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Case Number

Appeal No. C/41611/2016

Attorney(S)

Shri G. Derrick Sam, Advocate
Shri A. Cletus, ADC (AR)

Judges

Madhu Mohan Damodhar, Member (Technical)

Acts

rule 12(1)(a) of the Customs, Central Excise and Service Tax Drawback Rules, 1995.5. Due
SECTION 149 CUSTOMS ACT 1962
provisions of Rule 12(1)(a) of Drawback Rules;

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The dispute concerns the rejection of the appellant's request to convert 189 free shipping bills into drawback shipping bills. The matter was before this Tribunal for the second time.

On the first occasion, a Single Member Bench issued Final Order No. 40575/2016 dated 1.4.2016 holding that the appellant, being a manufacturer-exporter, was entitled to avail drawback; that all export documents were available for verification; and that in the absence of a statutory time-bar it was open to authorities to examine the merits. The matter was remanded for de novo consideration.

In the de novo proceedings the Commissioner of Customs (adjudicating authority) rejected the conversion request. The impugned order (referred to paras 7–9 of that order) recorded reasons including: no declaration/claim for drawback made under the Drawback Rules, 1995; appellant failed to show a reason beyond their control for non-compliance with Rule 12(1)(a) of the Drawback Rules; ARE-1 documents lacked any declaration claiming drawback; exporter allegedly had no intention to apply for drawback at the time of export; filing of free shipping bills was said to be conscious and not inadvertent; and the conversion request was made more than one year after the Let Export Order (LEO).

Legal Issues Presented

Whether conversion of free shipping bills into drawback shipping bills is permissible in the circumstances of this case.
Whether the adjudicating authority should, alternatively, grant All Industry Rate (AIR) duty drawback on goods exported under free shipping bills without conversion (as contemplated by Circular No. 36/2010-Cus.).
What is the role of Section 149 of the Customs Act, 1962 and the Board's Circular No. 36/2010-Cus. in governing conversion or amendment of shipping bills after export.
Whether a time-bar applies to the appellant's request for conversion/AIR drawback (and whether the time-bar should be applied in this matter).

Arguments of the Parties

Appellant's Arguments

The appellant's counsel relied on several authorities (including CC Tuticorin v. Thiru Arooran Sugars Ltd., I.P. Rings Ltd. v. Commissioner of Customs (Air), Kiran Pondy Chems Ltd. v. CC Chennai, and Gennex Laboratories Ltd. v. CC Hyderabad) to submit that there is no bar to conversion of free shipping bills and that there is no statutory period of limitation for making such conversion requests.
It was submitted that the common ratio of those decisions is that (i) conversion of free shipping bills is not barred and (ii) there is no prescribed period of limitation within which conversion requests must be made.
The appellant also submitted that the consignments covered by the free shipping bills had been examined and sealed by the jurisdictional Central Excise officers (supporting the case for conversion/drawback entitlement).

Revenue's Arguments

The Revenue argued that norms for examination of free shipping bills are much less rigorous than for exports under export promotion schemes.
It was contended that conversion cannot be allowed except on the basis of documentary evidence as mandated by Section 149 of the Customs Act, 1962, and that in the present case the documentary evidence produced did not satisfy the competent authority.
The Revenue therefore maintained that the impugned order declining conversion was correct and required no interference.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Final Order No. 40575/2016 (Single Member Bench) dated 1.4.2016	Held that appellant, as manufacturer-exporter, was entitled to avail drawback; noted availability of export documents and absence of a time-bar provision; remanded the matter for de novo consideration.	The court recorded this earlier tribunal finding as part of the procedural history of the present appeal.
CC Tuticorin v. Thiru Arooran Sugars Ltd., 2014 (307) ELT 248 (Mad.)	Relied upon by appellant for the proposition that conversion of free shipping bills is not barred and that no limitation period applies.	The court observed that this decision (and several others relied upon by the appellant) related to the earlier Board Circular No. 4/2004 and thus could not be made applicable in the same way after issuance of Circular No. 36/2010.
I.P. Rings Ltd. v. Commissioner Of Customs (Air), Chennai, 2006 (202) ELT 61 (Tri.-Chennai)	Relied upon by appellant for the proposition that conversion is permissible and not time-barred.	The court treated this decision as one of a series tied to the earlier Circular No. 4/2004 and therefore of limited application after Circular No. 36/2010; it directed consideration in light of the later circular.
Kiran Pondy Chems Ltd. v. CC Chennai, 2006 (203) ELT 588 (Tri.-Chennai)	Relied upon by appellant for the common ratio that conversion is allowed and there is no fixed limitation period.	As with the other Tri-Chennai decisions, the court held that these related to Circular No. 4/2004 and must be viewed in the context of Circular No. 36/2010 issued later.
Gennex Laboratories Ltd. v. CC Hyderabad, 2012 (285) ELT 363 (Tri.-Bang.)	Relied upon by appellant (appellant's list of authorities included this decision).	The court noted this decision as an exception among those cited (it said "except for Gennex Laboratories Ltd. case") and did not treat all cited decisions as uniformly governed by the earlier circular; the opinion does not elaborate further application specifics for Gennex.

Court's Reasoning and Analysis

The court first examined the authorities relied upon by the appellant and observed that, except for the Gennex decision, the decisions cited related to the Board's Circular No. 4/2004. The court held those decisions could not be directly applied to the present case because the Board subsequently issued Circular No. 36/2010-Cus. dated 23.9.2010 which (a) re-examined the issue in light of a series of tribunal judgments and (b) issued clarified guidelines for conversion of shipping bills.

The court reproduced and relied upon key clarifications from Circular No. 36/2010, summarizing its principal points as follows (only using what the opinion itself records):

Section 149 of the Customs Act, 1962 governs amendment of shipping bills after export and permits amendment only on the basis of documentary evidence that existed at the time of export; the proper officer for this purpose is the Commissioner of Customs.
The Commissioner may allow conversion of shipping bills from schemes involving more rigorous examination to those involving less rigorous examination, or between schemes involving similar levels of examination, provided the conditions of Section 149 are satisfied and documentary evidence demonstrates eligibility at the time of export.
The Circular set out illustrative conditions for conversion, including (a) request within three months from LEO, (b) proof of use of inputs, (c) examination report/endorsements proving export and coverage under relevant schedules, (d) fulfillment of scheme conditions, and (e) absence of benefit availed or fraud/investigation.
Crucially, the Circular states that free shipping bills are subject to 'nil' examination norms and that conversion of free shipping bills into export promotion (EP) scheme shipping bills should not be allowed. However, the Commissioner may allow All Industry Rate (AIR) duty drawback on goods exported under free shipping bills without converting the shipping bill, under the proviso to Rule 12(1)(a) of the Drawback Rules, 1995.
The Circular superseded Circular No. 4/2004 and applied only to shipping bills filed on or after its date of issuance.

The court emphasized that Section 149 confers a discretionary power on the Commissioner which must be exercised objectively. The Board's Circular was characterized both as facilitative and as providing guidelines to inform that objective discretion about the type, nature and procedure of conversion.

Applying these legal principles to the record, the court found that the adjudicating authority's impugned order had considered only the question of conversion of the free shipping bills into drawback shipping bills, but had not considered the alternative relief expressly contemplated by the Circular — namely, the grant of All Industry Rate duty drawback on goods exported under free shipping bills without conversion.

Consequently, the court directed that the matter be remanded so the adjudicating authority can re-examine the claim in light of paragraph 4 of Circular No. 36/2010 and the other relevant guidelines contained in that circular. The court also clarified that the time-bar provision would not apply in this matter and that the adjudicating authority must afford a reasonable opportunity to the appellant, decide the matter within three months, and pass a reasoned order.

Holding and Implications

Core Ruling: The appeal is REMANDED to the Adjudicating Authority with directions to re-examine the matter in accordance with Circular No. 36/2010-Cus. (particularly paragraph 4) and other relevant guidelines in that circular.

Direct consequences and instructions given by the court (as recorded in the opinion):

The adjudicating authority must reconsider whether All Industry Rate (AIR) duty drawback can be allowed on the goods exported under the free shipping bills without converting those shipping bills into drawback shipping bills.
The adjudicating authority must apply the guidelines of Circular No. 36/2010 and the statutory requirement of Section 149 (i.e., conversion/amendment only on the basis of documentary evidence existing at the time of export and by the proper officer in his objective discretion).
The court clarified that the time-bar provision will not apply to this matter.
The adjudicating authority is to give a reasonable opportunity to the appellant, decide the matter within three months, and pass a reasoned order.

Broader precedent impact: The opinion does not purport to lay down a new legal principle; it remands the matter for reconsideration in light of the Board's Circular No. 36/2010 and statutory provisions. The opinion explicitly treats earlier case law (except one decision) as being related to an earlier Board circular and therefore to be viewed in the context of the later Circular No. 36/2010.

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Global Calcium Private Ltd. v. Commissioner Of Customs, Chennai-Iv .

Issue in dispute relates to rejection of request of the appellant for conversion of 189 free shipping bills to drawback shipping bills. The matter is coming up before this forum for the second time. In the first round, vide Final Order No. 40575/2016 dt. 1.4.2016, Single Member Bench of this Tribunal had held that appellant being manufacturer-exporter is entitled to avail drawback and the entire export documents are available for verification and in the absence of time-bar provision in law, it is open to the authorities to examine the merit of the case since there is no material on record to suggest that the issue is not considerable. On these findings, the matter had been remanded for de novo consideration. In de novo proceedings, the Commissioner of Customs vide the impugned order has rejected the request for conversion of the free shipping bills for the reasons recorded in paras-7 to 9 of his order. In particular, lower authority has found that no declaration/claim for drawback was made by the appellant under Drawback Rules, 1995; that appellants have not given any reason beyond their control due to which they failed to comply with provisions of Rule 12(1)(a) of Drawback Rules; that AREs-1 do not contain any declaration concerning claim of drawback. Lower authority has also rejected the claim on the ground that exporter had no intention of applying for drawback at the time of export of goods; that filing of free shipping bills was done consciously and it was not a matter of any inadvertent error and due to any reason beyond their control of the appellant. Lower authority has also noted the fact that request of conversion was made more than one year after the issue of Let Export Order. Hence this appeal.

2. Today, Ld. Advocate Shri G. Derrick Sam appearing for appellant, placed reliance on the decision of Hon'ble High Court of Madras in CC Tuticorin v. Thiru Arooran Sugars Ltd., 2014 (307) ELT 248 (Mad.) and inter alia the decision of I.P Rings Ltd. v. Commissioner Of Customs (Air), Chennai, 2006 (202) ELT 61 (Tri.-Chennai); Kiran Pondy Chems Ltd. v. CC Chennai, 2006 (203) ELT 588 (Tri.-Chennai); and that of Bangalore Bench decision in Gennex Laboratories Ltd. v. CC Hyderabad, 2012 (285) ELT 363 (Tri._Bang.). Ld. Advocate submitted that the common ratio in all these decisions is that firstly there is no bar for conversion of free shipping bills and secondly there is no provision for period of limitation within which such requests for conversion have to be made. He submitted that all the consignments covered by the said free shipping bills had been examined and sealed by the jurisdictional Central Excise officers.

3. On the other hand, Ld. A.R, Shri A. Cletus, ADC on behalf of Revenue, contends that norms for examination of free shipping bills are much less rigorous than that of goods exported under export promotion schemes. He also argues that once the goods are exported under free shipping bills, their conversion cannot be allowed except on the basis of documentary evidence as mandated by section 149 of the Customs Act, 1962. He submits that in the instant case required documentary evidence produced has not met to the satisfaction of the competent authority. For these reasons, he reiterated that the impugned order is correct and does not require any interference.

4. Heard both sides and gone through the facts of the case. In the first place, it is noticed that the decisions of Hon'ble High Court and Tribunal decisions cited by learned advocate (except for Gennex Laboratories Ltd. case) relate to the Board's circular No. 4/2004-Cus. dt. 16.1.2004 As such, I hold that they cannot be made applicable to the facts of the present case since thereafter Board vide Circular No. 36/2010-Cus. dt. 23.9.2010, has taken note of series of judgements and accordingly guidelines had been issued for evaluating and decided upon the request for such conversion. For easy reference, the said circular is reproduced below:—

Shipping Bills Conversion of free shipping bills to Advance Authorisation/DEPB/Drawback shipping bills and from one export promotion scheme to another Clarifications

Circular No. 36/2010-Cus., dated 23-9-2010

F. No. 109/121/2009-DBK

Government of India

Ministry of Finance (Department of Revenue)

Central Board of Excise & Customs, New Delhi

Subject: Conversion of free shipping bills to export promotion scheme shipping bills and conversion of shipping bills from one scheme to another-Regarding.

I am directed to invite attention to the Board's circular No. 4/2004-Cus., dated 16-1-2004 which debars conversion of free shipping bills to Advance License/DFRC/DEPB shipping bills and allows conversion of shipping bills from one export promotion scheme to another only where the benefit of an export promotion scheme claimed by the exporter has been denied by the DGFT/MoC & I or Customs due to any dispute.

2. It has been represented to the Board that the norms for allowing conversion of shipping bills may be relaxed and the Commissioners should be allowed to consider requests for conversion of shipping bills from free to export promotion scheme and from one export promotion scheme to another on a case to case basis depending on the merits of the case. It has also come to notice of the Board that the Tribunals in a series of judgments have held that amendment to shipping bill after export of goods is governed by the proviso to section 149 of the Customs Act, 1962 and if the requirements of the said proviso are satisfied, conversion of shipping bill should be allowed. The conversion of the shipping bill from one scheme to another cannot be linked with denial of benefit of one scheme by DGFT/MoC & I or Customs due to some dispute as no such condition for amendment of shipping bill has been provided in section 149 of Customs Act, 1962.

3. The issue has been re-examined in light of the above. It is clarified that Commissioner of Customs may allow conversion of shipping bills from schemes involving more rigorous examination to schemes involving less rigorous examination (for example, from Advance Authorization/DFIA scheme to Drawback/DEPB scheme) or within the schemes involving same level of examination (for example from Drawback scheme to DEPB scheme or vice versa) irrespective of whether the benefit of an export promotion scheme claimed by the exporter was denied to him by DGFT/DOC or Customs due to any dispute or not. The conversion may be permitted in accordance with the provisions of section 149 of the Customs Act, 1962 on a case to case basis on merits provided the Commissioner of Customs is satisfied, on the basis of documentary evidence which was in existence at the time the goods were exported, that the goods were eligible for the export promotion scheme to which conversion has been requested. Conversion of shipping bills shall also be subject to conditions as may be specified by the DGFT/MOC. The conversion may be allowed subject to the following further conditions:

(a) The request for conversion is made by the exporter within three months from the date of the Let Export Order (LEO).

(b) On the basis of available export documents etc., the fact of use of inputs is satisfactorily proved in the resultant export product.

(c) The examination report and other endorsements made on the shipping bill/export documents prove the fact of export and the export product is clearly covered under relevant SION and or DEPB/Drawback Schedule as the case may be.

(d) On the basis of S/Bill/export documents, the exporter has fulfilled all conditions of the export promotion scheme to which he is seeking conversion.

(e) The exporter has not availed benefit of the export promotion scheme under which the good's were exported and no fraud/misdeclaration/manipulation has been noticed or investigation initiated against him in respect of such exports.

4. Free shipping bills (shipping bills not filed under any export promotion scheme) are subject to ‘nil’ examination norms. Conversion of free shipping bills into EP scheme shipping bills (advance authorization, DFIA, DEPB, reward schemes etc.) should not be allowed. However, the Commissioner may allow All Industry Rate of duty drawback on goods exported under free shipping bill, without conversion of such free shipping bill to Drawback Scheme shipping bill, in terms of the proviso to rule 12(1)(a) of the Customs, Central Excise and Service Tax Drawback Rules, 1995.

5. Due care may be taken while allowing conversion to ensure that the exporter does not take benefit of both the schemes i.e the scheme to which conversion is sought and the scheme from which conversion is sought. Whenever conversion of a shipping bill is allowed, the same should be informed to DGFT so that they may also ensure that the exporter does not take benefit of both the schemes.

6. This circular supersedes the Board circular No. 4/2004-Cus., dated 16-1-2004 and the earlier circulars issued in the past on this issue. This circular shall be applicable only to shipping bills filed on or after the date of issuance of this circular. Till such time as EDI system is modified to allow conversion of shipping bill in the EDI system, conversion may be allowed manually.

7. A suitable Public Notice for information of the Trade and Standing Order for guidance of the staff may be issued. Difficulties faced, if any in implementation of the directions may be brought to the notice of the Board.

Kindly acknowledge receipt of this Circular.

5. Section 149 of the Customs Act provides for amendment of inter alia shipping bills after export of the goods only on the basis of documentary evidence which was in existence at the time when the goods were exported. The proper officer for the purposes of Section 149 is the Commissioner of Customs. Section 149 also mandates that such amendment may be done by such proper officer in his discretion. Such discretion has to be an objective discretion and not subjective. Only towards this end, taking note of various judgements, the Board had issued the above reproduced circular dt. 23.9.2010 not only as a measure of facilitation for conversion of shipping bills but also to provide guidelines to the proper officer on the type, nature and procedure of conversion that may be allowed and the proceduralities required to be followed thereon. From perusal of the circular, it emerges that Board has empowered the Commissioner of Customs to allow conversion of shipping bill from schemes involving from rigorous examination to schemes involving less rigorous examination (for example, free advance authorization, DFIA reward schemes to drawback/DEPB scheme or schemes involving same level of examination). However, it has been clearly laid down in the circular that since free shipping bills are subjected to “NIL” examination norms, conversion of free shipping bill into export promotion scheme shipping bill should not be allowed. At the same time, it has been clarified that, in the light of para-4 of the circular, the Commissioner may allow All Industry Rate of duty drawback on goods exported under free shipping bills without conversion of such free shipping bill to Drawback Scheme shipping bill.

6. Viewed in this background, I find that in the impugned order, the lower authority has only considered the matter of conversion of free shipping bills to drawback shipping bills. However, the alternative allowance of All Industry Rate of duty of drawback on goods exported under free shipping bills without such conversion has not been considered by the lower authority. In the event, the matter is once again remanded to adjudicating authority to re-examine the matter with regard to para-4 of the Circular No. 36/2010-Cus. dt. 23.9.2010 and also other relevant guidelines given in the said circular. It is clarified that time bar provision will not apply in this matter. In this exercise, the adjudicating authority will give a reasonable opportunity to the appellant to put forth their case once again and decide the matter within three months and pass a reasonable order.

Appeal is remanded to the Adjudicating Authority with above directions.

Global Calcium Private Ltd. v. Commissioner Of Customs, Chennai-Iv .

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Revenue's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Global Calcium Private Ltd. v. Commissioner Of Customs, Chennai-Iv .

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