Delhi HC Revives ₹67-Crore Drawback Demand, Says Customs Can Examine Whether Third-Party Remittances Were Genuine Export Proceeds

The Revenue brought 22 appeals under Section 130 of the Customs Act, 1962, challenging a common CESTAT order concerning exports of readymade garments by five exporters and related noticees during 2008–09 to March 2014.

The exporters had claimed drawback and Focus Product/Focus Market Scheme benefits.

The Revenue alleged that export values were inflated and that third-party remittances, routed through entities in Hong Kong, the UAE and elsewhere, were shown as export proceeds to obtain those benefits.

The Commissioner confirmed recovery in respect of consignments associated with 1,650 BRCs cancelled by Punjab National Bank (PNB), while dropping demands concerning other consignments.

The CESTAT dismissed the Revenue’s appeals and allowed the exporters’ and other noticees’ appeals, relying, among other things, on the absence of reassessment under Section 14, the third-party nature of the payments, and a civil decree setting aside PNB’s cancellation of the BRCs.

The High Court considered the Revenue’s appeals against that common order.

Section 130 excludes High Court appeals concerning questions directly and proximately related to the rate of duty or value of goods for purposes of assessment; an allegation of overvaluation used as evidence of fraudulent benefit-claiming does not, by itself, trigger the exclusion (Alupro Building Systems Pvt. Ltd. v. Commissioner of Central Excise, read with Navin Chemicals).

Under Section 75, Customs may examine whether amounts claimed as export realisations have a nexus to the goods for which drawback was claimed, without thereby exercising RBI’s separate jurisdiction under FEMA.

A civil declaratory decree ordinarily operates in personam and does not bind a non-party who was neither heard nor claiming through a party (Razia Begum v. Sahebzadi Anwar Begum; Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties Pvt. Ltd.).

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

Section 138B(2) makes cross-examination subject to the adjudicating authority’s permission and requires consideration of the role of statements, other evidence and prejudice; it is not invariably automatic.

Section 124 requires notice of the proposed grounds of penalty, an opportunity to represent, and a reasonable hearing; relied-on material must be made available (Kothari Filaments v. Commissioner of Customs).

The High Court held that the appeals were maintainable because the Revenue was not asking the Court to redetermine assessable value under Section 14; the alleged inflated declarations were relied upon as evidence of fraudulent claims to export benefits.

Customs could examine whether the remittances were genuinely connected to the exported goods, considering the identity of remitters and buyers, bank records, overseas enquiries and import documents; receipt of funds in an exporter’s account alone did not establish that they were sale proceeds.

The CESTAT had not adequately examined the cumulative evidentiary record, the role of statements and documentary evidence, or whether the civil decree—binding on the exporter and PNB—affected Customs’ separate statutory inquiry.

It also erred in treating the absence of proceedings against scrip users as determinative without examining the statutory ingredients of Section 28AAA.

Nitin Gupta’s penalty stood on a separate footing: the CESTAT’s finding that notice, relevant documents and an effective hearing had not been provided engaged the safeguards in Section 124.

It allowed the appeals, set aside the CESTAT’s common 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 notice, document-supply and hearing requirements.