Court Rulings On Forged Duty Drawback Applications
1️⃣ Om Prakash Bhatia v. Commissioner of Customs (Supreme Court, 2003)
Key Issue: Overvaluation to fraudulently claim higher drawback
Facts
The exporter grossly inflated the value of exported goods (garments) by several times their market value.
The goal was not genuine export profit, but fraudulently maximizing duty drawback.
Investigation showed the goods were substandard and values were not proved.
Court’s Findings
The Supreme Court held that overvaluation with intent to claim exaggerated drawback is a form of fraud.
Exporters must show the real value of goods; declared value cannot be accepted blindly.
Customs has powers under Section 113 to confiscate goods and under Section 114 to impose penalties.
Principle Laid Down
✔ Fraudulent overvaluation = attempt to obtain wrongful drawback
✔ Goods liable for confiscation
✔ Penalty justified
✔ Export incentives can be denied if transaction is not bona fide
2️⃣ Aafloat Textiles India Pvt. Ltd. v. Union of India (Supreme Court, 2009)
Key Issue: Fraudulent export incentives including drawback
Facts
Exporters used bogus shipping bills, fake foreign buyers, and artificial overvaluation.
They created an illusion of genuine exports to obtain DEPB and Duty Drawback.
Court’s Findings
The Supreme Court held that fraudulent export benefits are recoverable anytime because fraud nullifies limitation periods.
When fraud is detected, the department can reopen sanction of drawback and recover the full amount.
Principle Laid Down
✔ “Fraud vitiates every solemn act.”
✔ No limitation applies to recovery of drawback obtained by deception.
✔ Officers must examine genuineness of export transactions.
3️⃣ Kuber Tobacco Products Ltd. v. Commissioner of Customs (CESTAT / affirmed by courts)
Key Issue: Fabricated export documents and fake transportation records
Facts
Exporter claimed drawback on alleged cigarette exports.
Investigations showed trucks never reached the port, signatures on ARE-1 documents were forged, and shipping bills were manipulated.
Court’s Findings
The tribunal held that the exporter had knowingly created false documentation to claim drawback.
Entire drawback was ordered to be recovered, with penalty and prosecution recommended.
Principle Laid Down
✔ Forgery of export documents → Complete loss of drawback
✔ Burden is on exporter to prove goods were actually exported
✔ Forged signatures and fake transport prove mens rea (criminal intent)
4️⃣ Phoenix International Ltd. v. Commissioner of Customs (CESTAT)
Key Issue: Overvaluation and high drawback rate exploitation
Facts
Exporter declared abnormally high value for footwear.
Market inquiry showed actual value was a fraction of declared price.
The exporter was attempting to use inflated invoices for higher drawback.
Court’s Findings
Tribunal held that when invoice value is deliberately inflated, the exporter is guilty of attempting to obtain undue drawback.
Goods were confiscated; drawback denied.
Principle Laid Down
✔ Invoice value can be rejected if the exporter cannot justify it
✔ Intent to defraud = punishable even if drawback not yet paid
✔ False valuation = fraud
5️⃣ Nimita Exports v. Commissioner of Customs (CESTAT)
Key Issue: Bogus exports & non-existent buyers
Facts
Exporters submitted forged purchase orders and nonexistent overseas buyers.
Shipping documents appeared genuine but were fabricated with help of an agent.
Drawback was claimed on these fictitious exports.
Court’s Findings
Since there was no actual export, drawback was held to be completely illegal.
Heavy penalties were imposed and prosecution recommended.
Principle Laid Down
✔ “No export = No drawback.”
✔ Fictitious buyers and dummy exporters constitute economic fraud
✔ Entire amount recoverable with penalty
6️⃣ Prime Textiles v. Commissioner of Customs (High Court)
Key Issue: Misuse of drawback through circular trading
Facts
A group of exporters engaged in circular trading of goods: moving the same goods repeatedly to falsely claim multiple export incentives.
Several documents were forged, including repeated shipping bills for the same consignments.
Court’s Findings
High Court held the practice to be abuse of the drawback scheme.
Fraudulent benefit is not protected by procedural lapses or technicalities.
Principle Laid Down
✔ Circular/fake exports are null & void
✔ Customs can reopen past drawback payments
✔ Fraud overrides all procedural protections
⭐ Common Legal Principles Emerged from All These Cases
✔ 1. Fraud vitiates all benefits
Any drawback obtained through forgery, overvaluation, or false documentation is void ab initio.
✔ 2. Burden of proof may shift
Once Customs finds falsification, the exporter must prove the exports were genuine.
✔ 3. Rejection of declared value
If values appear suspiciously high, authorities can investigate and reject them.
✔ 4. Penalty + Prosecution
Fraudulent drawback claims invite:
Penalty under Section 114 of the Customs Act
Prosecution under Section 135
✔ 5. No limitation period
Recovery can be initiated even after long delay if fraud is involved.
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