Exporters are entitled to AIR Drawback though the processing is carried out at 100% EOU: Madras HC

Case Covered:

M/s.GTN Textiles Limited

Versus

Secretary to the Government

Prayer:

 Writ Petition filed under Article 226 of the Constitution of India, for the issuance of Writ of Certiorari to call for the records and quash order No.462/2006 dated 29.08.2006 passed by the second respondent herein against petitioner

Facts of the case:

The admitted facts are the petitioner manufactures and exports readymade garments and claims drawback of excise and customs duties paid on the raw materials used in such manufacture. The claims had been made under All Industry Rate (AIR). Some of the processes engaged in the manufacture, such as ‘silicon washing’ and ‘mercerizing’ were sub-contracted by the petitioner to an entity by name Arun Processors Limited, a 100% Export Oriented Unit ( in short ‘EOU’). The EOU, after completion of the processes returned the goods for further finishing to the petitioner, who carried out the final processing and thereafter, exported the same. Initially, the petitioners’ claim for drawback was allowed. Thereafter and invoking Notification No.31 of 1999 dated 20.05.1999, show cause notice dated 02.04.2003 was issued to the petitioner seeking to reverse the drawback granted and recover the same. Order-in-original dated 28.11.2004 was passed confirming the demand along with interest and penalty.

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Observations of the court:

A harmonious and purposive construction of the above Rule as well as Notifications, reveal to me that it could not have been the intention of Legislature or the authorities concerned, to deny drawback claim merely because some processes in the chain of manufacturing have been conducted in the premise of EOU/unit of EPZ if the assessee is otherwise entitled to the benefit. Though the Notifications do specifically require that the export, after completion of job work, is to take place only from the EOU/EPZ, this can be given effect to only in a situation where the entire process of manufacture/finishing is occasioned in such EOU/EPZ. In a situation such as the present, where parts of the process are carried out in different locations, one can hardly conclude that this operational difference would result in denial of the benefit to the exporter. The original stipulation that no drawback was available for export was imposed to ensure that no double benefit was obtained. Subsequently, when an EOU was permitted to engage in job work, the original condition stood modified to the effect that a manufacturer/exporter would also be entitled to drawback, provided the finished commodity was exported from EOU/EPZ itself. A situation such as the present where the goods revert back to the assessee for further processing has not been envisaged and is thus not covered, though it is, in my view, also entitled to such benefit. Such a situation is clearly not intended to be kept out of the beneficial sweep of Notification 31 of 2000.

Thus, while answering the legal issue in favor of the petitioner and setting aside the impugned order, I remand the issue to the Assessing Authority to verify specifically whether the duty has been remitted on the raw materials utilized in job work. If the result of the inquiry is positive, the petitioner is entitled to the drawback of the duty paid in accordance with the law. Let this exercise be completed within a period of three (3) months from the date of receipt of this order after hearing the petitioner.

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