held by the Commissioner (Appeals) such non-issuance of the ARE-2 would not be for removal of the DOC manufactured out of the duty free procured Hexane by availing the benefit under Rule-19(2) of the Rules would not make any difference as there is no intention established Adjudicating Page 13 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025 NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined Authority by the and the only allegation levelled against the petitioner stand on pre-condition that the petitioner exporter had knowingly or intentionally claimed the duty drawback erroneously. However, the Commissioner (Appeals) has categorically held that the legality of claiming custom portion of the drawback by the merchant exporter, the allegation made by the Adjudicating Authority was devoid of any merit and there was no finding or discussion by the Adjudicating Authority whereby any conclusive evidence as how non-issuance of ARE-2 by the petitioner would tantamount to the intentional involvement in abetement of erroneous claim of the drawback by the exporter which purely relates to the custom portion of the drawback when the exporter manufacturer is not unduly getting the double benefit. This aspect of the entire issue of removal of the goods without issuing ARE-2 is missed out by the Revisional Authority and the Revisional Authority has placed reliance only on the non-issuance of the ARE- 2 and the likelihood of the exporter getting double benefit of duty drawback in case when the percentage of the duty drawback also includes the Central Excise portion. We are of the opinion that the Revisional Authority while Considering the aspect in the facts of the case of the petitioner has not taken into consideration the fact that the rate of duty drawback is 1% in the facts of the case which relates to the custom portion only and not the Central Excise portion and therefore, the exporter did not get any double benefit in the facts of the case. In such circumstances, it cannot be said that the petitioner has committed any breach of the Rules by issuing the DOC without issuing ARE-2. In such circumstances, the impugned order passed by the Revisional Authority is not sustainable and is accordingly, quashed and set aside so far as the petitioner is concerned with regard to the levy of penalty which is deleted Commissioner of Customs (Appeals).

9. The petition therefore succeeds and is accordingly allowed. The impugned order passed by the Revisional Authority levying the penalty upon the petitioner is quashed and set aside to the extent it confirms the levy of penalty upon the petitioner and the order of Commissioner (Appeals) to that extent is restored. Rule is made absolute to the aforesaid extent. No order as to costs." Page 14 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025

NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined 8.6 The above decision of Dewas Soya applies on all fours to the cases at hand. The products being exported by the Petitioners and that in Dewas Soya are identical. In Dewas Soya it was categorically held that the duty drawback relates only to the customs portion and not to the excise portion and therefore, the exporter did not get any double benefit in the facts of the said case. The aforesaid decision of Dewas Soya (Supra) has been followed in a bunch of other petitions namely in Dhultawala Exim Pvt. Ltd. Vs. Union of India and another reported in 2025:GUJHC:13675-DB. Following the aforesaid decisions which are squarely applicable to the facts of the present case, the present petitions succeeds and the Orders-in- Original referred to in the Chart at paragraph No. 3 hereinabove are quashed and set aside. In view of such decisions on merits, the show cause notices issued to the Petitioners would also not survive and consequent to the quashing of the Orders-in-Original, this Court is of the view that the show cause notices issued to the Petitioners must also be quashed. This Court additionally notes that the show cause notices were issued between 16.11.2010 and 28.03.2011 were eventually adjudicated on 21.09.2022 and 06.10.2022 i.e., after a gap Page 15 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025 NEUTRAL CITATION C/SCA/1884/2023 JUDGMENT DATED: 19/03/2025 undefined of 11 and a half to 12 years. The aforesaid is a further reason to the decision in merits to hold that the show cause notices would not survive for further adjudication. Accordingly, the show cause notices referred to in the chart at paragraph No. 3 herein are also quashed and set aside. The present petitions succeed. Rule is made absolute to the aforesaid extent. No order as to costs.

(BHARGAV D. KARIA, J) (D.N.RAY,J) BINA SHAH Page 16 of 16 Uploaded by BINA SHAH(HC00353) on Mon Apr 07 2025 Downloaded on : Fri Apr 11 22:29:30 IST 2025

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