2025 (5) TMI 2022 - AT - Customs

Non-fulfilment of export obligation under the Advance Licensing Scheme - contravention of the conditions of Customs Notification No. 43/2002 - inputs duty-free - liability to pay customs duty along with interest - HELD THAT - It is the case of the appellant that they have fulfilled the Export Obligation in full even before the passing of the Adjudicating Order which was not considered but however we do not find any material to the effect that such a pleading was ever urged before the Authority. It is not only just the pleadings but what was relevant are the documents in support especially the EODC obtained from the concerned DGFT. The advance license scheme read in juxtaposition with the FTP as applicable at the relevant point mandates the fulfilling of the export obligation within a certain period of time; the concerned exporter may request for additional time in case the export obligation could not be made within the timeframe. It is for the Authority namely DGFT to permit such extension of time. Admittedly in the case on hand the Export Obligation claimed to have been fulfilled is much beyond the permitted period. If the said claim is accepted then the schemes of advanced licensing for duty-free import and Foreign Trade Policy for meeting Export Obligation becomes redundant which is not the legislative intention. The objective behind these schemes would fail and anybody could make such exports at any time and there will be no end to such claims; consequently the authorities would never be able to pass any adjudication order which is again not the scheme of the Customs Act. Thus we are of the view that there is no infirmity in the impugned order in so far as the duty demand is concerned. Hence we do not find any merit in the appeal filed by the firm. The said appeal No. C/41407/2015 therefore stands dismissed. Insofar as the other appellants are concerned one by Managing Director of the firm of Appellant No.1 and the other by Sr. Manager (Commercial) of the Appellant No.1 we do not find any justification in the levy of penalty under Section 112 (a) of the Act. Admittedly the issue relates to meeting of fulfilment of the export obligations in terms of the Advance Licenses obtained by the firm and from the impugned order we do not find any material piece of evidence against these appellants as the reasons behind the non-fulfilment of export obligation or the non-obtaining of EODC. Hence the penalties on these appellants stand set aside and the Appeals C/41408/2015 C/41410/2015 of the respective appellants are allowed with consequential benefits if any as per law. The appeals are disposed of accordingly.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary legal issue considered by the Tribunal was whether the demands confirmed by the Original Authority against the appellants for non-fulfilment of export obligation under the Advance Licensing Scheme and Customs Notification No. 43/2002 were justified. This core issue encompassed the following sub-questions:

• Whether the appellants had fulfilled the export obligations within the prescribed time limits as mandated under the Foreign Trade Policy (FTP) and Advance Licensing Scheme.
• Whether the appellants were entitled to any extension of time for fulfilling export obligations and the legal effect of any such extension or rejection thereof.
• Whether the failure to obtain and furnish the Export Obligation Discharge Certificate (EODC) from the Directorate General of Foreign Trade (DGFT) invalidated the claim of fulfilment of export obligations.
• Whether the penalty imposed under Section 112(a) of the Customs Act on the Managing Director and Senior Manager (Commercial) of the appellant firm was justified in the absence of evidence against them.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Demands Confirmed for Non-fulfilment of Export Obligation

Relevant legal framework and precedents: The Advance Licensing Scheme governed by Customs Notification No. 43/2002 and the Foreign Trade Policy (FTP) impose a statutory obligation on license holders to fulfill export obligations within a stipulated timeframe. The scheme allows duty-free import of inputs subject to the export of finished goods, and failure to meet export obligations attracts customs duty demands. The FTP also provides for extension of time for export obligations, subject to approval by the DGFT.

Court's interpretation and reasoning: The Tribunal observed that out of 20 Advance Licenses, the appellant admitted non-fulfilment of export obligations in respect of 13 licenses and contested only 2 licenses. The Original Authority confirmed demands in respect of 15 licenses, including the contested ones due to lack of EODC. The Tribunal emphasized that mere export of goods is insufficient; obtaining EODC from DGFT within the prescribed period is mandatory. The appellant's claim of fulfilling export obligations beyond the permitted timeframe without DGFT approval was held to be contrary to the scheme's legislative intent.

Key evidence and findings: The appellant did not produce EODC certificates for the contested licenses. Although the appellant claimed to have exported the balance quantity by 11.07.2006, no evidence was produced to show that the DGFT granted extension or accepted exports beyond the prescribed period. The Original Authority's tabled findings and the appellant's own admissions formed the basis of confirming the demand.

Application of law to facts: The Tribunal applied the statutory requirements strictly, holding that the failure to obtain EODC within the stipulated timeframe and absence of DGFT approval for extension rendered the export obligation unfulfilled. It rejected the appellant's contention that the demand should be set aside due to subsequent export fulfillment.

Treatment of competing arguments: The appellant argued that the delay in EODC issuance was due to DRI intervention and that they had fulfilled export obligations. The Department contended that the statute mandates not only export but also timely EODC issuance, which was not complied with. The Tribunal sided with the Department, emphasizing the statutory scheme and time-bound nature of obligations.

Conclusion: The demands confirmed by the Original Authority for customs duty on non-fulfilment of export obligations were upheld as justified.

Issue 2: Legality of Penalty Imposed under Section 112(a) of the Customs Act on Individual Officers

Relevant legal framework and precedents: Section 112(a) of the Customs Act empowers imposition of penalties for contravention of customs provisions. However, imposition requires evidence of culpability or negligence on the part of the individuals penalized.

Court's interpretation and reasoning: The Tribunal found no material evidence against the Managing Director and Senior Manager (Commercial) to justify penalties. The non-fulfilment of export obligations related to the firm's statutory obligations and not to any proven misconduct or negligence by these officers.

Key evidence and findings: The impugned order lacked specific findings or evidence attributing responsibility for non-fulfilment or non-obtaining of EODC to these individuals.

Application of law to facts: Without evidence of personal fault, the penalties could not be sustained. The Tribunal applied the principle that penalty provisions must be invoked only when justified by evidence.

Treatment of competing arguments: The Department sought to uphold penalties as a deterrent, but the Tribunal held that deterrence alone cannot override the requirement of evidence.

Conclusion: Penalties imposed on the Managing Director and Senior Manager (Commercial) were set aside due to lack of evidence.

3. SIGNIFICANT HOLDINGS

The Tribunal succinctly stated the core principle governing the export obligation scheme: "The advance license scheme read in juxtaposition with the FTP as applicable at the relevant point, mandates the fulfilling of the export obligation within a certain period of time; the concerned exporter may request for additional time in case the export obligation could not be made within the timeframe. It is for the Authority, namely DGFT to permit such extension of time."

It further emphasized the legislative intent by observing, "If the said claim is accepted, then the schemes of advanced licensing for duty-free import and Foreign Trade Policy for meeting Export Obligation becomes redundant, which is not the legislative intention."

On the issue of penalty, the Tribunal held, "From the impugned order, we do not find any material piece of evidence against these appellants as the reasons behind the non-fulfilment of export obligation or the non-obtaining of EODC."

Final determinations included:

• The customs duty demands confirmed for non-fulfilment of export obligations under the Advance Licensing Scheme and Customs Notification No. 43/2002 were upheld as justified.
• The appellant's claim of fulfilling export obligations after the prescribed period without DGFT approval was rejected.
• Penalties under Section 112(a) imposed on individual officers were set aside due to absence of evidence against them.
• The appeals filed by the firm against duty demand were dismissed, while appeals by the individual officers against penalties were allowed.