Chhattisgarh High Court Rules in Favor of Exporter, Grants Refund of Export Duty on Parboiled Rice

Court Holds Irrevocable Letter of Credit Condition Non-Mandatory for Exemption; Orders Refund of Over Rs. 2 Crore

In a significant ruling, the Chhattisgarh High Court has granted relief to M/s Eastman International by ordering a refund of over Rs. 2 crore in export duty paid under protest for parboiled rice exports. The court held that the condition requiring an irrevocable Letter of Credit (LoC) for exemption from export duty under Notification No. 50/2023-Customs dated 25.08.2023 was applicable only to exporters who use LoCs, thereby invalidating its application to exporters using other lawful modes.

The case revolved around the imposition of a 20% export duty on parboiled rice through Notification No. 49/2023-Customs, followed by an exemption notification prescribing conditions including the use of an irrevocable LoC. M/s Eastman International, a recognized 3-star export house, challenged the denial of exemption, arguing the condition was inapplicable as their exports were not conducted through LoCs.

The judgment, delivered by Chief Justice Ramesh Sinha and Justice Bibhu Datta Guru, emphasized that export through LoC is not compulsory, and multiple recognized modes of export exist. The court underscored that imposing an LoC requirement for exemption would lead to absurdity, particularly when exporters have realized export proceeds through other lawful means.

The court further noted that the conjunctive use of "and" in the notification's conditions does not automatically necessitate compliance with both conditions when one is irrelevant to the exporter's transaction method. Citing precedents, the court reiterated that exemption conditions should be construed purposively to avoid constitutional infirmities.

The ruling also touched upon constitutional principles, stating that the condition violated Article 14 by creating unreasonable classification and Article 19(1)(g) by coercing exporters into a specific trade mechanism. The court observed that the brief operation period of the condition highlighted its protective, not punitive, nature.

M/s Eastman International is entitled to a refund of Rs. 2,01,28,295/- paid under protest, with interest, within eight weeks. The judgment is expected to impact similar cases pending in other High Courts and offers clarity on the interpretation of exemption notifications.

Bottom Line:

Customs Law - Exemption from export duty on parboiled rice under Notification No. 50/2023-Customs dated 25.08.2023 - Clause (ii) of Condition No. 6 applicable only to exporters using irrevocable Letters of Credit (LoC) - Exporters using other lawful modes exempted from fulfilling this condition if export proceeds are realized.

Statutory provision(s): Customs Tariff Act, 1975 Section 8(1), Customs Act, 1962 Section 25(1), Constitution of India Articles 14, 19(1)(g), 21

M/s Eastman International v. Union of India, (Chhattisgarh)(DB) : Law Finder Doc Id # 2823062