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2025 (5) TMI 1037 - AT - CustomsDemand of duty with interest and imposition of a penalty under section 112(a) - non fulfilment of the export obligation and issued show cause notice - default in export obligation under the Amnesty Scheme issued by the Directorate General of Foreign Trade (DGFT) - HELD THAT - The sole submission advanced by Shri Anurag Kapur learned counsel for the appellant assisted by Ms. Anisha Arya is that once the regularization has been granted under the Amnesty Scheme penalty cannot be imposed upon the appellant under section 112(a) of the Customs Act. In view of the judgment of the Kerala High Court in Saji Sukumaran Nair 2025 (3) TMI 748 - KERALA HIGH COURT and the decision of the Tribunal in Keshava Medi Devices 2025 (4) TMI 73 - CESTAT CHENNAI the imposition of penalty under section 112(a) of the Customs Act cannot be sustained as the matter had been regularized under the Amensty Scheme. The impugned order dated 28.11.20219 insofar as it imposes penalty upon the appellant therefore deserves to be set aside and is set aside. The appeal is accordingly allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustenance of penalty under section 112(a) of the Customs Act after regularization under the Amnesty Scheme Relevant legal framework and precedents: The Customs Act, 1962, under section 112(a), empowers the authorities to impose penalty for contravention of provisions relating to customs duty, including failure to fulfill export obligations under EPCG Authorization. The EPCG Scheme allows import of goods at concessional customs duty subject to export obligation fulfillment within a stipulated time. Failure to meet export obligations attracts duty recovery along with penalty. The Amnesty Scheme issued by DGFT provides a one-time settlement mechanism allowing defaulting EPCG Authorization holders to regularize their export obligation defaults by paying the customs duty foregone along with interest. The scheme aims to close pending defaults and discharge export obligations upon payment. Precedents relied upon included the Kerala High Court decision in Saji Sukumaran Nair v. DGFT and the Tribunal decision in Keshava Medi Devices Pvt. Ltd. v. Commissioner CGST & Central Excise, which dealt with similar issues of penalty imposition post-regularization under amnesty schemes. Court's interpretation and reasoning: The Tribunal examined the Kerala High Court's reasoning, which held that once the entire customs duty foregone under the EPCG Scheme along with interest is paid under the Amnesty Scheme and an export obligation discharge certificate is issued by DGFT, the default is effectively regularized. The petitioner in that case was deemed to have not availed of the EPCG benefit, thereby discharging the liability to fulfill export obligations and negating the basis for penalty imposition under section 112(a). The Tribunal noted that the Kerala High Court emphasized that the imposition of penalty or confiscation cannot be sustained where the default has been regularized by payment of duty and interest under the Amnesty Scheme. The rationale is that the benefit of concessional duty is nullified by full payment, thus extinguishing the cause for penalty. Key evidence and findings: The appellant had imported goods under EPCG Authorization at concessional duty and failed to meet the export obligation. Subsequently, the appellant applied for regularization under the Amnesty Scheme and paid customs duty of Rs. 1,93,81,033/- along with interest of Rs. 86,47,199/-, as confirmed by the DGFT's final duty paid regularization letter dated 01.01.2024. The show cause notice and penalty order predated the regularization. The appellant's contention was that penalty under section 112(a) could not be imposed once the default was regularized under the Amnesty Scheme. Application of law to facts: The Tribunal applied the principle from the Kerala High Court and the Chennai Bench decision that payment of duty and interest under the Amnesty Scheme amounts to discharge of export obligation liability. Consequently, the appellant cannot be subjected to penalty for the same default. Treatment of competing arguments: The Department contended for sustaining the penalty despite the regularization. However, the Tribunal found the Department's argument untenable in light of the binding precedent and the policy underlying the Amnesty Scheme, which is to provide relief from penalty upon full payment of dues. Conclusion: The Tribunal concluded that the penalty under section 112(a) could not be imposed after regularization under the Amnesty Scheme and set aside the penalty portion of the impugned order. 3. SIGNIFICANT HOLDINGS "Once a Scheme for settling the liability had been introduced and the petitioner had paid Customs Duty forgone together with interest thereon and had obtained an export obligation discharge certificate... the default in not achieving the export obligation was regularized by the proper authority... On payment of the total amount of duty along with interest, it must be deemed that the petitioner has not availed the benefit of the EPCG Scheme. If that were the situation, the liability to achieve export obligation would be discharged, and no penalty/fine could be imposed on the petitioner." Core principles established include:
The final determination was that the penalty imposed under section 112(a) of the Customs Act was not sustainable post-regularization, and the impugned order imposing penalty was set aside, allowing the appeal on this ground.
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