Goods Classification under EPCG by DGFT Binding on Customs Department

The Court observed that the Customs authorities cannot take a contradictory stand or deny concessional duty benefits once such classification is accepted by the licensing authority.

The decision came in two connected appeals filed by M/s. Adyar Gate Hotel Ltd., which had imported light fittings and related equipment for use in its hotel premises under an EPCG licence issued in 1998. The Customs Department, at the time of import in 1999, had refused to extend the benefit of reduced duty, contending that the imported goods did not qualify as capital goods, despite their explicit inclusion in the EPCG licence. As a result, the hotel was compelled to pay the full duty under protest.

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After prolonged litigation that spanned over two decades, including multiple rounds before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) and the Commissioner (Appeals), the High Court, comprising Justice Dr. Anita Sumanth and Justice N. Senthilkumar, settled the issue. The Court relied on earlier rulings of the Supreme Court, particularly Titan Medical Systems Pvt Ltd v. Collector of Customs and Commissioner v. Appu Hotels Ltd., and a 2002 circular issued by the Central Board of Excise and Customs (CBEC). The circular had categorically directed Customs authorities to align their position with the DGFT regarding EPCG licences issued to service providers, including hotels.

The Bench noted that the Customs Department’s refusal to honour the DGFT licence was contrary to binding instructions and established judicial precedent. The Court further pointed out that the Customs Department pursued needless litigation despite clear legal position and directions, causing undue hardship to the appellant for over 25 years.

On the issue of interest, the Madras High Court bench rejected the hotel’s claim for compensatory interest over and above statutory interest under Section 27A of the Customs Act. It observed that while statutory interest on delayed refunds had been paid, no additional interest on interest could be granted absent a specific statutory provision, following the Supreme Court’s ruling in CIT v. Gujarat Fluoro Chemicals.

Directing the Customs Department to compensate the appellant for the unwarranted litigation and to comply within eight weeks, the Court allowed the appeals, affirming that Customs authorities must respect the DGFT’s classification of goods under EPCG licences.

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