Delhi High Court: Customs Can Examine Whether Third-Party Remittances In Bank Accounts Are Genuine Sale Proceeds For Drawback
The Bench set aside CESTAT order in Rs. 67 crore drawback case; noted that overvaluation alleged to claim export benefits is not valuation for assessment under Section 130, and civil decree on cancelled BRCs does not bind Customs.
Justice Anil Kshetarpal, Justice Shail Jain, Delhi High Court
The Delhi High Court has held that Customs authorities, while examining an exporter’s entitlement to drawback under Section 75 of the Customs Act, 1962, cannot be precluded from examining whether amounts credited to the exporter’s bank account are genuine sale proceeds of the exported goods. The Court observed that whether a receipt constitutes sale proceeds has to be determined from the surrounding circumstances.
The Division Bench set aside the CESTAT’s order in favour of the exporters. It held that the appeals were maintainable under Section 130 because the allegation of overvaluation did not amount to determination of value for assessment. It also held that a civil decree declaring the cancellation of Bank Realisation Certificates null and void does not bind Customs, which was not a party to the suit.
The Bench comprised Justice Anil Kshetarpal and Justice Shail Jain observed, “…the Customs authorities could not have been precluded from examining the transactions merely because the amounts had physically entered the exporters' bank accounts. Receipt of money in a bank account is a fact; whether that receipt constitutes sale proceeds in respect of the exported goods is a matter which has to be determined from the surrounding circumstances and the evidence available on record”.
“The CESTAT was, therefore, not justified in proceeding on the basis that the Customs authorities could not examine the nature of the remittances unless the Reserve Bank of India or another authority exercising jurisdiction under the foreign exchange regulatory framework had first declared the remittances to be invalid. The Customs authorities were required to examine the remittances only to the extent necessary for deciding the statutory entitlement under the Customs Act”, the Bench noted further.
Anurag Ojha, SSC appeared for the appellant and Senior Advocate Tarun Gulati appeared for the respondent.
The case concerned five exporters who shipped garments to the UAE in 13,008 consignments between 2008-09 and March 2014, claiming drawback and Focus Product/Focus Market Scheme benefits. The DRI alleged overvaluation and receipt of over USD 76 million from third parties in Hong Kong, the British Virgin Islands and the UAE, not the declared buyers. Punjab National Bank cancelled the BRCs for 1,650 shipping bills.
By an order dated May 30, 2023, the Commissioner of Customs (Export) confirmed drawback demands of Rs. 67.46 crore and recovery of duty credit scrips worth Rs. 39.19 crore for those 1,650 bills. On November 25, 2024, the CESTAT allowed the exporters’ appeals, holding that no re-determination of value had been made under Section 14, that third-party payments were not prohibited, and that the BRC cancellation had been declared void by a civil court on March 13, 2020.
The Court held that Customs examines the nexus between remittances and exports for a statutory entitlement under the Customs Act, not the RBI’s jurisdiction under FEMA. It ruled that Section 14 governs assessable value, while examining deliberate misdeclaration to obtain a benefit is a different enquiry. It held that cross-examination is not automatic under Section 138B(2), and that the CESTAT had not examined the documentary material or applied Section 28AAA correctly. It also held that a declaratory decree operates in personam.
“In the considered view of this Court, the answer has to be in the affirmative. The reference in Section 75 to ‘sale proceeds in respect of such goods’ necessarily requires the Customs authorities, when the entitlement to drawback is put in issue, to examine whether the amounts relied upon as export realisations have the requisite nexus with the exports in question. The Customs authorities are not thereby exercising the regulatory jurisdiction of the Reserve Bank of India under FEMA. They are examining the statutory entitlement to retain a benefit granted under the Customs Act”, the Bench said.
“The CESTAT, however, appears to have treated the matter as though the Revenue was seeking to adjudicate upon the validity of the foreign exchange transaction as such. The Revenue's case, properly understood, was different. The Revenue relied upon the identity of the remitters, the identity of the declared overseas buyers, the statements and enquiries concerning those buyers, the movement of funds through various accounts and the surrounding circumstances to prove that the amounts shown as realisations could not be accepted as genuine sale proceeds of the exported goods”, the Bench noted further.
The appeals were allowed and the CESTAT order set aside, and the Order-in-Original was restored, except that the penalty on Nitin Gupta of Oak Shipping Services remains set aside for want of notice and hearing under Section 124.
Cause Title: Commissioner of Customs (Export) v. M/s G.D. Manglam Exim Pvt. Ltd. (now M/s Welldone Exim Pvt. Ltd.) (Neutral Citation: 2026:DHC:9812-DB)
Appearances:
Appellant: Anurag Ojha, SSC, with Dipak Raj, Aryaman Singh Chouhan and Aditya Chaudhary, Advocates.
Respondent: Senior Advocate Tarun Gulati, Dr. G.K. Sarkar, Malabika Sarkar, Prashant Srivastav, Shruti Kulkarni and Karan Khaitan, Advocates.