CESTAT Upholds DRI Power to Issue SCN u/S.4 Recovery

The issuance of a Show Cause Notice, Demand Recovery by the Directorate of Revenue Intelligence (DRI) under Section 4 of the Customs Act, 1962, has been upheld by the Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) as being within its jurisdiction, particularly in cases involving fraudulent or erroneous grant of drawback. This decision has significant implications for exporters and customs brokers, as it reaffirms the DRI’s authority to initiate proceedings for recovery of wrongly sanctioned drawback amounts and imposes penalties under the Customs Act, 1962.

Key Facts

• The CESTAT upheld the DRI’s jurisdiction to issue show cause notices (SCNs) for recovery of drawback amounts under Section 4 of the Customs Act, 1962.
• The appellant, M/s Sanco Trans Ltd., is a Customs Broker engaged in handling export consignments at the Inland Container Depot, Salem.
• Investigations were initiated by the DRI into exports allegedly made using fictitious exporters, manipulated Bills of Lading, and inflated values for the purpose of claiming ineligible duty drawback.
• The DRI issued SCNs seeking recovery of the wrongly sanctioned drawback amounts and proposing penal action under the Customs Act, 1962.
• The adjudicating authority confirmed the recovery of drawback and imposed penalties.
• The CESTAT rejected the challenge raised by the appellant on jurisdictional grounds, citing the Karnataka High Court’s judgment in Sri Meenakshi Apparels Pvt. Ltd. (2010) and the Supreme Court’s decision in Pahwa Chemicals Pvt. Ltd. v. Commissioner of Central Excise, Delhi (2005).
• Notification No. 17/2002-Customs (N.T.) appoints officers of the DRI as Customs Officers with authority to exercise powers under the Act.
• The Madras High Court’s judgment in PGC Corporation Ltd. v. Assistant Commissioner of Customs (2019) clarifies the legal position of a drawback as a form of customs duty refund, falling within the scope of the Customs Act, 1962.
• Case Number: Customs Appeal No. 176 of 2011.
• Date of Judgement: 09 January 2026.
• Coram: M. Ajit Kumar Member (Technical), Ajayan T.V., Member (Judicial).
• Counsel of Appellant: T. Sundaranathan, Advocate.
• Counsel Of Respondent: O.M. Reena.

Statutory Context & Tax Analysis

The Customs Act, 1962, empowers the DRI to issue SCNs for recovery of drawback amounts under Section 4. Section 75 of the Customs Act, 1962, grants duty drawback, which is a form of refund. The recovery of wrongly sanctioned drawback is intrinsically connected with the levy and refund of customs duty. The Karnataka High Court’s judgment in Sri Meenakshi Apparels Pvt. Ltd. (2010) held that officers of the DRI are appointed as Customs Officers under Section 4 of the Customs Act, 1962, and are competent to issue SCNs and adjudicate drawback matters by virtue of Section 5 of the Customs Act, 1962. The Supreme Court’s decision in Pahwa Chemicals Pvt. Ltd. v. Commissioner of Central Excise, Delhi (2005) reaffirmed that statutory powers conferred on officers under an Act cannot be curtailed by administrative instructions or circulars. Notification No. 17/2002-Customs (N.T.) appoints officers of the DRI as Customs Officers with authority to exercise powers under the Act. The Madras High Court’s judgment in PGC Corporation Ltd. v. Assistant Commissioner of Customs (2019) clarifies the legal position of a drawback as a form of customs duty refund, falling within the scope of the Customs Act, 1962.

Client Impact & Compliance Procedure

The CESTAT’s decision upholding the DRI’s jurisdiction to issue SCNs for recovery of drawback amounts has significant implications for exporters and customs brokers. To avoid similar situations, exporters and customs brokers must ensure that they comply with the provisions of the Customs Act, 1962, and the relevant rules and regulations. The following steps can be taken:

1. Maintain accurate records: Ensure that all export documentation, including Bills of Lading and invoices, is accurate and genuine.
2. Verify exporter credentials: Verify the credentials of exporters and ensure that they are genuine and eligible for duty drawback.
3. Comply with customs regulations: Comply with all customs regulations, including those related to duty drawback, and ensure that all necessary forms and documents are filed correctly.
4. Respond to SCNs: Respond to SCNs issued by the DRI in a timely and effective manner, and provide all necessary documentation and explanations to support the export claims.
5. Seek professional advice: Seek professional advice from a qualified customs broker or tax consultant to ensure compliance with all customs regulations and to respond to SCNs effectively.
6. File necessary forms: File necessary forms, such as the Bill of Entry and the Shipping Bill, and ensure that all relevant documents, including the Commercial Invoice and the Packing List, are accurate and complete.
7. Maintain a record of export proceeds: Maintain a record of export proceeds and ensure that they are realised in accordance with the provisions of the Foreign Exchange Management Act, 1999.
   By following these steps, exporters and customs brokers can minimize the risk of receiving SCNs from the DRI and ensure compliance with the provisions of the Customs Act, 1962, and the relevant rules and regulations.

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