S.S. Sekhon, Member (T)
1. The officers of Headquarters Customs (Preventive) gathered intelligence that M/s. Leela Scottish Lace Ltd., Leela Baug, Andheri Kurla Road, Mumbai (hereinafter referred to as "LSLL") exporters, are availing the facility of duty drawback irregularly in respect of ready made garments manufactured on job work basis by 100% Export Oriented Unit (hereinafter referred to as EOUs) viz., M/s. Tropicate Textile Ltd., Bangalore-22 (hereinafter referred as TTL), and M/s. Sara International Inc., Bangalore-49 (hereinafter referred to as SII). They conducted enquiries, which revealed the following : -
(a) The EOUs had obtained permission from the Assistant Commissioner of Customs, Customs Division, Bangalore vide letters C. No. VIII/48/4/99-EOU-II, dated 3-2-99 and C. No. VIII/48/54/98-EOU-III dtd. 30-12-98 respectively for undertaking the said jobwork within their bonded premises for LSLL. This was as per instruction in Para 4 of the Board's Circular No. 67/98-Cus., dt. 14-9-98. This Para reads as under :-
"4. Further to utilize the idle capacity of the EOU/EPZ units, it has also been decided that the EOU/EPZ units in Textiles, readymade garments, agro-processing and granite sectors may be permitted to undertake job work from the DTA units provided the finished products produced by such EOU/EPZ units will be exported directly from EOU/EPZ unit itself and these goods will not be sent back to the DTA. "
(b) Readymade garments manufactured on job-work basis by the EOUs for LSLL on all Raw material supplied by them, had been removed from the bonded premises, directly to Bangalore Air Cargo Complex under 'transhipment shipping bills' and invoice/packing list of the EOUs with covering letter from the Superintendent of Customs, Customs Division, Bangalore addressed to the Assistant Commissioner of Customs, Exports, ACC, Bangalore intimating the removal of goods from the bonded warehouse to the gateway port for the purpose of export.
(c) At Bangalore Air Cargo Complex, LSLL filed 'shipping bills' for claim of duty drawback on the basis of their invoice. They have been accepted and the readymade garments/ had been exported against these shipping bills. Claim for duty drawback at the rate applicable to sub serial No. 62.01 of the Table annexed to Government of India Notification No. 67/98-Cus. (N.T), dtd. 1-9-98 as amended and 31/99-Cus., (N.T.), dtd. 20-5-99 as amended was claimed by LSLL.
(d) Duty drawback of Rs. 26,47,739/60 so claimed had been sanctioned and received by LSLL for the readymade garments at the rate applicable to sub serial No. 62.01 of the Table annexed to Notifications No. 67/98-Cus. (N.T.), dtd. 1-9-98 as amended and 31/99-Cus. (N.T.), dtd. 20-5-99 as amended.
(e) Duty drawback of Rs. 3,07,881/63 claimed by LSLL for ready-made garments manufactured in the EOUs on job-work basis at the rate applicable for sub-serial No. 62.01 of the Table annexed to Notifications No. 67/98-Cus. (N.T.), dtd. 1-9-98 as amended and 31/99-Cus. (N.T.), dtd. 20-5-99 as amended was pending sanction.
2. A Show Cause Notice dtd. 29-3-2000 was therefore issued to M/s. Leela Scottish Lace Ltd., Mumbai requiring them to show cause as to why : -
(i) the duty drawback of Rs. 26/47,739.60 should not be recovered in terms of Rule 16 of the Customs and Central Excise Duties Drawback Rules/1995 framed under Section 75 of the Customs Act, 1962 as per GOI Notification No. 37/95-Cus. (N.T.) dtd. 26-5-95, and
(ii) the duty drawback of Rs. 3/07/881.63 claimed by them in respect of readymade garments manufactured on job work basis should not be rejected in terms of GOI Notification No. 31/99-Cus. (N.T.), dtd. 20-5-99 as amended issued under Section 75 of the Customs Act, 1962.
3. The notice was issued, as (a) the Central Board of Excise and Customs had vide Circular No. 74/99-Cus., dtd. 5-11-99/ which was communicated vide Bangalore Customs Commissionerate Public Notice No. 124/99, dtd. 17-11-99, clarified that drawback benefits shall be inadmissible either to EOU or to the DTA Unit for exports of goods manufactured on job work basis for DTA by EOU units and also (b) as it appeared from Paras 2(a) and (c) of general notes to Government of India Notifications No. 67/98-Cus (N.T), dtd. 1-9-1998 for All Industry Rate for Drawback, as amended and Notfn. No. 31/99-Cus. (N.T), dtd. 20-5-1999 as amended read as follows : -
"2. The rates of drawback specified in the said Table shall not be applicable to export of any of the commodities/products if such commodity/product is -
(a) Manufactured partly or wholly in a warehouse under Section 65 of the Customs Act, 1962 (52 of 1962),
(c) Manufactured and/or exported by a unit licensed as hundred percent export oriented undertaking in terms of the relevant provisions of the Import and Export Policy in
(c) In view of the above provisions, the duty drawback of Rs. 26,47,739/60 received by LSLL and Rs. 3,07,881/63 claimed by LSLL appeared to be inadmissible in terms of paras 2(a) and (c) to general notes of Government of India Notifications No. 67/98-Cus. (N.T.), dtd. 1-9-98 as amended and 31/99-Cus. (N.T.), dtd. 20-5-1999 as amended inasmuch as the duty drawback had been sanctioned and received in respect of goods manufactured by the bonded warehouses of M/s. Tropicate Textiles Ltd. and M/s. Sara International Inc. in terms of Section 65 of the Customs Act, 1962 and also both M/s. Tropicate Textiles Ltd. and M/s. Sara International Inc., are units licensed as hundred percent export oriented undertakings in terms of the relevant provisions of the Import and Export Policy in force.
4. The Commissioner heard the appellants herein and found : -
(a) The goods manufactured by EOU out of the material supplied by M/s. LSLL, their principal have been removed directly from their premises vide Trans-shipment Shipping Bills to Bangalore Air Cargo Custom shed, from where they were exported. The shipments have taken place during the period from January, 1999 to November, 1999.
(b) It is seen from records that M/s. LSLL filed Shipping Bills for claim of duty Drawback on the basis of their invoice, the readymade garments were manufactured on job work basis by the EOUs and drawback was claimed at the 'All Industry Rate' applicable to sub-entry 6201 of the Table to Notification No. 67/98-Cus. (N.T.), dtd. 1-9-98. The grounds of denial of drawback are contained in Para 2 of the General Notes to this notification.
(c) It is the contention of the investigating unit that the drawback has been cleared by LSLL in respect of goods manufactured by 100% EOUs which are bonded-warehouses within the meaning of Section 65, therefore mischief of aforesaid Para 2(a) & 2(c) are attracted.
(d) In Notfn. 67/98-Cus. (N.T.), different rates of drawback have been specified for different situations provided the contention specified therein are satisfied and for woven readymade garments the rates are : -
1. Full rate under Sub Serial No. 62.01 - 18%
2. Where DEEC facility is availed - under Sub Serial No. 62.02 - 12%
3. EPZ Units - under Sub Serial No. 62.03 - 5%
4. EOU Units - under Sub Serial No. 62.04 - 5%
and thereafter he has found "the notification do not permit availment of drawback for 'goods' manufactured and exported by 100% EOU" and the notes that sub-serial No. 62.04 provides a drawback rate of 52% FOB for export made from 100% EOU subject to certain conditions.
(e) The Notification very clearly states that for "goods" manufactured partly or wholly in a warehouse under Section 65 of the Customs Act, 1962 the rates of Drawback specified in the table is not applicable. In the instant case, all the raw materials required for the manufacture of readymade garments have received 100% EOUs from the DTA unit and the same have been utilized in the manufacture of garments which were exported from the EOUs. The 100% EOUs are carrying out manufacturing activity in the warehouse under Section 65 of the Customs Act, 1962. The "goods" manufactured on job work basis for M/s. Leela Scottish Lace Ltd., which have been subsequently exported under claim of duty Drawback have been manufactured wholly in the warehouse under Section 65 of the Customs Act, 1962. Hence, in terms of General Notes 2(a) of the Notification No. 67/98-Cus. '(N.T.), dated 1-9-98, such "goods" manufactured on job work basis are not entitled to the Drawback claimed as per the rates prescribed in the Table under the said Notifications.
(f) Duty Drawback at the rate specified in the table annexed to Notfn. No. 67/98-Cus. (N.T.), dated 1-9-98 is not applicable to "goods" manufactured by the 100% EOU and exported by a DTA unit inasmuch as Clause 2(c) of the notification clearly spells out that "goods" manufactured and/or exported by 100% EOUs are not entitled to drawback under the notification. It has been contended that Para 2(c) of the Notification was not applicable for the reasons that manufacture and/or exported mentioned in the aforesaid Clause means only two conditions viz. (1) manufactured and/or exported by 100% EOU (2) Exported under 100% EOU. This is not correct as the phrase manufactured and/or exported is to be actually read as : -
(i) manufactured and exported
The legal position is that, if the "goods" are either (i) manufactured and exported or (ii) manufactured or (iii) exported by the 100% EOU they are not entitled to drawback under the Notification.
(g) Thereafter the Commissioner records his opinion on the fixation of drawback rate by referring to the nature of exemption to capital goods of an EOU and also after referring to Customs and Central Excise Duty Drawback Rules, 1995 and the definition of 'drawback' and specifically rule 3 thereof he finds that DTA unit is not eligible for the Drawback claimed/received.
(h) The Commissioner finds that Board's Circular dtd. 14-9-98 and 5-11-99 did not mention eligibility of Drawback, yet Drawback for such exports was not raised prospectively by Circular dtd. 5-11-99 and the exports and eligibility have to be examined by reference to Notification No. 67/98, under which the claims were made/received and the drawback was entitled under the same as clarified by Board under Circular dtd. 5-11-99 and the drawbacks sanctioned/received have to be received under Rule 16.
(i) As regards the Minutes of meeting of EOU held by Commissioner, Bangalore, he concluded that the said clarification did not clarify the eligibility of or All Industry rates of Drawback; it only clarified that benefits, if any, on exports shall accrue to the owner of the goods.
(j) Since 'Brand Rate' application was not made/fixed, he ordered the recovery of amounts under Rule 16 of the Custom and Central Excise rules, 1995 read with Section 75(A)(2) of the Custom Act, 1962.
(k) On the plea of limitation, he found : -
"......I have considered the above plea. The question is whether the DTA Unit is eligible for duty Drawback at the All Industry rates or not. It has been clearly established that M/s. Leela Scottish Lace Ltd., are not eligible for the All Industry rates of Drawback in terms of Notfn. No. 67/98-Cus. (N.T.) dtd. 1-9-98. Section 75A(2) of Customs Act read with Rule 16 of the Customs and Central Excise Duties Drawback Rules, 1995 stipulates that there should be a demand for recovering the erroneous payment of Drawback. Accordingly, demand-cum-Show Cause Notice was issued to M/s. Leela Scottish Lace Ltd., DTA Unit for recovery of the erroneous payment of Drawback under Section 75A(2) of the Customs Act, 1962 read with Rule 16 of the Customs & Central Excise Duties Drawback Rules, 1995. Therefore, the question of limitation as contended by the Advocate does not merit any consideration."
(1) As regards the pending claims for shipment made during July and December 1999, he found : -
"......As already discussed above, the DTA Unit is eligible for brand rate of Drawback fixed by the Drawback Directorate and Drawback would be admissible at the rates claimed by M/s. Leela Scottish Lace Ltd., in such cases. As I have already pointed out, no such application has been made by M/s. Leela Scottish Lace Ltd., and no special brand rate has been fixed. Hence, the claims filed by them, are liable to be rejected in terms of the exclusion clause contained in Para 2(a) & (c) of the General Notes to Notification No. 67/98-Cus. (N.T.) and 31/99-Cus. (N.T.)".
5. After hearing both sides and considering the matter, it is found : -
(a) 'Garments' falling under Chapter 61 or 62 of the tariff, are a commodity sui generis and for production thereof, the Raw Material Supplier is considered to be a manufacturer under the Central Excise Act, 1944 vide Rule 4(3) of the Central Excise Rules, 2002, which reads as under ; -
"Notwithstanding anything contained in Sub-rule (1), every per son who gets the goods, falling under Chapter 61 or 62 of the first Schedule to the Tariff Act, produced or manufactured on his ac count in job work, shall pay the duty leviable on such goods, at such time and in such manner as may be specified under these rules. Whether the payment of such duty be secured by bond or otherwise, as if such goods have been manufactured by such per son."
Law enacted as above, considering the special milieu and condition in the Readymade Garment Market and Industry, accept the Raw Material Supplier as a manufacturer. Then, for the purpose of this case, there is no reason, not to consider LSLL, in this case, as the manufacturer of the Readymade Garments exported, as is being understood in the Readymade Garment Market and Industry milieu since manufacturer for purposes of Drawback is not specifically defined.
(b) Since the goods removed from the EOU were admittedly found to be removed on transshipment shipping bills filed and sealed letters were being sent by the EOU proper officer, to the proper officers of Customs at Bangalore Air Cargo. At the Bangalore Air Cargo, Customs authorities have allowed LSLL to file shipping bills, for claim of duty drawback, on which the drawbacks have been granted by the proper officer; therefore the plea of limitation, taken by the appellant has force and the findings arrived by the Id. Commissioner on the aspect of limitation cannot be sustained. This also determines that LSLL are the owners and exporters of the Readymade Garments in question.
(c) The minute of a meeting of EOUs held by Commissioner, Bangalore is as follows : -
"C.No. VIII/ 48/89/ 98-CUS. TECH
Minutes of the 100% EOU Meeting held on 18-12-98 at 3.30 PM with the representatives of 100% EOUs under the chairmanship of Dr, J. Sridharan, Commissioner of Customs, Bangalore.
(III) Points Raised BY M/s. K&M (Exports) Unit II
Point 1) As per Para 4 of the above circular, Govt. has permitted that EOUs to utilize their idle capacity by undertaking job work of DTA unit subject to the condition that the goods so manufactured should be sent directly to the port and not to be sent back to DTA.
(i) Modalities to be followed in implementing the above.
(ii) Confirmation that DTA shall be the exporter who will file regular DBK shipping bill and that the DBK should be eligible for full all industry rate of drawback for such export.
Reply (I) In case of EOU undertaking job work and such goods being exported, the existing procedure for removal of goods for export from an EOU to gateway ports shall be followed in this case also.
(ii) The owner of the goods shall file the shipping bill and not the EOU unit (job worker). The benefits, if any, of the export shall accrue to the owner of the goods."
As per these minute, the owner of the Readymade Garments in this case i.e., M/s. LSLL has been allowed to file a drawback shipping bill for export of the said goods and therefore the benefits of such an export on the drawback shipping bills permitted to be filed by the proper officer should accrue to the owners exporters i.e. M/s. LSLL, as assured and maintained at this meeting. The Commissioner's finding on this plea of the appellants are therefore rejected, since the minute do not show any purported meaning, as held by the Commissioner. The minutes when read plainly prescribe, that the procedure should be followed and shipping bill should be filed by the owner who will be eligible for the benefit. M/s. LSLL in this case have filed the same and the drawback amounts on the same as claimed, have been correctly sanctioned to them. We do not uphold the Commissioner's finding to upset that grant made as per this promise made to EOUs and others by the very Commissioner, Bangalore.
(d) Considering General Note No. 2(a) of Notfn. No. 67/98-Cus. (N.T.), dtd. 1-9-98 which reads as under: -
"manufactured partly or wholly in a warehouse under Section 65 of the Customs Act, 1962 (52 of 1962)."
and the Commissioner's findings thereon, it is found that Section 65 of the Customs Act, provides for manufacture of the goods in a warehouse licenced under Section 58 of the Customs Act, 1962. This Section reads as under: -
"65. Manufactured and other operations in relation to goods in a warehouse. - (1) With the sanction of the Assistant Collector of Customs and subject to such conditions and on payment of such fees, as may be prescribed, the owner of any warehoused goods may carry on any manufacturing process or other operations in the warehouse in relation to such goods." (Underlining supplied) '
The term 'warehoused goods' used in this Section 65 is defined under Section 2(44) of the Customs Act, as 'Warehoused goods' means goods deposited in a warehouse. Goods deposited in a warehouse, are only such goods, which would be permitted under Section 60 of the Customs Act or removed from other warehouse under Section 67. The garments in this case are admittedly fabricated from raw materials supplied by LSLL, and not from any imported goods, which are deposited under provisions of Section 60 of the Customs Act or removed and received under Section 67 by the EOU. Therefore, the fabrication activity being carried out on Raw material, goods other than 'goods deposited' under Section 60 or received under Section 67, even if carried out in the warehouse premises, would not be covered by the provisions of Section 65 to construe as manufacture of goods in a warehouse. If we do not interpret in that manner, then it would invoke, the provisions of recovery of, duty on waste and rejects etc. even on goods, which are duty paid and/or brought from dutiable Domestic Tariff Areas. Such an interpretation would render the levy of duty, on waste/rejects even on domestic duty paid raw material, if required to be removed from these premises, to levy of a Customs duty. Such levy would be not permissible, as there can be no levy on goods, removed from a warehouse for home consumption, other than those which are deposited under Section 60 or received transferred under Section 67 of the Customs Act. The Control envisaged and duty liabilities by the provisions of Chapter IX of the Customs Act is only on imported non-duty paid goods and not on duty paid Domestic Tariff Area Goods, which may be brought into the bonded warehouse areas under specific relaxation granted by the Board's Circular dtd. 14-9-1998. In this view, manufacture of Readymade Garments on Raw Material supplied by LSLL is not covered by Section 65. Therefore, the findings arrived by the Commissioner, as regards the exclusion by this Clause 2(a) of Notfn. No. 67/98 cannot be sustained.
(e) Examining the exclusion by Notification No. 67/98-Cus. (N.T.)/ dated 1-9-98 by Clause 2(c), which reads as under: -
"c) Manufactured and/or exported by a unit licensed as hundred percent export oriented undertaking in terms of the relevant provisions of the Import and Export Policy in force........."
it is found, the interpretations and the findings arrived at by the Commissioner cannot be sustained. If these goods are considered as manufactured and/or export of an EOU, then that would count towards the export performances of the EOU and the Import Policy does not permit any such counting of such exports of an EOU. The Readymade Garments/ in this case, have been found to be understood as having been manufactured by M/s. LSLL and are owned and exported on a Drawback Shipping Bill allowed to be filed by the proper officer of Customs. They are not fabricated/manufactured in a warehouse under Section 65 as arrived at herein above, after considering the provisions of the said Section 65 of the Customs Act, 1962. In that view of the matter, the Readymade Garments in this case cannot be considered to be manufactured and/or exported by an EOU. Admittedly, after removal from the EOU on transhipment shipping bills, the proper officers have allowed M/s. LSLL to file the shipping bills as an exporter and drawback has been granted not on the transhipment shipping bills but on the substituted Drawback Shipping Bills permitted to be filed by M/s. LSLL. Therefore, these readymade garment exports are not found to be manufacture or an export by an EOU under the policy to be hit by the exclusion Clause 2(c) of Notification No. 67/98.
(f) When it is found that goods are not manufactured and/or exported by an EOU, but can be considered to be manufactured and are allowed to be exported by M/s. LSLL, then there is no reason to deny M/s. LSLL the drawbacks eligible to an exporter under heading No. 6201. There is no finding that the Raw Material used has not suffered duty. The findings of the Commissioner, for denying the claims of Drawback on various other grounds, as extracted herein above, on the nature of exemption to capital goods of an EOU etc. are his interpretations on issues which were not raised in the notice and cannot be a reason todeny the just claim.
(g) When claims are found to be eligible and have been paid, no errors in such payments is established than recovery under Rule 16 of the Drawback Rules as Erroneous payment Recovery of Drawback cannot be upheld.
(h) The rejection of the claims pending on the very same ground by the Commissioner, also are not upheld, in view of the findings arrived at in this case. The claims are required to be examined and processed and paid.
6. In view of the findings, the impugned order is set aside and the appeal allowed with consequential benefits, if any.