EPCG Exemption for Sericulture Projects Does Not Waive Block-Wise Export Obligation, Only Average Export Requirement: CESTAT [Read Order]

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the exemption under the EPCG notification for sericulture projects waives only the requirement to maintain average export performance and does not exempt exporters from meeting export obligations within specified time blocks.

Kasare Vanya Silk Mills Pvt. Ltd., the appellant, set up a silk manufacturing unit in Raipur, Chhattisgarh, under a tripartite agreement with the Central Silk Board, the Ministry of Textiles, and the Government of Chhattisgarh. The company obtained an EPCG Authorization on December 9, 2011, allowing it to import capital goods at zero customs duty in exchange for an export commitment of six times the duty saved, split into two periods: 50 percent to be completed in the first four years and the remaining 50 percent in the next two years.

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The company failed to fulfill the export obligations for both periods. The department issued two show-cause notices. The first, issued in February 2017, alleged a shortfall in the first phase and diversion of machinery. The second, issued in September 2018, cited failure to meet the remaining obligation. The adjudicating authority confirmed the recovery of duty, imposed penalties under Sections 112, 114A, and 117 of the Customs Act, and ordered confiscation of capital goods.

The appellant’s counsel argued that the delay was caused by the non-disbursement of subsidies by the Central Silk Board and the State Government. They claimed that the machinery in question was never cleared from customs, supported by ICEGATE records. The company also argued that sericulture projects were exempt from the average export performance and that the demand was premature and excessive.

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The department’s counsel argued that the company failed to meet its mandatory export targets and had availed of excess duty exemption under the EPCG scheme. It justified the recovery and penalties based on the shortfall and alleged suppression of facts.

The two-member bench comprising Justice Dilip Gupta and Technical Member P.V. Subba Rao held that while the exemption under the EPCG notification removed the need to maintain average export performance, it did not remove the obligation to meet the specified export targets in each time block. The tribunal upheld the recovery of customs duty with 15 percent interest for failure to meet the obligation. It found no evidence of diversion of goods or deliberate suppression and set aside the related duty demand, penalties, and confiscation orders.

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The appeal was partly allowed, clarifying that sericulture projects under the EPCG scheme are still required to fulfill export obligations within the specified periods to retain the benefit of duty exemptions.

To Read the full text of the Order CLICK HERE

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