Rajasthan High Court Says Customs Cannot Recover Excess Drawback Without Reassessment

The Rajasthan High Court on 12 August held that Customs authorities cannot directly invoke Section 75A(2) of the Customs Act, 1962 to recover alleged excess drawback without first reassessing the exporter's self-assessment under Section 17 of the Act.

A Division Bench comprising Justices Munnuri Laxman and Sangeeta Sharma allowed writ petitions filed by Bhati & Company and Latiyal Handicrafts Pvt. Ltd. and granted the Customs authorities liberty to proceed under Sections 17 and 18 of the Customs Act, if permissible in law. The Court stated:

“in the present case, they have not invoked the provisions under Sections 17 and 18 of the Act of 1962. They have directly proceeded under Section 75A (2) of the Act of 1962. Section 75A of the Act of 1962, is intended to recover the amount which is erroneously paid or recoverable under this act or rules made thereunder. This provision can be invoked in the present facts of the case only after crystallization of amount as consequence of reassessment and not before.”

The petitions arose from exports of handicrafts and artistic wooden furniture by the two petitioners. Bhati & Company exported the goods under six shipping bills between 13 May and 20 May 2011, while Latiyal Handicrafts exported them under seven shipping bills between 13 October 2009 and 25 May 2011.

While filing the shipping bills and undertaking self-assessment under Section 17 of the Customs Act, the exporters classified the goods under Drawback Schedule Nos. 9401 and 940399.

The Customs Department subsequently took the view that the goods were covered under Drawback Schedule No. 442101, relating to handicrafts and artware of wood, and alleged that the classification had resulted in excess drawback being paid.

The alleged misclassification came to light during an audit. Based on the audit objection, the Customs authorities issued a show cause notice dated 25 March 2013 seeking recovery of the alleged excess drawback under Section 75A read with Section 142 of the Customs Act and Rule 16 of the Customs and Excise Duties and Service Tax Drawback Rules, 1995.

The exporters argued that the drawback had been paid pursuant to their self-assessment and that the Department could not treat it as an erroneous payment without first questioning and reassessing the self-assessment under Section 17(4) of the Customs Act.

The original authorities nevertheless determined the amounts allegedly paid in excess and initiated recovery. The exporters challenged the orders in appeal, but their appeals were unsuccessful.

The Revisional Authority subsequently set aside the orders of the original and appellate authorities and remanded the matters for fresh consideration, following which the petitioners approached the High Court.

The High Court examined Sections 17, 18, 50, 51 and 75A of the Customs Act. It noted that Section 17 requires an exporter to self-assess the goods and permits the proper officer to verify the assessment. If the officer finds the self-assessment to be incorrect, Section 17(4) provides for reassessment, while Section 18 permits provisional assessment in appropriate cases.

It held that the Department could not disregard the self-assessment for recovery purposes. It had to first determine the correct assessment through the statutory process before seeking recovery of any excess drawback.

Further the Bench held that Section 75A(2), which provides for recovery of drawback erroneously paid or otherwise recoverable, could be invoked only after the amount had been crystallised through reassessment. It observed:

“The present case was proceeded with as if it was an erroneous payment. But, in fact, it is not a case of erroneous payment, but a case of payment pursuant to self-assessment, though, such self-assessment was a result of wrong classification of the goods exported. In that case, the authority should have invoked the provisions under Section 17(4) of the Act of 1962, if permissible, instead of Section 75A of the Act of 1962. The entire proceedings are directly resorted to which action is misconceived…”

Accordingly, the High Court set aside the impugned orders and allowed both writ petitions, while granting the Customs authorities liberty to proceed under Sections 17 and 18 of the Customs Act, if otherwise permissible in law.

For Petitioner: Suresh Kumbhat, Sheetal Kumbhat, Naman Bhansali, Yoshita Ramawat and Gunjan Purohit, Advocates 

For Respondent: Rajvendra Sarasawat, Jitesh Kumar Suthar and Rishabh Dabhich, Advocates