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2025 (5) TMI 1624 - AT - CustomsPayment of differential duty - Non- fulfillment of the export obligation (EO) stipulated under the EPCG license issued for import of capital goods at concessional customs duty rates - retrospective effect or not - conditions enshrined in Notification No. 29/1997-Cus. - Imposition of penalty u/s 112 (b) of the Customs Act 1962 - HELD THAT - Since the appellant had failed to fulfil their export obligation they approached the DGFT Patna seeking extension of export obligation period and also for inclusion of additional items in their said licence for fulfilment of export obligation. The Deputy Director General of Foreign Trade DGFT Patna vide letter dated 06.09.2005 issued to the appellant certified partial fulfilment of export obligation for the first block year. However during investigation by the DRI the Deputy Director General of Foreign Trade DGFT Patna vide letter dated 09.06.2006 admitted that the fulfilment of export obligation certificate was wrongly issued inter alia since strong examination was not possible due to heavy work load. We observe that the appellants have claimed that they had fulfilled their export obligation by accounting the supplies made by them to M/s. Timken India Ltd. Jamshedpur which had been accorded the status of a Star Export House but the Department has not treated these as deemed exports for the purpose of fulfilment of their export obligation on the ground that the EPCG Authorization number and date were not endorsed on the shipping bills and supporting documentary evidence were not produced. Accordingly it was alleged that the appellant- company had failed to fulfil the conditions of the EPCG Licence issued to them as well as the conditions enshrined in Notification No. 29/1997-Cus. dated 01.04.1997. From the record it is evident that the DGFT authorities have accepted the compensation fee paid towards the export obligation and concluded that the appellant had fulfilled their export obligation. Thus when the proper authority has already considered the fulfilment of export obligation raising of demand of Customs duty on the appellant by the Revenue on the ground that they have not fulfilled the export obligation is not legally sustainable. In view of the discussion and by relying on the decision in the case of Skipper Ltd. v. Commissioner of Customs (Port) 2024 (9) TMI 1409 - CESTAT KOLKATA we hold that the DGFT is the competent authority to determine the policy and to determine as to whether the appellant has achieved fulfilment of the export obligation under the said policy or not. In the present case as it is a fact on record that the DGFT has regularized the export obligation and held that the appellant had achieved the export obligation vide their letter/certificate issued on 31.01.2012 we find that the demands confirmed in the impugned order against the appellants herein on the ground that the appellants had not fulfilled their export obligation are not legally sustainable. Thus we hold that the demands of customs duty along with interest and penalty confirmed against the appellant in the impugned order are not sustainable and hence we set aside the same. Accordingly we set aside the penalties imposed on M/s. Omni Auto Ltd. Jamshedpur (appellant- company/appellant no. 1) (appellant no. 2) Managing Director (appellant no. 3) under Section 112(b) of the Customs Act 1962.
The core legal questions considered in this judgment are:
1. Whether the appellant fulfilled the export obligation (EO) stipulated under the EPCG license issued for import of capital goods at concessional customs duty rates. 2. Whether the Export Obligation Discharge Certificate (EODC) issued by the Directorate General of Foreign Trade (DGFT) can be disregarded by Customs authorities on the ground of alleged misrepresentation or procedural lapses. 3. Whether the supplies made by the appellant to a Star Export House qualify as deemed exports for discharge of export obligation, given the absence of endorsement of the EPCG license number on the shipping bills. 4. Whether the demand of customs duty, interest, penalty, and confiscation imposed by Customs authorities is sustainable in light of the DGFT's certification of fulfillment of export obligation. 5. Whether the third Show Cause Notice (SCN) issued invoking extended period of limitation is legally valid. Issue-wise Detailed Analysis 1. Fulfillment of Export Obligation under EPCG License Legal Framework and Precedents: EPCG (Export Promotion Capital Goods) Scheme allows import of capital goods at concessional customs duty subject to fulfillment of export obligation within a specified period. The DGFT is the competent authority to determine fulfillment of EO under Foreign Trade Policy (FTP). Customs authorities enforce compliance but do not have jurisdiction to independently determine EO fulfillment once DGFT certifies it. Relevant legal provisions include Customs Act, 1962, Notification No. 29/1997-Cus, and FTP guidelines. The Tribunal relied on precedents such as the Supreme Court decision in Titan Medical Systems Pvt. Ltd. v. Collector of Customs and Tribunal decisions in Skipper Ltd. and Aditya Birla Nuvo Ltd. Court's Interpretation and Reasoning: The appellant initially failed to fulfill EO within the prescribed period. They approached DGFT for extension and inclusion of additional export items. DGFT issued a partial EO certificate in 2005 but later admitted in 2006 that the certificate was wrongly issued due to inadequate examination. Despite this, DGFT ultimately issued an EODC on 31.01.2012 certifying fulfillment of EO after regularization and acceptance of compensation fee. The Tribunal emphasized that DGFT, as the licensing and policy authority, has exclusive jurisdiction to decide EO fulfillment. Once DGFT issues EODC and redeems the EPCG license, Customs cannot independently question EO fulfillment or impose duty demands. The Tribunal held that the demand of customs duty and penalties based on non-fulfillment of EO are not sustainable. Key Evidence and Findings: The EODC dated 31.01.2012 issued by DGFT, the letter dated 09.06.2006 admitting earlier procedural lapses by DGFT, and the appellant's submissions regarding export performance and compensation fee payment. Application of Law to Facts: The appellant's EO was regularized by DGFT, which is the competent authority. Customs demand based on alleged non-fulfillment is contrary to the settled legal position and precedents. Treatment of Competing Arguments: The Revenue argued that the EODC was obtained by misrepresentation and hence not valid. The Tribunal rejected this, noting that DGFT did not revoke or question the EODC and that Customs authorities cannot override DGFT's determination. Conclusion: The appellant fulfilled EO as per DGFT's final certificate; Customs demands on this ground are unsustainable. 2. Qualification of Supplies to Star Export House as Deemed Exports Legal Framework: Under FTP and Handbook of Procedures, deemed exports include supplies to specified categories such as Star Export Houses, subject to conditions including endorsement of EPCG license number on shipping bills (Para 5.6 and 5.7.1 of FTP Handbook Part 2). Such deemed exports can be counted towards EO fulfillment. Court's Reasoning: The appellant claimed deemed export status for supplies made to M/s Timken India Ltd., a Star Export House. However, the Department noted that the EPCG license number was not endorsed on the shipping bills during the relevant period, and documentary evidence was lacking. Therefore, these supplies could not be treated as deemed exports for EO discharge. Evidence: Statements of appellant's representative, letter from Timken India Ltd., absence of EPCG license endorsement on shipping bills. Application of Law: The strict compliance with procedural requirements for deemed exports is mandatory. Non-endorsement on shipping bills disentitles the appellant from claiming deemed export benefits. Competing Arguments: Appellant contended that all supplies to a Star Export House qualify as deemed exports. The Tribunal acknowledged the procedural lapse but held that this does not affect the DGFT's ultimate certification of EO fulfillment. Conclusion: While deemed export claim was not substantiated by documentary evidence, the DGFT's overall certification of EO fulfillment prevails. 3. Validity and Effect of Export Obligation Discharge Certificate (EODC) Legal Framework: DGFT is empowered to issue EODC certifying fulfillment of EO under EPCG scheme. Such certificate is final and binding unless revoked or challenged by appropriate authority. Customs authorities must accept EODC as conclusive proof of EO fulfillment. Court's Reasoning: The DGFT's letter dated 31.01.2012 issued EODC after regularizing EO. The Department's attempt to disregard this certificate based on earlier admission of procedural lapses by DGFT and alleged misrepresentation was rejected because DGFT did not revoke or question the EODC. The Tribunal relied on the principle that Customs cannot override DGFT's policy decisions and certifications. Key Findings: DGFT's final EODC, absence of any revocation or challenge to the certificate, and precedents supporting DGFT's primacy. Conclusion: The EODC issued by DGFT is binding and bars Customs from demanding duty or penalties on EO grounds. 4. Legality of Customs Demand, Penalty, and Confiscation Legal Framework: Customs Act, 1962 Sections 28, 28AA, 28AB (duty recovery and interest), Section 112(b) (penalty), and Section 111(o) (confiscation) apply to cases of non-fulfillment of EO and duty evasion. However, if EO is fulfilled as certified by DGFT, such demands and penalties cannot be sustained. Court's Reasoning: The adjudicating authority confirmed demand of Rs. 55,22,848/- customs duty, interest, penalty, and confiscation of imported capital goods on the ground of non-fulfillment of EO. The Tribunal held that since DGFT certified EO fulfillment, these actions are not legally sustainable. The Tribunal set aside the demand, penalties, and confiscation order. Competing Arguments: Revenue contended misrepresentation invalidated EODC, justifying demands and penalties. The Tribunal rejected this, emphasizing DGFT's exclusive jurisdiction and finality of EODC. Conclusion: Demand, penalty, and confiscation confirmed by Customs are set aside as unsustainable. 5. Validity of Show Cause Notice Issued After Extended Period Legal Framework: Customs Act limitation provisions restrict the period within which demands can be raised. Extended limitation period applies in cases of fraud or suppression. Court's Reasoning: The third SCN was issued after more than three years from the end of the export obligation period. The appellant argued this was barred by limitation. The Tribunal did not explicitly rule on the limitation issue but focused on DGFT's certification as decisive. The absence of suppression or misrepresentation by the appellant was noted. Conclusion: While limitation was raised, the Tribunal's decision on EO fulfillment and EODC finality rendered the limitation issue less critical. Significant Holdings "We agree with the submission of the Appellant that determination of fulfilment of export obligation falls within the jurisdiction of the DGFT. Once the DGFT accepts the fulfilment of export obligation and the bond has been released, the Customs authorities cannot initiate any proceedings for contravention of the provisions of the Foreign Trade Policy." "Once an advance licence was issued and not questioned by the licensing authority, the Customs authorities cannot refuse exemption on an allegation that there was misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf." "The proviso to condition (ii) of the exemption Notification No. 30/97 stipulates that the bond shall not be necessary in respect of imports made after discharge of export obligation in full. As a necessary corollary, it would mean that in the case of export obligation is completed, fastening of any duty liability is not contemplated by notification." Core principles established include:
Final determinations:
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