Chatroom: Surrender of erroneous drawback payment also attracts interest

TNC Rajagopalan answers SME queries related to GST, export and import matters

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We had exported certain goods for which we have received full payment. We have availed of duty drawbacks at the notified rates. Now, the buyer has raised some quality issues. He wants us to remit 5 per cent of the payment made or adjust 5 per cent in the value of the next shipment. Can we do so and if so, under what provisions?

 

Para C.22 of the RBI FED Master Direction no.16 dated 1st January 2016 (as amended) allows remittance of export claims where full payment is already realised. This provision requires surrender of proportionate export incentive.  A less messy way is to declare the full value in and allow a discount of 5% in your next shipment. That way, only the net value after deduction of the discount will flow into the EDPMS and the drawback claim will also be limited to the discounted value.

 

Due to some mistake at the Customs end we were paid drawback twice against the same shipment, something that we didn’t notice immediately.  Now, the Customs have discovered this mistake of double payment and asked us to surrender the drawback paid in excess, which we are quite ready to do. The trouble is they want interest from the date of payment till the date of surrender of the excess drawback. How can the Customs ask us to pay interest when the double payment was due to their fault and not ours?

 

Section 75A(2) of the Customs Act, 1962 says that ‘where any drawback has been paid to the claimant erroneously or it becomes otherwise recoverable under this Act or the rules made thereunder, the claimant shall, within a period of two months from the date of demand, pay in addition to the said amount of drawback, interest at the rate fixed under Section 28AA and the amount of interest shall be calculated for the period beginning from the date of payment of such drawback to the claimant till the date of recovery of such drawback’. So, you cannot avoid payment of interest @15 per cent p.a., the rate prescribed under notification no.33/2016-Cus dated 1st March 2016.

 

We have sought a set-off of import payables and export receivables from our bank, who say that they cannot allow it because the imports and exports have taken place in different calendar years. We do not understand whether they are correct and how it matters whether the imports and exports took place in the same year or different years. We do not understand the way forward. Can you please guide us? 

 

Condition (g) at Para C.16 of the RBI FED Master Direction no.16/2015-16 dated 1st January 2016 (as amended) says that set-off shall be allowed between the export and import legs taking place during the same calendar year. In my opinion, this condition makes no sense and should be withdrawn. I suggest that you write to RBI seeking relaxation of this condition and get it forwarded by your bankers. You should get the relaxation without any hitch.