Customs Dept Cannot Question DGFT’s Export Obligation Discharge: CESTAT Sets aside Demand & Penalties on EPCG Licence [Read Order]

The New Delhi bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) ruled that Customs authorities cannot question the Directorate General of Foreign Trade (DGFT)'s discharge of export obligation, and the demands as well as penalties under the Export Promotion Capital Goods (EPCG) scheme were set aside for Super Cassettes Industries Ltd.

The appellant-assessee, Super Cassettes Industries Ltd., is engaged in the manufacture of audio cassettes, video cassettes, and CDs. The appellant is also engaged in the sale of products for home consumption as well as exports outside India and has obtained the EPCG Licence, imposing an obligation to export products worth USD 2,482,135 within five years from the licence date. The company also furnished a bank guarantee equal to 100% of the duty saved.

The company exported CD-ROMs, including some exports routed through a third-party merchant exporter, Sundram Exports, towards fulfillment of its obligation.

The DGFT confirmed fulfillment of the export obligation and released the bank guarantee and letter of undertaking. Subsequently, the Directorate of Revenue Intelligence (DRI) questioned exports routed through Sundram Exports for alleged over-valuation.

In pursuance of guidelines set out by the DGFT's Public Notice and after the DGFT extended time, the assessee undertook fresh exports excluding Sundram Export’s transactions. A fresh bank guarantee was submitted, and the export obligation was fulfilled within the extended time. DGFT discharged the bank guarantee and thereby confirmed fulfillment of the export obligation.

DRI issued a Show Cause Notice (SCN), alleging wrongful EPCG benefits, and proposed confiscation of imported capital goods, duty demand, and penalties.

The Commissioner of Customs, in the impugned order, held that the substitution of a tainted export by another export towards fulfillment of the export obligation after the fraud was detected does not absolve them of the consequences, and confirmed the demand with penalties and the option for a redemption fine.

The Tribunal noted that DGFT alone which can examine whether the appellant had discharged its export obligation, and so long as the time period for discharging the obligation under the EPCG licence was extended by DGFT and the appellant fulfilled its obligation under the Licence before expiry of the extended period, it cannot be urged by customs authorities that the appellant had not fulfilled its export obligation.

The Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), relying on precedents, held that the customs authority does not possess jurisdiction to issue SCN or impose penalties concerning the discharge of export obligation once DGFT has issued its discharge certificate.

The impugned order passed by the Commissioner, confirming the demand of duty and imposing penalties, was set aside.

The assessee was represented by B.L. Narasimhan along with Rubel Bareja, while Rajesh Singh represented the revenue.

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