High Court says no to coercive recovery on customs duty

High Court says no to coercive recovery on customs duty

Government cannot use indirect means and block export incentive

The Rajasthan High Court has held that the government cannot seek coercive recovery of remaining customs duty in an indirect manner by blocking export incentives.

The division bench of Justice Uma Shanker Vyas and Justice Akil Kureshi held that the most common instance of action leading to the refusal of licenses occurred when firms defaulted in export obligation fulfillment under various export promotion schemes. The licensing authorities in such cases would place the firm in a Denied Entity List (DEL) after serving a demand notice for fulfilling the obligation within a reasonable time.

The court further said that in cases relating to fraud and incorrect declaration, the licensing authority would also examine if there were any connivance of the department officials. The intention and effect of placing an entity in DEL were to deprive the facility of granting advance authorization license to it.

"We direct the respondents to permit the petitioner to make an application within the time envisaged in the scheme for the incentive under the Merchandise Exports from India Scheme (MEIS). It should consider the same on merits in terms of the provisions made under the scheme," the court ruled.

The case pertained to the petitioner, M K Exim (India) Limited, a company registered under the Companies Act. During 2002-2003, the petitioner made certain exports under the advance authorization license. The Directorate of Revenue Intelligence (DRI) issued a show cause notice to the petitioner in 2006 alleging that the petitioner had failed to fulfill its export obligations.

The allegations were that the raw material imported by the petitioner was without payment of customs duty and which was to be utilized for the purpose of manufacturing goods for export. But these were clandestinely diverted in the local market and the export goods were manufactured with the aid of locally produced raw material (copper rods).

The petitioner resisted the show cause notice.

Thereafter, the Joint Director-General of Foreign Trade passed an order in 2014, directing the petitioner to pay customs duty with interest to the extent of utilization of the license and 1 percent of transfer of residence (TR). The petitioner was asked for further payments, including a penalty of one-time cost, insurance and freight (CIF) value on a particular consignment.

The petitioner challenged the order passed by the director general.

The petitioner reasoned that the court was advancing the last date under MEIS for receiving the export incentives under the said scheme. In 2018, the department issued a trade notice of making online applications for MEIS under the system-driven approval mechanism. The notice specifically provided that the facility would not be available to the applicant firms placed in the denied, suspended or cancelled Importer-Exporter Code (IEC) list.