Madras High Court Holds Unreasonable Delay Bars Duty Drawback Recovery, Quashes ₹38.77 Lakh Demand

The Madras High Court on 7 July held that customs authorities cannot recover duty drawback benefits after an unreasonable and unexplained delay, even when the relevant rules do not prescribe a specific limitation period for such recovery.

Justice Hemant Chandangoudar quashed the recovery proceedings initiated against A.Kiyasdeen, an exporter for recovery of Rs. 38.77 lakh in duty drawback and a penalty of Rs. 1 lakh, holding that the proceedings initiated several years after the drawback was granted could not be sustained in the absence of allegations of fraud or suppression. He observed:

“in the absence of any allegation of fraud or suppression of material facts, the decision of the Delhi High Court is not applicable. When statute does not prescribe a period of limitation, the recovery must be made within a reasonable time. And what is a reasonable time depends on the facts and circumstances of the case.”

The case arose from customs proceedings initiated to recover duty drawback benefits granted to the exporter between 2008 and 2010. The Department alleged that the exporter had failed to produce proof of realization of export proceeds for 105 shipping bills. A show cause notice was issued only in 2017, and the recovery order was passed in 2022. The exporter challenged the proceedings before the High Court, contending that the department had initiated recovery after an inordinate delay and without any explanation.

The Court noted that although the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 do not prescribe a specific time limit for recovery of wrongly paid drawback, the power of recovery must be exercised within a reasonable period.

Rejecting the customs Department's reliance on the Delhi High Court's decision in Rajbir Singh v. Union of India and others (2025 SCC OnLine Del 2847), the Court held that the ruling did not apply as the present case involved no allegation of fraud or suppression of material facts.

The Bench relied on the Gujarat High Court's decision in Pratipa Sitex Ltd. v. Union of India, 2013 (287 ELT 290), which held that three years could ordinarily be considered a reasonable period for recovery of amounts wrongly paid. It observed:

“No delay is explained and no explanation is offered for the inordinate delay in initiating the recovery proceedings and more particularly when the petitioner has categorically stated that he has closed his export business way back in the year 2011 and was not in possession of any of the documents relating to the export for the relevant period.”

Accordingly, the High Court quashed the recovery order along with the consequential communication and allowed the writ petition.

For Petitioner: Mr. S.Karthikei Balan, Advocate

For Respondent: M/s. Pooja Jain, Junior Standing Counsel