Delhi HC Restores ₹67-Crore Drawback Recovery, Says Customs Can Test Whether Third-Party Remittances Were Export Proceeds

The Revenue challenged the CESTAT’s common order allowing appeals by exporters and other noticees and dismissing the Revenue’s appeals.

The proceedings concerned exports of readymade garments and allegations that exporters had inflated declared values, received third-party remittances that were not genuine sale proceeds, and thereby obtained excess drawback and export incentives.

The adjudicating authority confirmed recovery in respect of consignments linked to 1,650 cancelled BRCs, among other findings, but dropped proposals relating to other consignments.

CESTAT set aside the adverse portions of the adjudication order, relying, inter alia, on the absence of reassessment under Section 14, the BRC-related civil decree, and alleged procedural defects.

The Revenue appealed under Section 130 of the Customs Act.

Section 130 of the Customs Act excludes High Court appeals concerning a question relating to the rate of duty or value of goods for purposes of assessment; an allegation involving value does not, by itself, attract the exclusion if assessable value is not being determined.

Section 75(1) requires a nexus between the claimed drawback and “sale proceeds in respect of such goods,” permitting Customs to examine whether alleged receipts are genuine export proceeds without exercising the RBI’s independent FEMA jurisdiction.

Section 14 and the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 govern reassessment of value for assessment, but do not necessarily prevent consideration of comparative values as evidence of alleged deliberate misdeclaration to obtain benefits.

A civil decree ordinarily operates in personam and does not determine the independent statutory rights of a non-party.

Section 28AAA requires its statutory ingredients to be established, but does not make proceedings against subsequent users of duty-credit instruments a prerequisite unless the statute so provides.

Cross-examination is not automatic in every customs adjudication; its necessity depends on the role of statements, the other evidence and prejudice, while Section 138B(2) governs their use.

Section 124 requires notice of the grounds, an opportunity to make representations and a reasonable hearing before a penalty is imposed.

The Court held that the appeals were maintainable because the Revenue was not seeking reassessment of the goods’ assessable value; it relied on alleged overvaluation as evidence of fraudulent benefit claims.

Customs could assess whether third-party receipts were genuinely connected to the exported goods, and the CESTAT erred by treating the absence of an RBI determination as preventing that inquiry.

The adjudicating authority had considered a broader evidentiary record—including banking records, overseas enquiries, import documents and statements—so CESTAT was required to assess that record and the role of cross-examination rather than reject the case on general grounds.

The lack of reassessment under Section 14 did not, by itself, make evidence of deliberate misdeclaration irrelevant.

The civil decree against PNB did not conclusively determine Customs’ independent statutory rights, and the absence of proceedings against subsequent scrip users was not determinative under Section 28AAA.

However, the CESTAT’s finding that Shri Nitin Gupta had not received the requisite notice, documents or hearing engaged Section 124 and remained a separate ground for setting aside his penalty.