Delhi HC Restores ₹67.46-Crore Drawback Recovery, Says Customs Can Test Whether Third-Party Remittances Were Export Sale Proceeds

The appeals arose from a common adjudication concerning 13,008 garment-export consignments made by five exporter entities between 2008–09 and March 2014.

The Revenue alleged overvaluation, third-party remittances that were not genuine sale proceeds, and fraudulent claims for drawback and export incentives.

The Commissioner confirmed recovery for consignments linked to 1,650 BRCs cancelled by Punjab National Bank, but dropped proposals concerning the remaining consignments; the CESTAT allowed the exporters’ appeals and dismissed the Revenue’s appeals.

The High Court heard the Revenue’s appeals under Section 130 of the Customs Act against the CESTAT’s common order.

Section 130 of the Customs Act excludes High Court appeals involving determination of value for assessment; an allegation that value was deliberately inflated to obtain export benefits does not, by itself, invoke that exclusion where assessable value was not re-determined.

Section 75 requires Customs, when drawback entitlement is challenged, to examine whether claimed receipts are “sale proceeds in respect of” the exported goods, without thereby assuming the RBI’s FEMA jurisdiction.

Section 14 and the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 govern assessment valuation, but do not make evidence of alleged deliberate misdeclaration inadmissible in a separate inquiry into export-benefit entitlement.

Section 28AAA requires its statutory ingredients to be established; proceedings against subsequent users of scrips are not a prerequisite unless the statute so provides.

Under Section 138B(2), cross-examination is not automatic in every case and its necessity depends on the role of the statements, the other evidence and prejudice; under Section 124, notice, access to relied-upon material and a reasonable hearing are mandatory before penalty.

The Court relied on M/s Alupro Building Systems Pvt. Ltd. v. Commissioner of Central Excise, Bangalore-II for the assessment-related scope of the valuation exclusion; Navin Chemicals Manufacturing and Trading Co. Ltd. v. Collector of Customs for that exclusion’s connection to assessment; Razia Begum v. Sahebzadi Anwar Begum and Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties Pvt. Ltd. for the general in-personam effect of declaratory decrees; Kanungo & Company v. Collector of Customs on cross-examination in customs adjudication; and Kothari Filaments v. Commissioner of Customs (Port), Kolkata on the noticee’s right to know and answer the case against them.

The Court held that the appeals were maintainable because the Revenue was not seeking a fresh assessment of value; it relied on alleged inflation as evidence of fraudulent benefit claims.

Customs could examine whether the remittances had a genuine nexus with the exported goods; the fact that funds entered an exporter’s bank account, or that another regulator had not declared them invalid, did not foreclose that inquiry.

The adjudication relied on a broader evidentiary record—including banking records, overseas enquiries, import documents, comparative values and statements—so the CESTAT had to assess that material and the statements’ role rather than reject the case merely because there had been no re-determination under Section 14 or because cross-examination had not been afforded.

The civil decree against PNB bound the parties to that suit but did not, by itself, determine Customs’ independent statutory rights.

The CESTAT also erred in treating the absence of proceedings against scrip users as determinative without examining Section 28AAA’s requirements against the exporters.

Nitin Gupta’s penalty was different: the CESTAT found that he had not received notice and relied-upon documents or an opportunity to be heard, contrary to Section 124.

It allowed the Revenue’s appeals, set aside the CESTAT’s common final order and restored the Commissioner’s Order-in-Original in all other respects.

The penalty imposed on Nitin Gupta remained set aside for non-compliance with the requirements of notice, supply of documents and opportunity of hearing.