“The greater the ambiguity, the greater the pleasure.”
- Milan Kundera
“The ambiguities of language, both in terms of vocabulary and syntax, are fascinating: how important connotation is, what is lost and what is gained in the linguistic transition.”
- Marilyn Hacker
“In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”
- Rowlatt, J. in Cape Brandy Syndicate v. IRC (1921) 1 KB 64
Article 265 of the Constitution of India, 1950 provides that no tax shall be levied or collected except by authority of law. Revenue authorities are subservient to the law and can only exercise powers as vested in them by the legislature. Power to levy or collect tax should be rooted in the legislation and cannot be presumed. In specified cases, certain powers are conferred through delegated legislation. Any action by the Revenue which is not mandated by law and therefore lacks jurisdiction, is struck down being in direct violation of the Constitutional dicta.
The recent ruling pronounced by the Hon’ble Punjab and Haryana High Court (‘High Court’) in the case of M/s Famina Knit Fabs v. Union of India, [TS-782-HC-2019(P&H)-CUST] (‘Famina ruling’) has reiterated the above principle and impeded Revenue’s actions to recover sanctioned duty drawback sans machinery provision under Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 (‘Drawback Rules’).
Before delving into the issues, it is imperative to discuss the background facts briefly relevant to the present issue.
Background
Famina exported textile goods from June 2010 to March 2013 under claim for drawback in terms of the Drawback Rules. At the time of export, the concerned customs officials at the port of export physically verified the export goods and noted on the shipping bill ‘as per invoice and packing list’ or ‘the value reduced as per the duty drawback’. Drawback was accordingly sanctioned.
Directorate of Revenue Intelligence conducted investigations against Famina, and alleged misdeclaration of the value of goods exported vide ten shipping bills during 2010 and 2 shipping bills during 2012. Show Cause Notice (‘SCN’) was issued on February 9, 2018 proposing rejection of the declared FOB value of exported goods from Rs. 52,58,264/- in terms of Rule 8 of the Customs Valuation (Determination of Value of Exported Goods) Rule, 2007 (‘Valuation Rules’) read with Section 14 of the Customs Act, 1962 (‘Customs Act’) and re-determinating the same to Rs. 7,51,181/-. SCN further proposed to disallow drawback amounting to Rs. 4,46,153/- and recover the same in terms of Rule 16 of the Drawback Rules.
In this background, Famina challenged the SCN by filing a Writ Petition under Article 226 of the Constitution before the High Court seeking quashing of the SCN.
Issues framed by the high court
High Court framed the following issues for its determination / adjudication:
- Whether a Writ Petition is maintainable under Article 226 against the SCN?
- Whether demand for drawback under Rule 16 of the Drawback Rules can be made without any reasonable period of limitation?
- Whether the re-enacted Drawback Rules, 2017 save the SCN issued under Rule 16 of the repealed Drawback Rules?
- Whether there is adequate machinery under Rule 16 of the Drawback Rules to declare already paid drawback as erroneous or excess and thus recover the same?
- Whether the Revenue has the power to reject already assessed value of exported goods under Rules 6 and 8 of the Valuation Rules read with Section 14 of the Customs Act?
The High Court examined the above issues in detail and answered the same in favour of Famina. The relevant observations of the Court on each aspect are briefly discussed in the subsequent paragraphs.
Findings of the high court
Issue 1: Maintainability of Writ Petition under Article 226 against SCN
The High Court held that Writ Petition under Article 226 is maintainable against SCN where the issue involves the jurisdiction of the authorities to raise the demand. The High Court further held that the authorities appointed under the Customs Act cannot decide the reasonable period of limitation where no such period is prescribed under the Drawback Rules; and that only the Courts can decide such a question. Therefore, High Court held that in cases where the jurisdiction of the authorities is in dispute, Writ Petition under Article 226 is maintainable. The Court followed the decisions passed by Hon’ble Supreme Court in the case of State of Punjab v. Bhatinda District Co-Op. Milk P. Union Limited, 2013 (287) ELT 290 and Hindustan Construction Company Limited v. State of Haryana, 2005 (28) RCR (Civil) 252.
Issue 2: Reasonable period of limitation for raising the demand of drawback under Rule 16 of the Drawback Rules where none is prescribed
The High Court noted that no limitation was prescribed under the Drawback Rules and relying on the Apex Court judgments in Collector of Central Excise v. Raghuvar (India) Ltd, 200 (118) ELT 311 SC and GOI v. Citadel Fine Pharmaceuticals, 1989 (42) ELT 515 SC, held that in the absence of prescribed limitation period, action should be taken within reasonable period. High Court after that relied on Apex Court judgment of State of Punjab v. Bhatinda District Co-op. Milk P. Union Ltd., 2007 (217) ELT 325 and other decisions of Gupta Smelter Pvt. Ltd. v. UOI, 2019 (365) ELT 77 and CCE v. Hari Concast (P) Ltd., 2009 (242) ELT 12 to hold that the reasonable period of limitation cannot be more than 5 years and not 3 years as held in Padmini Exports v. UOI, 2012 (284) ELT 325 and Pratibha Syntex Ltd., 2013 (287) ELT 290. Therefore, SCN issued beyond five years cannot stand in the eyes of the law and is therefore barred by limitation.
Issue 3: Effect of the savings clause in re-enacted Drawback Rules, 2017 on the SCN issued under Rule 16 of the repealed Drawback Rules
High Court held that Section 6 of the General Clauses Act does not apply to repealed rules, but only to Acts and Regulations repealed without any savings clause. Section 159A of the Customs Act saves repealed rules, regulations, notifications and orders unless a different intention appears. Since Rule 20 of Drawback Rules, 2017 specifically provides for repeal and savings, provisions of Section 159A cannot be applied. Further, as Rule 20 of the Drawback Rules, 2017 did not deal with drawback claims filed and sanctioned prior to October 1, 2017, i.e. the date of repeal of Drawback Rules and does not save recovery proceedings of already paid drawback. Therefore, Revenue is barred from initiating the recovery proceedings for drawback already paid under the Drawback Rules, as the same are not saved under Rule 20 of Drawback Rules, 2017.
Issue 4: Absent complete machinery under Rule 16 of the Drawback Rules to declare already paid drawback as erroneous or excess, is recovery tenable
The High Court noted that Drawback Rules are framed under Section 75 of the Customs Act. Section 75(2)(ab) of the Customs Act delegates the power to the Central Government to frame rules for specifying the procedure of recovery. Rule 16A of the Drawback Rules prescribes the manner for recovery of drawback where export proceeds are not realized. For this, the assessments done at the time of sanctioning drawback are not required to be re-opened, and therefore, mere non-realization of export proceeds suffices.
Rule 16 of the Drawback Rules also provides that an assessee is required to repay erroneously or excess paid drawback on demand by a Proper Office. However, no mechanism is provided under Rule 16 to determine and demand any drawback as erroneous or excess or for re-valuing the goods already exported or for recovering the drawback already paid. Rule 16 does not contemplate cases where at the time of the export, value of goods was duly assessed by the customs officers, goods were exported, export proceeds stood realized and drawback stood released. Moreover, use of the expression ‘erroneous’ in Rule 16 implies some calculation mistake or other similar error which does not require any adjudication and can therefore be recovered.
In cases where drawback in excess of entitlement has been paid, due process known to law needs to be followed to conclude the actual entitlement, for which complete machinery is inevitable, which is absent in Rule 16 of the Drawback Rules. Valuation Rules and Section 14 are also not omnibus as recovery of customs duties is possible under Section 28 or 28AAA of the Customs Act which provide complete machinery. These provisions do not enable re-determination of already paid drawback amount and are therefore inapplicable insofar as recovery of drawback is concerned.
The High Court relied upon the judgments of CCE v. Larsen and Toubro, 2015 (39) STR 913, Laqshya Media Pvt. Ltd. v. State of Punjab and Others, CWP No. 4215 of 2016, Shabina Abraham v. CCE, [TS-391-SC-2015-EXC], State of Punjab v. M/s Jullunder Vegetables Syndicate, (1966) 2 SCR 457 and Eternit Everest Ltd. v. UOI, 1997 (89) ELT 28 Mad., to hold that there is no machinery in Rule 16 of the Drawback Rules to issue SCN to determine and demand any drawback paid in excess of entitlement. Hence, the SCN proposing to re-open and re-assess the value of exported goods to re-determine and demand drawback already paid, is bad in the eye of law.
The High Court declined to answer Issue 5 i.e. Whether the Revenue has power to reject already assessed value of exported goods under Rules 6 and 8 of the Valuation Rules read with Section 14 of the Customs Act, as the same was not required to be answered in view of above findings. The Writ Petition was accordingly allowed and the SCN was quashed.
Comments
The High Court in the well-reasoned Famina ruling has delved into some vital legal issues. Jurisdiction has always been held as a valid ground for maintainability of a writ petition at show cause notice stage. Inferring limitation of 5 years for raising demand in cases where no limitation is prescribed is another significant finding.
The ruling further throws light on the effect of savings clause on repeal of rules in contradistinction to repeal and savings clauses for statutes and regulations and their inter-play with general provisions for repeal and savings as prescribed under the General Clauses Act as well as the Customs Act.
Lastly, the existence or absence of machinery provisions assume significance as even in case of rules, and it needs to be analyzed whether such provisions can be borrowed from the parent statute or other provisions within the rules or should the machinery exist within the rule under consideration.
Thence, in every case where the provisions of the legislation are ambiguous and do not provide a machinery provision, or there is dubiousness regarding the authority of the Revenue to raise the demand, the taxpayer can directly challenge the jurisdiction of the authority before Writ Court under Article 226 of the Constitution of India instead of going through the rigmarole of the long-drawn normal adjudication process.
Famina ruling is a perfect illustration of jurisprudence pointing that the provisions of the law should be unambiguous and should clearly provide the procedure to recover tax from an incumbent taxpayer. In absence of machinery provisions, there cannot be any presumption as to tax and no recovery could be initiated by the Revenue. Further, in the absence of machinery, recovery initiated against a taxpayer is without the authority of law enshrined in Article 265 of the Constitution and can be challenged under Article 226 of the Constitution of India.
This Article has been supported by Mr. Ayush Agarwal (Associate).
“The greater the ambiguity, the
greater the pleasure.”
- Milan
Kundera
“The ambiguities of language,
both in terms of vocabulary and syntax, are fascinating: how
important connotation is, what is lost and what is gained in the
linguistic transition.”
- Marilyn
Hacker
“In a taxing Act one has to look
merely at what is clearly said. There is no room for any
intendment. There is no equity about a tax. There is no presumption
as to tax. Nothing is to be read in, nothing is to be implied. One
can only look fairly at the language used.”
- Rowlatt, J. in Cape
Brandy Syndicate v. IRC (1921) 1 KB 64
Article 265 of the Constitution of
India, 1950 provides that no tax shall be levied or collected
except by authority of law. Revenue authorities are subservient to
the law and can only exercise powers as vested in them by the
legislature. Power to levy or collect tax should be rooted in the
legislation and cannot be presumed. In specified cases, certain
powers are conferred through delegated legislation. Any action by
the Revenue which is not mandated by law and therefore lacks
jurisdiction, is struck down being in direct violation of the
Constitutional dicta.
The recent ruling pronounced by the
Hon’ble Punjab and Haryana High Court (‘High
Court’) in the case of M/s Famina Knit
Fabs v. Union of India, [TS-782-HC-2019(P&H)-CUST] (‘Famina
ruling’) has reiterated the above principle and impeded
Revenue’s actions to recover sanctioned duty drawback sans
machinery provision under Customs, Central Excise Duties and
Service Tax Drawback Rules, 1995 (‘Drawback
Rules’).
...
Before delving into the issues, it
is imperative to discuss the background facts briefly relevant to
the present issue.
Background
Famina exported textile goods from
June 2010 to March 2013 under claim for drawback in terms of the
Drawback Rules. At the time of export, the concerned customs
officials at the port of export physically verified the export
goods and noted on the shipping bill ‘as
per invoice and packing list’ or ‘the value reduced as per
the duty drawback’. Drawback was accordingly
sanctioned.
Directorate of Revenue Intelligence
conducted investigations against Famina, and alleged misdeclaration
of the value of goods exported vide ten shipping bills during 2010
and 2 shipping bills during 2012. Show Cause Notice
(‘SCN’) was issued on February 9, 2018 proposing
rejection of the declared FOB value of exported goods from Rs.
52,58,264/- in terms of Rule 8 of the Customs Valuation
(Determination of Value of Exported Goods) Rule, 2007
(‘Valuation Rules’) read with Section 14 of the
Customs Act, 1962 (‘Customs Act’) and
re-determinating the same to Rs. 7,51,181/-. SCN further proposed
to disallow drawback amounting to Rs. 4,46,153/- and recover the
same in terms of Rule 16 of the Drawback Rules.
In this background, Famina
challenged the SCN by filing a Writ Petition under Article 226 of
the Constitution before the High Court seeking quashing of the
SCN.
Issues framed by the high
court
High Court framed the following
issues for its determination / adjudication:
- Whether a Writ Petition is maintainable under Article 226
against the SCN?
- Whether demand for drawback under Rule 16 of the Drawback Rules
can be made without any reasonable period of limitation?
- Whether the re-enacted Drawback Rules, 2017 save the SCN issued
under Rule 16 of the repealed Drawback Rules?
- Whether there is adequate machinery under Rule 16 of the
Drawback Rules to declare already paid drawback as erroneous or
excess and thus recover the same?
- Whether the Revenue has the power to reject already assessed
value of exported goods under Rules 6 and 8 of the Valuation Rules
read with Section 14 of the Customs Act?
The High Court examined the above
issues in detail and answered the same in favour of Famina.
...
The relevant observations of the Court on each aspect are
briefly discussed in the subsequent paragraphs.
Findings of the high
court
Issue 1: Maintainability of
Writ Petition under Article 226 against
SCN
The High Court held that Writ
Petition under Article 226 is maintainable against SCN where the
issue involves the jurisdiction of the authorities to raise the
demand. The High Court further held that the authorities appointed
under the Customs Act cannot decide the reasonable period of
limitation where no such period is prescribed under the Drawback
Rules; and that only the Courts can decide such a question.
Therefore, High Court held that in cases where the jurisdiction of
the authorities is in dispute, Writ Petition under Article 226 is
maintainable. The Court followed the decisions passed by Hon’ble
Supreme Court in the case of State of Punjab v.
Bhatinda District Co-Op. Milk P. Union Limited, 2013 (287) ELT
290 and Hindustan Construction
Company Limited v. State of Haryana, 2005 (28) RCR (Civil)
252.
Issue 2: Reasonable period
of limitation for raising the demand of drawback under Rule 16 of
the Drawback Rules where none is prescribed
The High Court noted that no
limitation was prescribed under the Drawback Rules and relying on
the Apex Court judgments in Collector of Central
Excise v. Raghuvar (India) Ltd, 200 (118) ELT 311
SC and GOI v. Citadel Fine
Pharmaceuticals, 1989 (42) ELT 515 SC, held that in
the absence of prescribed limitation period, action should be taken
within reasonable period. High Court after that relied on Apex
Court judgment of State of Punjab
v.
...
Bhatinda District Co-op. Milk P. Union Ltd., 2007 (217) ELT
325 and other decisions of
Gupta Smelter
Pvt. Ltd. v. UOI, 2019 (365) ELT
77 and
CCE v. Hari Concast (P)
Ltd., 2009 (242) ELT 12 to hold that the
reasonable period of limitation cannot be more than 5 years and not
3 years as held in
Padmini Exports v. UOI, 2012
(284) ELT 325 and
Pratibha
Syntex Ltd., 2013 (287) ELT 290. Therefore, SCN
issued beyond five years cannot stand in the eyes of the law and is
therefore barred by limitation.
Issue 3: Effect of the
savings clause in re-enacted Drawback Rules, 2017 on the SCN issued
under Rule 16 of the repealed Drawback
Rules
High Court held that Section 6 of
the General Clauses Act does not apply to repealed rules, but only
to Acts and Regulations repealed without any savings clause.
Section 159A of the Customs Act saves repealed rules, regulations,
notifications and orders unless a different intention appears.
Since Rule 20 of Drawback Rules, 2017 specifically provides for
repeal and savings, provisions of Section 159A cannot be applied.
Further, as Rule 20 of the Drawback Rules, 2017 did not deal with
drawback claims filed and sanctioned prior to October 1, 2017, i.e.
the date of repeal of Drawback Rules and does not save recovery
proceedings of already paid drawback. Therefore, Revenue is barred
from initiating the recovery proceedings for drawback already paid
under the Drawback Rules, as the same are not saved under Rule 20
of Drawback Rules, 2017.
Issue 4: Absent complete
machinery under Rule 16 of the Drawback Rules to declare already
paid drawback as erroneous or excess, is recovery
tenable
The High Court noted that Drawback
Rules are framed under Section 75 of the Customs Act.
...
Section 75(2)(ab) of the Customs Act delegates the power to the
Central Government to frame rules for specifying the procedure of
recovery. Rule 16A of the Drawback Rules prescribes the manner for
recovery of drawback where export proceeds are not realized. For
this, the assessments done at the time of sanctioning drawback are
not required to be re-opened, and therefore, mere non-realization
of export proceeds suffices.
Rule 16 of the Drawback Rules also
provides that an assessee is required to repay erroneously or
excess paid drawback on demand by a Proper Office. However, no
mechanism is provided under Rule 16 to determine and demand any
drawback as erroneous or excess or for re-valuing the goods already
exported or for recovering the drawback already paid. Rule 16 does
not contemplate cases where at the time of the export, value of
goods was duly assessed by the customs officers, goods were
exported, export proceeds stood realized and drawback stood
released. Moreover, use of the expression ‘erroneous’ in Rule 16
implies some calculation mistake or other similar error which does
not require any adjudication and can therefore be
recovered.
In cases where drawback in excess
of entitlement has been paid, due process known to law needs to be
followed to conclude the actual entitlement, for which complete
machinery is inevitable, which is absent in Rule 16 of the Drawback
Rules. Valuation Rules and Section 14 are also not omnibus as
recovery of customs duties is possible under Section 28 or 28AAA of
the Customs Act which provide complete machinery. These provisions
do not enable re-determination of already paid drawback amount and
are therefore inapplicable insofar as recovery of drawback is
concerned.
The High Court relied upon the
judgments of CCE v. Larsen and Toubro, 2015 (39)
STR 913, Laqshya Media Pvt.
...
Ltd. v. State of Punjab and Others, CWP No. 4215 of 2016, Shabina
Abraham v. CCE, [
TS-391-SC-2015-EXC], State of Punjab v. M/s
Jullunder Vegetables Syndicate, (1966) 2 SCR
457 and
Eternit Everest Ltd. v. UOI, 1997
(89) ELT 28 Mad., to hold that there is no machinery
in Rule 16 of the Drawback Rules to issue SCN to determine and
demand any drawback paid in excess of entitlement. Hence, the SCN
proposing to re-open and re-assess the value of exported goods to
re-determine and demand drawback already paid, is bad in the eye of
law.
The High Court declined to answer
Issue 5 i.e. Whether the Revenue has power to reject already
assessed value of exported goods under Rules 6 and 8 of the
Valuation Rules read with Section 14 of the Customs Act, as the
same was not required to be answered in view of above findings. The
Writ Petition was accordingly allowed and the SCN was
quashed.
Comments
The High Court in the well-reasoned
Famina ruling has delved into some vital legal issues. Jurisdiction
has always been held as a valid ground for maintainability of a
writ petition at show cause notice stage. Inferring limitation of 5
years for raising demand in cases where no limitation is prescribed
is another significant finding.
The ruling further throws light on
the effect of savings clause on repeal of rules in
contradistinction to repeal and savings clauses for statutes and
regulations and their inter-play with general provisions for repeal
and savings as prescribed under the General Clauses Act as well as
the Customs Act.
Lastly, the existence or absence of
machinery provisions assume significance as even in case of rules,
and it needs to be analyzed whether such provisions can be borrowed
from the parent statute or other provisions within the rules or
should the machinery exist within the rule under consideration.
...
Thence, in every case where the
provisions of the legislation are ambiguous and do not provide a
machinery provision, or there is dubiousness regarding the
authority of the Revenue to raise the demand, the taxpayer can
directly challenge the jurisdiction of the authority before Writ
Court under Article 226 of the Constitution of India instead of
going through the rigmarole of the long-drawn normal adjudication
process.
Famina ruling is a perfect
illustration of jurisprudence pointing that the provisions of the
law should be unambiguous and should clearly provide the procedure
to recover tax from an incumbent taxpayer. In absence of machinery
provisions, there cannot be any presumption as to tax and no
recovery could be initiated by the Revenue. Further, in the absence
of machinery, recovery initiated against a taxpayer is without the
authority of law enshrined in Article 265 of the Constitution and
can be challenged under Article 226 of the Constitution of
India.
This Article has been supported
by Mr. Ayush Agarwal
(Associate).