CESTAT Delhi Overturns Drawback Denial of Texcomash Export

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 04.11.2025

CESTAT Delhi Overturns Drawback Denial of Texcomash Export

This Article has been written by Shri Ravi Shekhar Jha, Advocate based in New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com or on his Mobile +91-9999005379. ​

In a landmark decision, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, has ruled in favor of M/s Texcomash Export, allowing their appeal against the Order-in-Original No. 6/88/2005 dated 13.07.2005. ​ The case revolved around the disallowance of a drawback amount of Rs. ​ 31,66,822/- and the confiscation of goods related to 9 shipments of ladies’ garments exported by the appellant. ​

Background of the Case

The dispute dates back to export shipments made by M/s Texcomash Export between September 1994 and October 1994. ​ The appellant exported 29 shipments of children’s garments and 9 shipments of ladies’ garments to Russia under the duty drawback scheme. ​ However, the customs authorities alleged that the goods were over-invoiced to claim inflated drawback amounts. ​ Following investigations, the value of the goods was reassessed, and the drawback amount was reduced. ​ The appellant challenged the decision, leading to multiple rounds of litigation. ​

The primary contention in the case was whether M/s Texcomash Export was entitled to claim drawback for the 9 shipments of ladies’ garments, which were delivered to Dubai instead of Russia. ​ The department argued that the goods did not reach Russia, violating the Reserve Bank of India (RBI) Circular No. 30/1993, which prohibited third-country exports financed by state credit funds. ​ Consequently, the drawback was disallowed, and the goods were ordered to be confiscated. ​

Key Arguments

Appellant’s Arguments:

1. The appellant contended that the show cause notice was issued by an unauthorized officer, violating the Drawback Rules. ​
2. They argued that the Drawback Rules, 1995, invoked by the department, were not applicable to exports made in 1994, as the rules were not retrospective. ​
3. The appellant highlighted that the goods had been exported to a place outside India, fulfilling the definition of “export” under the Drawback Rules. ​
4. They emphasized that the remittances for the exports were received in India, and the RBI had released the funds, indicating compliance with the relevant regulations. ​

Department’s Arguments:

1. The department claimed that the goods were delivered to Dubai instead of Russia, violating the RBI Circular and making the drawback inadmissible. ​
2. They argued that the remittances received by the appellant could not be treated as export proceeds for the Russian consignee. ​
3. The department maintained that the confiscation of goods and disallowance of the drawback were justified under the Customs Act and Drawback Rules. ​

CESTAT’s Decision

The key observations and findings of the Tribunal were:

1. Definition of Export: The Tribunal clarified that under the Drawback Rules, export is defined as taking goods out of India to a place outside India. ​ Since the goods were delivered to Dubai, the export was deemed complete, and the appellant was entitled to claim the drawback. ​
2. Non-Retrospective Application of Rules: The Tribunal held that the Drawback Rules, 1995, could not be applied retrospectively to exports made in 1994. ​ Therefore, the department’s reliance on these rules was deemed legally impermissible.
3. Invalid Confiscation: The Tribunal noted that the goods were released provisionally in 1995-96, making their confiscation in the impugned order untenable. ​
4. RBI Circular: The Tribunal observed that the RBI had released the remittances in Indian rupees from state credit funds, which contradicted the department’s claim of a violation of the RBI Circular. ​
5. Lack of Evidence: The department failed to provide sufficient evidence to support its findings that the appellant was not entitled to the drawback. ​

Conclusion

In light of the above findings, the Tribunal set aside the impugned order and allowed the appeal, granting M/s Texcomash Export the drawback amount of Rs. 31,66,822/- for the 9 shipments of ladies’ garments. This decision is a significant victory for exporters, reaffirming their rights under the Drawback Rules and emphasizing the importance of adhering to legal provisions and procedures.

Connected Matter

Gujarat High Court Clarifies Recovery Period for Erroneously Paid Customs Drawback

Source: CESTAT Delhi

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