25 September 2023

Drawback on exports is available even when BCD is not paid on imports, if additional duty is paid

The Delhi High Court has rejected the contention of the Revenue department that it is only when a duty as prescribed by the Customs Act, 1962 has been paid that drawback benefits can be claimed.

The Revenue’s submission in essence was that unless Basic Customs Duty (BCD) is paid at the time of import, it would be impermissible for the exporter-petitioner to claim drawback benefits.

The Court in AJ Gold and Silver Refinery v. Assistant Commissioner [Judgement dated 15 September 2023] observed that Additional duty (equal to Central Excise duty) was paid by the assessee under Section 3 of the Customs Tariff Act, 1975 while clearing imports and that it continues to remain in the genre of a customs duty as per the decision of the Supreme Court in the case of Hyderabad Industries.

Considering the definition of ‘drawback’ under Rule 2(a) of the Drawback Rules, the Court also held that it is not possible to view the levy under Section 3 as not falling within the ambit of ‘duty’ or ‘tax’.

The High Court also noted that since in this case All India Rate was prescribed for drawback, there was no corresponding obligation upon the assessee to independently prove payment of duty/tax.

Reliance by the Department on Condition 26 of the Drawback notification was also rejected by the Court while it observed that once the duties as contemplated under Section 3 were paid, it cannot be contended that the goods were imported ‘duty free’.

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