CESTAT: No Drawback If Refund Exceeds Goods’ Market Value

CESTAT: No Drawback If Refund Exceeds Goods’ Market Value

Introduction

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), comprising Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member), has held that drawback cannot be granted where the refund amount exceeds the market value of the goods. This ruling arose in the matter of M/s Modak Dyeing & Printing Co. Pvt. Ltd. v. Commissioner of Customs.

Factual Background

The appellant, M/s Modak Dyeing & Printing Co. Pvt. Ltd., filed two shipping bills for the export of girls’ frocks woven from manmade fibre. The declared FOB value was ₹4,10,52,321/-, amounting to approximately ₹274.13 per piece. Based on intelligence reports, the Department alleged overvaluation to secure excess ineligible benefits under the Drawback Scheme and Merchandise Exports from India Scheme (MEIS).

Procedural History

A show cause notice was issued, proposing rejection of the declared FOB value under Rule 8 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007. The Joint Commissioner confirmed the demand, and the Commissioner (Appeals) upheld the order. The assessee then appealed before the CESTAT.

Contentions

• Assessee’s Arguments: The appellant challenged the redetermined value and denied gross overvaluation. It maintained that the declared transaction value was accurate and that no basis existed for its rejection.
• Department’s Arguments: The Department asserted that the FOB value was highly inflated to obtain ineligible export incentives, and that the goods were liable for confiscation under Section 113(i) of the Customs Act, 1962.

Tribunal’s Observations & Reasoning

The Bench noted that Section 76(1)(b) of the Customs Act expressly prohibits granting drawback where the amount of drawback exceeds the market value of the goods.

It further observed that the goods were not liable for confiscation under Section 113(i) because the show cause notice and impugned orders lacked any finding that the declared value was not the transaction value.

The Tribunal clarified that while the FOB value forms the basis for drawback calculation, it need not match the market value. Drawback is permissible only if the refund is less than the goods’ market value; otherwise, it is barred by statute.

Outcome

The appeal was allowed, with the Tribunal reiterating that drawback entitlement is conditional on the refund amount being less than the goods’ market value.