Calcutta High Court
Commissioner Of Customs vs Terai Overseas Ltd. on 1 October, 2002
Equivalent citations: 2003ECR560(CALCUTTA), 2003(156)ELT841(CAL)
Author: Asok Kumar Ganguly
Bench: Asok Kumar Ganguly
JUDGMENT Asok Kumar Ganguly, J.
1. This reference application under Section 130A of the Customs Act, 1962 [hereinafter called the said Act] has been filed by the Commissioner of Customs, Mumbai in respect of an order dated 21-6-2000 passed by the Customs, Excise and Gold (Control) Appellate Tribunal, Eastern Regional Bench, Calcutta [hereinafter called as CEGAT], In the said application, 8 (eight) question were framed.
2. The said application came up for hearing before a Division Bench of this Court and the said Division Bench, by an order dated 17-4-2001, after hearing the learned Counsels appearing for the parties, directed the Tribunal to refer to only one question for the opinion of this Court.
3. The question which was referred to by the Division Bench is as follows :
"Whether the drawback is allowable more particularly in terms of Rule 13(2)(iv) of the Drawback Rules, 1995 wherein the exporters were required to submit a valid insurance certificate along with the drawback claim. A perusal of the drawback application submitted by the claimants show that the Insurance Certificate was invalid and has been cancelled by the Insurance Company before the exports were effected?"
4. The material facts of the case for a proper appreciation of the points involved in the said question are stated below :
M/s. Terai Overseas Limited, the respondent No. 1 in this application, [hereinafter called TOL] as a Merchant-Exporter entered into a contract with M/s. Avia Exports, Moscow, a Government Undertaking of Russia for sale of various types of dresses and garments. Consequently, letters of credit were opened by the said Export House in the name of TOL on 18-4-1996. Therefore, TOL entered into a contract with M/s. Dugar Impex Pvt. Ltd. and M/s. Aruna Impex Pvt. Ltd. for manufacture and export of the said goods on certain terms and conditions. The relevant condition being that the export would be against the contract entered into by TOL with the overseas buyers and the documents would be negotiated against the Letter of Credit opened by the foreign buyer in favour of TOL and the Duty Drawback was to be assigned by the said manufacturer/exporter in favour of TOL. It was also agreed that M/s. Dugar Impex and M/s. Aruna Impex would be paid the cost of manufacturing and selling price as settled between them and TOL.
5. Pursuant to such contract, M/s. Dugar Impex and M/s. Aruna Impex exported respectively 24 and 10 consignments for quality garments to Russia under various shipping bills and filed their Duty Drawback Claim for Rs. 95,87,115.66 p. and Rs. 37,27,098.75 p. on 30-9-1996 with the Customs authorities.
6. TOL then approached the Customs authorities through various letters with the claim of Drawback in respect of those 34 (24+10) consignments. TOL contended that the exports made by M/s. Dugar Impex and M/s. Aruna Impex were on its behalf.
7. Thereafter, as the Drawback Claim was not allowed, various proceedings were initiated in the High Court of Bombay with which this Court is not concerned.
8. Ultimately, a show cause notice dated 30-12-1998 and followed by Addendum dated 12-1-1999 were issued allegedly cancelling the Drawback Claim and for confiscating the sale proceeds and imposition of personal penalty on the appellants. The main allegation in the said show cause notice was that M/s. Dugar Impex and M/s. Aruna Impex are fictitious firms and information was received from the Calcutta Customs that those two firms existed only on papers and could not be traced. It was also alleged that TOL imported rags by misdeclaring the same as high valued garments from Calcutta in the month of December, 1995 with a claim for Drawback. It was alleged that insurance certificate was subsequently cancelled by the Insurance Company and as such, the provisions of Customs and Central Excise Duty Drawback Rules, 1995 have been contravened and it was proposed to reject the claim of TOL for Drawback on the alleged ground of non-submission of information and documents which are required to verify the drawback claim.
9. In answer to the said show cause, both M/s. Dugar Impex and M/s. Aruna Impex replied that they entered into a contract with TOL and supplied quality garments and the drawback was to be received by TOL. It was stated in the said reply that no deficiency memo was received from the Customs authorities in respect of the Drawback Claim. It was also asserted that those two firms are the juristic persons and their existence is not in doubt. It was also stated in the said reply that the said firms were under lock out for sometime and during that period letters were returned. Insofar as the cancellation of the insurance policy, it was submitted that the same was an illegal act on the part of the Insurance Company and TOL were pursuing the matter with the Insurance Company and fresh cheques were given to the Insurance Company to cover the transit insurance as the goods had already reached its destination under the cover of Insurance Policy and the matter was only of academic interest.
10. In reply to the show cause, TOL contended that the claim of Duty Drawback would be received by them as an agent of M/s. Dugar Impex and M/s. Aruna Impex. Such claim is admissible under Rule 14 of the Drawback Rules, 1995. M/s. Dugar Impex and M/s. Aruna Impex had already authorised them to receive the admissible amount of Drawback claim for which they executed a Power of Attorney. It was also stated that all necessary documents were filed and are on record and no deficiency memo was issued to them.
11. On those facts, the Commissioner of Customs, Bombay, rejected the contentions made on behalf of M/s. Dugar Impex and M/s. Aruna Impex and held that they are fictitious companies. So far as TOL is concerned, it was observed that they do not have locus standi in the matter and the claim was rejected. However, while doing so, the adjudicating authority gave a finding that there is no evidence on record that the appellants exported goods of dubious quality made out of old and used rags and dropped the proposal of penalty. The said order of the Commissioner of Customs, Bombay, was challenged before CEGAT.
12. On these facts the Tribunal held that under Rule 14 of the said Rules, the drawback is to be paid to the exporter or to its agent specially authorised by the exporter to receive the same. It was also found that admittedly goods were exported by M/s. Dugar Impex and M/s. Aruna Impex. Those two firms were appearing before both the Commissioner and the CEGAT and were supporting the stand of TOL. As such/ CEGAT did not concur with the finding of the adjudicating authority that those firms are non-existent.
13. The Tribunal also held that since the appellants before the Tribunal, the respondents in this application, were never asked by the Customs authorities to produce any evidence or information, so any alleged failure on their part to give information on their own cannot be the basis for holding that Rule 9(c) of the Drawback Rules have been contravened.
14. Insofar as the contravention of Rule 13(2)(iv) of the said Rule is concerned, and which is the only question referred to in this application, the Tribunal held that the insurance certificate is to be attached wherever necessary and such a certificate was initially attached. However, subsequently, the same was cancelled by the Insurance Company for which a dispute is still pending. The stand of TOL is that the cheques were issued by them to the Insurance Company and the matter has been settled by them with the Insurance Company.
15. On the basis of these facts, the Tribunal held that such a dispute by itself is not sufficient to come to the conclusion that Rule 13(2)(iv) of the said Rule has been contravened. Certain decisions were referred to in the order of the Tribunal. In view of those findings, the Tribunal was of the view that the benefits of the Drawback Rules for non-compliance with some procedural requirements cannot be denied since such benefits available under law. The Tribunal also came to the finding that no deficiency memo has issued to the respondents under the said Drawback Rules. The Tribunal held that in the instant case, the export admittedly, took place and as such, TOL was entitled to the benefit of Drawback Claim and, accordingly, the Tribunal allowed the appeal of TOL.
16. Learned Counsel appearing in support of the reference application submitted that various other issues were involved in the questions which were framed in this reference application and those issue are of some importance, but, since those questions have not been allowed to for reference by the Division Bench by its order dated 17-4-2001, the learned Counsel is not in-a-position to agitate those questions and has to confine his submissions only to the question referred.
17. The learned Counsel submitted that there is admittedly a statutory requirement for furnishing the insurance certificate and non-furnishing of the said certificate makes the claim incurably bad. Therefore, the Tribunal committed an error by holding that the Drawback Claim of the respondent with such gross defect is acceptable. The learned Counsel submitted thus the Tribunal committed grave error of law and acted contrary to the provisions of the said Rules. The learned Counsel also submitted that the Tribunal should have been held that such claim is not admissible in law.
18. The learned Counsel also submitted that the Drawback Rules were framed under Section 75 of the Customs Act and, as such, statutory in character. Therefore, the said Rules call for strict compliance. Since, in the instant case, there is an admitted non-compliance of the said Rules, the order of the Tribunal is vitiated by clear error on the face of the record.
19. The learned Counsel appearing for the respondents strenuously urged that the requirement of furnishing insurance certificate is not mandatory requirement under the law and the same is clear from the Rule itself and since, in the instant case, export had already taken place and the foreign exchange had been earned the benefit which has been given to a party under the said Rules cannot be denied on the basis of mere technicality and narrow interpretation of the Rules.
20. For a proper appreciation of the controversy in this case, Rule 13 of the said Rules is set out below :
"Rule 13 : Manner and time for claiming drawback on goods exported other than by post - (1) Triplicate copy of the shipping Bill of export of goods under a claim for drawback shall be deemed to be a claim for drawback filed on the date on which the proper officer of Customs makes an order permitting clearance and loading of goods for exportation under Section 51 and said claim for drawback shall be retained by the proper officer making such order.
(2) The said claim for drawback should be accompanied by the following documents, namely :-
(i) copy of export contract or letter of credit, as the case may be, (ii) copy of Packing list, (iii) copy of AR-4 Form, wherever applicable, (iv) insurance certificate, wherever necessary, and (v) copy of communication regarding rate of drawback where the drawback claim is for a rate determined by the Central Government under Rule 6 or Rule 7 of those rules.
(3)(a) if the said claim for drawback is incomplete in any material particulars or is without the documents specified in Sub-rule (2), shall be returned to the claimant with a deficiency memo in the form prescribed by the Commissioner of Customs within 10 days and shall be deemed not to have been filed for the purpose of Section 75.
(b) where the exporter resubmits the claim for drawback after complying with the requirements specified in the deficiency memo, the same will be treated as a claim filed under Sub-rule (1) for the purpose of Section 75A.
(4) For computing the [period of two months] prescribed under Section 75A for payment of drawback to the claimant, the time taken in testing of the export goods, not more than one month, shall be excluded."
This Court finds that drawback has been defined Rule 2(a) of the said Rules as follows :
"Rule 2(a): "Drawback" in relation to any goods manufactured in India, and exported, means the rebate of duty chargeable on any imported materials or excisable materials used in the manufacture of such goods."
21. On a reasonable construction of the various provisions of the Drawback Rules, this Court is of the opinion that the same is an incentive oriented scheme for augmenting export and claim for drawback cannot be withheld on the basis of mere technicality. This Court finds that if it is ultimately found that benefit of the Drawback Claim has been given to a party unauthorisedly, there are provisions under Rule 16(a) of the said Rules for its recovery where the export proceeds were not realised. Therefore, at the time of granting the Drawback Claim, the authorities have to proceed on a reasonable basis and cannot accept a narrow and pedantic approach. Apart from that, this Court also finds that the Tribunal held that the rebate of duty can be claimed on any imported or excisable materials used in the manufacture of certain goods which are manufactured in India and exported. Therefore, the main purpose of the said Rules is to boost export and earn foreign exchange. Admittedly, in the instant case, the export had taken place and the foreign exchange involved in the process had also been earned.
22. Now coming to Rule 13 it appears that it provides for the manner and time of lodging drawback claims on goods export other than by post. It appears that Rule 13 of the said Rules with its sub-clauses is virtually a Code in itself. Rule 13(1) mandates that the triplicate copy of the shipping bill for export of goods under a claim for drawback shall be deemed to be a drawback claim filed on the date and on which the proper office of Customs makes an order permitting clearance and loading of the goods for export. Rule 13(2) of the said Rules provides that such claim for drawback should be accompanied by certain documents and insofar as Clause (iv) is concerned with which we are concerned, it is provided that the insurance certificate wherever necessary should accompanied with such claim.
23. As the Court has to interpret the said rule, the language of Rule 13(2) assumes considerable importance. The said Sub-clause 2 used the expression 'should' instead of the expression 'must' or 'shall', the express shall has been used in Rule 13(3) and Rule 13(3) provides that if the claim for drawback is incomplete in any material particulars or is without any document specified in Sub-rule (2), the same shall be returned to the claimant with a deficiency memo in the form prescribed by the Commissioner of Customs within 10 days and shall be deemed not to have been filed for the purpose of Section 75A of the Act.
24. Rule 13(3), therefore, gives the exporter a chance to re-submit the claim for drawback after complying with the requirement indicated in the deficiency memo and then the claim shall be treated as one filed under Sub-rule (1) for the purpose of Section 75A of the Act. Rule 13(4) also makes it clear that for computing the period of two months prescribed under Section 75A for payment of drawback claim the time taken in testing of the goods, not more than one month, shall excluded. Therefore, intent of Rule 13 is not mandatory in all its sub-clauses. Rule 13(2) makes it very clear that the claim should be accompanied by certain documents and Sub-rule (3) makes it clear that if it is not so accompanied, there should be a deficiency memo issued by the Customs giving the exporter a chance to rectify the deficiency.
25. In the instant case, admittedly, no deficiency memo was issued. Therefore, the curative provision in Rule 13(3) was not resorted to. So the filing of claim under Rule 13(2) is not in complete. This Court, therefore, does not find any error in the order of the Tribunal far less any error of law on the face of the record. In this connection, certain decisions cited by the learned Counsel for the respondent No. 1 are discussed below.
26. The first decision cited by the learned Counsel was rendered in the case of Kumud Chandra Nandi and Anr. v. Emperor, . In that case, the provision of Section 87 of the Companies Act, 1913 came up for consideration. The said provision required a notice of change among directors to be given within 30 (thirty) days from the date of occurrence. The said requirement was construed by the Court as not mandatory in view of the used expression 'should' as against 'must'. It was held that no offence was committed by the Company by not filing such notice within thirty days.
27. This Court is in agreement with the said view taken in Kumud Chandra. This Court holds that the expression 'should' occurring in Rule 13(2) of the said Rules is not mandatory and especially when there is provision under Rule 13(3) for curing the deficiency, if any, in the matter of filing.
28. Reliance was also placed on the judgment of the Hon'ble Supreme Court in the case of Fertilizer Corporation of India Ltd. v. State of Bihar, . The facts of the case were that the assessee filed its belated quarterly return under Section 14(1) of the Bihar Sales Tax Act without any application for extension of time for filing the return. The assessee, however, paid the tax before the due date and availed itself of the rebate under Section 15 and deducted the same while paying the tax due on the returns filed by it. The returns so filed by the assessee were accepted and acted upon by the authority. The question which came up for consideration was whether or not the assessee should be penalised by withholding the rebate as there was delay on its part in filing the returns. The Apex Court held that, the assessee cannot be denied the benefit or rebate and reversed the contrary finding of the Full Bench of the High Court. The Apex Court gave reasons for this conclusion by saying that even if the condition precedent for grant of rebate is that the assessee should file its return within the prescribed or extended period but it could not but be inferred that the return was filed within the extended time. No procedure prescribed in the Act is there for obtaining extension of time. In case that the assessing authority did not levy any penalty or made any best assessment judgment for belated filing of the return and, on the other hand, it accepted same and acted upon the same. Therefore, extension of time has to be inferred. In that view of the matter, claim for rebate cannot be denied. In coming to the conclusion that the learned judges held that substantive part of the statute should be strictly construed, but, the procedural aspect should receive a liberal construction, so that the main purpose pf the Act is not frustrated (see Para 10, page 365 of the report).
29. In the instant case also, this Court finds that filing for such claim with the accompanying document under Clause 13(2) of the said Rule, is a procedural aspect and the said, procedure is not mandatory. Therefore, the same should receive a liberal construction. And a filing of documents which has been found incomplete by the appropriate authority, the benefit of drawback cannot be denied.
30. The other judgment cited by the learned Counsel was rendered in the case of Collector of Customs, Calcutta v. Sun Industries, . In that case, the question which came up for consideration was what is meant by export under the Drawback Rules, 1971. The Court held that if the ship had left the Indian port and passed beyond the territorial waters of India, but, thereafter, the engine of the ship developed a trouble and the ship was in the high seas and the goods in question were on board, the export was complete. The fact that subsequently the ship decided to sail back into the territorial water of India was of no consequence. In that case, the goods did not land in any place because of the defect in the ship but export under the Drawback Rules is completed and the title of the goods passed on to the purchaser.
31. The definition of export under the present Drawback Rules of 1995 is the same.
32. Relying on the said judgment, the learned Counsel submitted that since in such a case also the Court held that the export was complete and the Company doing the export is entitled to benefit under Section 75 of the Customs Act, so in this case in which the export was admittedly completed and the goods reached the other country and the foreign exchange had come to India, the benefit of drawback claim cannot be denied to the respondents.
33. The learned Counsel further relied on another judgment in the case of Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, . In that case, what come up for consideration for the Court is how an exemption clause is to be interpreted. The learned judges held that in the matter of granting exemption, some provisions are mandatory which are decided on the basis of the policy division and some provisions are procedural, It will be erroneous if the Court interprets both the provisions on the same footing. In M/s. Mangalore Chemicals the Apex Court was considering the interpretation of the provisions of the Karnataka Sales Tax Act, 1957. The Court in coming to the aforesaid conclusion relied on Francis Bunion's 'Statutory Interpretation' 1984 Edition, page 683. The learned author states that the modern courts seek to cut down technicalities attendant upon a statutory procedure where these cannot be shown to be necessary to the fulfilment of the purposes of the legislation.
34. In the instant case, also the Court should adopt a liberal construction as is required to further the object behind Drawback Rules, namely to boost export.
35. Therefore, this Court is of the opinion that the requirement of Rule 13(2)(iv) is not mandatory and the Tribunal has taken a correct view in the matter. There is no error of law committed by the Tribunal. Therefore, this question is answered against the applicant and in favour of the respondents. This Court holds that the drawback claim is allowable in favour of the party. This reference application is dismissed.
There will be no order as to costs.
Hrishikesh Banerji, J.
36. I agree.