While restoring customs duty drawback, the Delhi High Court has held that receipt of money through banking channels or third-party remittances does not by itself establish genuine export proceeds. The Court held that Customs authorities are entitled to examine whether payments claimed as export proceeds genuinely relate to the exported goods when determining eligibility for drawback and export incentive benefits.
The High Court held that mere receipt of funds through authorised banking channels, including from third-party entities, does not automatically establish that the remittances represent actual sale consideration for exported goods. The Court observed that large disparities between declared export values and corresponding foreign import values may be relevant in examining allegations of overvaluation and fraudulent availing of export incentives.
Further, the Court said that a civil court declaration setting aside cancellation of Bank Realisation Certificates (BRCs) cannot curtail Customs’ independent statutory powers where the Customs Department was not a party to those proceedings. The Court found that the Tribunal failed to adequately deal with overseas enquiries, foreign customs records, banking documents, SWIFT messages and other evidence relied upon by Customs while setting aside the adjudication order.
Briefly, the case arose from exports of readymade garments made by several exporters, who filed 13,008 shipping bills and claimed duty drawback and export incentive benefits under the Focus Product Scheme (FPS) and Focus Market Scheme (FMS). The DRI investigated the transactions and alleged that the exporters had substantially overvalued the exported garments to claim higher drawback and export incentives.
According to the investigation, export proceeds were allegedly received through a network of third-party entities located in Hong Kong, the British Virgin Islands and UAE, instead of the declared overseas buyers. The Revenue claimed that the remittances were part of a larger arrangement involving fund routing and round-tripping.
The investigation further relied on overseas customs documents and enquiries with foreign buyers and consignees. According to the Revenue, several overseas buyers denied purchasing the goods, while import documentation from foreign jurisdictions reflected values significantly lower than those declared before Indian Customs, in some cases showing differences ranging from two to twenty times.
Briefly, Punjab National Bank, which had issued Bank Realisation Certificates (BRCs) certifying receipt of export proceeds, later cancelled 1,650 BRCs after DRI enquiries and internal audit findings. Based primarily on these cancelled BRCs, the Commissioner confirmed recovery of drawback, recovery of duty foregone under Section 28AAA, confiscation and penalties for the corresponding consignments, while dropping demands relating to the remaining consignments whose BRCs remained valid.
The CESTAT subsequently allowed the exporter’s appeals and dismissed the Revenue’s appeals, holding that Customs could not disregard export proceeds merely because payments came from third parties, that no valuation exercise under Section 14 of the Customs Act had been undertaken, and that the civil court had already declared the BRC cancellations invalid.
The Division Bench comprising Justice Anil Kshetarpal and Justice Shail Jain observed that the appeals were maintainable before it because the dispute was not about determination of assessable value under Section 14 of the Customs Act. Rather, the controversy concerned alleged fraudulent availment of drawback and export incentives through overvaluation and questionable remittances. Therefore, the statutory bar relating to valuation disputes did not apply.
The Court disagreed with the CESTAT’s view that Customs authorities could not examine third-party remittances. It held that while foreign exchange regulation falls within the RBI’s domain, Customs authorities are fully entitled to examine whether amounts claimed as export proceeds genuinely represent sale proceeds of the exported goods when determining eligibility to retain drawback benefits under Section 75.
The Court observed that mere receipt of money through banking channels does not automatically establish that the amounts constitute genuine export sale proceeds. Customs was entitled to scrutinise the identity of remitters, links between remitters and buyers, overseas enquiries, banking records and surrounding circumstances to determine whether the statutory conditions for export benefits were actually fulfilled.
The High Court also found that the CESTAT failed to properly examine the extensive documentary material relied upon by the adjudicating authority, including overseas customs records, foreign buyer enquiries, SWIFT messages, banking records, statements of concerned persons, evidence relating to third-party remitters and alleged diversion of consignments. The Tribunal could not simply set aside the adjudication without critically addressing these findings.
On the valuation issue, the Court held that absence of a formal redetermination under Section 14 did not make the evidence of overvaluation irrelevant. Material showing stark differences between Indian export values and foreign import values could still be considered for examining whether exporters deliberately misdeclared values to obtain higher export incentives.
The Court further held that the civil court decree declaring cancellation of BRCs to be void was binding only on the parties to that suit. Since the Customs Department was not a party to those civil proceedings, the decree could not automatically extinguish Customs’ independent statutory powers or determine entitlement to drawback benefits under the Customs Act.
Regarding Section 28AAA, the Court observed that the Tribunal was wrong in holding that proceedings against exporters could not continue merely because duty credit scrip users had not been separately proceeded against. The real question was whether the scrips had been obtained through collusion, wilful misstatement or suppression of facts.
