Holding

The Drawback Rules provide only for a refund of the average duty on a class of materials, not the actual customs duty paid by an individual importer, so the appellants are not entitled to a full customs‑duty drawback on DMT.

Summary

The appellants, manufacturers of polyester fibre yarn, imported di‑methyl‑terephthalate (DMT) and paid customs duty, using it to produce blended yarn that was exported. They sought a full drawback of the customs duty under Section 75 of the Customs Act, 1962 and Section 37 of the Central Excises & Salt Act, 1944, relying on the Customs and Central Excise Duties Drawback Rules, 1971. The rules, however, provide only for a refund of the average duty paid on a class of materials, not the actual duty paid by an individual importer, and DMT was not listed in Schedule II for drawback. The Central Government rejected the appellants' application, the Delhi High Court dismissed the writ petition, and the Supreme Court upheld that rejection, holding that the appellants are not entitled to a full customs‑duty drawback. The Court noted that the rate of drawback fixed (Rs 43.15 kg⁻¹) already considered the customs duty component and that Rule 6 was inapplicable. The appeals were dismissed.

Issues considered

The appellants' entitlement to a full drawback of customs duty paid on imported DMT under Section 75 of the Customs Act, 1962.
Whether Rule 3 of the 1971 Drawback Rules limits drawback to an average amount rather than the actual duty paid by an individual manufacturer.
The applicability of Rule 6 and Rule 7 of the Drawback Rules to the appellants' case.
The relevance of DMT's availability domestically and its exclusion from Schedule II in determining drawback entitlement.

Legislation cited

Central Excises & Salt Act, 1944s. 37
Customs Act, 1962s. 25, s. 75
Customs and Central Excise Duties Drawback Rules, 1971s. Rule 3, s. Rule 4, s. Rule 6, s. Rule 7

Subjects

drawbackcustoms dutyexcise dutySection 75Section 37Rule 3Rule 6Rule 7polyester fibreDMTimportexportequitable relief

Judgment

CHEMICALS AND FIBRES OF INDIA LTD. ETC.
A
V.
~
UNION OF INDIA \

FEBRUARY 11, 1991

B [S. RANGANATHAN, N.M. KASLIWAL AND
S.C. AGRAWAL, JJ.]

Central Excises & Salt Act, 1944 & Customs Act, 1962-Customs and ~
Central E¥Ccise Duties Drawback Rules, 1971-Section 37 and Sec. 75-
Rules 3, 4, 6 and 7-Di-methyl-terephthalate-Import of-Whether asseS-
C see entitled to full 'drawback' of customs duty paid. {'

The appellants are manufacturers of polyester fibre yarn. They ----
obtained a contract from the Imperial Chemical Industries, Singapore
for the supply of the said yarn and the said concern had agreed to
supply to the appellants free of cost the di-methyl-terephthalate (DMT) Y -
D required for the manufacture of polyester staple fibre yarn. The DMT
was required to be converted into polyester fibre, blended with viscose
indigenously and shipped to a customer of the ICI in Sri Lanka. The
appellant assessees obtained customs clearance permits for import of
392 tons of DMT and also of 178 tons of viscose stable fibre. The
appellants also obtained permission to convert the imported DMT into
E polyester fibre under customs bond. The appellants imported the DMT ?---..,_,
and paid the customs duty in respect thereof Section 75 of the Customs
Act, 1962 empowers the Central Government to allow the drawback of
the duties of customs chargeable under the Act on any imported mate-
rials of a class or description used in the manufacture of such goods in
accordance with and subject to the rules under sub-section (2). There is an
F identical provision in section 37 of the Central Excises & Salt Act, 1944
enabling grant of draw back of the excise duty paid in relation to such .-
manufacture. ~ -.-- <

The Central Government framed the Customs and Central Excise
Duties Drawback Rules 1971 enablin_g drawback being availed of in
G relation to customs as well as in relation to duties of central excise.
Schedule II to the notification listed the items the export of which enti-
tles an assessee to avail of the drawback facility. DMT as such was not
included in the notification in resp_ect of which drawback could have
been availed of by the assessees. The assessee therefore made an appli-
)-- -~
cation to the Ministry of Finance on 23.3.1977 requesting that since it
H had paid customs duty on DMT, it was entitled to its drawback, more

' 288
r
CHEMICALS & FIBRES v. U.0.1. 289

particularly when its request for the manufacture of the polyester fibre A
7 under customs bond had seen declined by the customs authorities. The
· application filed by the appellants was rejected by the Central Govern-
ment on 12.3.1978, though on a representation made by the Members of
the Association of manufacturer:; of Polyester staple fabric a notifica-
tion had been issued on 2.8. 76 under Section 25 of the Customs Act B
exempting DMT from Customs duty. The appellant thereupon filed
writ petition in the Delhi High Court which was dismissed by the High
-~ , . Court. Hence these appeals.

Dismissing the appeals, but recommending to the Central
Government to consider the case of the appellants on equitable grounds
whether the relief could be granted to it, this Court, C

HELD: Though Section 75 of the Customs Act, 1962 and Section
37 of the Central Excises & Salt Act 1944 empower the Government to
- ~ provide for the repayment of the customs and excise duties paid by
individual manufacturers also, the rules as framed (rule 3 in particular) D
provide only for a refund of the 'average amount of duty paid on mate-
rials, of any particular class or description of goods used for the
manufacture of export goods of that class or description by manufactu-
rers generally, except to the extent prescribed under rule 7. [300A-8']

The rules do not envisage a refund of an amount arithmetical!- E
'l\ • equal to the customs duty or central excise duty which may have been
actually paid by an individual importer-cum-manufacturer. If that had
been the statutory intendment, it would have been simple to provide
that in all cases where imported raw materials are fully used in the
manufacturers of goods which are exported, the assessee would be
entitled to a draw back of the customs or excise duties paid by him for
the import or on the manufacture. [300C] F

There is no controversy that, in this case, the goods exported fall
under item 25. It was sought to be contended that the goods fall under
sub-item 2501, but this is clearly untenable. Sub-item 2501 represents a
residuary category which will not be attracted to the goods which
clearly fall under sub-item 2502. The notification prescribes different G
amounts of drawback under this item depending on the composition of
the yarn and the nature of its contents. It specifies an amount of
Rs.43.15 per kg. as the relief by way of drawback available against the
goods with which we are concerned which fall under clause (b) of item
2502. [300H-301B] .
H
290 SUPREME COURT REPORTS (1991] 1 S.C.R.

The High Court was right in concluding that the rate of drawback J-
A
in respect of the goods in question was fixed after taking into considera- · ·,
tion the aspect of the customs duty payable in respect of DMT and that a
conscious decision was taken that no relief in this respect should be
granted as DMT was available in the country itself. It cannot therefore,
be said that this is a case where the fixation is contrary to the terms of
B rule 3, and that the assessee's application for determination of a rate in
his case should be taken as an application under rule 6. [303B]

Rule 6 is also inapplicable for the reason that an application under
rule 6 should be made before the export of the manufacturer's goods
which does not seem to be the case here. f303C] .~ -
c CIVIL APPELLATE JURISDICTION: Civil Appeal No. 692
& 693 of 1981.

From the Judgment and Order dated 19.5.1980 of the Delhi High
Court in W.P. Nos. 883 of 1978 and 1079 of 1979.
D
R.K. Habbu, R.B. Hathikhanwala and B.R. Aggarwala for the
Appellants.

Soli J. Sorabjee, Attorney General (NP), Kapil Sibal, Addi-
tional Solicitor General, Ms. Indu Malhotra, P. Parmeshwaran and /--_,
E C. V. Subba Rao for the Respondent.

The Judgment of the Court was delivered by

RANGANATHAN J. These two appeals involve a common ques- -
tion and can be disposed of by a common judgment. The question is
F whether the appellant ~ompanies (hereinafter referred to as the 'asses- r
sees') are entitled to full "draw back" of the customs duty which they-..,..-
had paid on the import of di-methyl-terephthalate (shortly referred to
as 'DMT') for manufacture of polyester staple fibre yarn. The asses-
sees converted the DMT into polyester staple fibre in their factory at
Thane and then sent it to Bhilwara in Rajasthan where the Rajasthan
G Spinning and Weaving Mills blended it with indigenous viscose staple
fibre to spin out certain varieties of blended yarn. It is common ground
that the product manufactured by this process was exported by the
assessees to Imperial Chemical Industries Pvt. Ltd. Singapore, who
r-
had supplied the DMT free of charge to the assessees. The answer to
the question revolves around the interpretation of Section 75 of the
H Customs Act, 1962 read with the Customs and Central Excise Duty
Draw Back Rules, 1971.
CHEMICALS & FIBRES v. U.0.1. [RANGANA1HAN, J.] 291

Section 75 of the Customs· Act, 1962 empowers the Central
A
~·Government, by notification in the official gazette, to direct, in respect
of goods of any class or description manufactured in India and ex-
ported to any place outside India, that draw back should be allowed of
the duties· of customs chargeable under the Act on any imported mate-
rials of a class or description used in the manufacture of such goods, in
accordance with and subject to the rules framed under sub-section (2) B
of the said section. Sub-section 2, which confers a rule making power,
enacts that such rules may, among other things, provide:

"(a) for the payment of draw back equal to the amount of
duty actually paid on the imported materials used in the
manufacture of the goods or as is specified in the rules as
the average amount of duty paid on the materials of that
c
class or description used in the manufacture of export
goods of that class or description either by manufacturers
generally or by any particular manufacturer;"

There Is a similar provision in section 37 of the Central Excises & ,Salt D
Act, 1944 enabling grant of draw back of the excise duty paid in rela-
tion to such manufacture.

The Central Government framed the Customs and Central
~~-.I... Excise Duties Drawback Rules, 1971 (hereinafter referred to as 'the
' rules'), in exercise of the powers conferred on it under these two E
statutes. These. are composite rules under the above two provisions

- and enable drawback being availed of in relation to customs duty as
well as in relation to duties of central excise. Some relevant provisions
of these rules may be quoted here. Rule 3, in so far as it is relevant for
our present purposes, reads as follows:
F
Rule 3: Drawback: (1) Subject to the provisions of_:_

(a) the Customs Act, 1962 (52 of 1962) and the rulesmade
thereunder.

(b) the Central Excises and Salt Act, 1944 ( 1 of 1944) and G
the rules made thereunder, and

(c) these rules,

(a) drawback may be allowed on the export of goods
specified in Schedule II at such amount, or at such rates, as H
292 SUPREME COURT REPORTS [1991] 1 S.C.R.

may be determined by the Central Government. I
A --k-
xxx xxx xxx '

(2) In determining the amount or rate of drawback under
this rule, the Central Government shall have regard to:
B
(a) the average quantity or value of each class or descrip-
tion of the materials from which a particular class of goods -~-
is ordinarily produced or manufactured in India.

c
' (b) the average quantity or value of the imported materials
or excisable materials used for production or manufacture
)>.,___

in India of a particular class of goods.

(c) the average amount of duties paid on imported mate-
rials or excisable materials used in the manufacture of ~ ~
semis, components, and intermediate products which are
D used in the manufacture of goods.

(d) the average amount of duties paid on materials wasted
in the process of manufacture and catalytic agents:

Provided that if any sue~ waste or catalytic agent is used in
E any process of manufacture or is sold, the average amount
of duties on the waste or catalytic agent so used or sold
shall also be deducted.

(e) the average amount of duties paid on imported mate-
rials or excisable rru~terials used for containing or packing
F the exported goods.
. 'rv
(f) the average amount of duties of excise paid on the~
goods specified in Schedule I: and

(g) any other information which the Central Government
G may consider relevant or useful for the purpose.

Rule 4. Revision of rates: The Central Government may
~
revise the amounts or rates determined under rule 3. /
xxx xxx xxx

H 6. Cases where amount or rate of drawback has not been
determined:
CHEMICALS & FIBRES v. U.0.1. [RANGANATHAN, J.] 293

(l)(a) Where no amount or rate of drawback has been
determined in respect of any goods; any manufacturer or A
exporter of such goods may, before exporting such goods,
apply in writing to the Central Government for the deter-
mination of the amount or rate of drawback therefor stat-
ing all relevant facts including the proportion in which the
materials or components are used in the production or B
manufacture of goods and the duties paid on such materials
or components.

(b) On receipt of an application under clause (a) the Cent-
ral Government shall after making or causing to be made
such inquiry as it deems fit, determine the amount or rate C
of drawback in respect of such goods.

7. Cases where amount or rate of drawback determined is
low-(1) Where in respect of any such goods, the
manufacturer or exporter finds that the amount or rate of
drawback determined under rule 3 or, as the case may be, D
revised under rule 4 for that class of goods is less than three
fourths of the duties paid on the materials or components
used in the production or manufacture of the said goods, he
may make an application in writing to the Central Govern-
ment for fixation of the appropriate amount or rate of
drawback stating all relevant facts including the proportion E
in which the materials or components are used in the pro-
duction or manufacture of the goods and the duties paid on
such materials or.components.

(2) On receipt of the application referred to sub-rule (1)
the Central Government may, after making or causing to F
be made such inquiry as' it deems fit, allow payment of
drawback to such exporter at such amount or at such rate as
may be determined to be appropriate if the amount or rate
of drawback determined under rule 3 or, as the case may
be, revised under rule 4, is in fact less than three fourtti of
such amount or rate determined under this sub-rule. G
Schedule II. to the notification by which the rules were promul-
gated listed the items the export of which entitles an assessee to avail
of the drawback facility. Item 25 of the list reads thus:

"Synthetic and regenerated fibre, textile yarn, thread, H
twines, cords and ropes."
294 SUPREME COURT REPORTS l1991] 1 S.C.R.

A
It is common ground that th_e goods exported by the assessees fall -k
under item 25 above. There is also no controversy that the DMT
imported by the assessees was used for the manufacture of the above
commodity and that, on the import of the DMT, the assessees have
paid customs duty.

B The rates of drawback available in respect of various goodswere
notified by the Central Government in due course. Against serial no "'- _
25, the notification set out the rates of drawback as follows: ,..,---

Serial Sub SI. Description of Rate of
No. No. goods Drawback
c
25. SYNTHETIC AND REGENE-
_RATED FIBRES AND!ffiXTILE
YARN/THREAD, TWINES,
CORDS AND ROPES
D
2501 S_ynthetic and regenerated fibre Brand rate to be
and textile yarn, thread, twines, fixed on an
cords and ropes not elsewhere application
specified. from the indi-
vidual manufac-
E turer exporter.

2502 {a) Yarn ofabove 21 BWS Counts
or above 14 n.f. counts, spun
wholly out of either viscose rayon
fibre or acetate fibre or polyster
F fibre, polyamide fibre or acrylic
fibre or wool, or from a combina-
tion of two and not more than two
of the above mentioned fibres, or
a combination of any one of the
above mentioned fibres with either
G cotton or silk (but excluding yarn
spun out of fibres obtained from
fibre wastes, yarn waste or fabric
wastes, by gernetting or by any
other process:
'f

H (a) Cellulosic fibre content: Rs.1.80 (Rupees one and paise
eighty only) per kg.
CHEMICALS & FIBRES v. U.0.1. [RANGANATHAN, J.l 295

·7- (b) Polyester fibre content: Rs.43.15 (Rupees forty three and.
A
paise fifteen only) per kg. ·

( c) Acrylic fibre content: Rs.37. 75 (Rupees thirty seven and
paise seventy five only) per kg.

( d) Polyamide fibre content: Rs.16.40 (Rupees Sixteen and paise B
forty only) per kg.

( e) Wool contents:

(i) in the worsted yarn of Rs.18.95 (Rupees Eighteen and paise
Weaving quality made wool top. ninety five only) per kg.
c
(ii) in the worsted yarn ofweav- Rs.13.55 (Rupees Thirteen and paise
ing quality not made from wool fifty five only) per kg.
top.
(iii) in the worsted Hosiery Rs.16.65 (Rupees Sixteen and
D
yarn and worsted hand knitting paise sixty five only) per kg.
yarn made from wool top.

(iv) in the worsted hosiery yarn Rs. il.25 (Rupees Eleven and Paise
--.-Jo. and worsted hand knitting yarn twenty five only) per kg.
not made from wool top.
E
( v) Bye content if the yarn is Rs.0.85 (Eighty five paise only)
dyed per kg.
xxx xxx xxx

-~· It will be seen from the above table that the assessees are entitled F
,.... -to a drawback of Rs.43.15 per kg. of the polyester fibre content of the
yarn exported by them. We are informed that this is the rate of central
excise duty payable in respect of the manufacture of yarn having
polyester fibre content. For reasons to be stated presently, the asses-
sees had to pay no central excise duty for the manufacture and hence
there was admittedly no question of the assessee getting a drawback to G
this extent. The point raised by the assessee is that, having paid
,.. - - \ customs duty on the DMT, it was entitled to a drawback in respect of
the customs duty paid by it on the DMT. Since this was not included in
the notificatio~ of the CeQtral Government, the assessees maqe an
application to. the Ministry of Finance on ~3_}.1977 re~esting that
drawback of the entire custOJilS duty may be sanctioned. This req_uest, H
296 SUPREME COURT REPORTS (1991] 1 S.C.R.

however, was rejected by the Central Government by a communica-
A tion dated 12.3.1978. This communication was in the following terms:

"Under Rule 3 of the Customs and Central Excise Duties
Drawback Rules 1971, all industry rates of drawback on
polyester viscose blended yarn have been determined and
B announced under serial no. 2502 of the Drawback Sche-
dule. The said rates have been determined at the material
time, after taking into consideration:

(a) duty incidence of raw materials used in the manufac-
ture of viscose fibre, plus the Central Excise duty on vis-
cose fibre and
c
(b) the Central Excise duty on polyester fibre in respect
of polyester yarn. However; no raw material duty for man- ~
ufacture of polyester yarn was taken into account, as the
same (DMT) is available indigenously and is exempted
D from Central Excise Duty. For the rates determined effec-
tive from 18.8.1977 however the duty incidence on DMT
has also been taken into consideration on the basis of
weighted average of imported and indige~ous material."

The assessees, dissatisfied with this decision of the Central Govern-
E ment, preferred a writ petition in the Delhi High Court, which was
dismissed by the High Court on 19.5.80. Hence the present appeals.

At this stage, it may be necessary to outline some facts which .--
may be relevant for appreciating the background in which the asses-
sees' counsel urged strongly the equitable, if not also legal, claims of
F the appellant for the drawback of the customs duty. Counsel claims that
the assessees were almost the first group of entrepreneurs in India to
manufacture polyester fibre yarn. They had been fortunate enough to
obtain a contract from the Imperial Chemical Industries, Singapore.
By a letter dated 2.4. 75 this concern agreed to supply free of cost the
DMT required for the manufacture of blended yarn consisting of 67
G per cent polyester and 33 per ce.qt viscose fibre. The DMT was to be
converted in polyester fibre, blended with viscose indigenously and
shipped to a customer of the ICI in Sri Lanka. Thereupon, on 2.6.75,
the assessees obtained customs clearance permits for import of 392
tons of DMT and also of 178 tons of viscose staple fibre. Eventually,
however, the viscose staple fibre was 9btained indigenously and the --,
H import permit, to this extent, was not utilised by the assessee. At the
CHEMICALS & FIBRES v. U.0.1. [RANGANATIIAN, J.] 297

time of obtaining this permit, the assessees also obtained permission to
A
convert the imported DMT into polyester fibre under customs bond.
The condition attached to the Customs Clearance permit was in the
following terms: ·

''The firm will convert the imported DMT into polyestei
fibre under Customs bond. The firm will then move the B ,
polyester fibre so manufactured and the imported viscose
staple fibre under bond to the bonded warehouse of
Rajasthan Spinning and Weaving Mills, Bhilwara. Messrs.
Rajasthan Spinning and Weaving Mills will then manufac-
ture under bond polyester viscose yam on behalf of the
firm. The polyester viscose fibre yam will then be exported
by the firm to the overseas buyers who have supplied the c
DMT and viscose staple fibre on CCP basis or their
nominees ....... "

If these conditions had been fulfilled the assessees would have had no
problems. The polyester fibre would have been manufactured under D
customs bond and this would have obviated payment of customs duty
by the assessees. So also, the production of the blended yam at the
Rajasthan Spinning and Weaving Mills would have been under Central
excise supervision and no excise duty would have been payable on the
.J. manufacture. Unfortunately, however, the customs authorities were
' not in a position to permit the conversion of the DMTinto polyester E
fibre under customs bond for reasons which are not at present relevant
and which are not being challenged in these proceedings. The asses-
sees's request for the manufacture of polyester fibre undei: customs
bond was declined by the customs authorities on 2.4.1976. Perhaps
anticipating this difficulty, the Association of Polyester Staple Fibre
Manufacturers at Bombay made an application to the Central Govern-· F
-ment on 26.3.1976 praying for exemption from customs duty on DMT
required for the manufacture of polyester staple fibre. This letter
points out:

"Members of this Association manufacture polyester staple
fibre. One of our members has received an advance licence G
for the import of DMT, a photostat copy· of which we
attach herewith. This DMT is to be used for manufacture in
'· polyester fibre and the polyester fibre then converted into
yarn to be supplied against export orders. Our members
wish to explore possibility of larger export business in this
manner. Indigenous supplies of both DMT and glycol are H
298 SUPREME COURT REPORTS [1991] 1 S.C.R.

insufficient to meet the domestic market requirements and l_
A export business can only be done by import of the two ~
materials. Fulfilling export orders by using advance
licences as the one issued to our member poses certain
problems because the licence stipulated manufacture under
Customs Bond. You will appreciate the difficulty in
B manufacturing under bond when the fibre for export con-
stitutes only a portion of the total manufacture of the
factory. If DMT and glycol could be included in the'~
schedule to the customs Notification GSR 183, the pro- (
cedural difficulties in manufacturing under Bond will not
apply. Exports of yam made from raw materials obtained
against advance licences could earn considerable foreign ~
c J exchange because of the value added during processing."

One of the assessees also made a similar request and, eventually, a
notification was issued on 2nd August, 1976 under s. 25 of the Customs' y
Act exempting DMT from customs duty. The Government of India
D also wrote to one of the present appellants on 9.9.76 drawing attention
to the said notification and stating that with the issue of this notifica-
tion. The assessees' problem would appear to have been solved. This,
however, was not correct. The notification exempted future imports of
DMT from customs dury butJhe assessees1-having imported the DMT
earlier, had to clear the same after paying customs dut¥ thereon.~
E Hence their request for a drawback of the customs duty already paid
by them, the refusal of which has led to the present litigation.

On behalf of the appellants, it is contended that the Customs Act
contains provisions enabling the Government either to exempt goods
under section 25 from the levy of Customs duty at the time of import or
F failing this, to permit a drawback of customs duty paid in the event of
the conditions set out in section 75 being fulfilled. In the present cas
an exemption under section 25 of the Customs Act was in fact notified
but unfortunately this happened only in August, 1976. By this time,
the assessees had already imported the DMT. This they were obliged
to do because of a time-bound programme for export of the man-
G ufactured fibre to Sri Lanka. Counsel states that, from the very outset,
the assessees had proceeded on the footing that they would be obtain-
ing exemption from customs and excise duty because, apart from get- \..._
ting some conversion charges from the ICI, their own margin of profit /
on the transaction was not substantial. That is why even at the time of
obtaining the customs clearance permit they had sought for permission
H to convert DMT into polyester under customs bond. If that had been
CHEMICALS & FIBRES v. U.0.1. [RANGANATHAN, J.] 299

done, there would have been no necessity to pay customs duty at all.
Unfortunately, because the department lacked facilities to supervise A
··'Y-·· such an operation, the attempt of the assessees was only partially
successful in that they were able to get only the production of the
blended fibre done under Central Excise supervision. The initial stage
of conversion from DMT to polyester fibre could not be done under
customs bond. It is pointed out that the Government of India had B
ex.empted DMT from customs duty only on the basis of the representa-
tions made by the assessees and it is urged that the refusal to grant
drawback of customs duty to assessees is wholly unjustified.

The object of S. 75 of the Customs Act, read with S. 27 of the
Central Excise Act, is obviously to provide that in cases where certain
goods are imported for complete utilisation in the manufacture of c
goods which are exported, the importer should be able to obtain relief
.., in respect of customs and excise duties. In the present case there is no
....__,. controversy that the D.M.T. imported by the assessee was utilised for
the manufacture of polyester staple fibre and that the final product was
fully exported to Sri Lanka. The notification made under the rules. D
framed for this purpose, however, provides only for a drawback in
respect of the excise duty involved in the manufacture of polyester
staple fibre but not the customs duty _on the raw material actually
imported. Sri Habbu, learned counsel, contends that this notification,
:,._...1..~ in fact, is contrary to the provision contained in rule 3 which obliges
' the Government, in determining the amount or rate of drawback, to E
have regard, among other things, to the amount of duties paid on
imported· or excisable material used in the manufacture -of the
exported goods. He submits that, in so far as the rates prescribed by
the Central Government do not take into account the element of
import duty on DMT, the fixation is not in accordance with the rule.
According to him, therefore, this case falls under rule 6 which enables F
an assessee to apply to the Central Government to determine a
drawback where none has been determined. The· Central Govern-
ment, he submits, was in error in rejecting the assessees' application as
one falling under rule 7 and, therefore not maintainable both in law
and equity.
G
Having heard the learned counsel for the assessees at some
'___,._,~ length, we are of opinion that the High Court was right in rejecting the
' assessee's contentions. We think that the assessees' arguments are
based on a basic misapprehension that, under the Acts and rules, a
manufacturer is automatically entitled to a drawback of the entire
customs and excise duties paid by him if the terms and conditions of H
300 SUPREME COURT REPORTS (1991] 1 S.C,R.

S. 75 are fulfilled. Though S. 75 of the Customs Act and S. 37 of the
A Central Excises & Salt Act empower the Government to provide for .~-..
the repayment of the customs and excise duties paid by individual "'
manufacturers also, the rules as framed (rule 3 in particular) provides
only for a refund of the "average amount of duty paid on materials" of
any particular class or description of goods used for the manufacture of
B export goods of that class or description by manufacturers generally,
except to the extent prescribed under rule 7 (to be noticed presently).
The rules do not envisage a refund of an amount arithmetically equa' .,,.. _
to the customs duty or central excise duty which may have been actu · \]\
ally paid by an individual importer-cum-manufacturer. If that hac, ""-
been the statutory. intendment, it would have been simple to provide
that in all cases where imported raw materials are fully used in the
c manufacture of goods which are exported, the assessee would be
entitled to a drawback of the customs or excise duties paid by him fo1
the import or on the manufacture. On the other hand, S. 75(2)
requires the amount of drawback to be determined on a consideration '"'y
of all the circumstances prevalent in a particular trade and the fact
D situation relevant in respect of each of various classes of goods
imported and manufactured. The need for providing an elaborate pro-
cess of determination as envisaged in rule 3 is this. There may be
different manufacturers of a particular manufactured item. Some of
r
~
them may be using indigenous material and some may be importin.::, ,
some of the raw material. Similarly, in the process of manufactur'." ~
E also, there may be difference between manufacturer and manufa,
turer. That is why the drawback rules provide for a determination o·
the drawback after taking into account the "average" amount i
respect of each of the various items specified in rule 3 in relation t
each type of goods listed in Schedule II. The notification issued ah
determines the composite drawback available in respect of bot
F customs and ·excise duties to importers-cum-manufacturers in respc
of various categories of goods. In other words, the amount of dra\ -<
"':it·

back is not intended to be the amount of the duties that may have be
paid by individual manufacturers; it is to be determined by consideril •.,.
the overall position prevalent in the country in respect of each of tht
categories of trade in the goods specified in Schedule II. We think
G that, if this basic principle is understood, the decision of the Govern- ;
ment would become intelligible and rational.
'·

There is no controversy that, in this case, the goods exported fa••
under item 25. Learned counsel sought to contend that the goods her.
fall under sub-item 2501 but this is clearly untenah!:· Sub-item 250
H represents a residuary category which will not be attracted to tt.
CHEMICALS & FIBRES v. U.0.1. [RANGANATHAN, J.] 301 1

goods here which clearly fall under' sub-item 2502. The notification A
prescribes different amounts of drawback under this item depending
on the composition of the yarn and the nature of its contents. It
specifies an amount of Rs.43.15 per Kg. as the relief by way of
drawback available against the goods with which we are concerned
which fall under clause (b) of item 2502. This much indeed, was con-
ceded before the High Court. B

~ Once we understand the principles on which and the scheme
,• according to which the rates of drawback are to be and are determined
• as explained earlier, the plea of the appellants, that the amount of
drawback determined is nothing more than the excise duty payable on
manufacture of blended fibre with ployester fibre, content and that the
notification has erred in overlooking the customs duty paid on c
~

~
_ imported DMT, is wholly untenable. We say this for two reasons.
First, the rates prescribed constitute a composite rate of drawback
fixed having regard to the liabilities under the Customs Act as well as
the Central Excises & Salt Act. It would not be correct, in principle, to
bifurcate the amount so fixed into its two constituents and to say, D
merely because the amount fixed is equal to one 0f the ciuties, that the
other has not been taken into account. In theory, the drawback
determined could have taken into account both sets of duties in part
only. It cannot be said to be merely the customs duty drawback or
~ central excise duty drawback. Though it does appear that the various
rates of drawback prescribed under item 2502 are equal to the rate::; of E
excise duty payable on the manufacture of the various items referred
to therein, the nature of exemption granted is one of relief under both
enactments. It is immaterial whether this quantum of relief benefits
the assessee in respect of one or other or both of the levies which he
has to discharge. The attempt to identify and correlate the rebate
granted to the central excise duty paid does not therefore appear to be F
·, , correct in principle.

But, this ground apart, we think there is force in the point made
by the learned counsel for the Union of India and accepted by the High
Court that at th..: time when these drawback rates were fixed, the
Government of India took into account both the import duty as well as G
the excise duties which would be payable on the manufacture of the
goods the _export of which was intended to be encouraged. After
.,. . , examining the condition in the trade, it was found that D.M.T. was
,_ easily available in India at that time and that, therefore, it would not
be necessary to grant any relief in respect of drawback of customs duty
on the impo1 .ed material because that would only result in assessees H
302 SUPREME COURT REPORTS [1991] 1 S.C.R.

attempting unnecessarily to import a raw material which was available
A in the country itself. In fact, this is the aspect on which the Delhi High ~
Court has laid considerable emphasis. Learned counsel for the appel-
lants contends that this is factually incorrect and that this is clearly
shown by the very fact that the Government of India itself, in August,
1976, decided to grant exemption in respect of customs duty for the
B import of D.M.T. He submits that ifD.M.T. had been easily available
indigenously at that time, the question of granting exemption under S.
25 would not have appealed to the Government at all. He, therefore, ~....,
submits that, in fixing the rate of drawback the Central Government
had proceeded on the footing that no import duty would be payable on
the DMT and that it will be sufficient to grant relief in respect of
Central excise duty alone. We find that; on this aspect, the position is
c not so simple as submitted by the learned counsel for the appellants.
We have already extracted reply of the Government of India to tbe
assessees' representation which clearly mentions that DMT is available .4
indigenously and that, therefore, no duty in manufacture of polyester
yarn was taken into account. This is a statement of fact and there is no
D material placed before us to contradict the same except for the cor-
respondence referred to earlier. If one looks carefully at the corres-
pondence, one will find that it does not support the assessees' case.
For one thing the memorandum submitted by the Association of
March 1976 itself proceeds on the footing that DMT is available locally
but not sufficient to meet the domestic market requirements. This,
E clearly, is a reference to something which happened after the present
appellants had imported their goods and started the manufacture.
Indeed, it is their claim that they were fore-runners in this field. Fol-
lowing up on the assessees' attempt to obtain imports of DMT and :
exporting the goods manufactured, other polyester staple fibre
manufacturers also proposed to explore the possibilities of such
F imports and exports and what the letter says would only appear to be
that the indigenous supplies of DMT and Glycol may not be enough to
meet the domestic market requirements if the business is so expanded ..: ; ·
By the time the notification fixing the rates was issued, import duty on 1
DMT had been removed and, therefore, there was no purpose in j·i
granting a drawback of customs duty. In these circumstances, the
G customs duty was rightly not taken into account in fixing the rate of
drawback. The letter of the Government dated 9.9.76 is only an '
answer to the assessees' prayer that its problem may be solved by ,
granting an exemption for DMT from customs duty and refers only to·. ~j
the position after the notification of exemption. It is not a reply to the

H
assessees' representation in respect of the past which was filed only
much later in 1977. The correspondenc~ in the case is, therefore, of no ~
J
~
CHEMICALS & FIBRES v. U.O.I. [RANGANATHAN, J.] 303

help to the assessees. It may also be pointed out that the assessees
A
appear to have imported DMT not because it was not locally available
but only because it was able to get it free of cost from the ICI which
was a benefit which other manufacturers, if any, could not have
enjoyed. We are, therefore, of opinion that High Court was right in
concluding that the rate of drawback in respect of the goods in ques-
tion was fixed after taking into consideration the aspect of customs B
duty payable in respect of DMT and that a conscious decision was
taken that no relief in this respect should be granted as DMT was
available in the country itself. It cannot, therefore, be said that this is a
case where the fixation is contrary to the terms of rule 3 and that the
assessees' application for determination of a rate in his case should be
taken as an application under rule 6. Rule 6 is also inapplicable for the
reason that an application under rule 6 should be made before the c
export of the manufactured goods which does not seem to be the case
here~ The assessees' reliance on rule 6, therefore, fails.

It is true that the fixation of rates of drawback on the average
basis indicated in rule 3 could work hardship in individual cas~s. Provi- D
sion for this contingency is made in rule 7. The assessees' application
was rightly treated ~s one made under this rule and they could, if at all
seek relief only if their case fell within its terms. This rule, unfortu-
nately does not provide for relief in every case where an individual
.. manufacturer has to pay customs and excise duty to a larger extent
.,. than that determined for his class of goods. Relief is restricted only to E
cases when the margin of difference is substantial and to the extent
specified in rule 7. The High Court has discussed this point at length
and demonstrated, by giving necessary figures, how the assessees' case
does not fulfill the terms of the rule and this conclusion is not, in fact,
~hallenged by the learned counsel for the appellants. The Government
was, therefore, right in rejecting the appellants' request made under F
section 7 of the Drawback Rules.

r For the reasons above mentioned, we agree with the High Court
that the order of the Central Government rejecting the assessees'
application was well founded and cannot be interfered with. Learned
counsel for the appellants brings to our notice a manual published by
the Directorate of Publications. Ministry of Finance, Department of
G

Revenue explaining the scope of the rules as well as two notifications
issued by the Government on 9.6.1978 and 1.2.1982 respectively and
submits that the present case falls within the terms of these notifica-
tions. We are constrained to point out that these are notifications
issued subsequent to the period of the controversy before us: also this H
304 SUPREME COURT REPORTS [1991] 1 S.C.R.

A is material which was not placed before the authorities or the High
Court. We, therefore, firid ourselves unable to permit the assessee to
rely upon them at this late stage. However, having regard to the
circumstances and the subsequent policy in the above rules, we think it
is a fit case in which the Central Government could consider whether,
on equitable grounds, the assessee can be given relief in respect of the
B customs duty on DMT paid by it. In this context, it is worthwhile
noting that the assessee saved foreign exchange for the country by
importing DMT free of cost. The entire manufactured product has also
been exported and earned foreign exchange. The appellants also appa-
rently gave impetus to other manufacturers for the export of blended
fibre on large scale. If only the appellants had imported the DMT a few
c months later, they would have been entitled to exemption from
customs duty and would not have suffered the present handicap. They
also did obtain the permission of the Government to convert DMT
into polyester fibre under customs bond but this could not be imp-
lemented for reasons beyond their control. Having regard to all these
circumstances, it would seem only just and fair that the assessees
D should not be denied a benefit of which all other persons have since
availed of. We, therefore, think that this is a fit case in which the
Government should consider, in case the assessees make an applica-
tion within two months from today, whether the assessees could be
granted the relief prayed for, if only on equitable grounds, and pass
appropriate orders on such applications.
E
With the above observations, these appeals are dismissed. But in
the circumstances, we make no order as to costs.

Y. Lal Appeals dismissed.