Exporter Is Eligible For Duty Drawback Once Export Proceeds Are Realized Within Stipulated Period As Per FEMA: Delhi HC

Finding that the payments were received by the bank from third parties, specifically named in the tripartite agreement, which was backed by a firm irrevocable purchase order, the Delhi High Court ruled that duty drawback could not be denied to an exporter. Since the e-BRCs were issued by the DGFT after verification from the bank confirming the receipt of payments, the High Court held that payments made to local supplier through banking channels, could not be regarded as non-existence, without carrying out a proper investigation. The Division Bench comprising of Justice Yashwant Varma and Justice Ravinder Dudeja observed that the petitioner is entitled for grant of duty drawback and its bank account could not be frozen by Customs authority, once export proceeds were realized within the stipulated period as prescribed under FEMA. Facts of the case The petitioner/ assessee, a sole proprietorship firm engaged in export of handicrafts, had exported 24 consignments of brass, copper and iron handicrafts to foreign buyer M/s. Metal Masters, UAE. For such export, the petitioner availed duty drawback Rs. 89,77,007/-, which was assessed and duly allowed to be credited to the petitioner's bank. Later, based on information received from IndusInd Bank, Moradabad Branch that the petitioner had multiple receipts in their bank accounts, which were claimed to be the duty drawback receipts, an enquiry was conducted resulting in freezing of bank account of the petitioner. The reason stated purchase of exported goods from a non-existent firm. Also, SCN was issued for the recovery of drawback availed, in terms of Rule 16/16A of the Customs, Central Excise Duties & Service Tax Drawback Rules, 1995 read with Section 76(1)(b) of the Customs Act, 1962 along with interest as applicable u/s 75A(2) r/w/s 28AA of the Act. This demand was confirmed by the Additional Commissioner of Customs and penalty of Rs.1.50 crore was also imposed u/s 114AA of the Act. Hence, the petitioner approached the High Court. Observations of the High Court Referring to the provisions of Customs Act & Rules, the Bench noted that the drawback shall not be allowed in case the sale proceeds from exports are not received in India within the time allowed under FEMA, 1999. However, RBI Master Circular No. 14/2013-14 proceeded by Master Circular No. 14/2014-15 vide Rule B.2(V) permits the receipt of foreign remittances from an entity other than consignee of the exported goods subject to then conditions prescribed therein, added the Bench. Thus, the Bench highlighted that RBI Circular calls for a requirement of Tripartite Agreement between the petitioner, the consignee firm and the said third party. Although the Department contended that both petitioner and the officials of KMBL have failed to produce any document evidencing a valid Tripartite Agreement between the parties, the Bench found that the Tripartite Agreement was executed between the petitioner and the foreign buyer, which permits the third-party payments on behalf of the foreign buyer. Although the reasoning given in the impugned order stated that petitioner and AD Bank have failed to adduce third-party payments, the Bench found that such reasoning was given without considering statements of Assistant Manager and Branch Manager of KMBL, recorded u/s 108 of the Customs Act. As per the statements of the Managers of KMBL, the exporter/client had declared relationship between the third-party remitter and the actual buyer and explained the circumstances necessitating remittances by third party, added the Bench. Thus, the Bench found that the third-party documents were confirmed by the bank after being satisfied of the bona fides of the parties involved in the transaction. When the third-party documents were already in place and were in possession of the bank much before the receipt of remittances, the respondents/ Department cannot claim that the Tripartite Agreement is a forged and fictitious document. Hence, the High Court allowed the Assessee's petition and directed the respondents to defreeze the bank account held at IndusInd Bank. Counsel for Petitioner/ Assessee: Akhil Krishna Maggu, Vikas Sareen, Maninder Kaur, Oshin Maggu and Ruchir Baswal Counsel for Respondent/ Revenue: Sunil Kumar Pandey, Neha Yadav, Aditya Singla Saakshi Garg and Raghav Bakshi Case Title: M/S Innovative Crafts versus Union of India & Ors. Case Number: W.P.(C) 14232/2022 & CM APPLs. 43462/2022, 45597/2022 Click Here To Read/ Download The Order

Exporter Is Eligible For Duty Drawback Once Export Proceeds Are Realized Within Stipulated Period As Per FEMA: Delhi HC

Pankaj Bajpai

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